Market Commentary

Interest Rates

The Federal Reserve chairman Powell earlier this week made some calming remarks about interest rates. The Fed has been raising rates steadily for a couple years and recently these increases have put a lot of pressure on stock prices. Of course the trade dispute with China has contributed as well as the weakness in the economies of Europe but to a much lesser degree. The Fed controls only one interest rate called the Fed Funds Rate. This is the interest the Fed charges banks to borrow money from the Fed. The banks then lend that money to the public.

Powell for the first time hinted that the Fed Funds Rate is near neutral and that he felt no immediate pressure to keep raising them. This is different than statements made earlier where he said that rates were going higher and possibly up 3 times next year. That is in addition to possibly raising them in December this year.

The stock market does not like rising interest rates. It implies a weaker economy thus weaker earnings for corporations. This week the market rallied simply because the Fed spoke to a softer approach concerning rates. Powell did not say the Fed would stop or even slow down their path to higher rates only that he felt no pressure to do so.

Watch the Fed because what they do matters to not only the economy but markets as well.

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