Speculation has been rampant about when Janet Yellen and the Federal Reserve will finally begin raising interest rates. Last month all the buzz was focused on whether Yellen would drop the word “patient” (with respect to rate increases) from her scheduled Fed policy statement. She did, and ever since strategists and traders all up and down Wall Street have been frantically revising their forecasts of when the first rate increase will transpire — is it June, September, or maybe even next year?
In reality, unless your very livelihood depends on whether you guess the date accurately (which I suppose it may for some Wall Street types) — the precise date doesn’t really matter. What’s more important is simply recognizing that rate increases have finally become eminent — Yellen has explicitly told us so.
She’s also giving us ample time to prepare — so in response, the sensible thing to do is review that your objectives and portfolio are still aligned. If so, the best thing to do may be nothing. If you find that your needs and time horizon may conflict with the near-term rise in interest rates (and the corresponding interest rate risk), then it may be wise to raise cash or adjust the duration of your fixed-income holdings.
Whatever the case, let your needs and objectives do the driving — not what Yellen may or may not say at her next meeting.
Victor K. Lai, CFA
This blog is for informational purposes only. Nothing on this blog represents advice. Investing is inherently risky and involves the potential for loss. Victor Lai does not own any of the securities referenced in this posting. Clients of Bellwether Capital Management LLC may own shares of the securities referenced in this posting.