By Al Emid  

Toronto – Canada

 

 

 

 

Al Emid has worked in communicating ideas and concepts since beginning his career at an educational television network in 1967.  He is the co-author and author of several financial books, most recently The Emid Report on Volatility 2019 available on all major book sites.

 

 

 

 

 

Chapter 14

Interest rates, the Fed and Your Investments

 

 

 

The market tumult of recent times has led to ever-increasing attention being paid to the United States Federal Reserve System – generally called ’the Fed’.  Before then-Chair of ‘the Fed’ Allan Greenspan’s famous ‘irrational exuberance’ remark in a few months shy of 23 years ago, few would have known (or cared about) the name of the Chair of the Fed.  Not surprisingly, and portending things to come, after Greenspan’s remark, stock futures and the greenback tumbled in the off-hours but recovered and rallied.

 

In 2008, when the financial system appeared to be coming apart, then-Chair of the Fed Ben Bernanke made a series of unconventional moves including decreasing interest rates to the lowest ever in American history, successive rounds of quantitative easing, bailouts and mergers of troubled financial institutions.

 

Bernanke gets credited for saving the U.S. from a depression but those moves also signaled the Fed’s increasing role in the American economy and its increasing use of rate-setting as an economic tool.  In August 2016, then-Chair of the Fed Janet Yellen said that the case for a rate hike had strengthened and after a brief dip, stocks recovered and continued upward.

 

Now in a ritual that financial media, financial decisionmakers and investors habitually follow, all wait anxiously for current Chair Jerome Powell’s announcements.  Recently, the ritual has become more pronounced than ever.  Previous American presidents allowed Fed Chairs to act independently, although they may have expressed opinions privately.  President Donald Trump has made no secret of his views of Powell and Fed rate-setting.  At time of writing, the markets expect lower interest rates.

 

These and other factors suggest that the relationship between interest rates and interest rate announcements and stock market volatility can reasonably be expected to continue in the near-and-medium term.

 

 

 

 

 

 

 





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