Reevaluating the Fed

| June 17, 2022

I thought that it was a pretty good time to start a business the last time that the Federal Reserve raised rates 0.75%. Bill Clinton was president and Newt Gingrich led the first Republican congress in four decades. Fed Chairman Alan Greenspan raised rates seven times, doubling the rate from 3% to 6%. There was much “weeping and gnashing of teeth” at the time.

Instead of the collapse that everyone feared, one of the greatest bull markets since the 1960s took place, ultimately ending with the catastrophe of 9/11. Instead of a bull market inflated by cheap money, we enjoyed a market driven by American innovation and creativity. In New York City, screens appeared in elevators that loudly reported real-time moves in the market. Wet-behind-the-ears college graduates in suits could be heard enthusiastically discussing their portfolios in every bar. Unbounded optimism is what followed Greenspan’s hikes.

I do not know if the next five years will be like those years. I do know that we need to focus less on partisan division and more on unleashing our natural creative talents. Fed Chairman Jerome Powell cannot do that. What I hope that he can do is bring the business cycle forward by front-loading rate hikes. Whether the pain will be long or short, we cannot now know.

The Fed’s announcement leads me to believe that the opportunity to lock in high interest rates will come sooner rather than later. By the time that we have an official announcement of a recession, we will likely already be past the bottom in markets. We may be approaching the point where it is better to buy too soon than to buy too late.

I am monitoring the situation and evaluating possible allocation changes.