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Fed Up

On July 3rd, The Standard & Poor’s 500 Stock Index reached a new all-time high of, 2,995.84. This event took place while the debate over Fed interest rate policy has continued to rage. In one camp, are those including President Trump, lobbying the Fed to lower interest rates to stimulate the economy. They believe the economy needs this additional stimulus to continue growing. In the other camp, are those who believe the economy continues to be strong; therefore additional stimulus by the Fed is unnecessary. Each group seems to be having an impact on the stock market almost daily.

Over the short term those who believe the Fed needs to cut interest rates seem to hold sway. Each day we hear that comments that the Fed may cut interest rates, the market seems to rise, while comments that the economy needs no stimulus, or that it would be harmful, seem to cause the market to fall.

The economy has continued to do well, with 224,000 new jobs being added during the month of June. The Fed has continued to hold firm in spite of pressure from the President and has kept rates steady, which seems like a sound policy to me, as long as the economic outlook remains positive. In spite of the short-term stock market moves based on Fed interest rate indications, stable or moderately rising interest rates are indicative of a strong economic outlook and are in the best interest of the economy and the stock market. Contrarily, if the Fed were to act to reduce short-term interest rates it would be indicative of economic weakness. This is just the opposite of the way short-term traders seem to be reacting.

The stock market, making new highs, seems to confirm Fed policy and a positive economic outlook. While tariffs and trade will continue to be issues, we will stay tuned and see what evolves.


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