If the Fed’s efforts to raise interest rates are successful, what will happen next? It all depends on whom you ask:
Dr. David P. Kelly, CFA, Managing Director Chief Global Strategist, JPMorgan: “Looking back at prior Fed rate hikes suggests that at first, investors have a tough time stomaching the idea of higher yields. However, as it becomes increasingly apparent that the Fed is hiking rates for all of the right reasons, markets re-price in line with their underlying fundamentals. For that reason, it is important for investors to prepare for a likely uptick in volatility around Fed liftoff.”
Robert C. Doll, CFA, Chief Equity Strategist, Nuveen: “First, higher rates would likely trigger higher bond yields, which would be a negative for Treasuries. Additionally, an increase would likely put upward pressure on the U.S. dollar. A strong dollar is usually a negative for oil prices… Finally, we think the combination of higher rates and a stronger dollar could hurt U.S. companies that do most of their business overseas.”
The Financial Times: “Almost every asset class on the planet exhibits some evidence of frothiness these days, but some seem more vulnerable to higher interest rates. Although stocks look expensive, higher interest rates indicates that economic growth is firm, and that is good for listed companies. Gold typically loses its shine when interest rates climb, as the metal doesn’t pay any interest like a bank account will, but has already been beaten up heavily recently. The bond market looks more exposed.”
The Fed is expected to raise rates slowly and cautiously. We won’t know when rates will increase or by how much until the next Federal Open Market Committee meeting. That meeting takes place on December 15, 2015.