The future of the Fed Funds rate is now one of the most important, if not the most important factor in accessing financial asset values as we enter the 6th year of post crisis investing.
The US, and most of the developed world, have been at or near 0% on short term government lending rates for so long many assets around the world have been 'revalued' versus their historical norms. Real estate, high yield bonds, corporate bonds, short term government bonds, and many stocks now ‘offer' investors historically low yields and therefore lower future total returns.
Below is an excerpt of an article authored by Jon Hilsenrath right after the Fed announcement was released yesterday. Mr. Hilsenrath looks at how a piece of what the FED is saying could affect the valuations of all asset classes.
“…the Fed is a little less optimistic about the outlook for economic growth. Officials said the economy's growth potential might be as low as 2.1% in the long-run, the latest in a string of downward revisions made in recent years. That gloomier long-run growth outlook could help explain why the central bank ...
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