As for what a September rate hike means for investors, I expect that rate normalization will be borne well by the economy, and it may actually have a positive impact. While some market observers believe that even a modest rate rise will disrupt markets, the Fed has made it clear that rate increases will be measured and gradual, a pace likely well-anticipated by markets at this stage.
On the other hand, the risk for markets is that the Fed keeps rates excessively low for too long. This would force investment at artificially low interest rates within an economy that is very far from the emergency conditions that warrant such rates.
Source: Bloomberg
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog. You can find more of his posts here.