The Fed opted to not raise interest rates at their much-anticipated September 18 meeting. It is likely that the recent economic weakness in China materially impacted the Fed’s decision to defer increasing rates.
We believe that the Fed will eventually raise interest rates by year-end 2015, or early 2016. While a one-quarter point rate increase is not significant in itself, it will mark the end of an extended period of Fed easing, which may cause a period of higher than normal bond and stock market volatility.
We believe the likely path for interest rates longer term is higher over the next several years. Higher rates will hurt bond prices; we believe that current valuations for stocks are low enough so that stocks can absorb a move in interest rates back toward “normal” levels.
We remain defensively positioned with respect to bonds, and believe that equities remain attractively valued.