Income Investor Perspectives

Are You Smarter Than an FOMC’er? (Part 3)

FOMC day feels like Groundhog Day–the same thing, repeating over and over again, so I’m just going to update and repeat what I published before in my “FOMC’er” posts in Part 1 and Part 2.

Here it is! What everyone’s been waiting for! (Well, maybe not everybody.) The new Dot Plot:

The big takeaway for me is not whether we’ll see a rate hike this year, but rather the diversity of opinion about where rates will be.

As I’ve noted before, even the members of the FOMC are not of one opinion, with participant’s assessments for the end of this year ranging from .375% to 1.125%. (How about the end of 2019? The range is 5/8 to 3 3/4!)

Which opinion is correct? Are any of them correct? There are so many variables at work, forecasting rates with precision is not realistic.

Yes–it makes sense for traders, hedgers and many others to be concerned and focused on the short-term movements in rates. But for investors, trying to time rates means that you are likely exposing yourself to higher risk by not being properly diversified.

If you really want to accurately forecast rates, read my article on how to do it. Or, for a short-cut, ask The Magic 8-Ball. (If the answer is anything other than “Reply hazy, try again,” don’t rely on it.)

Income Investor Perspectives

by Pat Luby

September 21, 2016

This is not investment advice. The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed. Past performance is interesting but is not a guarantee of future results. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Indices are not available for direct investment, although in some cases, there may be ETFs available designed to track some of the indices shown. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Additional information available upon request.
©2016 Patrick F. Luby
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