When the 07-09 crisis occurred, the Federal Open Market Committee (FOMC) noted that according to the Taylor Rule, rates should be negative. Since rates cannot generally be negative, they used this rule as a reason for the aggressive asset purchases to lower rates!
So now where should rates be?
Where Should Rates Be Now
The Taylor Rule is clearly saying 2% (We are currently still at zero)- Yes this will be a headwind for frothy equity markets and there may be pain in longer term fixed income instruments. Not withstanding these short-term headwinds, longer term, the economy may really prosper as rates FINALLY rise !
Time will tell – We are optimistic longer term!
Have a Great Monday!
John A. Kvale CFA, CFP
8222 Douglas Ave # 590
Dallas, TX 75225