How are the usual suspects affecting the economy and markets: the Fed, fiscal policy, and energy prices?
Monetary Policy Looking at monetary policy, we’ve had 15 consecutive interest rate hikes by the Federal Reserve Board and the real rate of interest is still attractive, which means the real after-tax cost of borrowing is reasonable: accounting for all factors, we’re seeing costs of 2% to 2.25% for investment-grade companies and just over 3% for high-yield companies. The high number of rate hikes hasn’t offset economic growth, and better yet, the Fed now has adequate wiggle room should it need to inject liquidity back into the economy. One wildcard is the new Fed Chairman Ben Bernanke, but fortunately, he seems to be of the same ilk as Alan Greenspan. He has published much and any ambitious investor can get a sense of Mr. Bernanke’s economic thought. We, like most others, are Fed watchers because of the considerable influence the Fed can have on the economy and markets. At this point we feel the Fed is very close to the end of the rate hike cycle and that the goal is not a recession. Th
