Rate Raises by the Fed Have Been Anticipated

While the perplexed look of the child at the bottom of the steps in the featured image remains appropriate, none of the rate raises over the course of the past year have surprised the members of the Board of Managers. The Board expected the two 3/4-point raises last summer, which brought the prime rate to 5.50%, as well as the additional 3/4-point hike in September. While it is something of a cold-water shock after the period of extremely low rates that borrowers have enjoyed in recent years and that have put pressure on fixed income portfolios, these 75bp increases are not ‘jumbo’ raises as they have been characterized by the press. (The UK’s initial 1.25% raise falls more into that category). The Board anticipated this month’s 3/4-point raise and expects there will be one more rate raise before this year is out. As a result members are keeping a particularly close eye on bonds and fixed income yields, which should improve commensurately.

The Board as well as the Investment Advisory Board, all of whose members have long experience in financial investment and who are attuned to the economic indicators that help to guide decisions, have taken all this into account. There have been judicious course corrections throughout the year in an effort to mitigate the negative impact on the Fund and to take advantage of the increasing returns in the bond markets. (See: Update by the Vice Chair).  Vigilance and judicious flexibility continues.