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No Interest-Rate Rise This Year, Says 'Bond God'

By Dr. Steve Sjuggerud
Tuesday, October 18, 2016

"Higher interest rates are just around the corner..."
That's what we've been led to expect. And that's what Janet Yellen keeps telling us.
Should we believe her?
Yellen should know what's going to happen with interest rates better than anyone... As the head of the United States Federal Reserve, she's in charge of the group that raises or lowers the benchmark short-term interest rate in the U.S.
But I don't trust her.
It's nothing personal... But the Federal Reserve has a long history of "crying wolf." Let me briefly explain...
The Fed lowered short-term interest rates to near zero in 2008. It has been threatening to raise interest rates ever since – but it hasn't done much.
While the threat is always there, the Fed has only raised interest rates one time since 2008 – and that was by just 0.25 percentage points.
Jeff Gundlach agrees with me...
Gundlach has earned the nickname "Bond God" for his ability to invest based on interest rates. He manages 12 figures. (In other words, investors have entrusted him with more than $100 billion.)
Last week, I told you why Gundlach expects higher long-term interest rates. I agree with him that long-term rates will likely rise. But he also thinks low rates will continue for short-term government bonds.
Gundlach believes the Fed won't raise interest rates this year. As he told Reuters recently...
"I didn't hear, 'We are going to tighten in December,'" Gundlach said in a telephone interview. "I think she is concerned about the trend of economic growth. GDP is not doing what they want."

Gundlach's prediction is bold. He is actually out of line with the consensus, which believes that the Fed will likely raise interest rates in December.
Either way, it's not going to be a big deal...
You see, even if the consensus is right (and the Fed raises interest rates by 0.25 percentage points in December), the general opinion is that it will be the only interest-rate rise over the next 12 months.
So regardless of when it happens, the potential outcome is an insignificant rise for interest rates.
Don't believe the threat of higher rates. If they come at all this year, the Fed will just make a tiny hike. And that will likely be it for the next 12 months, if the "experts" get it right...
So don't worry so much...
Good investing,

Further Reading:

The Fed may be "crying wolf" on raising interest rates again this year. But for the long term, Gundlach claims that interest rates have finally hit bottom. Is he right? "While making interest-rate predictions is hard, the facts back up the case this time," Steve says. Read more here.
Another investing legend believes the world's near-zero-percent interest rates are a serious economic threat. "Bill Gross will be right... someday," Steve wrote in a recent essay. "However, don't let this keep you from making money before that day gets here..." Get the full story here: The Problem With the 'Cassandras'.

Market Notes


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