If the Fed would have raised rates back in September it would have strengthened the U.S. dollar making it advantageous from a trade perspective with foreign economies. The only reason the Federal Reserve could have had for NOT raising rates in September was to help the U.S. and European international companies that trade with China, however the Fed’s plan didn’t work because within days of the anticipated rate hike, China responded by devaluing their currency by the largest amount in history which resulted in a positive trade advantage for China. The Fed must have known that they do not have the tools to win this specific battle with China or the rest of the world for that matter, as they devalue their currencies.
Some would say the U.S. should enter a currency war and devalue the U.S. dollar by keeping rates low and/or printing more money. This would lead to a downward spiral for everyone in the world with no one winning. The rest of the world has nothing more to lose by following this tactic but the U.S. would. This leaves only one option at this point for the U.S. and that is for the Federal Reserve to finally raise rates. Yes, this would put the U.S. at a trade disadvantage for a while with U.S. international companies resulting in U.S. consumers paying a little more, but, it will also lead to U.S. banks raising rates and in turn easing lending criteria allowing more people to buy homes and obtain business loans for start-ups and expanding companies resulting in an improved economy.
At this point the Fed does not directly have the tools to fend off foreign currency devaluations but the U.S. private sector does with a booming economy. The U.S. needs to concentrate on doing business in the U.S. and where it makes sense in foreign markets. The Fed needs to move back to normal monetary policies so the private sector can do what it does best, capitalism. We have five years of innovation backed up just looking for investment capital to move forward.
What this means for U.S. markets is volatility. As the Federal Reserve raises rates, investment capital will shift helping some industries and harming others. This will be a great place for short-term risk takers to make money or lose money.
For the person wanting to sit this volatility out, safe recommendations are assets that will not be affected by the interest rates whichever way they go. If you are looking for a long term or generational investment not affected by rate changes, market shifts or commodity fluctuations you might want to consider rarities. If you want the rarity with the lowest volatility, consider rare U.S. coins for portfolio diversification as an option to explore.
