Hockey great Wayne Gretzky credited his dad with telling him to “skate where the puck is going.” Like many sports clichés, it has been appropriated by business-types for years. But successful investors have been practicing it long before Gretzky laced up his skates.
There is little doubt where the Federal Reserve’s target interest rate is going in the week ahead — up. The market probability of a rate hike has risen for the decision due Wednesday afternoon. And expectations have been rising for more rate hikes in the months ahead.
Bond market interest rates are moving up along with these expectations, pushing bond prices down. The yield on the 10-year U.S. government bond is near its highest level since mid-December. The average 30-year fixed rate mortgage is at its highest level of the year according to Freddie Mac. The cost of borrowed cash for auto loans and credit cards also has been rising.
So far, investors have been out ahead of the Fed. The markets have moved and are waiting for the puck. The major stock indices have not experienced significant selling and the bond market weakness has been very tame by historic standards.
Speaking of history, long-term investors would be mindful to remember the Federal Reserve is a long way away from nudging rates to what anyone can claim to be high. A usual quarter percent rate hike on Wednesday would bring the Fed funds target rate to just 1 percent.
For the central bank to be successful in its effort to keep the American economy growing, it needs investors to know where it’s going.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.