Many financial market participants are concerned that when the U.S. Federal Reserve begins raising interest rates, stocks and bonds will plunge and the dollar will soar, wreaking havoc on the economy and investors, Moneynews.com said.
But investors can relax a bit, said David Blitzer, chairman of the Index Committee for S&P Dow Jones Indices. “A glance at the last two times the Fed shifted from easing to raising rates suggests that these fears are misplaced, ” he said in a posting on his firm’s website.
As Federal Reserve Bank of Boston President Eric Rosengren explained last week, “even with some unusual market conditions, the Fed’s shift shouldn’t send markets into turmoil, ” Blitzer said.
“The last two Fed tightening moves began in February 1994 and in June 2004. Both were taken in stride in the economy, the stock market and the foreign exchange markets”, he added.
This time around, economists expect the Fed to begin increasing rates around mid-year. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent for six years, Moneynews.com said.
“The initial Fed move isn’t likely to cause massive damage. However, the Fed’s first step will probably be followed by further tightening and the cumulative effect will grow. For investors the message of the data is not to panic at the Fed’s first tightening move, but not to ignore it either”, Blitzer said.