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IPFS News Link • Federal Reserve

Years of Zero Interest Rates and Implications for Stock Prices

•, by Brian Wang

For decades, the goal of US Federal Reserve was to control inflation. Inflation control has now been de-emphasized, the main goal is now maximizing employment. This is a huge shift. The US Federal Reserve is very powerful and now the Federal Reserve is pushing for full employment and using years of zero interest rates as a tool.

Don't fight the Fed

There has been fundamental investment wisdom which "Don't fight the fed". You are supposed to line up your investments with Federal Reserve Monetary policy. Buy stocks when interest rates are low and avoid stocks when interest rates are high.

There is and has been an inverse relationship between the stock market's valuation multiples and interest rates. Ten-year treasury rates have fallen to 0.72%. The central bank now will allow inflation to float above the Fed's 2% target for a period of time. The Fed no longer will hike rates in order to head off inflation that historically had come with lower unemployment rates.

There will be a zero-interest-rate policy and open-ended quantitative easing (QE) for the next five years.

The projections are that the ten-year treasury interest rate will stay around 0.6 to 1.0% for five years or longer.