The Federal Reserve elected not to raise interest rates on Thursday, citing weakness in foreign markets and lower levels of inflation than expected -- and most advisors were not surprised.
According to a Fidelity study released ahead of the Fed’s announcement, only 18 percent of advisors expected rates to rise.
Lee DeLorenzo, president of Garden City, N.Y.-based United Asset Strategies, was among the majority.
“It was a decision that I personally expected, but our firm was 70 percent certain of an increase,” DeLorenzo says. “The majority of the pundits expected an increase, though recent changes in the yield showed that the bond market guessed right at the last minute.”
Expecting a run-up in yields, DeLorenzo says United Asset Strategies sold its U.S. Treasury bond holdings for a profit, and is buying the S&P Regional Banking ETF (KRE).
“We believe that regional banks will benefit by a rate increase and would not have significant downside if they didn’t hike,” DeLorenzo says.
Tom Siomades, managing director and head of the Hartford Funds Investment Consulting Group, based in Radnor, Pa., thought that rates would rise ahead of Thursday’s decision.
“It’s clear, even from what Janet Yellen is saying, that we’re still strong domestically,” Siomades says. “We’re not at 10 percent unemployment. We have healthy job growth, 3.7 percent GDP growth. The economy is healthy. Ultimately, what we need from the Fed is some guidance; that is what the markets are looking for. I would have liked to see a hike because I want to see some action.”
Steve Wood, chief market strategist at New York-based Russell Investments, says the decision not to raise rates was actually a response to unemployment.
“Even though unemployment is getting closer to the Fed’s target zone, Janet Yellen was also very clear that there were other factors in the labor market aside from unemployment rates, mentioning labor participation and other measures without going into specifics,” Wood says. “It’s clear that in the committee’s mind, there is still slack and softness in the labor markets that’s not captured by the headlines.”