A recent article on Bloomberg.com mentioned the current U.S. economic recovery as having the potential to be the longest in more than 150 years, surpassing even the 10 year expansion of the 1990s. While that title sounds good, it seems to be an indicator of how bad things were and how slow the recovery, rather than a show of how strong the economy is becoming.
As of this moment, the economy has been in recovery about 7 years. Most of that time has been spent with economists arguing over whether there would be a double-dip recession. Only in recent months have things started to improve to the point that the Federal Reserve can consider removing its economic support structure.
Really, though, the slow pace of recovery is ideal. Given the amount of money that was pumped into the economy during the recession, the chance for sky-rocketing inflation was high. This meandering pace of improvement allows the opportunity to draw back some of that excess.
In our January letter we mentioned the Fed’s plan to raise rates in June. The newest indicator is that the first rate hike may now come in September, though this is still being called a 50/50 chance by most economists. Troubles in Greece have so far had only a moderate effect on the U.S., but growing turmoil in Chinese markets could have a much bigger impact.
As predicted, we saw a dip in prices when 10-year Treasury yields jumped from the 1.9% range to 2.4%. Since then the market has adjusted to the “new normal” of the 2.2%-2.5% area. Most likely this will prevent any Fed rate hikes from causing a major correction in the bond market. We will continue to monitor the pace of recovery in case changes are necessary, with a close eye kept on China and Europe.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
