Name: Will the Fed raise interest rates to the detriment of the stock market?
Uploaded: 2015-03-13
Duration: 4 min 21 s
Description: Fortune senior editor Stephen Gandel and writer-reporter Christopher Matthews discuss if the Federal Reserve raising interest rates is a good thing for the economy long-term.

Will the Fed raise interest rates to the detriment of the stock market?

Fortune senior editor Stephen Gandel and writer-reporter Christopher Matthews discuss if the Federal Reserve raising interest rates is a good thing for the economy long-term.

mhm markets were rocky this weekend. It's really all about the Fed and what the Fed will do next Tuesday when it meets specifically whether it will change its language about when it's going to raise rates. So what do you expect to happen? I don't expect them to change of language. I know that's what the markets thinking is going to happen, But I see a lot of things that still have to worry about. There's no wage inflation. There's the rest of the world. Economy does not look good. Uh, there's no regular inflation, so I don't see the need for them to jump. But there's all this agita, Chris. So do you think they will raise rates in June? The counter argument that that would be looking at employment data, which has been incredibly robust, better job growth this past year than any time since the late nineties. And we have actually a much smaller labour market growth at this point. So if you look at it in one in one angle, this is a really tight labor market. So basically what the Fed has to figure out is are all these people, these long term unemployed and the people who have dropped out of the labor market. Are they gone for good or are they going to come back right? I mean, I think that's the issue. There's still a lot of people sitting on the sidelines. And as we said, Americans have not got a raise and and the one thing the Fed can do to try to get Americans are raised is to keep inflation Keeps sorry, keep interest rates low right and the jittery as we see the stock market. Yes, stocks tend to fall when interest rates go up, but stock can go up when the rates are rising when there's a really strong economy. And what we may have seen this week in the stock market is that investors don't think the economy is strong enough yet for the Fed to raise interest rates. But that's not the sort of counterintuitive thing where every time we get negative economic news, investors breathed a sigh of relief because they think, Oh, you know, we're not going to raise interest rates and the market goes up right and what we would hope to have happened is that the Fed is not really paying attention to the day to day gyrations of the market and paying attention to other data like employment, really impacting their impacting a lot. But hopefully they have their eyes on the real economy, and the stock market will do what the stock market does. Obviously, we pay a lot of attention to those to those day to day gyrations. But the Fed sort of needs to focus on what the real economy and I agree. But the stock market says something, Sure, but Steve, can the Fed get this right? This balance once it does decide to raise rates because it will, can it do it in a way that doesn't completely freaked the markets out? I think the Fed, I don't think they can get 100% right. But we also thought a year ago they couldn't get the Taper right. We thought even Warren Buffett said this could be a nightmare. They did much better job with the Taper than expected, and if the Fed is going to get it wrong, I think they should get it wrong on the other side. I don't think you get it wrong on the side where they raise interest rates early, they should get it wrong. And I think the feds thing is, too. I hope they get it wrong on the other side, where there's a little more wage in Greece, then, uh, we hope for well. Speaking of what happened in the market earlier this week, Fortune senior correspondent Susie Gharib asked Principal Financial Group CEO Larry's implement about his thoughts on a Fed interest rate. Watch this this year 2015 so far has been very volatile in the markets. Do you think that the markets investors are overreacting on a day to day basis? I think that there is an over reaction. The Dow may move a couple 100 points, and I try to go to the news tickers and figure out what's driving that, and there's really not much news in there at all. So I do think that again, day to day, there can be some overreaction, but I still think over the longer term, the market gets it right. Um, and I think what individual investors you need to do to some extent, is tune out the noise. Mm hmm. So it seems that he's stressing that the markets shouldn't overreact. So then we have all this this week. So is this much ado about nothing, Chris? Well, I think the other thing to bear in mind is that if they do decide to raise rates, say, in June by 25 basis points, that does not mean that we're on the path to total normalization, that we're on the path to 4% interest rates in two years. They could raise it a little bit, see how the economy does and sort of stand pat there. And that would not. I mean, 25 basis points is not that big of a deal. Mhm.