As you might have noticed, the Dow Jones Industrial Average dropped by 206 points on Wednesday, while the S & P 500 and NASDAQ were also down by good margins, as well. Last August,  I wrote a Blog Post which questioned “Are the Markets Rational or Irrational?”,  The true answer is obviously always: Both, since there are multiple players, each trading with his or her own goals, ideas and rationale.

The key point is to watch the Economy, and keep your Investment Portfolio up-to-date, don’t get spooked by changes at the FED, since: nothing will happen immediately;  it will be gradual and only when the FED is satisfied that it is warranted.

There are two important points to keep in mind:

1.  Currently, the Fed Funds Rate, on overnight money, has been between 0.00% and 0.25% for quite some time.  So, it’s important that, when the FED sees fit to change things, it does so in gradual amounts–and as the economic conditions warrant.  A range of 0.25% to 0.50% really isn’t too bad.  I have already written about what happened when, in 1981, the FED had to raise the Fed Funds Rate by two full percent in one day–because the previous FOMC Members failed to act when it should have.

2.  Generally, the FED only raises rates when it believes that the economic conditions warrant it.  So, when it allows rates to edge-up (and that’s all that I think we might be looking at), that actually means that this group of very talented Economists, that has more information than we do, believe that it can safely do so.  Let them manage it.

Otherwise, take a deep breath, review your Portfolio with your Financial Advisor and let things roll-out.  Inflation isn’t really too bad and the FED, at the moment, is really only talking about easing-back on Qualitative Easing (QEIII), a program to provide additional liquidity to the Financial Markets by buying bonds, which will be re-sold back to the banks in the future.  So, don’t stress over the FED giving some advance warning.  We should want them to.


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