IGNORE THE NOISE

Interest rates are expected to continue rising through the end of 2018. This is a classic Fed move in a strong economy, but some worry that it’s premature and threatens a fragile recovery. Personally, I think the Fed knows what it’s doing and the US economy is robust.

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Anybody who is inclined to worry can certainly find reasons. Storms, fires, and other disasters threaten large swathes of America. Terrorism, disputed elections, and general political volatility have many people on edge. A growing backlash against the tech industry has wiped out much of the stock markets’ gains in 2018. Brewing trade wars and overseas currency crises are disrupting global trade. All this is true, but does it really threaten US growth?

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It’s funny how quickly people forget. There have always been crises. Uncertainty is the norm, it’s only that the particular sources of our uncertainty change with the times. More natural disasters today have replaced environmental catastrophes from years gone by. Terrorism and political volatility today actually seem less threatening to me than they did in the 1960s, 70s, and 80s. The tech industry can lose hundreds of billions of dollars in market capitalization in part because they have been so stunningly successful in recent years. A trade war could cause problems, and yet international trade has continued to grow, despite the fears. Overall, today’s problems don’t look so different from those we have overcome in the past.}

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As an investor, I always like to come back to fundamentals. The US unemployment rate is 4%, which is very low by historical standards. GDP growth is about 3.5% — not red hot, but still pretty good. American consumer confidence is now near all-time highs, and combined with those employment and growth numbers, it certainly looks like the future is bright. People are spending and investing, just like they have throughout our history.

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We have problems, but the economy is huge and diversified. Crises come and go, but our system is resilient. As the old saying goes, doomsayers predicted 9 of the last 5 recessions. Yes, a downturn will come. They always do, and we always recover. The long-term trend is growing prosperity, decade after decade.

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Will higher interest rates make financing real estate deals a little harder? Yes, but it’s a small price to pay for long-term economic stability. Incrementally higher interest rates are exactly what we’d expect in a healthy, growing economy. I trust the Fed to promote the stability that investors crave.

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