What a year for the market in 2014! It was so good that it seems there is general consensus that 2015 cannot be very good. No longer does the market wonder “if†the Federal Reserve will raise rate. The question is “whenâ€, and most of the dialogue suggests that a rise in rates will be bad for the stock market.
Photo Credit: Michael Daddino (Flickr)
Federal Reserve Policy Positives
The other question is what, if any, long-term damage has been done by keeping interests rates artificially low for so long. I think the alternative, i.e. raising rates sooner, would have been worse. A more austere monetary strategy would have likely put lots more people out of work and torpedoed consumer sentiment. One could argue that the pain of a more austere monetary policy would have been good for the long-term as we would have pulled out of the deeper economic downturn with more strength and conviction.
Given the economic challenges for the rest of the world, I am not sure how much good it does for the US economy to be much stronger than it already is. We are already head and shoulders above most of the rest of the world. Many of the other major developed countries are beginning to realize that their fiscal and monetary policies have been significantly less successful than ours. They are looking at potential major overhauls while we are most likely looking at some relatively minor course corrections.
This difference is highly impactful to long-term economic growth potential because of its implications on investment decisions in the near and long term.
Challenges Abroad Creates Opportunities at Home
If you were starting a business and could choose anywhere in the world, where would you start it? It is hard to make a straight-faced argument against starting a business in the United States. Accordingly, it is hard to argue against the idea that the most talented business people in the world would want to be in the United States.
Given the current state of affairs in other major developed countries, it is hard to think of a time when it was clearer that the United States was the best place for productive people to live and work. One of the most defining characteristics of the United States is that it is the number one destination for the people willing work as hard as it takes to achieve the highest returns on capital possible. At the same time, we have been one of the least attractive destinations for people looking to be entirely unproductive or focused on terrorism.
