article 12-14-2016

How the Fed Rate Hike Impacts Small-Caps

What should small-cap investors know about the Fed rate increase?

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As expected, the Fed raised rates today while also signaling that short-term rates would increase more frequently in 2017. The central bank’s take on growth, hiring trends, and inflation remained mostly unchanged.

What do small-cap investors need to know? We think the rate hike is normal and healthy. It signals that we can look forward to a time when the prop of central bank support of the economy can be reduced.

Many investors have been concerned that there is no exit plan from the high level of Fed intervention that we have seen for the last 8+ years.

This latest action, however, supports the notion that we are at least in the early stages of exactly such a move. The economy should not be impeded to any significant degree while savers will receive a modest bump in their returns.

Hopefully, the economy continues to improve so that we see more rate hikes in 2017, as additional hikes would serve to reinforce the idea that the Fed believes the economy is strong enough to stand on its own.

Important Disclosure Information

The thoughts contained in this material concerning recent market movements and future prospects for small-cap stocks are solely those of Royce, and, of course, there can be no assurance with regard to future market movements.

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