Investment Memo

Rate Hike Blues: Have We Heard This Song Before?

Capital markets investors are continuously arguing the timing and magnitude of a shift in Federal Reserve (Fed) policy from its current accommodative stance to a tighter approach. The Fed looks poised to step up to the mic and play what has become a familiar (and for many investors, foreboding) tune: the Rate Hike Blues. While the timing and size of any Fed rate hikes are debatable, most agree rate hikes are indeed coming and many expect a period of regular hikes. We believe it is useful to study the two most recent aggressive tightening regimes: the first during the Greenspan era and the more recent during the Bernanke era. While both sang a very different song, they both shared a (maybe) surprising melody.