Wednesday, February 24, 2010

Bracing for Higher Interest Rates

Higher interest rates are coming.

That was the unmistakable message from the Federal Reserve last week when it increased the discount rate, the rate it charges banks for borrowing reserves. Although the move came sooner than many expected, it was a healthy step toward more normal conditions and a sign the banking system is healing. The Fed stressed that the move doesn't mean any imminent rise in the more important federal-funds rate. Despite the soothing words, it's a clear warning that near-zero interest rates won't last forever, and that the Fed is prepared to act when necessary to raise rates.

---> However, the article stresses that "inflation hedges" such as gold are over-valued and recommends rebalancing your portfolio with no real sense of urgency over the next three months.

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