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In our Q1 edition of Portfolio Matters, we spent some time discussing the impact that the strong dollar has had on economies and investments around the world.  In this post, we’ll cut right to the bottom line.


The U.S. dollar is on an unprecedented tear, having appreciated against a basket of foreign currencies by 9.1% in the last 3 months and by 14.5% in the last 6 months. This marks the U.S. dollar’s biggest quarterly gain since September 2008 and the 4th largest 6-month gain in nearly 50 years. (Statistically speaking, both the 3-month and the 6-month gains are both 2 standard deviation events.)

Despite what the talking heads on TV will tell you, investors need not overthink the timing of short-term interest rate increases by the Federal Reserve.  We don’t think that investment success will hinge on getting “the call” right.

However, we do believe that any negative surprise for bond investors will come from a faster than expected increase in rates, both short- and long-term.  We recently discussed the complacency we observe in the bond market, and we typically look at intermediate- to long-term interest rates.

But today we’ll examine the short end of the curve.  The Fed has set the target for the Fed Funds rate at a range of 0.00% to 0.25% ever since December 2008.  Today the debate centers around when and by how much the target rate will increase.

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