Stableford Market Commentary - September 2023

Be Careful What You Wish For

After one- and one-half years of raising rates, the fed is finally getting the slowing economy it wants. But is it too much? Real rates spiked 36 basis points in September to 2.3%. We haven’t seen real rates at this level in 15 years

While many focus on nominal rates, real rates are what matters.

They are the real risk-free cost of capital, and as they rise, they put a crimp on returns for other asset classes. Recall that real rates were negative for part of 2020 and all of 2021. This meant that the real cost of money was negative! Think about that: The Federal Reserve wanted to stimulate the economy so much that it made the real cost of borrowing below zero. It was good for economic stimulation, but it has other consequences such as inflating the price of nearly every asset class.

But extremely low (or negative) real rates are an anomaly.

It is only since the Fed began intervening during the Great Financial Crisis of 2008 that real rates have been held artificially low (is it logical that anyone would want a negative real return for lending money?). The September Market Commentary will help explain what's going on.

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