The Federal Reserve (or more simply, “The Fed”) is the central bank of the United States. The Fed’s stated purpose is to provide the nation with a safer, more flexible, and more stable monetary and financial system. That’s a lot to think about.

More commonly we think of the Fed’s dual mandate of maximizing employment and stabilizing prices. The Fed is tasked with making sure the economy is growing at rate that’s fast enough to reach full employment, but not too fast that we have runaway inflation. Think of the Fed as the driver of a car (our economy) – the driver must hit the gas when we’re going too slow, but also monitor the car’s speed and hit the brakes before we’re out of control.

If only it were that simple! The Fed has become a major player in the US economy (and stock market) as investors look to the Fed constantly for signs of whether we’re going to see them press the accelerator or hit the brakes. Most commonly the Fed tries to change speeds by lowering (hitting the gas) or increasing (hitting the brakes) interest rates, specifically the Fed funds rate.

The Fed hiked rates in December, 2015 for the first time since 2006. This was the beginning of what many thought would be a few hikes throughout 2016. We're now 9 months in and we've yet to see another hike. Investors continue to agonize over when the Fed will hike rates again.

We feel that the fear of a rate-hike may be overblown for a couple of reasons. First, if the Fed raises rates it’s a vote of confidence for the economy. As economic conditions continue to improve we see a healthier economy. Second, the pace of rate hikes is critical. Historically, slow and steady rate hike cycles have seen positive market returns, while sharp rate hike cycles have had a less positive impact on the stock market. According to LPL Financial since 1960 the average number of rate hikes from the end of one recession to the beginning of another is 18. Since the Great Recession we’ve had one. We believe there is still time for this economy and stock market to run as we don’t feel a recession is imminent.

We will continue to watch the Fed closely as the decisions that are made today may impact the economy and market for years to come.