It is with great sadness that I inform everyone that our founder, Dr. Gerald W. Perritt, passed away this past month. Not only was Dr. Perritt my teacher and mentor, he was a dear friend. Dr. Perritt taught me many things about life and certainly investments. His first lesson and used often was to always investigate before you invest. Given the cur-rent environment, I am often reminded of another one of Dr. Perritt’s lessons: Don’t Fight the Fed! The Federal Reserve has three key objectives for monetary policy: maximizing employment, stabilizing prices and moderating long- term interest rates. Regardless of what many observers may say, the Fed generally is not concerned about increased stock market volatility. The Fed is more concerned about their mandate and the economy. While it can be argued that inflation does appear to be a threat, there are also signs of only a modest uptick in inflation. To us, the bottom line is the Fed is moving to get interest rates to a normal level, which is a perception problem. Since interest rates have been exceptionally low for nearly 10 years, we believe many investors think we are already at a normal range for interest rates. Again as Dr. Perritt always reminded me, it is always a great idea to use history as a guide. So, let’s review history for interest rates. The tables below show the real history of the economy and interest rate policy. You can draw your own conclusion, but we believe interest rates still need to be higher to reach a normal interest rate policy.

Fed Funds Rate History

This chart shows the fed funds rate changes since 1971. Its complete history from 1954 to the present is found at the Federal Reserve Bank of St. Louis.

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