Dear Mr. Berko: What are your thoughts on interest rates? Will the Federal Reserve raise them this year or not? And if the Fed were to raise rates, how badly do you think it would hurt the SPDR S&P 500 exchange-traded fund, which is my largest individual investment and is 55 percent of my equity portfolio. And this worries me.
I’d also like to invest $35,000 in Pimco’s California Municipal Income Fund III, which pays 6.8 percent tax-free. Your opinion of this closed-end fund would also be appreciated.
— WP, Syracuse, N.Y.
Dear WP: Some wise observers say that the Federal Reserve will begin to raise interest rates this year, but some equally wise observers say the Fed won’t raise rates in 2015. I think it’s a toss-up, perhaps a 50-50 chance that the Fed will or won’t — which reminds me of my 50-50-90 rule. Most times when I have a 50-50 chance of making the right decision, there’s a 90 percent probability that I’ll pick the wrong one.
I don’t know whether Federal Reserve Chairwoman Janet Yellen will raise rates this year, and frankly, I doubt that she knows what she’s going to do. However, I’ve been told that Yellen is facing steady pressure from the Obama administration and some members of Congress to maintain the current low rates. They’re concerned that higher rates would translate to higher borrowing costs for municipalities, corporations and consumers. And they’re concerned that higher rates would stifle demand and raise prices for goods and services, causing a drop in our gross domestic product.
