Liz Ann Sonders: Expect Bouts of Volatility Until Fed Rate Hike

The volatility seen across the markets in recent weeks is set to continue until the Federal Reserve hikes interest rates.
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The volatility seen across the markets in recent weeks is set to continue until the Federal Reserve hikes interest rates. ‘I think we are going to see bouts of volatility very similar to what we’ve seen, at least until we get some sense of if and when the Fed is going to move,’ said Liz Ann Sonders, chief investment strategist at Charles Schwab. Sonders thinks the Fed’s initial rate hike - whenever it may come - will be a soothing factor for the markets. ‘The Fed, having kept interest rates at zero for as long as they have, has been a depressant from an economic perspective,’ she said. ‘If you continue to treat the economic patient like it’s in the trauma room, then that’s what the public is going to perceive too.’ She said a departure from of crisis-era interest rates may move fence sitters off the fence. ‘Why would I bother to invest or borrow to expand if I have that opportunity down the road and if our central bank is not giving us a message that they are confident in the economic recovery?’ she pondered. ‘I wonder if [the Fed’s rate hike] takes people off the fence - perhaps businesses will stop borrowing to buyback stock and instead invest longer term.’ She also wondered whether higher rates would put pressure on home buyers to pull the trigger and make a purchase before mortgage rates edge higher. Once the Fed raises short-term interest rates, known as the fed funds rate, mortgage rates will rise. TheStreet’s Scott Gamm reports from New York.