Regime Change at the Fed and its Impact on Risk Parity

March has been an eventful month. Republicans gave up on their attempt to replace Obamacare and the UK formally triggered Article 50 to initiate the Brexit process. However, the real news is the Fed raised its benchmark interest rate a quarter point to 1%. The Fed has made a shift in thinking and will raise interest rates faster and more aggressively than previously thought. It’s important to note that the Fed has not been this far behind the curve in the past 45 years. As shown in the following chart, the Fed historically tightens monetary policy when the unemployment rate touches the Non-Accelerating Inflation Rate of Unemployment (NAIRU) level or (full employment). 

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