"The rate hikes are coming! The rate hikes are coming!" Chicken Little ain't got nothin' on me! I took a little liberty with Denzel Washington's line from Training Day but you get the gist.  Wall Street analysts are storming the presses to post, Tweet, Facebook and whatever other mode of communication  they use to alert their followers of an imminent change in the Federal Reserve Statement and coming rate hike in the first half of 2015.  

We at Grand Street Advisors suggest everyone take a step back from all the fear-mongering anticipating this imminent hike and just take a deep breath.   As we've noted in our past tomes, we question how the US Central Bank can follow this myopic approach the ECB has utilized in the past.  Recall the time banks were teetering, markets were seizing, countries were on the brink begging for boldness and vision (the depths of the financial crisis), the ECB hiked rates in an inflationary countermeasure. The Federal Reserve Chair had such vision and boldness at the nadir and needs to fall back on that vision to do what is necessary today and going forward.  

The US economy is once again attempting to achieve "breakaway velocity" from the effects of the punishing recession.  As an island the US Central Bank would be warranted in moving to high alert for a potentially overheating economy and inflation watch.  Fortunately we have a Central bank that understands we are now a member of a global economy and not an island.  That being the case, Fed policy must include at least a glimpse of our global partners.  Doing so brings clarity to the possible fragile base our expansion is built upon.  Our trading partners are battling reentering recessionary levels.  China is restimulating its economy. The ECB is about to embark on tits own round of QE (two years too late).  Japan is still rolling out the three quivers of Abe-nomics.  Russia's economy most likely will grind to a halt due to the sanctions imposed by the US and Europe.  All this while the Middle East is on fire and in the midst of civil unrest to say the least.  In this environment we state the Yellen-run Federal Reserve will stick to its dovish policies longer than most look for, and possibly won't hike rates until the fourth quarter 2015 or early 2016. 

In this environment maintaining or gaining an aggressive allocation to equities is prudent.  As the curve steepens we look for financials to begin kicking into higher gear.  The large banks that have suffered due to billions in restitution and fines from the punitive actions of politicians and regulators should have this mostly in the rear-view mirror.  The mega cap banks have only grown larger deposit bases, and with a steepening yield curve and improving economy they should virtually be printing money.  In this sector we own Bank of America, MetLife, Hartford Financial, AIG, Visa and Citigroup.  With a time frame of 12-24 months we believe all can be purchased today.