Recessions are a normal part of the U.S. business cycle. Our economy has experienced eight of them since WWII, as they occur roughly every seven years or so. Knowing that recessions are cyclical and recurring is fine, but it doesn’t lessen the financial sting that often accompanies them. As you can see from the accompanying chart, when they do hit they can be really rough on stocks.

chart1Because they are cyclical and occur with some frequency, the Federal Reserve has developed fairly sophisticated tools with which to implement monetary policy needed to come to the rescue. One of the biggest tools in the Federal Reserve’s toolbox has simply been adjusting the level of short-term interest rates that affect all bank and private lending.

When the last recession started in late 2007, short-term interest rates were roughly 5 percent, but by the fall of 2008, the Fed succeeded in lowering them to effectively 0 percent. The policy was successful in abating the free-falling implosion of the economy.  

But if you look carefully at the accompanying long-term chart of interest rates (dating back to 1950 through today), this time you may notice something curiously different.  

After the prior seven recessions ended, the Fed was able to normalize and somewhat revert interest rates toward pre-recession levels. That’s reflective of a healthy economic recovery. But, five years into this recovery, the Fed has thus far been unwilling to lift short-term interest rates from 0 percent (one of those things that make you go hmmm…).

There are a number of reasons for this, many of which revolve around the sluggish nature of this particular recovery. But our new level of national debt — now north of $17 trillion dollars and growing — also has an influence on Fed policy decisions. If the Fed were to chart2normalize the level of interest rates so that they were back to where that stood say in 2007, the interest expense on that debt for our country would approach $1 trillion dollars per year. Oops.

So low interest rates may well be here for a while, much to the chagrin of savers. And when the next recession hits, unless the Fed can reload on its interest rate policy, that chagrin might well carry over to stock investors as well. Should be interesting.  

Enjoy the good times. Stay diversified.

Bo Billeaud has served as president and chief investment officer of Lafayette-based Billeaud Capital Management for almost three decades.

To post a comment, please log into your IND account. If you do not have an account, click the "register" button to create one. Facebook comments can be used as an alternative to creating an account at

feed-image RSS Feed
ABiz Stock Watch
o Home Bancorp 22.64 ▲0.14 (0.62%)
o Frank's International 20.60 ▲0.22 (1.08%)
o IberiaBank Corp 65.98 ▼1.17 (-1.74%)
o LHC Group 23.74 ▼0.03 (-0.13%)
o MidSouth Bancorp 18.43 ▼0.07 (-0.38%)
o Petroquest Energy 4.38 ▲0.17 (4.04%)
o PHI Inc. 42.50 ▲1.44 (3.51%)
o Superior Energy 25.66 ▲0.59 (2.35%)
o Stone Energy 23.30 ▲0.72 (3.19%)
o Facebook Inc. 73.71 ▲0.11 (0.15%)
o Twitter Inc. 40.03 ▲0.22 (0.55%)
o Gannett 31.45 ▼0.13 (-0.41%)

Home Bancorp

Company ID [NYSE:HBCP] Last trade:22.64 Trade time:4:00PM EST Value change:▲0.14 (0.62%)

Frank's International

Company ID [NYSE:FI] Last trade:20.60 Trade time:4:02PM EST Value change:▲0.22 (1.08%)

IberiaBank Corp

Company ID [NYSE:IBKC] Last trade:65.98 Trade time:4:00PM EST Value change:▼1.17 (-1.74%)

LHC Group

Company ID [NYSE:LHCG] Last trade:23.74 Trade time:4:00PM EST Value change:▼0.03 (-0.13%)

MidSouth Bancorp

Company ID [NYSE:MSL] Last trade:18.43 Trade time:4:01PM EST Value change:▼0.07 (-0.38%)

Petroquest Energy

Company ID [NYSE:PQ] Last trade:4.38 Trade time:4:00PM EST Value change:▲0.17 (4.04%)

PHI Inc.

Company ID [NYSE:PHII] Last trade:42.50 Trade time:3:48PM EST Value change:▲1.44 (3.51%)

Superior Energy

Company ID [NYSE:SPN] Last trade:25.66 Trade time:4:04PM EST Value change:▲0.59 (2.35%)

Stone Energy

Company ID [NYSE:SGY] Last trade:23.30 Trade time:4:02PM EST Value change:▲0.72 (3.19%)

Facebook Inc.

Company ID [NYSE:FB] Last trade:73.71 Trade time:4:00PM EST Value change:▲0.11 (0.15%)

Twitter Inc.

Company ID [NYSE:TWTR] Last trade:40.03 Trade time:4:01PM EST Value change:▲0.22 (0.55%)


Company ID [NYSE:GCI] Last trade:31.45 Trade time:4:02PM EST Value change:▼0.13 (-0.41%)

Read the Flipping Paper!

Click Here for the Entire Print Version of