In light of the recent decisions by the Federal Reserve regarding the end of Quantitative Easing, we are doing a special edition of Investors’ Insights. There are mixed emotions about this decision. There are those who believe that the Fed should continue with Quantitative Easing and there are those who agree that they made the right decision.
Quantitative Easing is the printing of money by the Federal Reserve. It can be compared to a patient getting medication to help them get back their health. In this case, we believe that Quantitative Easing was a good decision by the Federal Reserve.
We explain what Quantitative Easing is in this video but you can also watch a previous and more in depth video blog we posted “What Is Quantitative Easing?” here.
What is the Fed doing and what they aren’t
In Quantitative Easing the Fed was printing money to buy bonds on the open market. As of yesterday, the Fed is no longer buying bonds on the open market. What they are not doing is selling the ones they currently own. It’s important for investors to note that the Fed now owns 50% of the Treasuries that are issued. The Fed was not created to do that.
How could the Fed handle this?
Although the Fed is ending Quantitative Easing, they are not going to start increasing interest rates. As long as they don’t see inflation and job growth, we should not see interest rates rise soon.
The Fed can work their way out of this but it will take some time. One possibility is they could let all these bonds they own mature and not reinvest the proceeds.
Will the end of Quantitative Easing bring volatility?
We are expecting some volatility in the markets because the debate will continue about whether this was a good decision or not by the Fed. We’ve taken a conservative approach because of this along with the upcoming mid-term elections.
We are going to continue to analyze all this, stay conservative and methodically move back into the markets when the time is right and moving other positions to cash.
We will keep you updated as time goes on so keep checking back with us.
Greg Powell, CIMA
Franklin Bradford, CMT
Senior Vice President
fi-Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. fi-Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.