Watching the Federal Reserve

An important number for people to watch is the interest rates on U.S. Treasury debt. The Federal Reserve, through its open market operations and its federal fund rate, has a lot of control in each meeting over the short terms such as the 3-month and 2-year Treasury bond yields. The market tends to focus more on longer terms. What the U.S. market keeps an eye on is the difference in the two. Historically speaking, it’s bad when the short end of the yield curve rises above the long end.

Why is now so important?

If you look at current 2-year rates, they are roughly at 2.6-2.65%. The 10-year bond rates are at 2.83%. If the Federal Reserve raises rates by 25 basis points, which is their traditional metric, then that one measure would increase the 2-year above the 10-year and in just one meeting could have an inverted yield curve. Traditionally that is a sign of a possible recession coming. That’s one reason why we think the Federal Reserve is so important because we are at a close tipping point where if we don’t see long rates move up, but the short rates keep getting higher, then we could be as close as one meeting away from having an inverted yield curve that would potentially be bad for the market and bad for investors.

 

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

 

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.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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