Fork in the Road: The Fed and the Markets
The Fed will be a big topic this week. They are meeting on Wednesday and there are three things to look for at the meeting. The first is will Janet Yellen be reappointed? It will be unusual if Trump doesn’t reappoint her, but you never know. The second is a rate hike coming? We don’t expect it on Wednesday but it could happen in December. Inflation is saying no, but global growth is saying yes. The third thing is the Fed balance sheet. When will the Fed start selling bonds?
Balance Sheet and Interest Rates
The Feds balance sheet has gotten too big and selling those bonds can impact portfolios. The Fed has over 4 ½ trillion dollars on its balance sheet which is a lot of money to move around. They have 2 trillion just in mortgage debt which can impact individuals. This year, the 30-year mortgage rate has dropped. The Fed has raised interest rates but the mortgage rate has dropped from slightly over 4.3% to just below 4%. Who would have thought that? We all thought rates, if not going up, would remain flat. On a 30-year $100k mortgage that’s a saving of $11k. You start seeing that back up and a lot of savings on the consumer balance sheet will go away.
Janet Yellen Speaks
It’s not how Janet Yellen speaks, it’s the speech afterwards. She can start saying I’m running to be the Fed governor, not literally, but we will see when she speaks is she going to attack the current environment or pull back and play nice. The way she words it will tell us.
Market Economies Projecting Positive Growth
From a global perspective, the 45 largest industrial free market economies, for the first time in years, are projecting positive growth. Why is that? Because they are making and selling things as opposed to central banks having the world awash in cheap money. This is a good thing. This is also why we chose the topic Fork in the Road: The Fed and the Markets. In 2015 and 2016, we were concerned that central bankers had taken control of the world economies. It’s music to our ears to see that corporations around the world are becoming more innovative and productive. As they do that, there can be a positive impact on the world’s economy.
We are at the Fork in the Road and we are excited about that. We look forward to keeping you updated as the week progresses. As well, there are other ways for us to communicate besides one on ones and phone calls. You can see information on LinkedIn, Facebook and Twitter.
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.