Glenwood’s chief strategist is a professional Fed Watcher!
In a highly telegraphed action by the United States central bank, the Federal Reserve again raised its targeted fed funds interest rate by a quarter-of-one-point or 0.25% on Wednesday. The Federal Open Market Committee’s (FOMC) announcement included a Summary of Economic Projections, a dot plot of future interest-rate expectations, and a press conference by Chair Jerome Powell.
The Federal Reserve Act of 1913 gave responsibility for setting monetary policy, which is implemented to directly influence the availability and cost of money and credit to help promote national economic goals such as full employment and stable inflation. The most immediate impact is felt in loans based on U.S. banks’ Prime Rate; for example, many home equity lines of credit are set from the new 5.25% level (4.25% one-year prior).
Fed Wants to Keep Raising Rate Targets
The Fed has described risks to the economy as “balanced” since late 2016. Chair Powell is likely to follow the gradual and predicted path back to perceived “normal” rate targets—As outlined and initiated by his predecessors Dr. Yellen and Dr. Bernanke. Focused on employment and core inflation measures, the Fed maintained its 2019 and 2020 projections for GDP, unemployment, and Core inflation.
The released interest rate guesstimates suggest the Fed will raise the target fed funds rate one more time in 2018. The median estimate suggests three more hikes in 2019 (which would put levels at a 3.00-3.25% target range), then one more in 2020.
Bottom-Line: The Federal Reserve has proven that they too are human when it comes to predicting the future. So, its forecasts simply suggest a methodical path to adjust Monetary Policy back to less accommodation for credit and the economy.
“It’s tough to make predictions, especially about the future” is attributed to a baseball-playing philosopher, Yogi Berra
The Three Ways: Your All-Weather Asset Allocation Strategy
Strategic-thinking, investment discipline, and a culture of stewardship are important possessions as the uncertainties of each new year approach. Humility in our ability to predict future events is critical when carefully advising on a client’s hard-earned wealth. Our strategic theme for 2018: The Year of the Fiery Dog, anticipated heightened volatility and unpredictable behaviors. Still, we over-weighted an outlook for numbers like earnings and dividends versus emotions and gut-instincts.
Personalized details are reserved for your confidential review meetings; however, the illustration above depicts a metaphor for three primary asset categories where proactive steps occurred prior to the Fed’s latest interest rate decision.
Ark: Goal is diversification, preservation, low expense, and tax efficiency that is built to last, stable, and possibly less exciting.
Speedboat: Goal is targeted growth opportunities, income-enhancers, and strategies that take advantage of values created by the emotional mistakes of other investors and advisors. Possibly more exciting.
Tight Bathing-Suit: Billionaire investor, Warren Buffett, gave us a nugget of wisdom when he said, “You only find out who is swimming naked when the tide goes out.” To us, this highlights one of the MOST IMPORTANT aspects of Glenwood’s advocacy for your money—Risk Management. In this metaphor, the tide represents financial markets that suffer indiscriminate downside from broad-sweeping events rather than company-specific news. We have you covered with over 50 years dedicated experience, institutional-level tools, and close relationships with your family.
Today and tomorrow, our goal is to help you live your best life. Please consider us welcoming resources for any question or discussion in plain language. We believe in a forthright and caring approach, and we are always delighted to talk things over. We want to think better, do better, and serve better.
Email us or call at (919) 268-4101. Enjoy today!