INSIGHTS
MAR
20
COSTA’S CORNER
You snooze, you lose.
Today will not be one of those days, trust me.
The FOMC is meeting today to determine Fed policy for the near term and the experts all seem to agree on this, nothing will happen.
No one expects the Fed to act on rates at this meeting or for the foreseeable future and I agree. The economy, while not steamrolling along is doing quite well. Inflation is not an issue and employment across all demographics is doing very well. The Fed will make some vague statement about keeping an eye on the data and they have no qualms about acting quickly and decisively should the conditions warrant. Same old same old and that’s a very good thing.
The conversation will invariably turn to the reduction of the Feds balance sheet, which stands at 4.3 trillion dollars and they have been drawing down those assets by roughly 50 billion dollars a month. The question is, when will that drawdown stop.
Initially, I had the fear that this drawdown would upend the bond market and in turn the stock market, but I was wrong. It has been fairly smooth and while the bond market became a touch more volatile, the overall impact on asset classes across the board has been minimal.
This might be more about timing than anything else. The US economy is expanding, money supply is stable and fluid and an influx of new assets into a healthy economy generally has little impact and that’s what we have just seen.
Todays Fed announcement should give a better idea of when the Fed is going to stop the drawdown and hopefully, a clearer indication on its approach to interest rates for the rest of the year.
The constant complaint about the Fed being opaque is well deserved and with each new Chairman, we see that it’s not an individual’s policy, it’s the Fed’s policy to keep them guessing.
I understand the rational and accept it because, while they have made a few misjudgments, they are the smartest men and women in the room and if you are going to leave the guidance of the US economy up to someone, they are the best of the bunch. If the last 10 years hasn’t proven that, then it will never be proven.
Needless to say, nothing said today will prompt me to adjust my allocations. I am looking for a break in the trends that we have seen for the first three months of this year.
50% Stocks
25% Fixed Income
25% Cash
Today will not be one of those days, trust me.
The FOMC is meeting today to determine Fed policy for the near term and the experts all seem to agree on this, nothing will happen.
No one expects the Fed to act on rates at this meeting or for the foreseeable future and I agree. The economy, while not steamrolling along is doing quite well. Inflation is not an issue and employment across all demographics is doing very well. The Fed will make some vague statement about keeping an eye on the data and they have no qualms about acting quickly and decisively should the conditions warrant. Same old same old and that’s a very good thing.
The conversation will invariably turn to the reduction of the Feds balance sheet, which stands at 4.3 trillion dollars and they have been drawing down those assets by roughly 50 billion dollars a month. The question is, when will that drawdown stop.
Initially, I had the fear that this drawdown would upend the bond market and in turn the stock market, but I was wrong. It has been fairly smooth and while the bond market became a touch more volatile, the overall impact on asset classes across the board has been minimal.
This might be more about timing than anything else. The US economy is expanding, money supply is stable and fluid and an influx of new assets into a healthy economy generally has little impact and that’s what we have just seen.
Todays Fed announcement should give a better idea of when the Fed is going to stop the drawdown and hopefully, a clearer indication on its approach to interest rates for the rest of the year.
The constant complaint about the Fed being opaque is well deserved and with each new Chairman, we see that it’s not an individual’s policy, it’s the Fed’s policy to keep them guessing.
I understand the rational and accept it because, while they have made a few misjudgments, they are the smartest men and women in the room and if you are going to leave the guidance of the US economy up to someone, they are the best of the bunch. If the last 10 years hasn’t proven that, then it will never be proven.
Needless to say, nothing said today will prompt me to adjust my allocations. I am looking for a break in the trends that we have seen for the first three months of this year.
50% Stocks
25% Fixed Income
25% Cash