Fed & Higher Rates
Federal Reserve is now going to employ a “1-2-3 punch” as opposed to the previously believed 1-2 punch.
Up ‘til now, the Fed has been buying 120 billion of bonds/month, forced rates down to zero, and has been reinvesting maturing bonds in its massive 9 billion trillion-dollar balance sheet. When the Fed reinvests maturing proceeds, its as if they are purchasing additional bonds each month on top of the 120 billion.
Now the Fed has signaled the end of the 120 billion/month, three or more rate hikes this year, and now permitting its balance sheet to roll-off (let maturing bonds go to cash and not buy more bonds).
Why all three now? I believe it’s the recognition the Fed is extremely behind, and completely misread inflation. Most believed the Fed should have ended the bond buying a year ago, and should have already been in the process of raising rates, VERY GRADUALLY. Hey the national unemployment rate reported last week was 3.9%! This did not happen overnight, unless your were sleeping!!
This led rates higher, and stocks and bonds downward!
Markets, First Week of ‘22
The Fed and Omicron tag-teamed to lead the major indexes lower, to start the year. For the week, the Dow was flattish, retreated a mere (.25%), the S&P 500 dropped (1.83%), the Nasdaq Composite (4.52%) and the Russell 2000 small cap index losing (2.91%).
Foreign stocks lost (.29%), and Emerging Market stocks down (.47%).
Bond yields rose significantly for 1 week, with the 10 Year US Treasury rising from 1.50% to 1.77%. That is the highest 10-year yield since January 2020, 2 years ago, pre-covid.
Not a time to panic!
A well-diversified, allocated portfolio, positioned to your specific needs should serve you well!
Yes, there will be speed bumps in the short-term, however well-diversified portfolios (while making minor tweaks and rebalancing along the way) should place you in a position to withstand the current short-term head-winds.
I’m sure that most of you are having conversations with friends, family, colleagues about inflation and other market/economic concerns. Please feel free to encourage them to reach out for a no-obligation consultation to discuss their situation. My job is to help people, and I’m very happy to do so!!
To schedule a consult, they can either call Ellen at 856-354-3200 ext. 205 or click here to sign up.