It’s been a while since I talked about the Fed and it’s getting kind of interesting, so here we go. (please remember that when I say “interesting,” that is a relative term….)
Yesterday (9/21/2016), the Federal Reserve decided not to raise the fed funds rate. This, in and of itself, was not that surprising. The fed funds futures had pegged it at only a 14% chance that they would raise. In the press release, the Fed states that unemployment has remained little changed, but that job growth is solid. However, the inflation rate is still running below the 2% target rate. They said that the case for raising rates has strengthened but they have decided to wait for further evidence of continued progress.
While the rate remained unchanged, there were some interesting developments in the September report. First of all, there were three dissents in the decision. This hasn’t happened since December of 2014. This supports the notion that the Fed will raise rates sooner rather than later.
Secondly, the Fed projections were revised for the next few years and for the longer run. The Fed still sees GDP growth at 1.8% for this year, and 2.0% for 2017 and 2018, but now their longer run prediction is for 1.8%, down from 2.0%. Also, they have lowered their fed funds outlook by 50 basis points to 1.1% for 2017, and 1.9% for 2018 (the current target rate is 0.25% – 0.50%). This is interesting because although the Fed is hinting at a rate hike in December, these projections seem to point to a slowing of the economy and a desire to keep rates lower for longer.
On a related note, just 14 hours earlier, the Bank of Japan (BOJ) made a surprise change in their monetary policy. The BOJ decided to switch their focus from increasing the money supply in their country to targeting the yield curve. They have relaxed their 80 trillion yen bond purchasing strategy and instead aim to keep the 10 year Japanese Government Bond yield at 0%. This allows them to buy more or less bonds in an attempt to steepen the yield curve. This will help the banks which have been suffering in a flat yield curve environment as well as with negative interest rates. The financial sector is generally seen as key to economic growth as that is where the money flows through. This could also be an admission that the current easing policies are not working in Japan.
So, what does all this mean? Well for now, the stock and bond markets seemed to be bullish on the situation. With the BOJ’s move and the Fed’s non-move, the US Dollar weakened. Generally speaking, rates moving higher will strengthen a country’s currency. This should help our large multi-national companies because it makes our exports cheaper around the world. And, as our short term rates stayed low, the bond market did not panic about longer term rates. (On a side note, I don’t believe that a rise in the fed funds rate necessarily means a rise in longer term rates. Without sufficient growth and inflation, we are in jeopardy of experiencing a flattening yield curve like other developed countries).
As for the Fed, I think they have once again talked themselves into a corner. I believe they will forego a rate hike in November as this is too close to the Presidential election. As with the Brexit vote, the Fed will probably deem this too volatile a time to be raising rates. However, the Fed has all but promised a rate hike in 2016. Their own projections from the September meeting has the fed funds rate at 0.60% by the end of the year. This is almost exactly 25 basis points higher than it is now. And while this is still an artificially low rate, it will be a significant event here and around the world.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
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A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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