Federal Reserve Holds Rates

March 25, 2019

As most economists expected, the Federal Reserve held interest rates steady last week.  Despite the uneventful outcome on rates, markets had several volatile sessions as investors digested the Federal Reserve’s economic outlook.  The bottom line is that economic risks are increasing, and short-term interest rates are likely to remain flat in the range of 2% to 3% for some time.

 

Notably, the Fed reduced the growth outlook they held in December.  Not only are global markets, particularly China and Europe, continuing to struggle, the Fed has forecast a slowing of growth in the US, reducing U.S. growth expectations to the 2% to 2.5% range for 2019.  The slowing growth means that the Federal Reserve is likely to hold rates at current levels throughout 2019, and possibly into 2020.

 

This is a significant shift compared to Chairman Powell’s October 2018 statements expecting a “gradual interest rate normalization” for 2019.  That statement arguably sparked the sell-off in the fall.  Markets were already worried about slowing growth, and the Fed seemed disconnected to the risks that the markets were seeing.  Now, the Fed is singing a different tune, and is expecting to remain ‘neutral’ for the time being as the slowing economy becomes the focus.

 

Of course, the reduction of growth expectations is not the same as forecasting recession.  In fact, the Fed’s more patient, cautious approach reduces the risk that the Fed will raise rates too quickly and engineer a recession by putting the brakes on the economy too quickly.  Meanwhile, some of the risks to the global economy may still surprise to the upside.  Notably, China has started a massive stimulus program, which, if successful, could begin to re-ignite growth and stock markets.

 

In the face of such uncertainty, we remain committed to our long-range strategy.  Rising risks only remind us why we hold well diversified portfolios that include defensive positions like bonds, that are likely to do well if growth continues to slow.  Also, we continue to be focused on value, a discipline of buying into those areas that have more positive fundamentals.  Most importantly, we remain focused on developing strategies that are designed to fulfill our client’s goals despite volatile markets.

 

 

Share on Facebook
Share on Twitter
Please reload

Recent Posts
Please reload

Archive
Please reload

Related Posts
Please reload

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

Subscribe to our Weekly Newsletter

2945 Townsgate Road Suite 200

Westlake Village, CA 91361

+ 888-571-5582

help@cedarstoneadvisors.com

Send Us a Message