No Action by the Federal Reserve
As expected, the Federal Reserve chose not to raise rates for the second meeting in a row. This is consistent with our view that the rate increase cycle is near an end.
Interestingly, some economists are coming on board with the notion that we may very well head towards a recession in 2024. We agree with this perspective. This is why we think there’s a reasonable chance interest rates will start falling in 2024. If this is the case, the brutal bond sell-off may lead to some recovery for the fixed-income market (as interest rates fall, bond prices rise).
One important point to keep in mind. Remember that when you look at the return on an asset, the position is listed a certain way online. Oftentimes, the reflected rate of return does not factor in dividends received.
If a position drops by 10% and has a 10% dividend, the net return for the year will likely be 0% but will show online as -10%. Something to keep in mind when you look at red numbers!
Please see below a recent article from CNBC outlining the Fed's decision. It’s a good summary of their action and perspective.
“The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.
In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.
The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.
“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”
Powell added that the FOMC is not considering or even discussing rate reductions at this time. He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.
“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.”