Recent Federal Reserve Commentary
Investors have been concerned about the Federal Reserve’s stated plan to be aggressive in tightening rates. In one day that concern significantly dissipated as Federal Reserve Chairman Powell indicated that he believed interest rates were near the Federal Reserve target of “neutral”. This commentary was significant as it was certainly perceived by investors that interest rates would likely climb higher at a rapid pace.
Because rates will likely now increase on a more gradual incline, markets rallied. Markets tend to rise when interest rate policy is dovish as lower rates reduce borrowing costs for businesses as well as consumers. Lower rates are a net positive for the real estate industry and, in general, provide economic tailwinds for economic growth. A recent CNBC article highlighted the Federal Reserve’s actions this week. They stated:
"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth," Powell told the Economic Club of New York.
Powell's address followed that of Fed Vice Chair Richard Clarida, who on Tuesday said that interest rates are "much closer" to a level that neither stimulates nor restricts growth.”
We adjust portfolio strategy based on our views on interest rates and economic data. We are not surprised that the Federal Reserve backed off their aggressive talk. We have positioned portfolios on the assumption that rates will be rising but not to the degree that many have expected. We will continue to adjust portfolios as needed and based on current economic and market information.
If you have any questions about this information, do not hesitate to contact us. We are always here to help! Happy December!