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Don't try to guess on the Fed moves. May not the best idea.

Don't try to guess on the Fed moves. May not the best idea.

April 19, 2024

The ultimate goal of what I’m going to try and convey in this post is: A well-thought-out financial plan, with an investment strategy designed to weather several market scenarios, paired with diversification and academically-based, sound financial plans work. Stick with your financial plan, even if you don’t like the political party in office, or understand what is going on with the Fed and their interest rate decisions.

I’ve said it before, don’t try to predict the market, gamble much, or guess what the Fed will do. Following the Fed, and listening to what they say they will do with rates is hard. I remember in college I had a professor who would comment on the tone, grammar, and outfits of a Fed person which all just might help reveal the Fed’s intentions.

When the Fed met in March this year, its officials said they expected to see three quarter-point cuts in short-term rates by the end of 2024. That’s ¾ of 1%, or 0.75% (75 basis points). But hold the phone (by the way, ask a kid or grandkid out to do the hand signal for answering or hanging up a’s hilarious).1

But not all Fed members beleive that rate cuts are even appropriate right now. After the March meeting, Atlanta’s Fed chair President, Raphael Bostic, suggested only one cut this year. San Francisco’s Fed President Mary Daly said there should BE NO CUTS guarantees, and Cleveland’s President Loretta Mester thought rate cuts are a MAYBE for later this year. While Minneapolis’s very vocal President, Neel Kashkari, said that NO CUTS may be on the table at all this year. Once Michelle Bowman, the Fed Governor heard this, she said it’s possible that rates may have to move higher to control inflation.2,3

“Turns out your friend (rate cuts) here is only mostly dead. See, mostly dead is still slightly alive.” Princess Bride anyone?

Confused? You should be. If you think you know what the Fed is going to do, you very well might be wrong. The markets don’t know what to think either. We’ll use different tools to see what analysis, market speculators, and academia think will happen to rates. Sometimes, the collective wisdom is not very wise, and other times it may not know what to think.

April’s hot CPI (Consumer Price Index) report of 3.5% only added to the confusion. When consumer prices came in a bit hotter-than-expected, that added to the uncertainty about what’s next with the Fed.4

So, as we started, try to stay focused, tune out the noise, and don’t get pulled into the guessing game “What the Fed is Going to do Next?”

We as financial planners create a well-thought-out financial plan to take out the guessing game and timing the market. Our firm is not in the business of guessing the Fed, we are in the business of creating a financial plan, so you don’t have to worry about guessing the Fed’s next move.

If you need a pep talk, give me a call.

1., March 20, 2024. “Fed holds rates steady and maintains three cuts coming sometime this year.”
2., April 5, 2024. “Fed’s Powell emphasizes need for more evidence that inflation is easing before cutting rates.”
3., April 10, 2024. “US consumer prices heat up in March; see delaying Fed rate cut.”