As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….
Jerome Powell Gets Tough
Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.
Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.
As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.
Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree. In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.
As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.
On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.
While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.
Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.
Have a Great “About to Taper” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
Q 3 2021 Review – Let the Taper Begin, Interest Rates, Bumpy Season
Let the Taper Begin
In late 2018 the FOMC learned a valuable lesson that they are intent on not repeating. At their most recent FOMC meeting Jerome Powell, chair, made it very clear that the large monthly asset purchases, $120 billion to be exact, will begin to be tapered. Powell also made it very clear that the eventual raising of interest rates would not occur until the taper was complete unlike the events of 2018 in which the FOMC tapered and increased short-term interest rates at the same time, much to market participants dismay.
Bottom line if all goes well scheduled monthly asset purchases will be trimmed and eventually reach zero sometime next year.
Interest Rates
The most widely followed interest rate, the 10-year US treasury, after having a startling move earlier this year from under 1% to over 1.7% dropped back down to the low 1.2% during the most recent slowdown due to the variant.
Whether Powell’s comments, or the turning of the variant, interest rates have taken note and moved up smartly to over 1.5% beginning the normalization of higher interest rates which is very good long-term for the financial system
Kyle Bass Predictions
In our Q4 Newsletter we noted some very positive predictions from local financial mogul Kyle Bass, namely oil reaching $100 a barrel before the year end and continued Federal Reserve protection along with a push through to the end of the variant.
Hopefully all of these predictions come true.
The Worst of Times the Best of Times
September and October tend to be the most challenging months for Capital Markets mostly due to large institutions, think Fidelity as an example, closing their books on the year which make for more volatile times. So far, this theme seems to have played true.
The good news is notwithstanding our 2018 example from above, November and December tend to be some of the better months of the calendar.
As we head to the end of the year, we will be watching all of these and many other things very closely and will be communicating live on our blog at street-cents.
Sincerely,
John A. Kvale CFA, CFP
Founder J.K. Financial, Inc.
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Posted in Clients/Clients Only, Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Performance Report Cover Letter
Tagged Cover Letter, Interest Rates, Kyle Bass, Seasonality