As expected, on Wednesday of this week the federal reserve raised rates by 75 basis points (.75%), an early leak to their favorite Wall Street Journal reporter all but absolutely solidified this decision. Note the speed of the move compared to the most recent rate increases…
Now with an open calendar of over two months the federal reserve can head for the hills and get some R&R before having to stew over the next meeting ….. and what will be likely a much more complicated decision! Recall here our note about being in a pickle!
Speaking of R&R this note comes from a cooler higher altitude climate as the family and I recharge the batteries, sharpen the saw or however that goes, and spend time together. A turnaround trip back home is a necessity for the incoming freshmen‘s mandatory sport tryouts with a quick return back to the family …. hopefully!
Today is a Friday, hope you may have some time for some R&R as well!
Happily, the schedule shows several road trips in the next few weeks making for a fast May …. Nothing air related, but a nice drive in all different directions in a return to normal…. as also mentioned in our Three Positives Happy Post here mid week….
FED Increases Rates – Jerome Powell
Mid Week, as expected the FOMC (Federal Open Market Committee) led by Jerome Powell increased the Fed Funds Rates (think our checking accounts) by 1/2 Percent or in Wall Street Speak, 50 basis points… We will talk more about this soon, but wanted to let the Capital Market Dust Settle before diving in….
Friday in the South – Heated Weekend
With near 1000 followers … many from all over the country of friends and clients we like to toss you the rollercoaster ride of deep South Texas weather every once in a while … a high 40 degree mid week start of the day to only top out at 60 this week, was a cool spell …. this weekend Donald the Brain hits 100 in his neck of the woods and we are expecting mid 90’s…
That is ok the cold, rain and ice are gone… Lot’s of water, sunscreen, shade and no extended time in the first round of heat….
Have a Great Friday and super Weekend- Talk next week!
In the middle of this week as noted here on the FOMC Calendar the FOMC chaired by Jerome Powell will most likely increase the short term federal funds rate by 25 basis points or .25%. … think your checking account interest rate.
CME Estimator at almost 100% .25-.50% increase
While the last FOMC meeting was approximately 2 months ago, what may seem like a decade given the events that have unfolded in the last 60 days, Powell in several speeches recently walked back the original 50 basis points or .50% thinking that many market participants had priced in.
Last week’s continued hot CPI report, has bond market participants pushing the probability up of further rate increases, and maybe even a higher 50 basis point rate increase this week that even the Fed has said cryptically would not occur.
As can be seen by this expanded detailed graph of the FOMC federal funds rate versus the two year treasury, the treasury market has rate increases priced in very far ahead of the FOMC.
Should the Federal Reserve increase by 50 basis points, with market participants for the most part not expecting that, turbulence would likely be the result.
This meeting is also accompanied by the economic forecasts also known as the dot plots of the Federal Reserve members, which are their expectations of future interest rates. Keep in mind these estimates fluctuate dramatically, but make for good information.
Look for more detailed information from us on the possibility of why the CPI has already neared the highest end of its range and will continue to roll over as we get copyright approval from a great new source to help explain what’s going on with that report. No doubt we are all feeling inflation costs especially at the food and the gas lines, but due to comparables the other nonparticipating inflationary pressures will likely over power the few extreme outliers.
FOMC (Federal Open Market Committee) members use the very short term Federal Funds Rate (think interest on your checking account) to help throttle the economy. When it is too hot they raise rates. In Paul Volcker’s case to almost 20% way back in the hyper inflation days. When the Economy is struggling they lower rates, as of late to zero, both post Great Financial Recession and the most recent Virus induced mini-recession.
There is an interesting predictor or front runner of the FOMC interest rate movement, sparred by the very short term fixed income traders, specifically the 2 year Treasury bond.
Markets Pre-Empt FOMC Rates
The chart below is of the Two Year Treasury (Red Line) and the afore mentioned FOMC Fed Funds Discount rate (Blue Line) –
The correlation is so strong it is almost hard to even see there are two lines….
Zooming into a shorter time frame of just 5 years, not only can we see the difference, but in looking over to the right, the markets are predicting multiple rate hikes in short order, at this time!
Will see if this holds, but as mentioned in our post earlier this week here, Economic number and the markets are expecting rate hikes!
SECURE Act is Signed at the Finish Line of the Year
As mentioned here in our preview post, with a stroke of a pen on the Saturday before the Christmas week, the SECURE ACT (Setting Every Community Up for Retirement Enhancement) – Wow that is a mouthful!
The Biggies:
Age 72 RMD, up from the confusing 70.5
Non-Spouse 10 Year Mandatory distributions of Inherited IRA – Mandating taxes by beneficiary
Tons of planning techniques and lots more to the law, but these again are the biggies!
Capital Market Comments –
FED Pauses and Markets Yawn… Finally
The FOMC (Federal Open Market Committee) led by Jerome Powell and company, FINALLY were able to not lower rates and market participants accepted it… Shhh, lets keep it our secret..haha
Happy 2020!
Have a Great Day – Talk to you at the end of January!
Email is the New Physical Address – Harder to Change
With email replacing our home address in importance, its not a surprise and only a mild inconvenience (due to the safety) to have to get a signed form in order to change our address.
In our descriptive post on the subject, we also predict eventually we will all likely be forced to transact most of our business in a paperless way…. Uncomfortable for many, but much better for our environment in the long term!
Why an Inheritance is Usually NOT Taxable
After running into this question numerous times we did a post here, and will also have an expanded article coming in our Q1 2020 Newsletter.
For the most part, inheritances are not taxable and in our post we go over the reasons why, and discuss techniques for being most tax efficient.
Just after this post a good follow on subject directly related to this post occurred that will go well in our “Why” Series Collection – Watch for another Inheritance Related Post and likely Newsletter Article !
Capital Market Comments –
When FED lowers, Recession Averted? Hmmmm
Near the end of the Quarter, as mentioned in our Fire Hydrant CEO post here, we ran into a most interesting chart (below)….
A first ever to see, the speaker points out that recessions are averted when the FED (Federal Open Market Committee – Jerome Powell the leader currently) lowers rates during an inverted yield curve… hmmmm
Not to worry, doing more research on this … oddly the speaker did not think much of Powell’s economic prowess, but spoke firmly that due to his LACK of horsepower on the Economy he may have a better chance of soft landing this slowdown…
Always learning!!
Have a Great Day – Talk to you at the end of December!
Hello and Welcome to our October 2019 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!
BREAK IN
D Magazines Best Wealth Managers
D Magazine Best Financial Planner – 13th Consecutive – Wow
Sirius Satellite Radio Co-Host
Newbies –
We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!
October – 2019 Video
Financial Planning Tip (s) –
Why we want ANY seeming Important Document
In this post, due to recent fantastic $$ savings just by having access to very old documents… some almost two decades, we were reminded of how important it is for us to safely keep ANY seeming important document…. forever
Only thing is, if we do not have a soft copy… we cannot save it!
Capital Market Comments –
FED Lowers Once Again, another .25% – Likely Pause Expected
Jerome Powell Chief of the FOMC (Federal Open Market Committee) lowered rates by .25% to the 1.50% to 1.75% range, which will directly effect our overnight money, such as checking accounts and money markets… We think in part, to answer expectations… the good news is they have set future pause expectations… which we like!
Longer term rates have followed a bit, for now.
Have a Great Day – Talk to you at the end of November!
Last Wednesday the FOMC (Federal Open Market Committee) led by Jerome Powell and attended by Dallas’ own Robert Kaplan, lowered rates by .25% to 1.75 to 2.00% Range…
FOMC Lowers rates once again
With a ton of information coming at you (Newsletter is full of interest rate talk) we will keep this short…
The FOMC lowered rates a second time, making for an unofficial change in this cycle from raising to lowering of rates….
While the chart above may seem extreme … let’s look longer term….
It’s ok… a .25% move is not that much, but we really would like room to lower when the inevitable recession comes…. who knows, if the tariff talks get fixed, raising of rates may be in the cards…. wouldn’t that be an interesting turn of events… hand tight, we have your back!
Today is a wet Friday, enjoy your weekend and grab that umbrella.
On Wednesday July 31, 2019 the FOMC (Federal Open Market Committee) led by Jerome Powell and attended by our own Dallas based Robert Kaplan, did something they have not done in over 10 years…. LOWER RATES.
While we crowed ‘Not Necessary” they walked a great tight rope…
In this post announcement article…. and somewhat funny CNBC article, over a dozen … so called “Expert” firms completely disagree in all directions on what the Fed will do next!
PERFECT!
With disagreement on what they will do next, no expectation will be ….. well … EXPECTED!
If I were a Fed official, that is exactly the way you want it … freedom to stay put, lower or raise without fussy Market Participants all weighing in on the same side of the fence.
They also stopped the winding down (selling reserves back to the market) of balance sheet reduction, which was a net tightening.
So let’s say they are in neutral now and have created the freedom to drive wherever they want! Nice..
Sorry we got a bit deep on this, this week, but we felt it important and wanted to keep you in the know!
Speaking of in the know – We have collected a few new examples of scamming that we will bring to your attention next week – One so clever it’s hard to believe!
Ahhh…but it is a Friday….
Care to guess what today and next week brings?
Last looong, big tournament of the summer…..
Thanks goodness for a new unlimited Cell plan and neat technology … Will be in touch!
Hello and Welcome to our January 2019 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format as well as Video!
Newbies – We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!
January – 2019 Video
Financial Planning Tip (s) –
Get and Earlier than normal start on those Taxes
Here in this post, we remind everyone that due to the new tax laws, it will be a good idea to get your tax information to your professional as soon as possible.
If your using tax software, be sure to do the recommended updates as we feel certain there will be necessary updates to the tables along the way.
Corrected 1099’s are the usual, with only a few last year, we will give everyone the green light once we get our first round of corrected tax forms – but again go ahead and get started with your taxes!
Stunning Findings about your old employer 401k
We had long suspected as much, but in this post we review a Cerulli study that interviewed over 800 401k providers, only to find out that less than 30% really want your funds once you leave.
We have experienced less than stellar service over the years with former employees 401k plans – leading to our long suspicion of these findings.
Make Pension Changes/Decisions Carefully
While our favorite commencement benefit for pensions (100% jt survivor) is fairly straight forward, the simplicity ends there.
In this post, we review recent trends in buy outs and what to watch for, as well as the many scenarios we have experienced that are not always in our best interest.
Capital Market Comments –
Good News – Recovery without a Re-test – So far
What a different a month makes – WOW! We literally have gone from the sky is falling to sunshine!
In our summary post in December, we mentioned that fast moving slumps, such as the one we had, frequently do not last long….
Here, earlier in the month we also mentioned that we fully expected some type of retest of those lows before we gained our footing.
We still do expect some type of re-test, but as of this date we have had the following positives that have added to the markets better mood:
Federal Reserve (FOMC) have turned very cautious about raising rates further (We are happily surprised at their yielding, and even more surprised at market participants joy)
Tariff talks are making progress – Interestingly, China has seen a slow down in their economy making for slightly more urgent talks – with a little compromise and statesmanship a resolve looks more likely – again a positive for capital markets.
Earnings are still cranking along – For the prior 4-6 quarters, earnings were red hot and hitting on all cylinders, so hot, they were not sustainable. Companies are still reporting good earnings, just not the Red Hot, overheated earnings from prior quarters – this is good news as it avails the FOMC to not have to raise rates to slow the economy –
All in all a Win- Win!
Have a Great Day – Talk to you at the end of February!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
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Fed Raises Rates and then heads home for some R&R for over two months … Last Friday of July … Going Fast …
As expected, on Wednesday of this week the federal reserve raised rates by 75 basis points (.75%), an early leak to their favorite Wall Street Journal reporter all but absolutely solidified this decision. Note the speed of the move compared to the most recent rate increases…
Now with an open calendar of over two months the federal reserve can head for the hills and get some R&R before having to stew over the next meeting ….. and what will be likely a much more complicated decision! Recall here our note about being in a pickle!
Speaking of R&R this note comes from a cooler higher altitude climate as the family and I recharge the batteries, sharpen the saw or however that goes, and spend time together. A turnaround trip back home is a necessity for the incoming freshmen‘s mandatory sport tryouts with a quick return back to the family …. hopefully!
Today is a Friday, hope you may have some time for some R&R as well!
Talk next week…
John A. Kvale CFA, CFP
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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Fed Funds Rate, FOMC, Interest Rates, R&R, Vacation