FED, Greenspan, Brian discussed on Money Matters
I was kind of floored when they did that, because the Fed doesn't usually give guidance past the next three or four months. Can you explain what that might mean to our average listener and how it may affect their portfolio? You know, the Fed has a couple of different mandates, You know, one of which is inflation related, and then another is unemployment. But the short version is when they keep interest rates low. They're providing liquidity to the markets their base and that's one. Uh, effect. Another, of course, is To really deter investors from parking money in the bank. That's going to pay you nothing and encourage you to invest in other things, like stocks and other types of bonds, for example. S so that that Z the basic mandate of the said a Z try to track inflation. They use interest rates to be able to adjust up and down based on their inflation expectations. So inflation's been 2% or so give or take or lower for a long, long time, so they're not worried about inflation number one If they were to. They want to be raising rates at some point inflation has really been in check based on the way that the head of the government defines inflation number two. They've used a ton of bullets between monetary and fiscal policy in DC, to try to come back the effects of this pandemic and the unemployment, So another bullet in their quiver, of course, is to just keep interest rates low. Almost to grease the economy to provide this liquidity right. So it is part of this ongoing strategy to not try to slow the growth of the economy. That's the interest rate possibly have so that you could look at that a little negatively. See, while I mean that really means of things, they're really, really kind of bad, Brian. So bad they're going to keep rates lower. That's kind of true, actually, right? That's been the case rates have been low for a very long time. And it's just this tool. They used to try to keep the economy moving and growing and not contracting, frankly, and it's always butting up against this idea of inflation, but it's unbelievable. We just have not had inflation rear its ugly head. Despite all the money printing that's going on in D. C. So that's the inflation that's part of its interest rate policy. It's going to stay low. How it benefits. People in the real estate side, of course, is that mortgage rates and refinance rates are very, very low. But bank rates and CD rates and savings accounts are very, very low is well, right, so it's kind of a double edged sword. But the Fed is doing what they think is best to kind of try to get us to continue to grow out of this most recent crisis. You think that very departure from normal policy and the fact that they did provide that type of guidance for a couple of years? Indicates that things are worse than they were before. Is that reading too much into it? Well, it's a little bit a little bit of bad. You know, the Fed is trying to be more open and transparent. So this is part of this new way that the Fed communicates and projects out more of what they're going to do, Which they at some point the past, you know, they were very vague and Nobody really knew what they were thinking. So now that's part of this new type of fed where they do want to be a little bit more transparent. But I do read into this. Yes, they realized that any Increase in interest rates, even if it was small could be just enough to really, really hurt the economy, right. That's important to know. When they did raise rates A couple of years ago, the market responded very poorly immediately. Right, so the Fed knows that they have now just said, Hey, the gloves are off. We're going to tell the world It's a low interest rate policy for at least a couple of years, and that does give some confidence in some ease in the broader markets. Transparency is a good thing you remember back when Greenspan was the Fed chairman and on CNBC in the morning, David Faber and Joe Kernen would watch film of him walking to the meetings on Wednesdays, and they try to indicate what the policy was going to be by the angle at which he held his briefcase. That's how much information they released back then. Hi, doll. You're right. It was funny. And it became, you know of writing joke, right? This phrase fed speak, you know was was invented because the way Greenspan and some that came after and spoke was just It's very opaque way that you didn't have to decipher every word, you know, And every every face looks Russian at the time, right? What they really saying here and the market would react to that right? So there is a more transparent regime with the Fed today, that is all true, and I think that's a good thing. Mean as we wrap up here, give us if you will your outlook for 2021 from an investment management standpoint, you know, we've gotten through the election or we will shortly have a certified winner and everybody seems to still be breathing. And is it Is it going to be a good year? I had I foresee elements of volatilities in the next 12 months. You know, we did have some years in a row a couple years back where the volatility was super low. And just, you know, the market is went on without any real ups and downs. I do see you know this environment in the next year or two to have these times where there's going to be the spikes in volatility. Despite all that, I think it will be. Ah, moderately good here. You've got to make sure. Most importantly, you know, if you can get through some of these volatile these spikes that I think will happen. And that could rattle some people is you've got to make sure that you have the right portfolio for you, the end client, the investor but listening to the show here that matches your overall financial prop profile. The best If you've matched up your overall financial profile and goals and.