Balance Sheet Runoff and Feds Funds Borrowing Rate – News or Noise to Your Portfolio!

News or Noise: Newsworthy

On Wednesday May 4th, Chairman of the Federal Reserve, Jerome Powell announced the first 50 basis point raise in short term interest rates in years and the status of the quantitative tightening, Fed balance sheet runoff schedule. Federal Reserve moves are newsworthy to your investments whether they are behind the inflation curve or not.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” This week’s topic is last weeks Fed move to raise the Fed Funds borrowing rate by 50 basis points and announced the Feds plans for balance sheet runoff for the 2nd half of this year.

In the meeting the Fed also directly stated they expected to raise by two more 50 basis point moves at the June and July FOMC meetings. These numbers appear to already be reflected in the shorter-term Treasury market yield curve. Powell shot down the talk of a 75bps hike at upcoming meetings for now.

As for the Fed balance sheet, they announced a combined 47.5 billion per month in runoff for the next three months and then doubling that to $95 billion per month starting around the 4th quarter. This is a little less up front than expectations and a little faster down the road. They specifically stated their intention is to be visible and direct in their guidance to lower volatility and its impact on the markets. The explosion in volatility across all asset classes the last two weeks has coincided with markets moods swinging wildly with Fed talk surrounding 75 bps hikes and Powell breaking out the Paul Volker references.

We continue to expect a summer slowdown due to higher mortgage rates and fewer government handouts to consumer, however the consumer remains in a good place with low unemployment and higher trending wages.

We stressed since last November, this should be a sloppy, choppy mess of a first 3 quarters in 2022. And yes, it is turning out messier than we imagined or forecast almost 6 months ago as the combination of higher long term interest rates, on the back of elevated inflation, while economic growth is slowing, has cut the S&P500’s forward multiple by about 5 points in just a few months. While tough to stomach, longer term investors should like the lower valuations the markets are now providing.

We think the Fed is on the right track albeit it slow and late. Their messaging needs to stay visible and rational which would lead to lower volatility and higher valuations in the second half. The Fed’s path is definitely news to your investments, and we will keep making it reporting news to our viewers throughout the year ahead.

Summary
Balance Sheet Runoff and Feds Funds Borrowing Rate – News or Noise to Your Portfolio!
Title
Balance Sheet Runoff and Feds Funds Borrowing Rate – News or Noise to Your Portfolio!
Description

Balance Sheet Runoff and Feds Fund Borrowing Rate, what does that mean for your retirement portfolio? On Wednesday, May 4th, Chairman of the Federal Reserve, Jerome Powell, announced the first 50 basis point raise in short-term interest rates in years and the status of the quantitative tightening, Fed balance sheet runoff schedule. Federal Reserve moves are newsworthy to your investments whether they are behind the inflation curve or not.