Are We Giving The Fed Too Much Credit For Influence?

The Federal Reserve recently raised a key interest rate .25% and in the 24 hours since, it seemed to be the only non-White House issue the media could talk about. What are the implications for the economy?

 

The Federal Reserve Is Just A Scorekeeper. Really.

Let’s consider the real factors here. When we drill down deeper, we see that the Fed is not causing interest rates to rise in itself. It’s responding to events when it raises or cuts an interest rate. Rates have been low for a decade.

No, the Federal Reserve is more of a scorekeeper. They keep track of the effect of events. To use a sports analogy, the Fed is like the referee in a football game. Do you pay attention to the referee first and foremost or do you pay attention to what the players are doing? For most of us, it’s the players who have our focus and rightfully so. The referee can make a call on what’s ruled a catch or not, but they don’t really make the players move about the field. They don’t call the plays. The talent on the field is the #1 influencer of the outcome. The referee merely aims to confirm the result is accurate and true in response to what the players are doing.

Think about this analogy when people say the Federal Reserve is going to determine the direction of our economy. We may be giving this institution, as important as it is, far too much credit on the outcome of the economic picture.

 

Keep Your Eye On The Prize: Investor Response To Capital

When we see oil prices crashing and oil exploration companies going out of business, what happens to all of those assets? Billions of dollars don’t just disappear. They’re waiting to be scooped up from these bankruptcies. So when there’s a lot of capital floating around, what does the response from potential investors look like?

This speaks to a larger question of what consumers in the U.S. do with their money – and many of them spend every penny.

A better question to ask yourself is, regardless of whether interest rates shoot upward or not:

  • What’s your strategy for your bond portfolio?
  • How much do you keep in cash and why?
  • Will you pay down your mortgage or float it across 15 or 30 years?

In addition, pay careful attention to changes in the global labor supply and wages over time. Right now we have about 3 billion people representing the total supply of labor in the world. Yet, as innovation advances, technology could push down the demand for labor on a global scale. What do these changes look like? Where are they occurring most from an industry and geographic perspective?

 

Don’t Try To Track These Changes On Your Own.

At Fiduciary Financial Partners, we’re helping our clients get a well-rounded view that not only considers far more than whether the Federal Reserve is raising or lowering interest rates today. We’re keeping a wide variety of factors in mind as they relate to portfolios like yours, customizing accordingly for the long haul based on your goals and making investment recommendations as only a true fiduciary can.

Let’s talk more about it with a no-strings-attached review of your financial statements and some insights you’re sure to appreciate. Call Fiduciary Financial Partners today at 630.780.1534.

 

John Eberle

John Eberle, CFA® is a Financial Advisor & Chief Investment Officer at Fiduciary Financial Partners. For nearly 20 years in the investment management industry, John has helped high net worth individuals plan a future that they and their families can embrace with confidence.

Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place. 

 

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