Will the Fed Hold Up Its End of the Bargain?

Governor Jerome H. Powell discusses monetary policy accommodation, risk-taking, and spillovers during the policy panel on monetary policy spillovers and cooperation in a global economy: GP_IF_111414_1705

Looks like the Fed wants to keep interest rates higher for longer. Great. I’ll take it. But let’s not forget about some unforeseen black swan swooping in on their party, ruining their comfy projections, leading to rate cuts. Because in the real world, with live bullets flying overhead, you need to act knowing the Fed is an emotional beast. It could change course without warning. Be prepared.

Look, we don’t need to go back too far to see how the Fed gutted rates after the financial crisis and during Covid saving (temporarily?) the stock market. What will it take for them to jump ship on a new higher neutral rate? Their confidence in predicting where rates will be dozens of months from now is hubris. There’s plenty of surprises coming our way. That I know.

Which means, dear reader, I want you to focus on what you can control. You can own investments that kick off attractive yields, but I don’t like selling. It’s spinning your wheels to sell lower yielding bonds for pennies on the dollar just to get a higher yield. That’s running in place.

If you have a diversified portfolio, you should have money coming in from all over. You have money that was invested or reinvested this year, last year, and the year before. Your income is your portfolio’s lifeblood. Spinning your wheels to get higher yields with less money isn’t investing it’s market timing.

Action Line: Don’t believe we’ve heard the last word on interest rates. The Fed is an example of a human endeavor. They’re prone to getting caught up in emotional storms. You don’t need to. When you’re ready to put emotions aside and build a plan, let’s talk.

Originally posted on Your Survival Guy.