Broker Check

Mosaic Asset Partners - The Fed Performs As Expected

September 22, 2023

The Federal Reserve wrapped up their two-day meeting this week and as expected, left rates unchanged. Is this a good or bad thing? I believe, in this case, it is both.

Things Appear to be Slowing Down

The reality is setting in that elevated rates are here to stay for the foreseeable future. The good thing about this is that even if we see one more increase before year-end, there is a strong feeling that the need to increase even further is quickly subsiding. The evidence is mounting via many recent economic reports that the economy is indeed cooling on many levels. While we may see intermittent spikes, such as the move higher in the energy sector, the prevailing sentiment is that a slowdown is gradually occurring. Chairman Powell made this statement in his post meeting comments. “We want to see convincing evidence really that we have reached the appropriate level {of inflation}, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion”. Sustained higher rates, for a longer period of time will have repercussions, especially in the lending and banking arenas. Prolonged, elevated rates will curtail certain types of spending which tends to have a trickledown effect into other areas.

The Good?

Why would this be considered a “good” thing? Consumers respond with their wallets. There is no question that our spending patterns are dictated by expenses and income (or as many of you have heard me say often – “Cash Flow”). We have already been witnessing a change in discretionary spending habits, which in turn has lowered demand for many of the goods and services we consume. As long as that part of the equation remains prolonged, the economic engine will continue to cool. As we accept the fact that higher rates are here to stay, we will continue to alter our patterns. It’s simple economic supply and demand! As demand cools, supply builds up. As supply builds up, costs are likely to gravitate lower. In my opinion, I believe the Fed has gone far enough now to let that scenario play out.

The Bad?

What’s the “bad” in this situation? For starters, mortgage rates and refinance options will remain elevated. Some potential new homebuyers or those ready to make a move have been holding out hope that rates would fall in the next 12-18 months and have been sitting patiently by. The decision to sit and wait may not be as appealing now that the cards are on the table. After all, we have become a society built upon instant gratification! New or used car loans, boats, RVs, and other higher cost items where many buyers use financing will be in the same situation. The old adage of assessing if this is a need or a want is coming back. We will simply need to accept that for now this is our new normal. I feel like I have used the “new normal” term so often over the last few years that it has become second nature.  

The Opportunity

The dichotomy between corporate profits and everyday worker pay seems wider than ever in today’s economic environment. Evidence of this is everywhere from the UAW (United Auto Workers) strike to the shutdown in Hollywood. This is certainly not a new phenomenon, but one that has garnered more attention than ever in recent weeks and months. Why is this occurring? I suspect it is for the same reasons I mentioned earlier in this letter. Everyone, including these workers, is beginning to think harder about where and how their dollars are being spent.

There is clear evidence that over the last few years in general, we have had more in our pockets, therefore more discretionary ability. Now, with costs higher across the board and expected to remain that way, we are re-thinking things or at least looking at them in a different light. Corporate America has always been in the business of making money. A true example of capitalism in the purest form. While we battle with our individual wants and needs on a daily basis, we still have control over our individual financial goals. We still have choices, and those choices can be heard via our wallets, for good or bad!

Have a great weekend!

Christopher E. Wasson, CFP®


Mosaic Asset Partners, LLC

1122 Kenilworth Drive, Suite 310

Towson, MD  21204

410.821.0089         fax 410.821.5993    

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS.  Investor Disclosures:

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.