After two days of meetings this past week, the Federal Reserve kept true to form and expectations while outlining their next course of action. Open market bond purchases by the Federal Reserve will begin slowing in January (the tapering process) and is expected to wrap up by the end of the first quarter. This sets the table to start the process of raising interest rates, with the expectation set at three increases throughout 2022. The consistency in the messaging was well received. Our markets rallied on the news and moved closer to the high-water mark set only a short period ago. As Steven in our office reminded me this week, rising interest rates is a sign of a healthy economy. As we have discussed, the Federal Reserve’s primary role is to keep inflation under control. That time has certainly arrived!
Rising interest rates should begin to slow the flow and pace of money movements as the associated “costs” of such movements increases. As borrowing costs increase, decision making will change. It really becomes an exercise in math! With the amount of growth and recovery we have experienced in the last two years, this is a very normal part of the process. This does not mean we will not still see growth or pockets of opportunity; it simply means the pace at which the growth has been occurring should slow and become more measured. As with any structural and fundamental change, adjustments to portfolios and allocations are to be expected. We have been diligently working through that process on our end and planning for the next appropriate moves.
There is a tremendous amount of spending that is still to take place via our Federal Government in the coming years. The overall amount of stimulus being pumped into the system from the various COVID bills, will keep certain segments of the economy humming along. These are the areas of opportunity that look to be here for some time. Trust me, this is not a perfect science, and the headline risks remain. Just keep in mind that this perceived noise is there for a reason and intended to keep us guessing and watching. Fear and uncertainty stoke viewership and ratings. While I don’t wish for a long and overly cold winter, I do wish that our “proverbial” bear stays hibernated for some time.
Enjoy the last weekend before our various holidays! Like me, I’m sure you will be busy. Let’s all hope for a Santa Claus market rally at the end of this year!