{"id":10105,"date":"2022-01-13T19:18:53","date_gmt":"2022-01-13T19:18:53","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10105"},"modified":"2022-02-26T13:05:36","modified_gmt":"2022-02-26T13:05:36","slug":"how-will-feds-policy-shift-affect-the-market-in-2022","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-feds-policy-shift-affect-the-market-in-2022\/","title":{"rendered":"How Will Fed&#8217;s Policy Shift Affect the Market in 2022?"},"content":{"rendered":"\n<p><em>Sean F. from Savannah,\nGA asks: <\/em>Hi Mitch, I\u2019m writing to ask for your thoughts on the latest\nFederal Reserve comments, regarding interest rate increases sooner than later.\nThe markets seemed to sell off on the news and have been a bit volatile since.\nWill this be problematic in 2022?<\/p>\n\n\n\n<p><strong>Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n<p>Thank you for emailing your question. The Fed minutes from\ntheir December 14-15 meeting certainly made a splash in the headlines last\nweek, and for good reason \u2013 Fed monetary policy impacts the economy.<sup>1<\/sup><\/p>\n\n\n\n<p>For readers who may have missed the announcement last week,\nwe know based on the Fed\u2019s December meeting that the central bank is no longer comfortable\nwaiting for inflationary pressures to ease. Here are some key quotes from the\nmeeting: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201c<em>[Fed] participants generally noted that&#8230;it<\/em><em> may\nbecome warranted to increase the federal funds rate sooner or at a faster pace\nthan participants had earlier<\/em><em> anticipated<\/em>.\u201d<\/li><li>\u201c<em>[Some Fed participants deem it] appropriate\nto begin to reduce the size of the Federal Reserve\u2019s balance sheet relatively\nsoon after beginning to raise the federal funds rate.\u201d<\/em> <\/li><\/ul>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-retirement-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_retirement_guide_zim_01_12_2022&amp;content=retirement_guide  \">Looking for a Guide to Planning an Easy Retirement?<\/a><\/strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-retirement-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_retirement_guide_zim_01_12_2022&amp;content=retirement_guide  \"><br><\/a> \u00a0<br>For investors who are planning for retirement soon, we can help you! Truth is &#8211; the sooner you plan, the better advantage you will have for your financial future. <br> \u00a0<br>If you want help creating a long-term financial plan and investment discipline, I recommend reading our Retirement Guide. This guide will give you a step-by-step outline of how you can plan for your financial future. You will get answers to critical questions like:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>How much should you be\nsaving?<\/li><li>What is the best\nlong-term approach?<\/li><li>How do you hire the\nright money manager?<\/li><li>And more\u2026<\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about retirement planning, click on the link below to get your free guide today!<br> \u00a0<br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-retirement-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_retirement_guide_zim_01_12_2022&amp;content=retirement_guide  \">Download Your Copy of \u201cRetirement Made Easy\u201d Today!<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-retirement-guide?source=website&amp;medium=blog&amp;term=mitchsmailbox_retirement_guide_zim_01_12_2022&amp;content=retirement_guide  \">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>Trading in interest rate futures indicates an approximately\n70% probability the Fed would increase the fed funds rate at or before their\nMarch meeting, a greatly accelerated timeline from expectations just two months\nago. It is also worth noting that the decision to potentially begin shrinking\nthe size of the Fed\u2019s balance sheet soon after rate increases are new \u2013 during the\nprevious rate hike cycle in the 2010s, the Fed waited about two years before\nreducing its balance sheet.<\/p>\n\n\n\n<p>Sean asks if this \u2018Fed pivot\u2019 to the more hawkish policy\nwill be problematic in 2022. I think the market and economy can absorb tighter\npolicy for two reasons. <\/p>\n\n\n\n<p>First, it is also important to acknowledge current Fed\npolicy is extraordinarily accommodative. In other words, even if the Fed\nfollows through with ending QE, raising rates three or four times in 2022, and they\nstart shrinking their $8.76 trillion balance sheet over the year, they <em>would still <\/em>end the year with a very\naccommodative monetary policy stance, by historical standards. The Fed\u2019s\nactions in 2022 may be better described as \u2018becoming less accommodative\u2019 versus\nengaging in monetary tightening, in my view. <\/p>\n\n\n\n<p>Second, during the last cycle, many readers may remember\nthat the Fed started raising interest rates in December 2015, pushing the fed\nfunds rate from 0.5% in December 2015 up to 2.5% in December 2018.<sup>3<\/sup>\nI am not saying there was no market volatility in the wake of the monetary\ntightening \u2013 there was. But for long-term investors, short-term market\nvolatility should not be much of a factor. Market returns matter over years and\ndecades, not weeks and months. <\/p>\n\n\n\n<p>As you can see from the chart below, Fed tightening caused a\nfew blips and pullbacks during the last bull market, but QE tapers and rate\nhikes were not powerful enough to prevent the market from pushing higher over\ntime. The bull market cycle continued for years after rate hikes commenced.<\/p>\n\n\n\n<p><strong>The S&amp;P 500 During\nthe Previous Monetary Tightening Cycle<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_pic1-3-1024x395.png\" alt=\"\" class=\"wp-image-10106\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>So, while I do think a shift in Fed policy and interest rate\nincreases could result in heightened volatility in 2022, I do not necessarily\nview their approach as \u2018problematic.\u2019 I still expect economic and earnings\ngrowth to continue apace in the new year, albeit at more modest paces than last\nyear. <\/p>\n\n\n\n<p>With that being said, investors, especially those looking to\nretire soon, are probably wondering what does this mean for their investments\nand retirement plans? Here\u2019s the truth \u2013 if you start preparing for your\nretirement now, you will have a better advantage when making future financial\ndecisions (<em>even when the market is volatile<\/em>!)<\/p>\n\n\n\n<p>To help you do this, I recommend reading our Retirement\nGuide.<sup>5<\/sup> This guide will give you a step-by-step outline of how you\ncan plan for a successful financial future, and it provides our answers to\ncritical questions like:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>What is the best long-term approach?<\/li><li>How do you manage your retirement income for\ntaxes?<\/li><li>How much should you be saving?<\/li><li>And more\u2026<\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn\nmore about retirement planning, click on the link below to get your free guide\ntoday!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch looks at last week&#8217;s comments from the Federal Reserve, and what this changing outlook means for investors. <\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-10105","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10105","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=10105"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10105\/revisions"}],"predecessor-version":[{"id":10219,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/10105\/revisions\/10219"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=10105"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=10105"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=10105"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}