{"id":8831,"date":"2020-09-08T15:52:13","date_gmt":"2020-09-08T15:52:13","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8831"},"modified":"2022-02-26T13:06:31","modified_gmt":"2022-02-26T13:06:31","slug":"how-will-the-latest-fed-moves-affect-the-economy-and-market","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-the-latest-fed-moves-affect-the-economy-and-market\/","title":{"rendered":"How Will the Latest Fed Moves Affect the Economy and Market?"},"content":{"rendered":"\n<p>Federal Reserve Chairman Jerome Powell made some significant\nannouncements at the Federal Reserve last week, but the news didn\u2019t gain much\ntraction in the financial media. For one, most people do not find \u201cFed-speak\u201d that\ninvigorating, or even interesting. But secondly, Powell\u2019s pronouncements did\nnot have any immediate impact or implications, as he was setting a course for Fed\npolicy <em>going forward<\/em>. Market watchers\nmostly shrugged.<\/p>\n\n\n\n<p>If you\u2019re a short-term trader (which I generally do not\nadvocate doing), this news probably does not have much meaningful impact. But for\nlonger-term investors, I see a few key takeaways \u2013 and they\u2019re all good for\nstocks. <\/p>\n\n\n\n<p>First, a quick overview as to what the announcement means\nfor Fed policy and possibly the economy. Chairman Powell indicated the Fed\nwould be implementing a \u201cflexible form of average inflation targeting,\u201d which\nis a convoluted way of saying that the Fed will pursue an average 2% (or more) inflation\ntarget over time. Because the 2% target has been elusive so far, the underlying\nimplication is that the Fed is now increasingly willing to allow inflation to\ndrift above 2% for \u201csome time,\u201d given that inflation has been running under\nthat target for such a sustained period.<sup>1<\/sup> <\/p>\n\n\n\n<p>A big takeaway I see: even if inflation ticks above 2% and\nthe unemployment rate drops back down to pre-pandemic levels, the Fed is <em>still <\/em>going to continue on with its\naccommodative monetary policy \u2013 which now includes asset purchases and interest\nrates at or near the zero bound. For investors, this means that \u201clower for\nlonger\u201d interest rates have basically been codified into Federal Reserve\npolicy.<\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_9_07&amp;content=stock_market_outlook_report\">In Times Like These, Focus on the Hard Data!<\/a><\/strong><br> \u00a0<br> 2020 has been a chaotic year of events to say the least. Still, there is money to be made. So instead of focusing on the \u201cwhat if\u2019s\u201d, I recommend staying calm and focusing on the fundamentals. To help you do this, I am offering all readers our just-released Stock Market Outlook report. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>What\u2019s \u2018Fair Value\u2019 on the S&amp;P500? <\/em><\/li><li><em>Setting U.S. returns expectations for the remainder of\n     2020<\/em><\/li><li><em>What should you think about COVID19 era jobs data?<\/em><\/li><li><em>An update on U.S. fiscal stimulus <\/em><\/li><li><em>Zacks Rank S&amp;P 500 sector picks<\/em><\/li><li><em>Status of global energy markets<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_9_07&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released September 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_9_07&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>_________________________________________________________________________<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/Image-1-of-1-1024x395.png\" alt=\"\" class=\"wp-image-8832\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>In my view, this pronouncement is not-so-good news for\nsavers and fixed income investors, but it could be great news for equity\ninvestors and borrowers. <\/p>\n\n\n\n<p>When it comes to the flow of capital, low interest rates tend\nto nudge investors into stocks, which is especially true in the current\nenvironment. Since the yield on the S&amp;P 500 is materially higher than the risk-free\nyield on U.S. Treasuries, investors have been increasingly moving further out\nonto the risk curve to own stocks and capture yield. In many cases, too, the\ndividend yield on large or mega cap stocks often far exceeds what one can get\nfrom low risk bonds. For income-seeking retirees, this often means owning a\nhigher percentage of stocks versus bonds. <\/p>\n\n\n\n<p>Chairman Powell effectively said that no rate increases or\nslowdown in asset purchases would happen unless certain inflation and\nemployment conditions were met, and today the U.S. economy is far from meeting those\nconditions. These changes bring the Fed back to the 1940\u2019s, when Fed leaders\nwere overwhelmingly focused on growing the labor market, and it also marks an\nend to the inflation-focused Fed of the 1970s. We can expect easy monetary\npolicy for years to come, in my view, and that\u2019s generally good news for\nstocks. <\/p>\n\n\n\n<p>As far as the economy is concerned, interest rates are\nalready at the zero bound, and the Fed is already engaged in asset purchases. So,\nthere\u2019s really no new stimulus here. But in my view, it is meaningful to send\nthe message to consumers, investors, and businesses that policy will remain\naccommodative for a longer period of time. In a sense, that\u2019s another form of\nstimulus: money is cheap and will remain so for some time. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>There\u2019s an old saying that investors should not \u201cfight the\nFed,\u201d which is a mantra I think applies today and also over the medium-term. Even\nwithout the Fed announcement, I could make a case for owning equities now based\non a nascent economic recovery and expected earnings growth over the next 12\nmonths. But if low interest rates are also a known quantity, I think it makes\nthe case for owning stocks even stronger. The Fed just made \u201clower for longer\u201d\na known quantity. <\/p>\n\n\n\n<p>When looking at stocks, you may be wondering what industries and sectors merit your attention. To help you get a deeper look into sectors that are performing well like Tech, I am offering all readers our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_9_07&amp;content=stock_market_outlook_report\">Just-Released September 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong><br> \u00a0<br> This report not only looks at Tech but highlights several factors that are producing 2020 optimism right now and contains some of our key forecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>What\u2019s \u2018Fair Value\u2019 on the S&amp;P500? <\/em><\/li><li><em>Setting U.S. returns expectations for the remainder of\n     2020<\/em><\/li><li><em>What should you think about COVID19 era jobs data?<\/em><\/li><li><em>An update on U.S. fiscal stimulus <\/em><\/li><li><em>Zacks Rank S&amp;P 500 sector picks<\/em><\/li><li><em>Status of global energy markets<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>4<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fed\u2019s policy suggests low interest rates will continue\u2014making the case for stocks even stronger <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8831","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8831","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=8831"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8831\/revisions"}],"predecessor-version":[{"id":10550,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8831\/revisions\/10550"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8831"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8831"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8831"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}