The Fed's 2022 Playbook

Written by Andrew Roth

The Federal Reserve recently announced they’ll be slowing their bond buying, signaling a likely increase in interest rates in early to mid-2022, earlier than some had anticipated. 

The Fed regulates our nation’s money supply with the goals of supporting maximum employment, stable prices, and moderate interest rates.  It has a variety of tools available to achieve these goals. The policy for the last few years has been outside of historic norms, keeping rates very low (near zero) while also buying tens of billions of dollars in bonds every month to stimulate the economy and support financial markets.  These efforts were made in the wake of the Covid-related economic slowdown in early 2020.

The Fed’s recent announcement seems to be an admission that the policies of the last few years overshot their targets and are contributing to a rise in prices. This move also seems to dismiss the notion that the inflation we’re seeing is “transitory” (whatever that meant to begin with). 

Regardless of the short-term reaction, this shift in guidance does little to affect our long-term outlook but does reinforce some of our convictions. 

• Although the stock and bond markets each represent their own unique risks, some individuals have underestimated the effect that an over-reliance on bonds may have on their portfolios, particularly during a rising rate environment. 

•  Some exposure to commodities, and companies less sensitive to inflation or with healthier cash flow, have seemed like prudent decisions even for lower-risk investors with the goal of outpacing inflation. 

• Although stocks can be volatile, corporate profits are still healthy. It’s important to remember what we’re investing in—ownership of productive companies that innovate to meet their customers’ demands, not just year to year, but beyond. 

• We believe it’s important to rely on the expertise of professional asset managers to evaluate what asset classes and segments of the market are best positioned to deal with macro-economic headwinds. 

Although there may be an overreaction to the Fed’s tightening monetary policy, we believe these steps will allow our economy to become healthier and more resilient the long-term.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.