Don't Sweat the Fed: Focus on Portfolio Goals Not Central Bank Statements
Investing.com | Feb 01, 2024 10:08
- The Fed disappointed markets yesterday, crushing March rate-cut hopes.
- This should have been expected as the central bank's priority is to eliminate any possibility of inflation returning.
- As investors, our priority shouldn't be a central banker's statement, but our portfolio allocation aligning with life goals.
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- The Fed decided to keep rates unchanged within the range of 5.25% to 5.5%.
- Powell maintained a strong stance on inflation, aiming toward the 2% target.
- Additionally, the Fed indicated a commitment to balance sheet easing and emphasized a vigilant, data-driven approach in their meeting-by-meeting monitoring.
- S&P 500: -1.61%
- Nasdaq: -2.23%
- Dow Jones Industrial Average: -0.82%
- Russell 2000: -2.63%
- Maximum employment.
- Price stability.
Yesterday's Fed meeting delivered what had been widely anticipated in previous weeks:
Clearly, the market did not like this, as we could see in major stock market indexes:
Looking ahead, our proprietary tool suggests a 37% probability of a first-rate cut at the next Fed meeting on March 20.
On the economic side, growth is advancing at a strong pace, and the labor market remains robust.
Inflation is also moving in the right direction, but before making any cuts it is good to still monitor the trend and make sure that the risk of rising prices is completely eliminated.
Quantitative Tightening is also moving forward, while the first rate cut is now highly unlikely to come in March.
Let's remember one thing as investors, however: Powell is managing the monetary policy. He is not operating to make money for us, or because he is somehow interested in our portfolio's performance. Powell has 2 goals:
In our pursuit of goals, the impact of whether Powell causes prices to rise or fall should not be a major concern.
As investors, our focus should shift away from the day-to-day statements of Powell or any central banker.
Instead, we should prioritize strategic asset allocation aligned with our life goals.
It's crucial to avoid becoming anxious when a central banker takes actions that may not align with our personal opinions.
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This dynamic mirrors the scenario in soccer, where everyone tends to assume the role of a coach – and in this case, central bankers!
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