Federal Reserve June Meeting 2021
As we began this week’s newsletter we were awaiting the dissemination of the results from the Federal Reserve June meeting. As usual, economic data is mixed in many regards and depending on what you want to conclude about asset values.
Inflation, the latest area of investor concern, seems to have stabilized, with mortgage rates headed lower this week along with otherwise stable interest rates that have fallen further this month. Concern in regard to inflation has been put to rest as far as the stock market is concerned as the S&P 500 set another new record high.
Investors tend to focus on the wording of Fed statements. Are interest rates stable and falling because the bond market is more skeptical of the robust economic rebound than stock investors? Although data this year is indicating a significant rebound, is the data delivered lower than expected? Is good news on the economy bad news for markets because interest rates and inflation will have to increase, and higher inflation and interest rates are bad for stock values?
Markets expect the Fed to continue its bond-buying program and rates to remain low through 2023. Expectations and reality can clash leading to market moves like the taper tantrum in 2013 when the Fed briefly raised the Fed funds rate shocking markets. History says that the bond market predicts interest rate moves more accurately than the Fed which is typically behind the curve. Right now, markets are saying inflation fears are transitory and there are more concerns about future economic growth.
The Fed statement after their meeting ended gave indications that inflation is of higher concern and the timing for raising interest rates has moved up to 2023. In the meantime, no comments about the current massive bond-buying and the Fed funds rate remains unchanged at .00-.25%. Market averages declined on the announcement but after absorbing the message the S&P 500 and NASDAQ recovered much of their sell-off.
My experience says let’s see what the market does tomorrow. In the bond market, interest rates were higher across the maturity continuum. Those low mortgage rates of this week will probably not be available by the end of today and tomorrow.
California reopened on June 15th and we went out for dinner with friends, inside, with no masks. It felt funny, yet surprisingly easy to slip back into pre-covid routines. Be patient with the transition from masks, social distancing, and other public health measures, and most importantly be patient with each other.
Traffic has certainly picked up! Monique noticed on her trek across SF to drop her daughter at preschool. But, more traffic means more people are out; more people are at work; more people are frequenting local shops. We remain cautiously optimistic with progress and improved circumstances for everyone.
Biden signed the Juneteenth holiday into law on Thursday this week. It's the latest federal holiday declared since MLK day was declared a federal holiday in 1983.
It’s officially SUMMER with the summer solstice occurring this weekend. We hope you steal some time outside to enjoy the sunshine.
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