Later Rather Than Sooner: 

The Fed (Part 2)

From the outset of the Fed's post-meeting press release, it was fairly obvious that there were some concerns with recent economic data:

• Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.

more here:

 http://www.federalreserve.gov/newsevents/press/monetary/20150318a.htm

And in the end:

• When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

The $US collapsed on this statement.

Financial Markets began to build in a scenario of lower interest rates for a longer period of time:

• Bond yields fell: US 10 year yields to 1.92% (from 2.03%).
• Bond prices rose.
• Equity markets rose.
• The "party" continues for asset prices.

Remember that the Fed is "data dependant" and the data has not been good lately (other than the employment data).

• So we wait to see what the future data will reveal.

Does this impact our longer-term view?

• It could, if we are looking at lower levels of inflation for longer periods (and that's what the bond markets are suggesting), we will have to brace ourselves for potentially lower returns for our portfolios into the future (especially for the lower risk investments).
• To get greater returns, investors will be forced to take on greater risk and this can be dangerous.
• More importantly, investors will need to be vigilant to ensure that the fees they pay are not going to eat into their returns.

While we wait for the data and the Fed (and the other central banks), we need to assess the prospects for our portfolios and what steps might need to be taken to ensure continued reasonable "risk-adjusted" returns.

More on this to come.

The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.