What if the Fed Doesn’t Cut Rates this Year?

Episode Transcript

(00:00):
This is straight talk from the housewith sort of fine financial planner Tracy and
Ton right here on thirteen ten Wib A. Haven't been to the website
recently, definitely head on over TantonInvestment House dot com. It's a great
resource to learn more about Tracy theteam at Tanton Investment House. Also a
great opportunity to schedule an appointment ata time and a date that's convenient to
you. The website Tanton Investment Housedot com. That's t A N t

(00:24):
O N investment House dot com.Of course, t Anton Investment House a
fee only fiduciary with offices at Middleton. Speaking of the office in Middleton,
give him a call. Six oheight five zero one, fifteen forty nine.
That's six oh eight five zero one, fifteen four and nine. And
joining us this morning is certified financialplanner Tracy Anton. Tracy, how you
doing this week? I'm doing great, John, how about you? I'm

(00:44):
doing well. I'm happy that it'skind of summer, like the days where
it's sunny have been fantastic. Soexactly, yes, for sure, we've
got a full show ahead. I'mjust kind of looking over the notes.
This is going to be a veryinformative one as always in for folks that
don't have no tes in front ofthem, like I do. What are
we going to talk about today,Well, earlier this year, many investors

(01:04):
sean believed that the US Federal Reservewould lower rates at least four times by
the end of twenty twenty four.At least that's what people were expecting.
So today we're going to talk about, well, what if that doesn't happen,
What if the Feds don't cut ratesat all this year? So we're
going to summarize a discussion that wasdone by an economist, Darryl Spence,

(01:26):
and he has like thirty one yearsexperience in the financial business, and he
works for Capitol Group, and hewrote this article and basically he's talking about,
you know what if they don't cutand he thinks that they just might
not And he said he thinks,given inflation is higher than expected, it
may be unlikely that we see arate cut this year. And again for

(01:48):
people that were hoping that we would, like most investors, hope that there'll
be a rate cut, this mightfeel like canceling Christmas. But the Federal
the FED decides if they do decideto keep rates study, it's not necessarily
a bad thing. And that's thething that I want to bring out,
you know, depending and he evensays, depending on the rationale, and

(02:10):
in his opinion, you know,there are three good reasons to maintain the
current federal funds rate through twenty twentyfour. The other thing that he said,
though, is that markets can dowell even if rates stay higher for
longer. And I and I hopethat whoever is listening can hear that one
sentence one more time, which isbasically, rates markets can do well even

(02:32):
if they keep rates higher for longer. Write that down because it'll be on
the quiz at the end of theprogram. That is, no quiz,
no no cancers always see anyway aboutthere we go talking with certified financial planner
Tracy Onton right here on thirteen tenwuib A the website Tanton investment House dot
com. That's tantoninvestment House dot com. Delvih number six oh eight five zero

(02:55):
one, fifteen forty nine. That'ssix eight five zero one fifteen four and
so kind of the big thing hereis how this affect the US economy?
What do we need to know their? Tracy, Well, again, the
economist Richard Spence. He thinks theUS economy can handle it because it keeps
growing steadily despite a significant rise inthe federal funds rate. You know,
right now we're at a twenty threeyear high shot of five point twenty five

(03:20):
to five point five percent. Soit is surprising that the markets are really
the economy is held up as wellas it has. And the International Monetary
Fund the IMF, they do predictthat the US economy will grow more than
twice as fast as other major developedcountries this year. So last week the
IMF increased its forecast for US economicgrowth to two point seven annually, compared

(03:45):
to zero point eight percent for Europeand point nine for Japan. Wow,
that is substantial. Talking this morningwith certified financial planner Tracy and Ton right
here on thirteen ten WIBA the websitetantoninvestment House dot com. That's tanninvestment House
dot com. Of course telephon numbersix eight five zero one, fifteen forty
nine. So is this kind ofsurprising that the economy isn't in a recession?

(04:09):
And of course why do they thinkwe're not in a recession? Tracy,
that's a great point. I mean, they're saying that the strength of
the US economy, even with ahigher interest rates, has been one of
the biggest surprises in the past twoyears. Not long ago, many investors
and economists actually expected a recession,right, we've been talking. That was

(04:29):
a big r word all really lastyear. Now it seems the US economy
might have exceeded the IMF forecast,potentially reaching a three percent growth rch on.
So again, this optimism basically isdriven continued by consumer spending, a
strong job market, and manufacturers investingin more diversified supply chains after the pandemic.

(04:51):
So you know, my personal takehere is just you know, we're
still coming out of COVID. Imean, I've actually heard people say that
they've been traveling kind of for thefirst time. So I still think that
people are excited to get out thereand use the dollars that they hadn't been
using up. So I think it'sa pent up demand. But this all

(05:11):
points to the fact that this kindof growth usually doesn't happen with rate cuts.
So the US economy seems to haveadapted well sean even to the higher
rates. This higher rate environment.So even with home mortgage rates around seven
percent, as of April. Bothhome sales and prices have been rising in
early twenty twenty four, and becauseof this resilience, there's concern that the

(05:35):
US economy could overheat if the FEDdoes cut rates too soon, potentially sparking
inflation. Again. Well, thatis interesting. So with that talking about
inflation, is the economy still kindof in that fight, still battling inflation?
Yeah? I believe it is.I mean, there's no doubt the
FED has made some good progress infighting inflation, but the job really isn't
done yet. Consumer prices have droppedfrom their peak in June of twenty two

(06:00):
two, but are still well abovethe fed's two percent target. So the
last stretch from this three percent totwo percent inflation could be pretty much the
hardest part, and it will takelonger than the FED officials expect. So
Feed Jerome Paul acknowledged this when hesaid we'll need greater confidence that inflation is

(06:21):
moving substain or sustainably toward two percentbefore it could be appropriate to ease policy.
That was like quote unquote, Soagain, this statement came right after
the March inflation report was higher thanexpected, so that caused markets to revise
their optimistic rate cut expectations. Sothe January and February inflation readings were also

(06:43):
higher than anticipated. So again thisis just you know, a one isn't
really a one time occurrence. Sothere is concern here right that going from
three percent inflation to two percent willbe harder than expected. Stuff we're going
to be keeping an eye on forsure. As we talk with certified financial
planner Tracyanton right here on thirteen tenWI b A don't forge. You can

(07:04):
learn more about Tracy the whole teamat Tanton Investment House. Also looking look
back and listen back to this programin previous shows. I got to do
is head on over to the websiteTanton Investment House dot com. That's spelled
t A N T o n investmentHouse dot com. Also, while you're
there, you can schedule an appointmentat a time and a date that's convenient
to you. If you're looking formoney management or portfolio management. Tracy and

(07:27):
the team they'd love to get toknow you. They'd love to talk with
you and work with you. Igot to do his Head on over to
the website Tanton Investment House dot com. That's T A N T o n
Investment House dot com. Tell phonopreif you want to pick up phone give
them a call. You can justsurely do that. Six oh eight five
zero one fifteen forty nine. That'ssix oh eight five zero one fifteen forty
nine. So, Tracy, whywouldn't the FED cut interest rates? While

(07:50):
inflation has come down a lot sean, it's still above that FEDS two percent
target. So if a FED doesn'tcut rates this year, it will likely
be because inflation isn't dropping as quicklyas the central bank officials expected. So
again, the recent decline in inflationhas been in the consumer goods sector,
where prices have been basically falling thefastest nearly twenty years. So this isn't

(08:15):
the most sustainable, especially since theUS dollar isn't strengthening as quickly as it
did last year. So additionally,you know, we have rising home prices
and that might impact rental inflation morethan before and due to changes in how
the data has been collected. SoI mean, what we're looking at here
is beyond housing inflation, and theservice sector is moving in the wrong direction

(08:39):
and increasing at an annualized rate abovesix percent over the past six months.
So again this is largely due tostrong wage growth from a robust labor market.
And again, while the US unemploymentrate was slightly increased to three point
eight percent, it's still at afifty year low. Again, so some
might think that inflation between two anda half and three percent is Hey,

(09:01):
that's close enough, right, Imean I would think that, sure,
But the Fed apparently has consistently emphasizedthe importance of hitting that two percent target.
And before the pandemic, when theissue was too little inflation, the
FED officials thought rates of one anda half or one point six were too
low. So being forty or fiftybasis points above the target apparently is again

(09:24):
too high. Now I don't everremember if they actually hit that two percent
target in the first place. Idon't remember. That is interesting, and
you mentioned, yeah, are weclose enough? Yeah, we still still
want to. You know, thiseconomist is making the case right that you
know, there might not be arate cut, That's what you know.

(09:46):
And that's that's his whole point,that it might not happen, And that's
because they really want to get tothat two percent target. This is fascinating
stuff. And we talked about howthis is going to affect the US.
It could affect the US economy.We'll talk about how this will be affecting
them markets. We'll get the detailsfrom Tracy in just a moment. In
the meantime, you've been over tothe website, head on over there now.
It's a great great read, greatinformation. Also chance to subscribe to

(10:07):
the podcast at Tanton Investment House dotcom. That's t A N T O
N investment House dot com. Alsofantastic. If you're looking for money management
or portfolio management tracing the team att Anton Investment House they'd love to talk
with you. You can get scheduleappointment right from the website from the convenience
of your chair, that computer,or your smartphone. Just head on over
to Tanton Investment House dot com andschedule at appointment right online at a time

(10:31):
and a date that's convenient to you. You can also, of course,
always pick up phone give them acall right at the office in Middleton.
Six oh eight five zero one fifteenforty nine. That's six eight five zero
one fifteen forty nine. Looks intoour conversation with Tracy about if the FED
doesn't cut rates this year, whatwould happen there we'll talk about the effects
of the market. We will dothat next as straight Talk from the House
continues right here on thirteen ten doubleU I B A. This is straight

(10:52):
Talk from the House with certified financialplanner Tracy Aton here on thirteen ten double
U I B A. The websiteTanton Investment House dot com. Hope you
had a chance during the break thereto check it out. If you have
it, I tell you head onover there right now, the website Tantoninvestment
House dot com. That's t AN T O N investment House dot com.
From there, of course, conschedulalappointment at a time and a date

(11:13):
that's convenient to you. It isreally easy to do. Like for money
management, portfolio management, all startswith that scheduling appointment right at the website
or pick up phone and give mea call six oh eight five zero one
fifteen forty nine. That's six soheight five zero one fifteen forty nine for
the office right in Middleton. Talkingthis week, we certified financial planner Tracy
Anton about what if the FED doesn'tcut rates this year and Tracy and that

(11:35):
previous segment we talked about kind ofthe effect that you could have on the
economy. How is this affecting thenthe markets? What are we seeing there?
Well, in the first quarter oftwenty twenty four, Seawan, both
US and international markets reached multiple recordhighs April we saw, you know,
a little less enthusiasm, mainly dueto concerns about inflation and escalating tensions in

(11:58):
the Middle East. And this though, it's evident that stocks overall have managed
to overcome fears that higher interest rateswould end the ball market that began last
year. So while investments more sensitiveto interest rates, like fixed income,
have been weaker returns, I mean, that's pretty much expected, right,
but the bond sectors relying on credithave benefit as earnings and economic growth have

(12:22):
pleasantly been surprised surprise. So ultimately, bond investors gain from higher yields as
income returns to fixed income markets.So basically, if they would lower rates,
obviously you'd see a big jump inthe bond markets. So again,
markets have held up extremely well evenwith the higher rates, and it doesn't
seem like the ball market is endinganytime soon. It's it's pretty I think

(12:46):
of anyone that's kind of checked recently, they're not like, oh my goodness.
Yeah right exactly. It's been niceas we talk with certified financial planner
Tracy and On. Today's a greatday to start that conversation with Tracy enter
team. If you're looking for moneymanagement or Portfoli Legal management, all you
new is head on over the websiteTanton Investment House dot com. That's t
A N t o N Investment Housedot com. From the website, you

(13:07):
can schedule appointment at a time anda date that's convenient to you, or
simply pick a phone and get mea call. Six oh eight five zero
one, fifteen forty nine. That'ssix soh eight five zero one, fifteen
forty nine. And I'm happy we'regoing here because this is something that that's
been a head scratcher for me,and I wonder is it unusual for the
further be a market rally with interestrates high like this? Or is this

(13:28):
unusually yea, No. I lovelooking back, you know, I'm a
big fan of it, and eventhough it's no guarantee, I still think
it's important to look back and go, well, what did happen? So
on market rally following higher interest ratesreally isn't unusual, Sean, So looking
back over the last three decades,both stock and bonds generally performed well after

(13:48):
a period of FED rate hikes.So since nineteen ninety four, both asset
classes were significantly higher one year afterthe conclusion of a FED tightening cycle,
except for there's a small period inthere from like May of two thousand and
May of two thousand and two wherewe had the dot dot Com crash.
So besides that, though, whenI go back and I look at the

(14:09):
numbers, I mean, if youlook at February nineteen ninety five to February
nineteen ninety seven, the sm Pfive hundred index was thirty point four percent
and the bond index measured by theBloomberg US Aggregate Bond INEX was eight point
seven. So that was just onerate cycle, you know, that happened,
you know, two year analyzed returnfollowing in the end of a prior

(14:31):
hiking cycle. And so if welook at that two year period or the
two year the next two year period, you know, you're looking at I
think ten point six percent for thebonds. I think it was negative twelve
point two, but then the followingone was two point four and then six
point six per bonds and then thelast one that we analyzed was twenty four

(14:52):
point eight percent for stocks and eightpoint one eight point one percent for the
bonds. And so when you takeall in consideration, the average two year
return following the prior four hiking cycleswere S and P five hundred was eleven
percent basically, and the Bloomberg USaggregate bond in next was eight eight and

(15:13):
a half. Actually, so youknow, there's no guarantees, of course,
and you know the past doesn't guaranteethe future all that stuff, but
still if you look back once theywere done raising rates the next too,
you know, two years on averageyou saw in the last four cycles the
S and P five hundred did abouteleven and the bonds did about eight and

(15:35):
a half. Really encouraging. Talkingthis morning was certified financial planner Tracy Anton
here on thirteen ten WUIBA. Ofcourse, Tracy comes to us from t
Anton Investment House, a fee onlyfiduciary with offices right in Middleton. Mentioned
the website Tanton Investment House dot comand the telephon number six oh eight five
zero one, fifteen forty nine.That's six oh eight five zero one,
fifteen forty nine. Talking this weekabout what if the FED doesn't cut rates

(15:58):
this year and Tracy, how havestocks and bonds performed in past interest rate
hikes? Well? According to theeconomists Spence. He said, over the
past thirty years, stocks and bondshave usually powered through rate hikes, and
he said over time, markets tendto adapt to a current interest rate environment.
At the start of the rate hikingcycle, markets tend to react,

(16:19):
and both stock and bonds took ahit as we saw in twenty twenty two.
However, once a new level ofstability is reached, as long as
it's within a reasonable range, marketsoften resume their long term growth path and
driven more by corporate earnings and economicgrowth than any monetary policy. So again,

(16:40):
could this economist be wrong? Ofcourse, I mean, you know,
he doesn't walk on water. Butcurrently the bond market is pricing in
one or two rate cuts before theend of December, and the expectations is
no is for no cuts. Recentcomments by the Fed suggest that they also
are thinking that there might be oneor two cuts of twenty five actually two,

(17:03):
I think the Fed said two cutsof twenty five basis points are possible.
So again he's thinking, you know, the Fed is leaning toward cutting
rates, and that's why he's saying, Hey, I might be wrong,
right, but it is possible thatthe Fed could take an again more aggressive
action if we start to see significantnegati effects and tighter monetary policy on the

(17:26):
economy. But even so, evenagain his plan is even so, even
if they don't cut rates, marketscan do well. That is fascinating stuff,
and Tracy, I feel like too, we need like we need to
do this in person, with likea classroom for folks of folks that don't
see you're you're a very good oratorfor people that don't get a chance to
see it. When you and Iare talking about very engaging, it's really

(17:51):
as always it's just fascinating stuff aswell. And maybe even listening to the
program today and going, you knowwhat, I'd like to start that conversation.
If you're looking for money management orPORTFOLI LIU management, Tracy and her
team would love to talk with theaugur to do's. Head on over the
website Tanton Investment House dot com.That's t A N t o N investment
House dot com. Can make anappointment right from the website or call the

(18:11):
office right in Middleton, six oheight five zero one fifteen forty nine.
That's six eight five zero one fifteenforty nine. So Tracy, can we
expect to see rates cut again?Yeah, exactly, well, he this
economist spends he addresses this toward theend of the Arctic Colony, says,
you know, we'll get more insightafter the Fed's upcoming policy meeting, and

(18:33):
he said, it seems like theFED officials are inclined to cut rates,
and they've been clear that they seecurrent policy as restrictive, suggesting that they're
leaning toward laura rates. And asinvestors, though, he says, you
know, we really should question thatassumption. We should consider the possibility that,
given the healthy growth that we're experiencing, maybe the FED isn't actually restrictive,

(18:56):
and maybe that's why we haven't hada recession, and maybe that's why
we might not see a rate cutin twenty twenty four. And again instead
of seeing this, he says,all is negative that we might not get
a rate cut. He says theabsence of a rate cut this year could
just mean that the US economy isdoing better than expected. And he said,
and even if they don't reduce rates, it may be a great time.

(19:17):
He says, of course, tobe invested in both stock and bond
markets for those long term outlooks.And again, you know, we don't
have a crystal ball. And Imean it obviously to me seems like the
Fed is changing its stance it obviouslyyou know, it's not raising rates anymore.
So we're going in the other wayway, right, the bar is

(19:37):
starting to turn. So my thoughtis, as I try to tell people,
is it long term money? Doyou have a lot of money that's
in cash and it's long term money, consider investing in better things for the
long run. And maybe that's noteven for you, maybe it's for your
children. You know, I've gota lot of older people that are like,
you know what, I don't needit. I'm like, yeah,
you can do whatever you want.It's not a great position, but you

(19:57):
might want to do it for yourif you want to do it, And
if you don't, great, youknow, keep it in cash, keep
it at CDs, but eventually thoseCDs are probably going to come down.
Absolutely fascinating stuff, great advice,great guidance, as always from certified financial
planner Tracy Anton. Of course,Tracy comes to us from Tanton investment House.
That website is that Tanton investment Housedot com. That's t A N

(20:19):
t O N investment House dot com. Learn more about Tracy the team.
You can also listen back to thepodcast subscribe there as well as most important
feature, make an appointment right online. If you're looking for money management or
portfolio management, head on over toTanton Investment House dot com or simply pick
a phone call the office right inMiddleton six oh eight five zero one,
fifteen forty nine. That's six soheight five zero one, fifteen forty nine.

(20:42):
Tracy, It's always great chatting withyou. You enjoy this beautiful day?
Yeah, thank you. Sean Taker