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PODCAST: FOMC UPDATE WITH JIM BARNES

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  • Transcript

    Opening:             Welcome to the Bryn Mawr Trust Wealth Management podcast, providing commentary on what’s moving the financial markets, financial planning, and other timely business and monetary topics. Please welcome today’s host, Jim Barnes, director of fixed income at BMT Wealth Management.

    Jim Barnes:         Hi, this is Jim Barnes, director of fixed income here at Bryn Mawr Trust back again to talk to you about the Federal Reserve meeting that took place earlier today. All right, today was a great day and that being that it’s December, 2019 today, Mark the eighth and final FOMC meeting for the fed here in 2019 so I thought it’d be a lot of fun just to kind of go back a little bit over the past year. I would say that a lot of things have happened, some of which weren’t expected and some of which were expected. So it’s kind of interesting just to see how monetary policy has transpired over the past 12 months. So if you think back to a December, 2018 at that point, the federal funds target rate, the upper bound, there was that two and a half percent. And the Federal Reserve was actually looking to raise that, that target rate up 50 basis points by the end of 2019 where we are today.

    Jim Barnes:         Obviously we know that those rate hikes I had never taken place and but instead we actually saw a number of rate cuts and we saw the Federal Reserve early on in 2019 somewhat reversed its position thinking that even though they thought that the U S economy was in somewhat of a, of a good spot at, that they were concerned with weakness that was occurring outside of the U S so we always go back and think about that global economic weakness as well as a trade uncertainties and that connection between a tighter labor market leading to wage inflation and more inflation and the idea that the Federal Reserve would have to be proactive in trying to increase right in order to combat and place them from getting out of control. That whole idea was basically I set aside and concerns on inflation has subsided somewhat is so much that as a, as 2019 had progressed, the Federal Reserve shift gears and instead of actually incorporating more rate hikes this year, they started to lower the federal funds target range, not once, not twice, but three times along the second half of 2019.

    Jim Barnes:         Most of those rate cuts and the early on the Federal Reserve would say that there were concern again with what was happening outside the U.S. And they were concerned with how trade discussions were going and how those, that trade uncertainty was impacting business spending and business confidence levels. So they started to incorporate some, what they call the the insurance cuts doing what they can to, to try to keep this economic expansion going. And then it was really the last FOMC meeting in October where, you know, they really started to focus in on inflation and simply just the lack thereof, inflation and that they were having a tough time trying to hit their 2% target level and that there were going to be somewhat patient in letting monetary policy be so that they would allow inflation to, to surpass 2% for a period or a period of time just to make sure that they had the, the appropriate tools and the wherewithal in order to meet their objective.

    Jim Barnes:         So now as we fast forward to today, that’s again, that’s kind of where we left off. It’s that the Federal Reserve is very bleak on inflation and where inflation was going to be. And we know that the Federal Reserve at that point had made it seem as if there really wasn’t much of a need to have any more rate cuts or rate hikes. And in fact they probably, you know, had the bar really set high for the next move being a rate hike. Whereas the next move being to the downside, the bar was set somewhat low depending on how some of the things that impact economic growth were going to play out. And so who we you are today? We had a, a number of good positive economic data that came in. Most normally we had a very, very strong labor market companies hiring North of 200,000 jobs.

    Jim Barnes:         Wage growth seemed to be in a, in a good spot right around that three, 3.1% over over the previous year overseas we saw some stability on the economic front with Germany and China. And so it does seem as if there’s accommodative monetary policy, which we all know acts on a lag is starting to provide somewhat of a buffer, somewhat of a, some support do both the economy here in the U S as well as elsewhere. Given the common policy at other central banks, though we seem to be in a, in somewhat of a good spot. And at the end of the day today, the fed, they left that target range unchanged at its current a one and a half to 1.75%. All the voting members on the, on the FOMC state, they all agreed and said, do you know we have to, we’ll have to keep rates steady as they are and then we’ll just monitor developments going forward in 2020.

    Jim Barnes:         They’re not looking to adjust policy then either they feel as if policy is in a very, very good spot. So we’ll have to see how things play out. Now, interestingly the same way the last meeting went was very similar to this meeting in regards to at the, at the end of each FOMC meeting, chairman Powell will have a press conference and he’ll take questions and during that question, that Q&A period they were drilling him on what’s the next move going to be? What’s the next move in the phase it’s going to be, we know that you’re pretty adamant about the federal funds target range non changing in 2020, but do you see more risk to the upside or to the downside? Once again, chairman pow just reiterated that he would need to see inflation, you know, much higher than where it is now and not just at one point in time.

    Jim Barnes:         He would need to see it much higher and for a period of time before he would even consider raising rates. And then on the flip side of that we know that the, the, the bar somewhat loud and that if you started to have some developments overseas, maybe a pickup in a trade on certainty start to weigh on the manufacturing sector here or even start to see some of the the negativity on the, the business, Brian starts to spill over to the consumer. They would be, you know, more quick to act, to provide some more positive. But he did say once again that a policy acts on a lag and it’s going to take some time before those three rate cuts that have already taken place are fully incorporated in the marketplace. But so once again, when you think about what happened today in the financial markets, there really wasn’t much reaction once the FOMC notes were released at two o’clock.

    Jim Barnes:         But when they held their their conference, when chairman palace started to speak you did see a, the U S equity market start to trend higher the S&P which was somewhat flat around two o’clock, end of the day, up nine points. And then when looking at us treasury yields, the tenure was, was somewhat unchanged. Right from the get go at about they were on 1.81, 1.82%, and then that trailed down a couple basis points. So that actually rallied on the news. And mostly my, probably when the markets aren’t anticipating a lower federal funds target rate for, for a longer period of time. So here at Bryn Mawr Trust, what are we thinking? Well, we also don’t think that there’s a need for any rate adjustments in 2020. We do think that monetary policy is accommodative. We also agree and understand that monetary policy acts with a, with a lag.

    Jim Barnes:         So this accommodation, the stimulus will well continue to destroy your work its way into the system, which will continue to provide a nice buffer and some support, economic growth because our expectations are for economic growth to, to not only stabilize but the, you know, potentially pick up towards the end of 2020. We would think that the next move could very well be on the upside, not anytime soon. When we’re there, we’re now looking at until 2021. It’s just on a high level. If you think about an economy that has stimulus coming from, from monetary policy and you have it there for, for a period of time, it just allows the economy to, to stabilize into, begin to once again start picking up some of those of those growth aspects. The once again the Federal Reserve. They left that federal funds target raise on change. They are. They’re expecting not to do anything in a in 2020 we’ll have to wait and see and once again it was a, it was great to be here with you today. This is Jim Barnes, director of fixed income. As always, if you have any questions, please visit us at bmt dot com. Thank you very much.

    Conclusion:         This has been a production of Bryn Mawr Trust. Copyright 2019 visit us online at bmt dot com slash wealth. The views expressed herein are those of Bryn Mawr Trust as of the day recorded and are subject to change without notice. Guest opinions are their own and may differ from those of Bryn Mawr Trust and its affiliates and subsidiaries. This podcast is for informational purposes only and should not be construed as a recommendation for any product or service. BMT Wealth Management provides products and services through brim, our bank corporation and its various affiliates and subsidiaries which do not provide legal tax or accounting advice. Please consult your legal tax or accounting advisors to determine how this information may apply to your own situation. Investments and insurance products are not. Bank deposits are not FDIC insured, are not backed by any bank or government guarantee and may lose value. Past performance is no guarantee of future results. Insurance products not available in all states. Any third party trademarks and products for services related thereto mentioned in this podcast are for discussion purposes only. Third-Party trademarks mentioned in this podcast are not commercially related to or affiliated in any way with BMT products or services. Third-Party trademarks mentioned in this podcast are not endorsed by BMT in any way. BMT may have agreements in place with third-party trademark owners that would render this trademark disclaimer, not relevant.

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