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  • Transcript

    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 back once again to provide an update of the FOMC meeting that took place earlier today. You know, there really wasn’t much anticipation for any significant changes to monetary policy. Although anytime the Federal Reserve meets, it’s always a lot of fun just to see what their current viewpoints [are], what their outlook is. And and most importantly, see what might have changed in regards to their thinking. Based on the prior meeting. Now, with that being said, like, we like to start off each of these conversations is just doing a quick recap. And I’ll go back to March and we’ve talked about here a number of times now with you know, what happened with the lending markets basically freezing up back in March and how the Federal Reserve jumped in there and injected tremendous amount of monetary stimulus either through bringing the federal funds target range down to, to just about 0%, or the number of programs and facilities that were put in place to try to unfreeze what we’re seeing within a lending markets.

    Jim Barnes:
    With that being said, we just saw a tremendous amount of improvement in the months of April and May. And those were real positives just to try to get the financial markets, trying to get the lending markets operating and functioning again. At the last meeting here in June the Federal Reserve, they unveiled their summary of economic projections. Now basically they’re, just telling the world out there what their thinking is, what their projections are for inflation, the unemployment rate interest rates. And one of the more notable projections that they had provided that day was simply saying that they expect the federal funds target range to stay at its current level of, of 0% until the end of 2022. So we’re talking about two and a half years of just very accommodative monetary policy. So now we fast forward to today and as I might’ve already alluded to that, there really wasn’t much change at all.

    Jim Barnes:
    So the federal funds target range stayed at 0%. There wasn’t any additions to any of their policies or programs nor was anything taken away. I thought that the big takeaway from today’s meeting from today’s press conference with the Chairman Powell, in our view, is simply how somewhat pessimistic, I think [he] comes across. We know we’re dealing with a pandemic and we know that the economic data of the U.S. Economy has, has suffered quite a bit this year. Simply when you take in consideration that the lockdown and business closures and some methods that have prevented individuals from out there spending, we know we have a very, very high on unemployment. Tomorrow, we’re going to get a read on second quarter GDP and it’s supposed to be in a negative 30% range. So, you know, we’re talking about really dire predictions. And it’s just interesting when you listen to the fed and we know that we’re going to get some bounce back economic growth, to some extent, when we think about the months of June, July, August. The takeaway from the fed from Chairman Powell is that there are some concerns out there.

    Jim Barnes:
    There are some concerns that the virus could linger a lot longer than what’s initially anticipated that the fallout from the us economy could very well take a longer period of time in order to get the millions and millions of individuals back to work again. You know, it’s going to take some time to get this, you know, awfully low inflation rate back to anywhere near 2%, but it just seems at this point that the fed it’s kind of out of ammo, to some extent then in regards what other policies that they can unveil to promote or to try to achieve their two objectives; and that’s, you know, full employment and price stability. And Powell, he’s noted as such. And he referred to it again today. When he had stated that you kind of looking at on the fiscal side, the U.S. Government side, that have better tools in terms of trying to add a boost economic growth in there, he’s probably referring to the stimulus measures or the stimulus checks or the unemployment benefits, you know, things that could actually provide in one word or another grants where it doesn’t have to be paid back where people can use those funds.

    Jim Barnes:
    And basically that acts as somewhat of a bridge until we can get past this these pandemic woes. But so to that extent, it does seem as if the fed has the powers to go ahead and bring stability back to the Lending markets, but they’re somewhat limited in, in trying to jumpstart a U.S. Economic growth and, and keep economic growth on a, on a positive trajectory based on where we are today. But it doesn’t seem as that that’s going to stop the federal reserve from trying. And that’s important because we’re sitting at an interest rates that are in some cases, historically low levels. The 2-year in the 5-year, U.S. Treasury yield, both hit new lows today, the 10-year U.S. Treasury notes about three basis points away from its record low. And when you think about the policies that the federal reserve might still resort to them, and that the two most notable, which is probably at this point, your forward guidance, as well as you know, additional asset purchases and both of those types of policies would have an impact of putting additional downward pressure on bond yields.

    Jim Barnes:
    So when you take all that stuff together, you know, you have to think to yourself, well, you have a fed that comes across as very dovish, has somewhat of a pessimistic outlook. And at the same point, even though they’ve admitted that their policies are somewhat limited based on what we’re facing today with the pandemic, that’s not going to stop them from implementing more and more our policies. The fed is there, they’ve reiterated over and over again, the feds they’re, they’re ready to do more. And when you think about the policies that they still have at their disposal, betting how the course of economic growth goes forward, it’s very possible [that] they can unveil more forward guidance, more asset purchases, which could put downward pressure on us, treasury yields and bond yields in general. Now that’s not necessarily our base case scenario, but it is one that, that you definitely have to take in consideration.

    Jim Barnes:
    And when you think about federal funds, futures, contracts, and when investors feel what their expectations are for the fed and what they feel will be the Fed’s next move. You know, they’re still looking at the Fed’s next move when it comes to interest rates as being another cut, as opposed to a, to a rate hike. And when you put that in the context of the fact that we’re already sitting with interest rates very close to 0%, it does kind of make you wonder, you know, how is policy going to play out going forward. On the equity market side, you saw equity markets start to trade a little bit higher from two o’clock on, and bond yields, mostly unchanged, but trading a little bit to the low side. So I think as we, as we continue to the second half here of 2020, it will be very important to pay very close attention to the economic data.

    Jim Barnes:
    And to just see if some of this deceleration that we’re seeing an economic growth, because we are, we have noticed, and you see it in the headlines, the you know, some of the, the coronavirus spikes and coronavirus, the cases, you know, in various pockets within the U.S. Just what the impact could be on economic growth and to see how much that may weigh against economic growth from its continued pickup, because depending on how the data plays out that’s obviously is going to play a very important role what the Federal Reserve does. And as I’ve already stated, laid out for you, the Federal Reserve only has so much they can do, but if they pull those triggers, you’re probably gonna end up seeing, again, some additional downward pressure on bond yields With that being said, so we’re, we’re through with today’s meeting. So always a pleasure to talk to you. Again, this is Jim Barnes, director of fixed income, here at Bryn Mawr Trust. If you have any questions, please visit us at Thank you very much.

    This has been a production of Bryn Mawr Trust. Copyright 2020. Visit us online at forward slash wealth. The views expressed herein are those of Bryn Mawr Trust as of the date 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 Bryn Mawr 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 or 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 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.