Introduction: 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. Great to be back with you once again. Earlier today we had another FOMC meeting. I’m going to break up today’s conversation in three different pieces. We’ll talk about some of the things that have transpired since the last meeting leading up to this one. We’ll talk about today’s meeting and what the overall results were and very interestingly, what were some of the comments from the fed chairman, Jay Powell, and then why end up with what was the overall market’s reaction and what is our, uh, thoughts here at Bryn Mawr Trust company? We’ll just to start off, we know that the Federal Reserve meets every six weeks, eight times a year, and we know that the last two meetings to Federal Reserve dropped the federal funds target range by a total of 50 basis points. So we were leading into today’s meeting with the federal funds.
Jim Barnes: Target reigns at 1.75 to 2.002% and since the last meeting, I would say that the economic data here in the U S was probably a a little bit softer relative to the prior quarter. But I would also note that some of the risks that the Federal Reserve has noted in the past, I seem to have eased somewhat. So with that being said, I’m just going to jump right into this. And the Federal Reserve, I at the end of the day, they dropped that federal funds target range once again, 25 basis points. So now it sits at 1.5% to 1.75% and they left a very favorable impression as to their overall economic outlook going forward. They came across as very favorable. They seemed, you know, mostly optimistic. They talked about the consumer and consumer spending and how that area has been driven from a very healthy, uh, labor market. They talked about the rate cuts that have already transpired and how they’ve been adding a boost to the economic expansion over the last three, four months.
Jim Barnes: They did say that those rate cuts are still working their way through the system, but they are happy to see its current impact to sectors such as the housing sector. They also talked about some of the weak areas such as manufacturing and corporate spending and they tied that into three areas day specifically noted today as well as in the past they talked about weak global growth. They talked about low inflation and they talked about just overall a trade uncertainty but they seem to be in a, in a better position in regards to those area areas. Mostly within the, on the trade uncertainty front they had acknowledged that um, it seems as if the discussions between president Trump and president Xi or have been a somewhat favorable, providing a little bit more of a positive environment out there. And so overall their overall look seemed to be pretty good.
Jim Barnes: And I’ll say that as chairman Powell was, was talking during his press conference, I was paying attention to the markets and it did seem as if you saw a little hawkishness in terms of investors trading with yields going up a little bit with the market thinking that, you know what, maybe this is indeed the last rate cut during this cycle, the end, and we’ll have to see how things play out. But then there was somewhat of a of a reverse chorus by the chairman. And what was happening is that seemed as if the market had somewhat digested the fact that okay, this could be it three rate cuts in and here we are. Now we’ll have to see how the economic data comes into it to get a better gauge of what the next move with bane. But the reporters were pressing chairman Powell as to why.
Jim Barnes: Well, what is it more likely that we’re going to get a rate hike as a next move? Or is it likely that the next move will be at another move to the downside and another 25 basis point cut. And it just kinda of, to sum this up, because it was very interesting listening to a to pal talk, he basically said that in order to justify a rate hike at this point, you really need to see inflation and inflation expectations really exceed their expectations, their 2% target on inflation. It would really have to be something materially above that before the Federal Reserve would even consider any type of rate hike during this, uh, economic cycle. But on the flip side of that, he also talked about the importance of the insurance cuts and making sure that if the opposite were to happen, if inflation were to trend lower to the Federal Reserve, we need to be very proactive in providing more accommodative monetary policy to try to deflect and inflation from going any lower.
Jim Barnes: So it seems as if mostly in the past we were kind of looking at trade on 17 week global clove as the, as the big risk factors reign on, um, monetary policy going forward. Today, it seemed like the inflation discussion was at the forefront and now I’m just going to turn to the financial markets because it seemed as if the financial markets really turned to those comments on inflation and directed their through the market’s thought process as to where policy goes from here, meaning that there’s probably very little likelihood of a rate hike anytime soon, but that if you were to see some of these risks we’ve talked about start to materialize more and have a negative impact on economic growth and most notably if you were to see some signs that inflation might be reversing course and heading lower again, that surely might be enough of a rationale for the Federal Reserve to have to act and adjust policy again.
Jim Barnes: So with that being said, what we saw at the end of the day, we saw bond yields drop anywhere from four to seven basis points across the yield curve. So that decline in yields was mostly a investors factoring in a that a very little likelihood of, of any rate hike coming in the near future, but still pricing in some likelihood that you could have a rate adjustment to the downside. And on the equity side, the equity markets close to the positive, the S&P 500 closed at a new record high today was up 0.34%, uh, at a new level of 3,047. Now we have one more, one more FLMC meeting here in 2019. That’ll on December 11th. And uh, and we’re not expecting any change there, but as we turn to 2020, we’ll really have to pay attention to the, the incoming economic data as it comes in.
Jim Barnes: We’ll have to look at the data outside the U.S. To see if you know, any weakness in manufacturing or some of the GDP areas outside of us, if that starts to filter in here. And then of course the big thing that we’re always paying attention to is anything related to trade tensions, either escalating or easing because we do see that having an impact, uh, to just overall, uh, corporate spending corporate investing. And we want to see whether or not that’s going to have an impact on company hiring and somehow filter into a possibly a, a slow down, uh, which would impact just overall consumer spending. But we’re not seeing it yet. We don’t see anything in initial jobless claims that gets us concerned. But it is, it’s something that we are paying very close attention to. Once again, this is Jim Barnes, director of fixed income. Great to be with you again today. If you ever have any questions, please feel free to visit us at bmt.com thank you very much.
Conclusion: This has been a production of Bryn Mawr Trust. Copyright 2019 visit us online at bmt.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. B and T 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.