Fed Day is Here – Update 2:30 PM CDT Wednesday

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While it seems everyone has forgotten about the Fed meeting today and tomorrow I am certain many are aware of it–just no one is talking much about it.  I guess that means that everyone is expecting a 1/4% hike in the Fed Funds rate. In fact the CME Fed Watch is showing that the odds of a 1/4% rate increase is at 99.6%!!!

Here is what could go wrong.  The Fed could take a 1/2% hike–this is not going to happen (we hope) and if it did markets would react very badly.  Next the Fed could make NO hike.  I am not sure what would happen if no rate hike was made.  Would the markets read that as meaning the economy is fading?  Would the markets rally because rates remain in place?  The Fed could hike the 1/4% that everyone is expecting and markets could yawn and keep doing what they are doing.  Lastly the Fed could hike 1/4% AND announce that they are going to start letting $10 or $20 billion a month in bonds etc. run off the balance sheet as they mature.  We think that the ‘run off’ option could smack down income issues a fair amount.

While there is little you can do tomorrow in reaction to the Fed actions you should at least pay attention because there is a remote change that markets react badly to the Fed moves and you want to be ready to pounce when and if that happens.



Well as expected the Fed raised the Fed Funds rate by 1/4% and started the “discussion” on running off the balance sheet, although they did not give specifics on the run off except that they expect to run off at a $50 billion/month rate.  We think that is too much–too aggressive.   With teh modest strength in the economy we think a run off in the $30 billion/month range is more tolerable.  This is not some rate we calculated but is just “gut feel” as this economy may tip into recession.

Regardless of the future the equity markets did not react much to the Fed announcement and the 10 year treasury, which was already down 9 basis points on weak economic news didn’t move at all.

For now–the Goldilocks markets continue.



Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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