Higgins Capital Management, Inc.

Fed Reverses Course?

The Economy:  The Fed finished its January meeting Wednesday with a dramatic flip from hawkish to dovish. No change in interest rates and significant revision to their future course of action. The number of rate hikes in 2019 has been reduced from 4 to1; maybe 1 … if financial markets and The Donald agree that it's ok. Shrinking the balance sheet has been dramatically modified with previous lower targets abandoned. Fed Chair Powell has stressed that his Fed is data dependent. The Fed has interpreted the economic data as indicating a weakening global and US economy. There has never been a pause in a Fed tightening cycle. Only a reversal from tightening to easing. Some see Powell's move as indicating that the next Fed move will be to cut interest rates. Some see a set-up for more QE. Most see the Powell Fed as capitulating to market volatility and White House pressure.  Now the refrain is, "Meet the New Boss; same as the Old Boss." In short, the Fed is continuing their role as being reactive and beholden to financial markets. The global addiction to central bank stimulus and financial repression continues.

Food for Thought:  See my thoughts on re-evaluating your Investment Advisor here. There is no better example of the opioid crisis than the addiction of the US economy to low interest rates. Yes, the US economy is continuing to expand. But the Fed's flip-flop is a vote of no confidence that the economy is fundamentally sound enough to stand on its own. The economy's addiction to free money and financial repression should concern those investors nearing retirement. Retirees should be even more concerned. Artificially low interest rates have penalized savers and forced most investors into risky investments. If you got the willies because of January's sell-off, then you should be re-evaluating your investment strategy. Lean years follow fat years … always have always will. Contact me for asset protection strategies.