Checking My Account(s)
Who We Are
Our Services
Our Investment Policy
MAM Newsletters
Financial Articles
Featured News
Financial Briefs
Articles Of Interest
Research & Tools
MAM Webinars
White Papers
Contact Us

Featured News

More Articles  Printer Friendly Version


With Fed's Mission Accomplished, Expect Rate Hikes And Low Bond Returns

With the U.S. Bureau of Labor Statistics on Friday reporting that a strong number of new jobs were created in February, the Federal Reserve has accomplished its mission of keeping inflation low while promoting economic growth. Investors for the foreseeable future should expect periodic rate hikes and low returns on bonds.

The news on Friday that the economy had created 235,000 and that the unemployment rate had fallen to 4.7% came a week after the Federal Reserve Chair Janet Yellen said that, unless some unexpected bad news were to occur, a rate hike was likely in March.

With job growth strong and unemployment about as low as it's been in a decade, it's likely the Fed will follow through on a plan Ms. Yellen outlined in a speech on March 3 in Chicago. In her speech before The Executives' Club of Chicago, Ms. Yellen said she expects the Fed Funds rate over the next few years would revert toward its "neutral" rate of 1%, which is "neither expansionary nor contractionary when the economy is operating near its potential." Adding an inflation rate of 2% to the Fed Funds rate would mean the Fed is targeting a 3% Fed Funds rate over the next several years.

"Gradual increases in the federal funds rate will likely be appropriate in the months and years ahead," said Ms. Yellen. "Those increases would keep the economy from significantly overheating, thereby sustaining the expansion and maintaining price stability."

For fixed-income investors, it's wise to expect low returns on bonds in the period ahead. The Fed raised rates once in 2015 by one-quarter of 1% and by the same amount again in 2016. With the economy continuing to show signs of expansion, more rate hikes should be expected for 2017. Fixed-income investors have had to settle for lower returns in recent months, but they should be prepared for even lower returns ahead as bond prices are expected to drop.

It was an uneventful week for stocks, and the six-week winning streak for the Standard & Poor's 500 index was snapped, as the index closed the week at 2,372.60, just slightly off from its recent all-time high.

While the stock market paused, it rose nearly 12% in the three months since the presidential election, and last week marked the bull market's eighth anniversary. Stock prices have soared because economic signals are positive, but also because investors have begun to expect a tax break to be enacted by Congress. With political intrigue dominating headlines recently, however, an enactment of health care legislation as well as reform of tax laws in limbo, a correction of 10% or 15% is possible at any time. If politics get in the way of cutting taxes and writing a new health care law, the stock market could be vulnerable.

With fake news and alternative facts flourishing, our weekly reports are not intended as advice but as a source of prudent analysis about news affecting your wealth over the long run. Please feel free to share them with your family and friends.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used by as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results. Investing in foreign securities carries political and currency risks.

Email this article to a friend

Stocks Dropped For Second Straight Week Amid Strengthening Economic Reports
17 Year-End Moves That Can Preserve Your Tax Benefits
Finding The Balance For Retirement Draw-Downs
Key Components Of A Post-Divorce Estate Plan
Despite Wall Street Guru's Terrible Advice A Year Ago, He's Back
With Stocks Near All-Time High, Personal Income And Employment Data Are Released
How Strategic Asset Allocation And Rebalancing Worked In The 12 Months Ended June 30
Wall Street's "Top" Strategists' Recommendations Are Like Monkeys Throwing Darts
Five Documents At The Core Of An Estate Plan
10 Common Questions On Social Security Benefits
Plan For Retirement At Different Stages Of Life
Are You Still On Target For A Secure Retirement?
Stocks Break Another All-Time High. What Is Going On?
Stronger Than Expected Jobs Creation But CNBC Reports "Trouble Lurked"
S&P 500 Returned 2.9% In 2nd Quarter And 9.2% In First Half Of 2017
Despite Distractions, Demographics Are Poised To Drive U.S. Long-Term Growth

This article was written by a professional financial journalist for McCarthy Asset Management, Inc. and is not intended as legal or investment advice.

©2017 Advisor Products Inc. All Rights Reserved.