Latest / Markets with Megan: A Quick Financial Markets Update / Special Edition: Inside the FOMC - What Does it all Mean? | S2 E108 | 12-18-25

Transcript

Special Edition: Inside the FOMC - What Does it all Mean? | S2 E108 | 12-18-25 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: This is a special edition of Markets with Megan.
• 0:03
  Megan Horneman: We released today a white paper about the Federal Reserve.
• 0:06
  Megan Horneman: We wanted to break down and explain what the structure of the Federal Reserve, but more importantly, the Federal Open Market Committee.
• 0:15
  Megan Horneman: This is the committee that everyone focuses on.
• 0:18
  Megan Horneman: This is made up of Federal Reserve members.
• 0:20
  Megan Horneman: They vote on monetary policy.
• 0:23
  Megan Horneman: They meet eight times a year.
• 0:24
  Megan Horneman: And when they speak, the markets listen.
• 0:27
  Megan Horneman: When those meetings happen, the markets tend to react.
• 0:30
  Megan Horneman: So we wanted to come to you with an education piece on what that they do, what how it's made up, but more importantly, what you've seen in the headlines lately about the changes that we're going to have next year to the Federal Open Market Committee.
• 0:44
  Megan Horneman: Now, the FOMC consistently, actually on an annual basis, has four rotating voting members.
• 0:51
  Megan Horneman: These are different regional bank presidents.
• 0:54
  Megan Horneman: So four will go out this year, and four new ones will come in next year.
• 0:58
  Megan Horneman: But it's also the same year that we are expected to get appointed a new Federal Reserve chairman.
• 1:04
  Megan Horneman: So there's been a lot of headlines and scrutiny around who's been the front runner for this chairman, and that is Kevin Hassett.
• 1:11
  Megan Horneman: He's the director of the Economic Council and does have a person a close relationship with President Trump.
• 1:17
  Megan Horneman: So there's a lot of concern around his very dovish views coming in to the Federal Open Market Committee and the fact that they won't be as independent as they should be.
• 1:27
  Megan Horneman: Remember, the most important thing is that the FOMC isn't an independent entity.
• 1:33
  Megan Horneman: It does not operate with any political persuasion.
• 1:36
  Megan Horneman: And we do not think that that's going to change if Kevin Hassett comes in to become the chairman.
• 1:42
  Megan Horneman: Regardless of who sits in that spot, that chairman is more concerned about a legacy, not necessarily a political party that rotates on a four-year term as well.
• 1:53
  Megan Horneman: We think that when you look at the consistency of the Fed the way it looks this year from a voting perspective, the ratio of hawks to doves actually isn't going to change next year.
• 2:06
  Megan Horneman: So those change the moves in monetary policy will be highly dependent on what happens with inflation, especially since the most recent Fed expects that the growth is going to accelerate next year.
• 2:19
  Megan Horneman: Now, the one thing, there's a couple things we do know that just looking at the new voting members that will come in, this is going to be a divided Fed again.
• 2:28
  Megan Horneman: If you remember at the December FOMC meeting, it was the first time since 2019 that we got three voting members that dissented to a rate cut.
• 2:38
  Megan Horneman: So that shows there's some divisiveness here in this committee.
• 2:42
  Megan Horneman: That isn't going to change next year.
• 2:44
  Megan Horneman: So we expect volatility will remain around the equity markets when these officials speak, as well as the regularly scheduled meetings that they have.
• 2:53
  Megan Horneman: Now, from an investment perspective, we are not making any asset allocation changes around who's going to be chairman or who rotates in and out.
• 3:02
  Megan Horneman: Instead, we're going to focus on the economy, the inflation environment, and the earnings environment.
• 3:08
  Megan Horneman: We will monitor this because if a if a chairman does for se come in and filter those dovish views to the rest of the committee in an environment where inflation's not at that target, that can be inflationary.
• 3:21
  Megan Horneman: On the same side, if if the hawks take over and they they are they start to tighten policy when the economy or the labor market is weak, that could have an adverse effect as well.
• 3:31
  Megan Horneman: That's why we're not making any changes at this time.
• 3:34
  Megan Horneman: The economy, inflation, earnings growth, interest rates, this all is more important to us when we look at ass allocation than who's sitting on the FOMC.
• 3:43
  Megan Horneman: That's all we have today.
• 3:45
  Megan Horneman: We welcome you to take a look at the white paper as well as the video that we have listed on our website, verdance.com.
• 3:51
  Megan Horneman: Thank you.