Latest / Markets with Megan: A Quick Financial Markets Update / Understanding the Fed's Message: What It Means for Investors | Episode 066 | 11-01-23

Transcript

Understanding the Fed's Message: What It Means for Investors | Episode 066 | 11-01-23 · Markets with Megan: A Quick Financial Markets Update

• 0:04
  Speaker 0: Hello, this is Megan Horneman, the chief investment officer for Verdence Capital Advisors.
• 0:07
  Speaker 0: We're coming to you with our regular segment of markets with Megan, and it's been a busy day today, specifically with our prior podcast about the Treasury funding announcement, as well as the Federal Reserve meeting.
• 0:19
  Speaker 0: It was widely expected that the Federal Reserve would leave interest rates unchanged, and they did.
• 0:25
  Speaker 0: We know that.
• 0:27
  Speaker 0: It was priced into the market, but what moves the market and what we're going to dig into deeper is what did they say?
• 0:33
  Speaker 0: What kind of a pause was this?
• 0:36
  Speaker 0: First of all, they're going to keep reducing their balance sheet as well, so they're keeping their policy tight.
• 0:44
  Speaker 0: Remember, there's two different mechanisms that they use.
• 0:46
  Speaker 0: They've been raising interest rates as well as reducing their balance sheet, so they're going to keep that balance sheet reduction program in place.
• 0:54
  Speaker 0: I think there's a couple of things that we take out of this.
• 0:56
  Speaker 0: There were two words that I lost count on how many times were said elevated and strong.
• 1:03
  Speaker 0: These were put out not only in their statement, but also in the press conference that the Federal Reserve had afterwards.
• 1:10
  Speaker 0: Where did they put these words in?
• 1:13
  Speaker 0: First of all, they continued to say that the job market remains strong.
• 1:19
  Speaker 0: They talked about economic activity and how it expanded instead of a solid pace, but at a strong pace in the third quarter.
• 1:26
  Speaker 0: The equity markets initially rallied pretty heavily on this news.
• 1:32
  Speaker 0: They were up triple digits.
• 1:33
  Speaker 0: The bond market also continued to rally, where yields fell as well.
• 1:38
  Speaker 0: But when you start to read further into what he was saying in the press conference, they really are not saying they're done.
• 1:45
  Speaker 0: They may have to come in again.
• 1:48
  Speaker 0: Let me just give you some of the comments that were made.
• 1:50
  Speaker 0: They did say that the few months of good inflation is only a start in this inflation fight.
• 1:57
  Speaker 0: They noted that they have a long way to go.
• 2:00
  Speaker 0: They continued to talk about how strong the labor market is, how tight the labor market is.
• 2:05
  Speaker 0: Then they talked about economic data that this could put the progress that they've made on inflation at risk.
• 2:13
  Speaker 0: They even went as far as saying that they are not confident that they've achieved that level of monetary policy that they'll be able to get to that 2% target by all means.
• 2:25
  Speaker 0: People are going to read into this Again.
• 2:27
  Speaker 0: The equity markets have rallied on this.
• 2:29
  Speaker 0: They've lost some steam with the press conference.
• 2:32
  Speaker 0: In our opinion, they've basically told us higher rates for longer and they may not be done.
• 2:39
  Speaker 0: This is something that we've been talking about quite a bit.
• 2:42
  Speaker 0: I think that the investors have to price this in.
• 2:46
  Speaker 0: There are certain parts of the equity market that are not reflecting this higher interest rate for longer environment.
• 2:52
  Speaker 0: That's all that we have today on the Fed.
• 2:54
  Speaker 0: If you have any questions or comments, please feel free to reach out to podcasts at Verdence dot com.
• 2:58
  Speaker 0: Thank you.