Monthly Newsletters in 2018
Fed Walks a Tightrope in Efforts to Normalize Without Pain
As the stock market has continued rising and falling like a stormy ocean over the last several months, the bond market settled into a period of relative calm. After spiking to 3.11 percent in mid-May, the yield on the 10-Year Treasury dropped below 3 percent by the end of the month and hovered just below 2.90 percent from late June all the way through late July.
It finally crept a bit higher again at the end of July in response to a massive move in Japan’s interest rates stemming from concerns over the Bank of Japan’s efforts to continue tightening monetary policy after years of quantitative easing. This was just the latest example of something I’ve discussed often in this space. The financial markets have a dangerous addiction to artificial economic stimulus, which means we could face a wildly unpredictable fallout as central banks—including our own Federal Reserve—attempt to “normalize” their balance sheets again.
Could that fallout include a whole new, possibly even worse financial crisis and an economic downturn even “greater” than the Great Recession? No one knows, of course, but it’s no secret that the Fed’s job hasn’t gotten any easier since Donald Trump’s election despite a lot of political hype around how great the stock market and U.S. economy have been doing.
As an article in MarketWatch put it recently, the Fed right now is “walking a tightrope as it aims to normalize interest rate policy without suffocating economic growth or fostering bubbles or another recession.”1 Wall Street is watching this tightrope walk very closely.
To read more sign up now! →
- Mark DeCambre, “The Stock-Market Bull Has Rallied Past One Obstacle After Another,” MarketWatch, last modified on July 16, 2018, https://www.marketwatch.com/story/stock-market-bull-is-still-on-its-feet-snorting-its-way-past-1-obstacle-after-another-2018-07-14
Sound Income Strategies, LLC is an SEC Registered Investment Advisory firm. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.
To receive our newsletters and gain access to our archives sign up here!