Rates
- As expected, the FOMC unanimously voted to keep the Fed Funds target rate unchanged within the 0.00% to 0.25% range.
- The Fed shifted forward guidance significantly more hawkish in its updated dot plot, with three rate hikes now expected in 2022 (vs. a 9-9 committee split for just one hike projected in September’s plot), three more hikes expected in 2023, and another two in 2024.
- The Committee’s rate liftoff guidance now states that “with inflation having exceeded 2 percent for some time,” rates will remain at the current target range until labor market conditions reach “the Committee’s assessments of maximum employment.”
Monetary Policy Implementation
- The FOMC announced that “In light of inflation developments and improvements in the labor market,“ the pace of tapering asset purchases would be doubled from what was announced at the November meeting. Treasury purchases will be reduced by $20 billion/month and MBS purchases by $10 billion/month.
- The statement indicated that similar reductions in the pace of net asset purchases will likely be appropriate each month, but the committee is “prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”
- Assuming no further changes to the pace of tapering, quantitative easing will now end by March 2022.
Economic Conditions
- The FOMC statement retired the word “transitory” when discussing the current inflationary environment, instead noting that supply and demand imbalances “contribute to elevated levels of inflation.” The committee increased the outlook for 2021 Core PCE from 3.7% to 4.4%, with inflation projected to moderate in 2022 and 2023.
- The statement describes recent job gains as “solid” with unemployment declining ”substantially.” 2021’s projected unemployment rate was revised down 0.5 ppt to 4.3%.
- The statement added language to acknowledge risks posed by new variants of the virus, but Chairman Powell said Omicron would not impact accelerated taper plans for now. “There’s a lot of uncertainty,” Powell said, noting that “…people are learning to live with this more and more.”
- The Fed’s latest projections reduced 2021’s real GDP from 5.9% to 5.5% but pointed to stronger growth in 2022, with GDP growth revised up 0.2 ppt to 4.0% and unemployment revised down 0.3 ppt to 3.5%.
The FOMC is next scheduled to meet January 28 – 29, 2022.
Disclosures
The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.
This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein.
Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.
The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security.
Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.
The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.
Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees.
This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.