- Yesterday, the FOMC voted to keep the Fed Funds target rate unchanged within the 0.00% to 0.25% range.
- This outcome was widely expected, and the committee members voted unanimously in favor of the action.
- Forward guidance on monetary policy now indicates that rate hikes could come as soon as 2023, with the median rate from the Fed’s “dot plot” pointing to two hikes that year. The March plot indicated the committee expected no increases until at least 2024.
- Language around the Fed’s average inflation-targeting approach remained unchanged from recent meetings, again noting the Fed will “aim to achieve inflation moderately above 2 percent for some time…”
- The statement acknowledged the recent increase in inflation and reiterated the Fed’s position that it will be short-lived, noting “Inflation has risen, largely reflecting transitory factors.”
- The Fed’s economic projections for inflation increased from the March estimates, with calendar year 2021 indicating the largest increase from previous estimates and more forward projections reflecting the Fed’s position that the inflation uptick is largely transitory. The median projection for 2021 PCE inflation rose from 2.4% to 3.4%, while the 2022 projection rose 0.1% to 2.1%.
Monetary Policy Implementation
- The statement made no mention of tapering and directed asset purchases to continue at the previously established levels for Treasury securities and agency mortgage-back securities. In his post-meeting press conference, Chairman Powell acknowledged that the FOMC discussed the asset purchase program but decided that tapering was not yet appropriate.
- The committee raised the interest rate it pays banks on reserves by 5 bps to 0.15%, and also lifted to 0.05% from 0.0% the rate it pays on overnight reverse repurchase agreements. These items help establish the floor on short-term interest rates.
- Yesterday’s statement included a more optimistic assessment of economic conditions, noting “indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement.”
- Following the improved economic outlook, projections for 2021 GDP had another large increase, with the estimate rising to 7.0%versus 6.5% in March and 4.2% in December. The projection for fourth quarter unemployment was unchanged at 4.5%.
The FOMC is next scheduled to meet July 27 – 28, 2021.
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