November FOMC Follow-Up

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Rates

  • The FOMC unanimously voted to keep the Fed Funds target rate unchanged within the 0.00% to 0.25% range.
  • Market implied probabilities indicate investors are pricing in a reasonable likelihood of at least one rate increase by the middle of next year and a strong probability of at least two 25 basis point increases by the end of next year.
  • Powell noted in his comments during the press conference that decision-making pertaining to the Fed Funds rate and tapering are independent decisions and that there is “a more stringent test” for raising the Fed Funds rate. He also stated that it would be premature to raise the rate at this time.

Monetary Policy Implementation

  • The FOMC announced that the Fed will begin tapering asset purchases at a rate of $15 billion per month, with tapering set to begin later this month.
  • The statement noted the decision was taken “In light of the substantial further progress the economy has made toward the Committee’s goals.”
  • Tapering will begin with a pro rata reduction of $10 billion from monthly Treasury purchases and $5 billion from mortgage purchases. The statement indicated there will be an identical reduction in December and added that “similar reductions in the pace of net asset purchases will likely be appropriate each month.” The Fed indicated it is prepared to adjust the rate of tapering as needed.
  • This pace of tapering will put the Fed on target to end quantitative easing around the middle of 2022, in line with previously communicated expectations.

Economic Conditions

  • The FOMC statement provided new language regarding inflation, noting the impact of “supply and demand imbalances related to the pandemic and the reopening of the economy.”
  • Chairman Powell acknowledged that inflation has been higher than expected by both the Fed and other economic forecasters and noted that elevated inflation is expected to last “well into next year.”
  • Powell stressed the importance of getting past the impact of Covid on the economy to see the true state of the labor market and inflation.

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.

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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.

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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.

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