Interest Rates and Today’s Long-Lasting Expansion - January 27, 2020

On Wednesday, the Fed will conclude its two-day meeting. It is widely expected that central bankers will keep the fed funds rate at 1.50 – 1.75%.

Economic growth has moderated versus a year ago, and interest rates are low and continue to underpin the economy.

One way we can determine whether or not interest rates are supportive or restrictive of economic growth is to compare the current fed funds rate with nominal GDP (Gross Domestic Product—the broadest measure of the value of economic output). Nominal GDP is actual GDP plus inflation.

The graphic below compares the quarterly average fed funds rate with the eight-quarter average of nominal GDP going back to 1960.

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Securing Your Retirement - January 22, 2020

At the end of 2019, Congress passed the SECURE Act, which makes dramatic changes to the laws that govern retirement accounts.

Changes include—

  • The age for required minimum distributions (RMDs) from retirement accounts is raised from 70 ½ to 72, if you turned 70 ½ on or after January 1, 2020.
  • One may contribute to a traditional IRA past 70 ½ years old, if one is still working.
  • Part-time workers gain better access to 401(k) accounts.
  • 529 plans may now be used to pay down student loans – up to $10,000.
  • It will be easier to offer annuities in 401(k) accounts.
  • Plan participants will begin receiving a monthly projected income statement based on current retirement assets.
  • Within the first year, parents may withdraw up to $5,000 penalty-free from an IRA or an employer-sponsored retirement plan to pay for adoption or birth expenses. Taxes will be incurred at the marginal rate.
  • The new law encourages small business owners to join forces to offer 401(k) plans. 

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Falling Mortgage Rates Boost Housing - January 21, 2020

Mortgage rates have a big influence on housing. Last year, the 30-year fixed mortgage rate peaked in November, averaging 4.87%. Rising rates throughout much of 2018 slowed housing activity as we can see in the graphic below.

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Running of the Bulls - January 15, 2020

Q4 2019’s strong performance has spilled into 2020.

Drivers of bullish sentiment include—

  • Recession fears have subsided, and the economy is expanding.
  • The yield curve is no longer inverted.
  • The Fed is in no hurry to raise interest rates this year, and it has been buying Treasury bonds, i.e., QE-lite.
  • There are signs that global growth, which slowed last year, is stabilizing.
  • A ‘skinny’ trade deal with China will be signed on January 15.
  • Corporate stock buybacks have moderated but remain at high levels.

What might derail bullish sentiment?

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