The Fed’s Baby Steps

The Fed has been “talking about talking about tapering” for months. Last week, it stopped talking and started doing.

The Fed will begin tapering its $120 billion in monthly bond buys by $15 billion per month in November and December. It will probably continue at that pace but could adjust next year depending on economic conditions.

Rate hikes

The attention now turns to rate hikes. Fed Chief Powell said the Fed can be “patient,” though one gauge from the CME Group suggests we may see two ¼% rate increases next year.

Investor’s corner

The Fed’s taper announcement was well-telegraphed, and there was no negative reaction among investors.

Don’t expect any surprise rate hikes either. If the Fed tilts in a more hawkish direction, expect plenty of public remarks in advance.

Do rate hikes mark the end of a bull market? While past performance doesn’t guarantee future results, during the last rate-hike cycle (9 rate increases of ¼%), the S&P 500 Index1 gained 45% between the first rate hike in late 2015 and the first rate cut in July 2019 (St. Louis Fed S&P data).

  • With one exception since the mid-1960s, recessions have marked the end of a bull market.

That said, investors with a long-term focus and a financial plan that puts them on the path toward their financial goals have historically better-weathered market turbulence. If you have a holistic plan in place, we applaud you. You have chosen the narrow path.