The Federal Reserve, often simply referred to as the Fed, is preparing to make a pivotal shift in its monetary policy by cutting interest rates. As the most influential economic institution in the United States and arguably the world, the Fed’s actions ripple through financial markets, impact everyday life, and shape global economic trends. As inflation nears the Fed’s target, and the job market shows signs of cooling, Fed Chair Jerome Powell and Federal Reserve Governor Christopher Waller have hinted at the prospect of interest rate cuts in the near future. This article explores why the Fed is considering this move, what it means for the economy, and how investors might respond.
Why the Fed is Poised to Cut Interest Rates
Interest rates have been at a 23-year high, reflecting the Fed’s aggressive policy stance to curb inflation, which surged to a 40-year peak in recent years. The Fed’s primary objectives are to maintain price stability and maximize employment, and its current focus is on transitioning from fighting inflation to supporting a softer economic landing.
Fed Chair Jerome Powell recently announced that “the time has come for policy to adjust,” signaling a shift towards easing monetary policy after a prolonged period of rate hikes. Powell’s comments, delivered at the Fed’s annual economic conference in Jackson Hole, Wyoming, indicate that the Fed is preparing to cut its key interest rate from its current elevated level. The size and pace of these cuts, however, remain contingent on incoming economic data and the broader outlook.
This comes at a time when the U.S. economy appears to be navigating a delicate balance between taming inflation and sustaining employment levels.
The Current Economic Context
Inflation, which the Fed has aggressively targeted over the past few years, appears to be cooling. The Fed’s preferred measure of inflation – the core personal consumption expenditures price index – has dropped to 2.5%, a significant decline from its peak of 7.1% two years ago and is now close to the central bank’s 2% target. This suggests that the worst of the inflationary pressures may be behind us, enabling the Fed to shift its focus to other economic priorities.
At the same time, the job market shows signs of softening, though not to the point of deterioration. Recent data indicate a three-month average of 116,000 monthly job gains, a figure below what many economists estimate is needed to meet the job growth needs of an expanding population. The slowing job growth supports the Fed’s assessment that there is moderation in the labor market, giving it room to ease its restrictive policy stance.
What the Fed’s Potential Moves Mean
The Fed is widely expected to announce a modest quarter-point rate cut, or possibly even a 50-basis point reduction, at its next policy meeting in mid-September. Such a move would mark the first rate cut in over four years, a notable shift from the policy of rapid rate hikes implemented to combat inflation.
Federal Reserve Governor Christopher Waller has echoed Powell’s sentiments, suggesting that a series of rate cuts could be on the table if economic data continues to support this direction. Waller emphasized the Fed’s readiness to act promptly, advocating for rate cuts if the data suggests that the economy needs more robust support. Both Powell and Waller have highlighted the need to move carefully, balancing between stabilizing inflation and fostering employment growth.
Implications for the Economy
Lowering interest rates is generally aimed at stimulating economic activity. When rates are cut, borrowing becomes cheaper for consumers and businesses, encouraging spending and investment. This can lead to growth in sectors like housing, manufacturing, and services, potentially boosting overall economic output. However, it also comes with risks, particularly if inflationary pressures resurface or if the cuts are perceived as premature.
The Fed’s approach suggests it is looking to engineer a “soft landing”—a scenario where inflation is controlled without triggering a significant economic downturn. This is a delicate balancing act; cutting rates too slowly could risk prolonging economic sluggishness, while moving too quickly might reignite inflationary pressures.
What Should Investors Do?
For investors, the Fed’s policy shift represents both a challenge and an opportunity, particularly for those with diversified portfolios. While lower rates can benefit stocks by reducing company borrowing costs and encouraging growth, they may also lead to lower returns on safer investments like cash and short-term bonds.
We suggest avoiding wholesale portfolio changes in response to the anticipated rate cuts. Instead, we may consider smaller adjustments, such as locking in higher rates now or considering longer-duration bonds for potentially better yields.
However, the key takeaway for investors is to stay diversified and focus on the long-term. While some adjustments in cash and fixed-income holdings may be appropriate to consider, proper planning should be the focus.
Looking Ahead
Investors and businesses alike may begin to prepare for a period of lower borrowing costs but remain vigilant for any signs of renewed inflation or economic instability. As the Fed navigates this complex terrain, its decisions will undoubtedly continue to have profound implications for the economy. However, with proper planning retirees and investors can have a path to help navigate the ever changing financial landscape.
If you have any questions, give us a call, or for additional insight, read Wealth on Purpose by Bryan Ballentine.
Sources: Located at the bottom of the article
Golf Tip of the Week
5 expert tips that have made a difference this golf season
There are two kinds of people who live near me: those sad that summer is over, and the clueless types who don’t play golf.
That the golf season will continue is not the point. We will get to the leaf rule/frost delay portion of our schedule. But for those of us who entered the season with specific goals, the arrival of September means our window is closing.
Back in April, I was certain I was on the precipice of breaking 80 and whittling down to a single-digit handicap. That neither has happened yet has only heightened my urgency. So this week in my search for a breakthrough, I’m returning to five helpful nuggets of wisdom provided to me this season.
- Cut down on the dumb
This sounds obvious—no one’s trying to make bad decisions. But one of the tenets of course management is remembering how boring it can be. Scott Fawcett, founder of the DECADE scoring system, laid out a few pillars earlier in the year that I’ve strayed from. Specifically, because my ball-striking feels sharper, I’ve been seduced into picking a few foolish targets that have led to short-sided misses and big numbers. Note to self: You’re not that good, aim for the center of the green.
- Energy matters
There was once a time when I’d work out in the morning, mow the lawn, then carry my bag for 18 holes. For instance, I did this … last weekend. Not surprisingly, my golf has suffered. According to Golf Digest Top 50 teacher Michael Breed, golf fatigue isn’t just a slower swing. It compromises your fundamentals in countless small ways you might not notice—from a slightly slumped address position to an altered grip. Along with not being very good, I’m also no longer so young. I need to pace myself.
- Not all swing thoughts are created equal
If it were an actual building, my library of swing thoughts would require a new wing. But Dr. Will Wu, a Professor of Motor Control and Learning at Cal State University-Long Beach, told me why some swing thoughts can be counterproductive. Specifically, Wu says it’s better to focus on a motion that incorporates several body parts at once as opposed to one specific part at a time. For instance, I like to think about a club path that feels like skimming a stone, which is more effective than focusing on just the bend in my wrist.
- Swing with purpose
In a few crucial moments this season, like when 79 was in sight or I was looking to close out a match, my swing reverted to “protect” mode. A couple of sports psychologists have suggested an alternative. “Tell yourself I’m turning it from a shot of protection to a shot of purpose,” was Bhrett McCabe’s advice. Matt Cuccaro, another performance coach, says we need to be “willing to miss,” which is to say, it’s better to make a confident swing knowing it might not work out than than a cautious swing that is doomed from the start. I like the phrase so much, I even wrote a version on my glove. Don’t knock it unless you’ve tried it.
- Remember, it’s just golf
Full disclosure, I have tossed a club or two this year. In fairness, I don’t really throw them as much as I tend to drop them dramatically as I see a ball sail toward trouble. I don’t need you to tell me how stupid this is. What’s worse, the moments I take golf most seriously are when I play some of my worst. There’s no harm in being competitive, but as the happiness expert Arthur Brooks has said, expecting an activity like golf to always provide something tangible in return is problematic. “Enjoyment can also be ruined by a worldview that is excessively practical,” Brooks explained in his Atlantic column, “in which we feel our time and energy should never be ‘wasted.” I need to remember golf is worthwhile even if I don’t play well, or win. Those are always the goals. But as the newest golfer in my family has shown, just appreciating the chance to play gives me a better chance of bringing out my best.
Tip adapted from golfdigest.comi
Recipe of the Week:
Grilled Cheese with Apple and Bacon
Ingredients:
2 1/2 pounds assorted tomatoes (heirloom, vine and plum)
1/2 cup cherry tomatoes, for garnish (optional)
1/2 cup extra-virgin olive oil, plus more for drizzling
6 cloves garlic
2 small onions, sliced
Kosher salt and freshly ground pepper
1 quart chicken stock
2 bay leaves
4 tablespoons unsalted butter
1/2 cup chopped fresh basil
3/4 cup heavy cream
Directions:
- Spread dijon mustard on 4 slices country white bread. Top with sliced cheddar cheese, cooked bacon and sliced Granny Smith apple, then top with 4 more slices bread. Butter the sandwiches, then cook in a skillet over medium-low heat until the cheese melts and the bread is golden, about 3 minutes per side.
- Serve with Roasted Tomato Soup, recipe follows.
Roasted Tomato Soup:
- Preheat the oven to 450 degrees F. Core and halve the tomatoes (leave the cherry tomatoes whole). Heat a flameproof roasting pan over medium-high heat. Drizzle with the 1/2 cup olive oil, then spread all of the tomatoes, the garlic and onions in the pan. Cook, stirring gently, until the garlic is browned, about 5 minutes. Season with salt and pepper. Transfer the pan to the oven and roast until the tomatoes are caramelized, 20 to 30 minutes.
- Remove the roasted tomatoes, garlic and onions from the oven and transfer to a large stockpot (set aside the cherry tomatoes for garnish). Add 3 cups chicken stock, the bay leaves and butter. Bring to a boil, then reduce the heat to medium and simmer until the liquid is reduced by one-third, 15 to 20 minutes. Remove the bay leaves.
- Add the basil to the pot. Use an immersion blender to puree the soup until smooth (or puree in a regular blender and return to the pot). Reduce the heat to low, add the heavy cream and adjust the consistency with the remaining 1 cup chicken stock, if necessary. Season with salt and pepper. Divide among bowls and top with the roasted cherry tomatoes; drizzle with olive oil.
Cook’s Note
When blending hot liquid, first let it cool for five minutes or so, then transfer it to a blender, filling only halfway. Put the lid on, leaving one corner open. Cover the lid with a kitchen towel to catch splatters, and pulse until smooth.
Recipe adapted from foodnetwork.comii
Travel Tip of the Week
Score Up to 15,000 JetBlue Points When Booking a Stay at These Hotels
The airline has teamed up with IHG Hotels & Resorts — which includes InterContinental, Kimpton, and more — to help customers claim extra rewards.
Booking a hotel stay just got more rewarding with JetBlue’s latest promotion, helping travelers score potentially up to 15,000 points for their next flight.
“Watch your TrueBlue points reach new heights as an IHG One Rewards member,” IHG Hotels shared about the promotion on its website. “Register to earn 1,000 bonus TrueBlue points for a 1 – 2 night stay and 3,000 bonus TrueBlue points for stays of 3 or more nights at select IHG Hotels & Resorts.
IHG Hotels and Resorts, with a global portfolio of more than 6,000 hotels at well-known brands like InterContinental, Kimpton, and Holiday Inn, is offering bonus JetBlue points for hotel nights booked and completed by Saturday, November 30. To participate, travelers must register first on IHG’s promotion page using their JetBlue TrueBlue and IHG One Rewards numbers — and signing up for either loyalty program is free and simple.
IHG One Rewards members will continue to earn 2x IHG points on most hotel stays. With the JetBlue partnership, here’s the number of points you can earn for qualifying stays (with room rates of $100 or more) over the next three months:
- Earn 1,000 JetBlue points for a stay of one or two consecutive nights.
- Earn 3,000 JetBlue points for a stay of three or more consecutive nights.
- Earn up to a maximum of 15,000 JetBlue points during the promotional period.
It can take up to six weeks to receive the bonus points, according to the hotel chain. However, once received, JetBlue points can easily be redeemed for free flights through the airline’s website or app. For instance, a traveler can book a cross-country flight from New York (JFK) to Los Angeles (LAX) for just 12,200 points, saving over $170 in cash on a ticket.
JetBlue Mosaic elite fliers even have the option to unlock complimentary IHG Platinum status, which offers discounts on reward nights, complimentary room upgrades, and early check-in and late checkout benefits.
Tip adapted from travelandleisure.com iii
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Sources:
What Is the U.S. Federal Reserve?
Fed’s Waller says it’s time to lower rates, open to larger cuts
Powell at Jackson Hole: ‘The time has come’ for the Fed to soon begin reducing interest rates
How investors can prepare for lower interest rates: It’s ‘like getting a haircut,’ advisor says
Disclosure:
Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
Advisory services through Ballentine Capital Advisors, Inc.
ihttps://www.golfdigest.com/story/5-expert-tips-to-focus-on-for-what-s-left-of-the-golf-season
iihttps://www.foodnetwork.com/recipes/tyler-florence/grilled-cheese-with-apple-and-bacon-3363601
