{"id":3434,"date":"2023-03-31T09:30:01","date_gmt":"2023-03-31T15:30:01","guid":{"rendered":"https:\/\/madisonpoole.com\/?p=3434"},"modified":"2023-10-26T14:10:55","modified_gmt":"2023-10-26T20:10:55","slug":"on-the-mark-fed-decision-aiming-for-stability-from-assetmark","status":"publish","type":"post","link":"https:\/\/madisonpoole.com\/on-the-mark-fed-decision-aiming-for-stability-from-assetmark\/","title":{"rendered":"On the Mark: Fed Decision \u2013 Aiming for Stability – from AssetMark"},"content":{"rendered":"

Hello Friends, here is some important information on the Federal Reserve’s recent moves in light of some recent stresses. ~ The Madison Poole Crew<\/em><\/strong><\/p>\n

Key takeaways<\/h5>\n

\u2022\u00a0Recent stresses in the banking system, including episodes at Silicon Valley Bank, Signature Bank, and Credit Suisse, have put the markets on edge.<\/p>\n

\u2022\u00a0The Fed raised interest rates by 0.25%, meeting market expectations. They emphasized financial stability while acknowledging that inflation and growth have slowed.<\/p>\n

\u2022\u00a0Despite a stressful couple of weeks, the financial system was resilient. We encourage investors to look through this period of volatility and maintain discipline to their long-term investment plans.<\/p>\n

The road so far<\/h5>\n

Over the last two weeks, the FDIC assumed control of Silicon Valley Bank and Signature Bank. Both banks had experienced losses in their fixed-income portfolios and were unable to attract sufficient capital to meet the withdrawals of their depositors1<\/sup>.<\/p>\n

In an effort to increase confidence in the banking system, US regulators provided banks with access to capital through several lending facilities. They also guaranteed all of the deposits of the two banks beyond the $250,000 FDIC insured level. A few days later Credit Suisse, the second-largest Swiss bank, experienced its own funding crisis. The Swiss National Bank (the central bank of Switzerland) hastily arranged the sale of Credit Suisse to UBS (the largest bank in Switzerland).<\/p>\n

This set the stage for the Fed\u2019s interest rate decision on March 22, 2023. The Fed had already raised by 4.5% over the last year in an effort to lower inflation. This rapid increase in interest rates was a significant driver of the recent stresses in the banking system.<\/p>\n

1<\/sup>While meeting regulatory requirements.<\/small><\/p>\n

The Fed\u2019s message<\/h5>\n

The Fed raised interest rates by 0.25%, meeting market expectations. It is likely that they did not want to surprise investors by raising rates more (or less) than expected. A pause in rate hikes could suggest the Fed was extremely worried about financial stability (which would worry many investors), while a larger-than-expected rate hike could suggest the Fed was ignoring financial stability (which would also worry investors).<\/p>\n

Chairman Powell opened his statement by pointing out that growth has been \u201cmodest\u201d and that job gains had picked up. He then highlighted that the \u201cUS banking system is sound and resilient\u201d but stated that recent developments in the banking system would likely result in \u201ctighter credit conditions,\u201d which will weigh on economic activity, hiring, and inflation. In describing future rate hikes, they replaced the term \u201congoing\u201d rate hikes with \u201csome additional policy firming may be appropriate.\u201d<\/p>\n

Carry on<\/h5>\n

The Fed reminded us that even amidst an ongoing (albeit appears to be improving) banking crisis, inflation and growth still matter. In our view, the current stress in the banking system will likely reduce future bank lending and therefore, future economic growth. While not desirable on its own, lower economic activity should also reduce inflation.<\/p>\n

Clearly, a banking crisis is not the preferred path to lowering inflation, but this episode did show that regulators (and industry leaders) learned many lessons from the Global Financial Crisis. In my view, those lessons made this crisis much less severe, and I would expect we\u2019ll learn a few lessons from this crisis as well. For better or worse, this is the messy, scary, and sometimes painful process of adding resilience to our financial system.<\/p>\n

As stability returns to the financial markets, investors will begin to re-focus on the economic cycle. Inflation is still too high, and growth is still surprisingly resilient.<\/p>\n

For now, the key takeaways are:
\n1) There will likely be additional issues with regional banks, but the financial system has survived and shown its resilience.
\n2) Lower credit creation implies lower near-term paths for both growth and inflation.
\n3) Long-term investment plans incorporate all types of economic conditions, including this one. The biggest risk to achieving long-term success is abandoning a well-constructed investment plan at the wrong time.<\/p>\n

We encourage investors to look through this period of volatility and maintain discipline to their long-term investment plans.<\/p>\n

<\/div>\n

AssetMark, Inc.
\n1655 Grant Street
\n10th Floor
\nConcord, CA 94520-2445 800-664-5345<\/p>\n

AssetMark is not an affiliate of OneAmerica Securities and is not a OneAmerica company.<\/p>\n

Important Information
\nThis is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
\nInvesting involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation. It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.
\nInvestments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange-traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.
\nBloomberg\u00ae and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, \u201cBloomberg\u201d) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies.
\nAssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission.
\n\u00a92023 AssetMark, Inc. All rights reserved. 105189 | C23-19534 | 1\/2023 | EXP 1\/31\/2025<\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

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