Financial Advisors Can Steady the Ship Despite Fed Uncertainty
Financial advisors should be preparing themselves to ready the ship to calm clients’ frayed nerves due to a series of large, looming decisions and debates coming out of DC.
One of these questions includes the worry of an interest rate hike from the Federal Reserve—for months, they’ve been indicating that they intend to elevate rates up from the near-zero level that it’s been at since late 2008—when we were teetering on the Cliffside of economic collapse.
Trying to guess the future of interest rates is a favorite among economists and financial advisors. The Fed officials haven’t exactly been clear and have been sending mixed signals about what course they may take in the coming months. However, due to some factors—including the recent market turmoil and continued uncertainty about the stability of the Chinese economy, a lower than expected rate of inflation, and several other factors—there is speculation that the rate hike most likely won’t come until the end of 2015.
The Fed under Chair Janet Yellen has been consistent in its claims that it will act in a data-driven fashion; however, officials are sensitive to market conditions, and the Fed does not like surprising markets.
The chance of happening 2015 rate increase is predicted at being 50/50 by economists. Observers suggest that the earliest rate move would be in December.
Economists have noted that the Fed—starting under Ben Bernanke and then extending into Yelle’s chairmanship, has put its focus on the role of shepherding the economic recovery along. Its role on monetary policy is viewed through a spectrum using the backdrop of preserving market stability and prosperity—one that the Fed holds to the utmost importance. This alone may be a signal that any rate increase will be rolled out gradually, with plenty of warning, and will follow a period of relative economic stability. There’s an element of Fed policy that economists and financial advisors miss—and that’s cultivated this recovery very carefully, with extreme attention to detail for the last seven years. That’s risk management, which has been at the forefront of the Fed’s decisions over the last seven years. And indicators show that the Fed isn’t keen to take the risk in this unstable economic environment—with unstable global financial markets.