Should we care what the Fed does with interest rates?
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 2 February 2024
⏱️ 16 minutes
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Summary
Today's Post - https://bahnsen.co/47Xsqk9
The Federal Open Market Committee of the Federal Reserve met this week for their scheduled meeting and announced that … wait for it … they were not doing anything with interest rates. The market knew this was coming – futures have had a 100% chance of no increase or decrease in the Fed Funds rate at the January meeting for months – but markets went down -300 points after Fed chair, Jerome Powell, gave his customary press conference. The bond market went way up as yields dropped. And sure enough stocks caught up to bonds the very next day as the Dow jumped +370 points.
Maybe this sounds to you like a lot of drama for one or two market days when everyone already knew what was going to happen, and you would be right. But the question that many are asking is – if it doesn’t matter, why does it matter? In other words, why is market volatility so high and press attention so high about when the Fed will begin cutting rates? Maybe traders do dumb and speculative things but why do traders care about this so much? Why not focus on more important short term betting odds, like whether or not Travis and Taylor are going to get married?
In this week’s Dividend Cafe we explore the question of, “well, does it matter?” And to understand if it matters or not what the Fed does, we may want to understand what they do, exactly.
This is a good one. So jump on in to the Dividend Cafe.
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the Dividing Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. |
| 0:12.5 | Well, hello and welcome to this week's Dividendin Cafe brought to you from beautiful Miami, Florida, where I assure you the weather is very different than it |
| 0:22.5 | has been in Midtown Manhattan. I am here just for 24 hours speech at the Miami Economic |
| 0:30.2 | Forum Friday morning, but right now I want to talk to you about the Fed. And I am really excited. |
| 0:37.0 | I enjoyed writing this week's Dividendon Cafe a lot you about the Fed. And I am really excited. I enjoyed writing this week's |
| 0:38.6 | Dividing Cafe a lot. It was fun. And that's really how I think everybody believes that the federal |
| 0:45.7 | open market committee and the federal funds rate, how they feel about those conversations, |
| 0:51.6 | is that they're fun. And so I'll try my best to prove it right now. |
| 0:56.6 | The question is, does it matter what the Fed does? This week, the Fed announced that they were not |
| 1:01.4 | moving rates higher or lower. That had been 100% priced into markets for, I think, three months. |
| 1:07.9 | And the expectation for market activity was going to be what they said or didn't say |
| 1:12.9 | about March. So they're already kind of looking ahead, but nobody expected any change this |
| 1:17.3 | week. And the market was down over 300 points on Wednesday as Fed chair Jerome Powell gave his |
| 1:25.4 | kind of press conference. But the bond market rallied big and bond rates, |
| 1:31.0 | yields dropped a lot and causing bond prices to rise. |
| 1:35.9 | And yet stocks dropped and that seemed to be a disconnect. |
| 1:40.9 | And then on Thursday, markets rallied huge and the Dow was up more than it was down the day before |
| 1:47.8 | and you're back where you were. |
| 1:49.9 | So I've predicted this for some time, elevated volatility around the Fed's short-term pronouncements, |
| 1:55.8 | but it still kind of leaves the question lingering. |
| 1:58.9 | Does any of this matter what the Fed does? |
| 2:01.7 | And I don't mean that, and I think people asking me that don't mean it in the context of the |
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