A Pivotal Fed Meeting this Week

Over the last two and a half years, we've had an unusual interest rate environment that has affected the economy. As you know, in 2022, the Federal Reserve began the fastest, most aggressive short-term interest rate increase cycle ever seen in U.S. history. They took short-term interest rates, the Fed funds rate, from practically zero to 5.25% to 5.50%. Since July 2023, they've kept the rates steady at this higher level. This week they are likely to begin reversing that process.

They will begin cutting interest rates and reducing short-term borrowing costs. Over time, this will benefit the economy by making mortgage rates, auto loans, and other borrowing more affordable. So that's a positive.  One negative is that it also means that money market rates will come down. Bond yields for new issues will also come down, but longer-dated bonds with higher yields will increase in value. But the big deal is how it affects the economy and how it could affect portfolios.  Will the market think the Federal Reserve is moving too slowly or just right?