I have 3 calendars on my phone
My personal calendar (can’t forget a date yanno?), my work calendar (income is important so can’t miss a meeting), and The Federal Reserve (money printer goes brrrrrrr) are all in one spot. That last one is kind of a joke, but not really. While I do not actually have The Federal Reserve meeting schedule on my calendar I have started to pay more attention to it.
The Fed has seen inflation drop and been surprised by the GDP growth hoping to narrowly avoid a hard landing. They have mentioned that we should begin to see rate drops this year, but is that really the case?
What history tells us and why I’m paying attention
As with most of our investment history (actually a lot of things in our history) things repeat. So if you take a good look at our nations history you can probably find something that looks like present day. The ‘historically’ high inflation and interest rate environment that we’ll hopefully be exiting is not actually the highest and The Fed really messed up in the 70s and 80s. Essentially inflation spiked and The Fed raised rates. Then when inflation started to come down again they dropped rates a little too fast. Surprise – inflation spiked again. This entire process happened a second time over a decade and this is why Papa Powell is taking his time.
The Fed and even media stated that we could see more than one rate drop, but if history tells us anything we still have another 12 to 18 months before we really start to experience a rate drop that will affect us notably.
I’m paying attention because the markets have responded well to rate drops and good CPI data, which is potentially going to keep going in the positive direction. Other markets should also see a similar response. This would be the elusive soft landing and something we’re all hoping for.
How will I play this weird middle ground?
As we saw this last week with The Fed choice to hold interest rates steady the stock market responded in a declining nature. They also mentioned that while they are hinting at rate cuts this year (they projected 75 basis points), cutting borrowing costs wouldn’t make sense until “inflation is moving sustainably toward 2%.” With that statement, investors (the market especially) priced in a 35% chance of a cut in March down from 50%.
So what am I doing?
1) With market reactions I’ll be continuing my dollar cost average approach into my portfolio as well as my options trading. Long term I still want my dividend income to increase and with lower prices on the market just means a great deal for me.
2) I’ll be socking away some extra cash in preparation of getting back into the real estate market. While rates are still going to be considerably higher, if the rates come down a little bit and inflation remains control that’s a good indicator that rates should continue to drop. That means I’ll be able to get into a cash flowing property and refinance into profit in 1 to 2 years.
3) I’ll be closely watching my Crypto portfolio with the halving, interest rate drops, and market movements to capture some profits this year. This profit will most likely be going into the market and savings.
The theme of preparing
Prepare for the worst, hope for the best. That’s the game plan for me and why I have begun to really monitor The Fed’s meeting calendar. Most of my long term plan remains the same, just making some calculated moves or planning for some moves this year.