Transcript:
Tom Vaughan:
Everybody, welcome to Wednesday, the S&P 500 was down almost 1%. Today, big catalyst was that the minutes came out from the meeting from the Federal Reserve in March. And they talked about reducing their balance sheet. And you probably recall, during the pandemic that the Federal Reserve was purchasing bonds to create liquidity. So something that we really started doing, for example, to recover from the 2008 downturn. It’s called quantitative easing. So they were buying $120 billion worth of bonds, mostly treasuries, but some, some, you know, mortgage bonds. Also, starting in November, they started cutting back on what they were purchasing by March, they weren’t purchasing any, but their balance sheet went from about 1 trillion to 9 trillion in that timeframe. And so now in the minute, they’re talking about starting to reduce their balance sheet by 95 billion month, starting possibly in May, and these were discussions, it’s not something that’s been decided yet, so we’ll find out what really happens. But nonetheless, the market responded to that, because it’s a little bit more and a little bit sooner than was expected. And, well, here’s a couple things that I think are important number one, is that the Federal Reserve currently has roughly a quarter percent federal funds rate, we just increased that you know, in March, and has $9 trillion on the balance sheet. And what that does is it kind of takes away some of the power that they have if something were to happen. So as they start to raise rates, it gives them room to maybe lower rates, again, if something happens, as they start to reduce their balance sheet and allows for, you know, the power to re re inflate the balance sheet if they need to, to create more liquidity.
So I think that this can be an okay thing. And I will say something I think it’s very important to doesn’t seem like a lot of the articles I’m reading agree with this. But you know, Chairman Powell, the Fed Reserve, head of the Federal Reserve, has been talking about that the economy is strong enough to handle these increases. So if they cut back on bonds, that has the possibility of slowing down the economy, as they raise rates, that obviously has the possibility of slowing down the economy. But their outlook is that the economy is strong enough, I happen to agree with that. I’ve been saying that from the get go. This is a different economy. This is a Re-opening economy. This isn’t a, hey, we just had a recession, we’re coming out of that, slowly. But surely, this is hey, we all parked sideways for a while. And now we’re all coming back off. I’ve got a lot of clients, for example, been talking to you about all their plans, things they’re going to do travel things they want to do that they weren’t able to do over the last couple of years. And the whole world’s going to be in a similar situation here. So here’s the thought process that, you know, hey, if the economy is very, very hot like it is right now, and it kind of stays up in that area. They can slow and do some things to slow things down and maybe bring it down into a proper zone, which is what they’re trying to do without kicking us immediately into some kind of recession, which is what I keep reading all these articles. I don’t really see that right now. It’s possible, but not very probable, in my opinion. So anyway, we’ll see what happens the market did recover some of its losses today. So hopefully, there’s some dip buying that came in. And I still think you know, this is part of this big run up that we had kind of come back down for a while before we kind of have another leg up if we’re going to have one. So interesting day. I think that this is news that is you know, a little bit new, but I don’t think it’s as bad as everybody thinks it is as far as that goes. So we’ll have to wait and see what goes on here. I look forward to seeing you tomorrow. Thank you very much.