Special Market Update

On the front page of its website, the Federal Reserve, the central bank of the United States (the "Fed”), lists its mission as "providing the nation with a safe, flexible, and stable monetary and financial system”. It accomplishes this through its Monetary Policy, which, in very simplified form, consists of two primary tactics: 1) changes to a benchmark interest rate and 2) changes to the money supply.

On Wednesday, January 30th, the Federal Open Market Committee ("FOMC” or "Committee”) made two key changes in its recent contractionary approach that signal to investors a more measured and cautious approach to monetary policy and economic growth.
  1. The Fed maintained the target range for its benchmark interest rate at 2.25%-2.5%, a much anticipated pause after the Fed increased interest rates by 0.25% in December – the fourth increase of 2018 and ninth since December of 2015 when it commenced its campaign to normalize rates after the 2008/2009 financial crisis.
  2. The Fed clarified its plan to reduce its balance sheet, which ballooned to $4.5 trillion in the years after the crisis as the Fed sought to stabilize financial markets and bolster an ailing economy, in a more "accommodative” versus "auto pilot” manner.
From what many investors felt was an overly hawkish and contractionary tone last fall, the Fed Chairman Jerome Powell now seems to have adopted a more dovish and neutral, if not yet fully expansionary, stance. In our opinion, this reversal should take considerable pressure off of the equity markets.

The FOMC Statement on Interest Rates

As we witnessed during the 4th quarter of 2018, the fear of higher interest rates and the resulting tighter economic conditions can take a terrible toll on financial markets even in the wake of full employment, low inflation, solid corporate earnings, low taxes, and in general, a robust US economy.

In their Wednesday, January 30th statement, the Fed outlined that, "After extensive deliberations and thorough review of experience to date the Committee continues to view changes in the target range for the federal funds rate as its primary means for adjusting the stance of monetary policy.”

In our opinion, this Fed statement highlights the overall health of the US economy and the expansion remains intact, albeit at a slower pace and recessionary fears are overblown.

The official statements continued with:

"Information received since the FOMC met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent, which is recognized as the Fed’s inflation rate objective.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2.25% to 2.50%. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

The FOMC Statement on Money Supply

In addition, on Wednesday, the Fed’s biggest action was to clarify its current plan to reduce the size of its balance sheet. The statement read:

"The Committee is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial conditions. Moreover, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate."

In lay terms, this means that the Fed intends to establish an "accommodative monetary policy” not only through the use of interest rates, but also by more cautiously and patiently adjusting the money supply. In recent weeks, the Fed’s plans with regard to the reduction in the size of its balance sheet had become a major focus for investors. Recent commentary on the balance sheet from Fed officials, including Powell, have been market-moving events.

During his December press conference, Powell said the Fed "would effectively have the balance sheet runoff on automatic pilot,” spooking markets with the fear that reductions in the money supply would be too severe and unmonitored. This forced Powell to later clarify his comments as equity markets suffered their deepest correction in nearly a decade. Subsequent softening of their stance as we entered 2019 calmed markets and reduced fear of a recession as a result of Fed policy.


We feel Powell learned a valuable lesson as a new Fed Chair and now realizes that casual statements like "a long way to neutral” and "auto-pilot run off of the balance sheet” are not the seemingly benign messages that equity markets can digest. In sharp contrast, the word "patience” was mentioned 8 times in his news conference in an effort to calm investors’ fears that policy makers were moving too quickly.

Experience has shown us that every single word in a Fed statement is highly scrutinized and compared from statement to statement. The omission or addition of a single world or even the slightest perceived change in sentiment can have dramatic repercussions throughout the financial markets. After watching today’s press conference, it is evident that Jerome Powell learned this lesson.

At WT Wealth Management we believe the economy is healthy despite headwinds such as trade wars, Brexit uncertainty, government shutdowns, political grid lock and the fact that the latest economic expansion is approaching 8 years of age. However, in a consumer driven economy like ours, where consumer spending accounts for over 70% of GDP, we feel the current expansion will continue, most probably at a slower pace, short of the fed killing it through hawkish monetary policy. As always, we continue to monitor and evaluate dozens of key pieces of economic data on a weekly basis and position client accounts accordingly for maximum returns within their specific risk tolerance profiles.


There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

Contact Us Today

Reach us directly at 800-825-0616
or by using the contact form below.

Your message has been sent. Thank you!