What's in the News:
As we prepare for the President to possibly replace Janet Yellen as Federal Reserve Chair in February, the fixed income markets have been reacting as possible front runners for the seat have been announced.
Earlier this month the market was rattled by the news that John Taylor was allegedly the front runner for the position, causing yields to increase. Taylor is the creator of the “Taylor Rule” forecasting model, which discredits the traditional rational expectation model in favor of one that relies on the difference in the calculation of nominal and real interest rates and its relation to inflation. The Taylor Rule suggests that interest rates should be three times higher than current levels.
Then last week, talks of Jerome Powell as the front runner caused yields to decline. A member of the Fed’s monetary policymaking committee, Fed Governor Powell has been recommended by some commenters as the best candidate for continuity and least likely to rock markets.
And no competition is complete without a wild card, such as the White House’s Top Economic Advisor, former Goldman Sachs executive Gary Cohn.
What are we thinking?
It is possible that interest rates could face the hurdle of a new Fed Chair. A more aggressive Fed Chair could be beneficial to income investors who have been starved for yield. But this could also bring more market volatility. By contrast, a more conservative Fed Chairperson would likely continue the pace of slow and measured interest rate increases, therefore not surprising the market.
Regardless of the decision that President Trump makes, we believe that as the economy and employment continue to trend higher, rates have to eventually normalize. As we prepare for the unknown, one certainty is that diversifying in anticipation of these changes is critical – and as active managers we can help income investors maximize yields in any environment.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.
Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.
INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE