• Tel: (646) 452-6700
  • US Toll-Free: (800) 829-4337

We take great pride in our firm's intellectual capital.

Sharing current views and opinions showcases the thought leadership we bring to our clients.

Current Views

Who’s Driving?

Amid the recent market volatility, driven by what we believe are trade and currency wars, there appears to be an important and ongoing struggle for leadership in interest rate policy.  Three contenders apparently vie for the controls.  Fed Chair Jay Powell and the FOMC have nominal jurisdiction.  However, the current political administration may have undue influence and the bond market is also in the running. 

We believe that this matters perhaps because when the Fed lost control of fight against inflation in the 1970s, after getting itself pushed around by others, it took a decade plus some extraordinary measures before its credibility was restored.  Since then, the Fed’s inflation fighting credentials have remained intact.  Now the question we ask is, if rate policy is an instrument of growth and price level control, or if it is instead a “put” on financial markets or even an instrument for leverage in trade policy.

After some fits and starts by the Fed in 2015 and 2016 to remove the zero interest rate policies, it appeared that the markets were accepting of some nine interest rate increases.  Last summer, the Fed seemed on a pathway to moving short-term interest rates towards 3%.  The Fed forecasts all went to that number.  But in October the markets pitched what appeared to be a hissy fit.  Equity prices declined, though the Fed carried on with a rate increase in December to the 2.25% - 2.50% range for Fed funds. 

By January of this year, the Fed shifted gears, declaring that rates were near neutral and it would be “patient” going forward.  We think this was the signal that rate increases should not be the presumption.  The markets pressed their views, pricing in various amounts of easing over 2019 and the Fed responded saying that risks related to trade uncertainty had heightened.  Perhaps the easing at the July meeting was simply the Fed taking out insurance, but we believe it had little choice.  A rate cut was largely expected and we feel that the markets would have clobbered the Fed with a stunning equity drop vote of no confidence had it failed to deliver. 

An important question to us is whether this behavior repeats itself.  Is the Fed following the markets?  There appears to be a further 25 basis point reduction in rates priced into the September meeting, plus perhaps more for October and maybe a 50-50 chance for December.  We believe that the markets seem to not be satisfied with just one reduction.  Is the Fed’s easing path really going to be this dovish? 

We believe that there is another source of pressure entirely:  for some time now, the administration has been pointing to overly-tight monetary policy as slowing down the economy.  Clearly the ability to press hard in China trade negotiations depends on the continued strength of the US economy.  If trade talks are souring the economy, and we feel there’s more than anecdotal evidence of this, then easier monetary policy could limit some of the damage.  Whether it wants to be or not, we think the Fed is deeply involved in the calculus of this equation. A weaker economy would give the administration little negotiating leverage. 

In the end, the Fed may go a long way in justifying its actions around absent inflation.  We think that in its mind, there should be more inflation.  The disappearance of inflation baffles the Fed and it desires a bit more of it than we have.  Lower policy rates, satisfying the two constituencies above, can be justified as long as inflation remains at bay.  We believe that this gives the markets their desirous adrenaline fix and the administration the wherewithal to continue to the trade war one-upmanship with the Chinese. 




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.


« Click here to go to the previous page

The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages equity, fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

Please remember that in order to invest you must first read and understand our Form CRS, Form ADV Part 2A and our Privacy Policy.

Copyright© 2020. All rights reserved.