It’s Fed Day. Here’s What It Does ... and DOESN’T Mean

If indications are correct, today is the day. The day the Fed does two things:

1. Signals an important monetary policy shift ...

2. But doesn’t REALLY shift the landscape for income investors at all!

Huh? How is that possible?

Let me explain, and more importantly, let me suggest what to DO about it.

Federal Reserve Chair Jerome Powell and his fellow policymakers are wrapping up their latest two-day meeting right now. They’ll likely announce plans today to reduce their Treasury and mortgage bond purchases, which are currently running at a pace of $120 billion per month.

Actual cutbacks probably won’t begin until December, with the Fed tapering its purchases by $10 billion or $15 billion per month. That would wrap up the process by mid-2022.

This sounds like a major shift ...

The first concrete acknowledgment that the economy and the markets are in completely different places than they were when the Fed launched this round of quantitative easing (QE) during the depths of the COVID-19 crisis last year.

•  But the Fed has signaled it will NOT start raising interest rates anytime soon.

They want to taper first, and only then start thinking about how to get the federal funds rate out of its current, rock-bottom 0-0.25% range.

That means the “real” (inflation-adjusted) funds rate will remain deeply in NEGATIVE territory.

To push the funds rate above the inflation rate, the Fed would have to hike it up by more than FIVE PERCENTAGE POINTS, or 500 basis points … starting right now.

•  Is that going to happen? No way! Not with the current crew of officials at the helm.

That means many investments — from Treasury bonds to dividend-paying stocks and even high-risk bond funds — will continue paying yields that can’t even keep up with inflation.

Or, like I said at the outset, this week’s “big” Fed shift doesn’t mean much to income investors like you.

It doesn’t change the big picture.

You STILL have to take proactive, powerful steps to boost the yields your portfolio spins off.That’s why I hope you check out our Superyield Conference event from our founder, Dr. Martin Weiss.

It was hosted live yesterday — but if you missed it, it’s still available for a limited time.

It’s free, and you can check it out here.

Until next time,

Mike Larson