Special to USA TODAY
Published 2:58 PM EDT Sep 19, 2019
Parsing Federal Reserve speak has always been a bit of a parlor game for the financial news media and investors.
That’s because understanding what the Fed thinks and does reveals a great deal about expectations for economic growth. And if you have a 401(k), grasping what the Fed and Wall Street are thinking about the economy matters a great deal to your retirement savings.
So when Fed Chairman Jerome Powell gave his maiden testimony before Congress in February 2018, many people fell over themselves to declare him the first straight-talking Fed chairman. Admittedly, I was among the enthusiasts.
Since then Powell has sent conflicting messages to investors and abruptly reversed course, raising rates into December of last year due to a strong economy, then cutting them over concerns of a global slowdown. Quite the monetary plot twist if ever there was one.
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And the drama continued this week, when the Fed announced a quarter-point cut in short-term rates and Powell gave his much-anticipated press conference.
Immediately the skeptics came out pounding the table, declaring the Fed was obfuscating once again. During the press conference I heard Powell confirm the economy is good, the job picture robust (and not likely to change) and that the uncertainty surrounding trade is worrying and hurting business confidence.
But what he described is a fairly ideal environment for stock investors. With interest rates once again approaching historical lows and the consumer balance sheet in good shape, the economy should continue to grow, although at a slower pace than last year. By the time Powell was done, the Dow Jones industrial average had stopped falling and notched a modest gain.
Despite its volatility, the broader stock market is up around 20% this year. Of course, this can’t continue forever but as long as interest rates remain low many investors will continue to turn to stocks.
As our friend Jason Trennert of Strategas Research Partners noted early in this economic cycle, stocks benefit from TINA, Trennert’s acronym for: There Is No Alternative. With the 10-year Treasury yield below the dividend yield on the Standard & Poor’s 500 stock index and the opportunity to earn the 9% historical average return in stocks (since the turn of the last century), those of us with a 401(k) or IRA may just continue to enjoy reasonable returns in investments for a little longer. And that is thanks to the Mr. Powell and his interest rate policy.
Yes, the Fed’s messages are mixed, but the results for stock investors are clear. We can keep benefitting from the low rates and solid returns.
Nancy Tengler is chief investment strategist at Tengler Wealth Management, ButcherJoseph Asset Management and the author of “The Women’s Guide to Successful Investing.”