Negative Interest Rates – The Fed Doesn’t Think So

by | May 18, 2020 | Wealth Management

Federal Reserve (Fed) Chairman Jerome Powell remarked during a 60 Minutes interview on Sunday, “There’re plenty of people who think negative interest rates are a good policy. But we don’t really think so at the Federal Reserve.”

The markets (Federal Fund Futures) started to finally believe the Fed today as the futures had been predicting negative rates from May 7th until Powell’s comments on Sunday (see the Bloomberg chart).

FedFutures
(Source: Bloomberg)

Based on his remarks and current market pricing, there appears to be very little upside potential for Treasury bonds.

In his memo “Mysterious”, Howard Marks of Oaktree, went through several examples of why negative rates would introduce distortions into the financial system and summed it up with perhaps the most reliable solution in a low to possibly negative interest rate world …lies in buying things with durable cash flows”.  Value investors look at the present day of the future free cash flows of a business and the durability of those cash flows. Could we be at an inflection point where value stocks outperform growth stocks going forward as market participants start to focus on those companies with durable cash flows?

Latest From The Blog

Archives

Our Services

Investment Management

Tailor portfolios to your needs and goals.

Retirement Planning

Investing and saving wisely is vital to success in retirement.

Financial Planning

Navigating the complexities of your financial affairs can be simplified.

Tax Management

Help to increase the amount you “take home”.

Estate Planning

Protect your loved ones and make sure your legacy endures.

Executive Compensation Analysis

Simplify the many options and decision points of executive compensation plans.

Education Planning

Confidently plan for your children’s future.

Charitable Giving

Give in a tax-smart, simple way.

*Please Note: Limitations.  The scope of services to be provided depends upon the terms of the engagement, and the specific requests and needs of the client. BFSG does not serve as an attorney, accountant, or insurance agent.  BFSG does not prepare legal documents or tax returns, nor does it sell insurance products.  Please Also Note: Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BFSG) or any financial planning or consulting services, will be profitable, equal any historical performance level(s), or prove successful.

Sign Up For Our Newsletters

(They're great, we promise)

Connect With Us

Financial Services Group BBB Business Review