{"id":4189,"date":"2024-02-08T10:59:07","date_gmt":"2024-02-08T02:59:07","guid":{"rendered":"https:\/\/www.syfe.com\/hk\/magazine\/?p=4189"},"modified":"2024-02-08T11:50:06","modified_gmt":"2024-02-08T03:50:06","slug":"first-fomc-meeting-in-2024-what-do-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.syfe.com\/hk\/magazine\/first-fomc-meeting-in-2024-what-do-you-need-to-know\/","title":{"rendered":"First FOMC meeting in 2024 \u2013 What do you need to know?"},"content":{"rendered":"\n
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What\u2019s Going On?<\/h2>\n\n\n\n

The Fed completed its first monetary meeting of 2024. As widely anticipated, the Fed has kept the Fed Funds rate unchanged at 5.25% \u2013 5.5% for the fourth consecutive meeting. Although the Fed indicated that rate cuts are unlikely to start in March, as the market had hoped, the overall tone seems to be dovish.<\/p>\n\n\n\n

Compared to the last meeting, the Fed provided a much clearer signal for a policy pivot in 2024. Notably, the Fed removed the phrase \u201cthe extent of any additional policy firming\u201d from the FOMC statement, indicating a pause in rate hikes for the time being. Fed Chair Jerome Powell also mentioned in the conference that rate cuts are expected to start at some point this year, but not as early as March.<\/p>\n\n\n\n

Another significant point was the discussion about rolling back Quantitative Tightening, or the process of removing money from the economy. Tapering of quantitative tightening typically means a slower rate of liquidity withdrawal from the markets, which could result in more cash being available for investments, potentially boosting both stock and bond markets.<\/p>\n\n\n\n

In immediate market reaction, equities pulled back with the S&P 500 down 1.6%, while bonds remained positive with the 10-year Treasury yield falling below the key 4% level.<\/p>\n\n\n\n

What does it mean for you? <\/h2>\n\n\n\n

One of the most hallowed commandments in financial markets is \u201cDon\u2019t fight the Fed.\u201d The Fed\u2019s monetary policies have significant implications for investors\u2019 investments.<\/p>\n\n\n\n

As the Fed\u2019s policies transition from \u201ctightening\u201d to \u201cloosening,\u201d bonds could be the primary beneficiaries. As interest rates move lower, bond prices tend to move higher. The rout in bond prices over the past two years could now be behind us.<\/p>\n\n\n\n

Historically, starting yields have had a high correlation with holding bonds over 3 to 5 years. Currently, bond yields are near 15-year highs. This could represent a good entry point for investors.<\/p>\n\n\n\n

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Should you act now or later? <\/h2>\n\n\n\n

You may ask when to start building positions in bonds, given that the Fed is unlikely to embark on immediate rate cuts. <\/p>\n\n\n\n

Based on the study of past cases, the timing of the Fed to start interest rate cuts does not matter as much as you may think. <\/p>\n\n\n\n

There are three scenarios for the Fed \u2013 immediately cut rates, pause then cut, or maintain higher rates longer. The analysis of past cycles shows that bonds have delivered annualised returns of 7.5% to 9.7% (in USD) over three years, beating returns from holding cash in all three scenarios. This supports the case for investors to deploy excess cash now, rather than waiting for the start of the Fed\u2019s rate cut.<\/p>\n\n\n\n

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How can you implement the ideas? <\/h2>\n\n\n\n