Feds New Guidance Regime: What the Fed Said

Discussing the Fed’s rate guidance and normalization of policy, with David Kelly, JPMorgan Funds chief global strategist and CNBC’s Steve Liesman. After yesterday’s meeting of the Federal Reserve Open Market Committee (FOMC), Fed Chair Janet Yellen read a statement and gave a press conference. There were lots of reporters and many

commentators weighing in on the importance of her words and what they mean for the economy in the months and years to come.

There wasn’t much new regarding the Fed’s projections of inflation, job growth, and interest rates however there was an extremely important bite of information revealed concerning how the Fed intends to rid itself of more than $3 trillion in assets that it’s purchased over the past six years.

It’s been long anticipated when the day comes that the Fed begins to sell bonds back to the markets. With an inventory of $2.5 trillion U.S. Treasurys and $1.6 trillion mortgage-backed bonds, just the idea of the Fed becoming a seller could swamp markets and cause interest rates to shoot higher. This would devastate many industries — such as housing — that are sensitive to higher rates.

But there is another option, instead of selling bonds back to the markets, it could possibly simply let them mature. In Chair Yellen’s statement she said as much, proclaiming that after short interest rates rise the Fed would no longer purchase new securities when existing ones pay interest or mature.

Option #2:

A second option is for the Fed to send a little bit of money to every citizen. It is viewed by most that neither of these two options is likely and instead the Fed will do what it has always done — send the money to the U.S. Treasury as a gift.

At the Treasury, the money from the Fed will be poured into the general fund and spent by the government. Since the U.S. government runs a deficit every year, the money from the Fed will in essence lower the amount of bonds that the U.S. government would have had to issue to finance its excessive spending habits.

To review — when the Fed first printed new dollars it took value from everyone who was already holding dollars, then it bought bonds. When the bonds mature, the resulting cash will be sent to the U.S. government as a gift.

Considering that just over $1 trillion in securities will mature before 2020, this is a very generous gift. The rest of the bonds mature in later years, but the process will presumably remain the same.

The Bright Side:

With the Fed sending funds to the U.S. Treasury and the government needing to borrow less, there will be fewer U.S. Treasury bonds available for purchase. This will keep prices high, which only adds to the pressure of keeping interest rates low.

Of course, that’s only good if you’re a borrower, not a saver or a lender. If you are a responsible American who has saved and invested in paper-based assets, then this is bad news because it means the ultra-low interest rate environment will be around even longer.

There’s a great wealth transfer taking place right now. Are you on the losing end or the receiving end?

Wealth Transfer Planning

Precious metals have always been a safe haven for investing in high inflationary times. Historically speaking, a recurring cycle that always seems to repeat itself is periods of high inflation as a precursor to the crash of paper currencies. Those who understand this wealth cycle and position themselves in gold and silver are those who prosper.

Precious metals are assets that will never lose their value. They are not subject to systematic risks as paper money and serve as a hedge against inflation and other threats of devaluation. Cornerstone Asset Metals was established to help guide investors safely in and out of the precious metals market.

The Great Wealth Transfer

Watch Terry Sacka: The Wealth Transfer show on the Christian Television Network discussing the financial and influential decline of the Western world and the simultaneous wealth increase of the East. With the wealth of nations shifting, it’s imperative to understand moving forward how hard tangible assets will allow you to maintain a quality lifestyle.

Visit the Wealth Transfer archive for more episodes.

Learn more about how buying gold and silver today is a smart move for your investment portfolio.

» Contact Cornerstone Asset Metals today to learn more about buying gold and silver as an investment.

» Read our article: Why Silver is Going Up Today?

» Read our article: Why Gold is Going Up Today?

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