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Quantitative Easing and What it Means for You

With the Fed’s recent announcement of its decision to end the bond buying stimulus program known as Quantative Easing (QE), many individual investors are concerned about the impact on the economy at large and their individual portfolios. The good news for investors is that, for the most part, the bond market has been preparing for this day for more than 1 year.

As a result of QE, the Fed balance sheet has mushroomed to over four trillion dollars. This liquidity that has been added to the economy, which was the primary intention of QE efforts, will remain in place with little expectation that it will be reduced in the foreseeable future. Of course the Fed retains the option to start a new round of easing if the inflation outlook or economic projections deteriorate. That would be QE4 for those keeping score. But many market observers see this as an unlikely action by the Fed, based on some FOMC members’ stated opposition to more easing.

Many knowledgeable Fed watchers believe that while QE concentrated on buying long term bonds, the Fed’s next step would likely be directed at short term rates. Even that action is not considered imminent. Typically the Fed reacts to an economy growing faster than what they believe is a comfortable rate. A faster than ideal rate of economic growth can cause price increases to accelerate and/or bring about an undesirable level of inflation. Because economic growth and inflation are both increasing at below the Fed’s target levels, it is logical to expect a slow measured response from the Fed when short term rate increases begin. Our updated projection on the Fed’s timeline for future activity is here.

With this as a background, it appears that the market is likely to look ahead and try to anticipate when the Fed may begin increasing short-term interest rates. What all this expectation actually means to individual investors is somewhat limited. While changes in Fed policy may often seem dramatic, the market has for the most part priced in many of these anticipated actions already. Short-term high-quality fixed income investments may see little in the way of price declines if and when short term rates do rise.

From an academic view this is all very interesting but, as always, individual investors should reflect on the goals and investment objectives of their individual portfolios rather than on market commentator projections, and frequently unproductive attempts to time market purchases.

If your goal is to maximize the income from your bond portfolio, the best time to buy bonds is usually (though not always) when you have investment cash available. Rather than guessing what the Fed watchers are seeing, keep your eyes on your investment portfolio and look for high quality fixed income buying opportunities that may meet your investment objectives and goals. And of course, don’t hesitate to call our Financial Advisors to help you find bonds that are appropriate for your investing goals.

Investing in bonds involves risk including the possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, prices will fall, when interest rates fall prices will rise.

Trader’s Analysis

Our Trader’s Analysis charts the growth of the Fed’s balance sheet during the periods of Quantitative Easing securities purchases.

Source: Bloomberg

Why Hennion & Walsh

We are specialists in tax-free municipal bonds.

Tax-free municipal bonds are Hennion & Walsh’s heritage – it’s who we are. When we founded Hennion & Walsh over 24 years ago, we started out as specialists in tax-free municipal bonds. We built our reputation by selling high quality municipal bonds to individual investors looking for potentially safe, predictable income that’s tax-free. Although we are a full-service brokerage firm today, including portfolio management services, our clients still enjoy the value of our expertise finding municipal bonds for their investment needs. We also still deliver the same one-onone personalized service we’ve provided since our founding in 1990.

Unlike some competitors, we offer individual investors direct access to municipal bonds in the primary and secondary markets. Bonds are a dynamic investment. While some of our clients are looking to buy and hold, others are interested in frequent trading opportunities. We provide the investment opportunities that each client is looking for with a full service municipal bond trading desk, current market information, and investing opinions designed to enable clients to make the right decisions.

Because of our active municipal bond trading desk we are able to identify and purchase blocks of attractive municipal bonds when they become available in the primary and secondary markets. In addition, Hennion & Walsh aims to offer investors the highest standards of professional conduct for their accounts.

Personalized service isn’t just a slogan at Hennion & Walsh. It’s how we do business.

It’s no wonder that many people turn to professionals for help, guidance, and advice when it comes to their investments. The question is to whom they should give this responsibility.

At Hennion & Walsh, we believe that the management of wealth should be taken as personally as its accumulation. We recognize the commitment our clients have made to building and maintaining their investments. Knowing this, how could we not manage and protect those investments as carefully – and as personally – as we can?

More than 15,000 clients call upon us for our advice and expertise. We deliver one-on-one attention that enables us to truly understand our clients’ needs and work in close partnership with them, regardless of account size. We do not have a call center or voicemail – we personally answer each call our clients make. We have built our firm’s reputation on developing strong, mutually beneficial relationships designed to last a lifetime.