Federal Reserve Is Expecting Winter In July

Last February, St. George, Utah had its biggest snowstorm in 20 years. Nearby, Zions National Park closed. Local schools did a late start. Motorists on the freeway were asked to use snow chains. The storm total? 3.8 inches! So, not that much . . . if one is prepared.

Without a doubt, the greatest risk in such a situation is overconfidence. The same could be said about investing. And even though it is summer, the Federal Reserve is going to start spreading salt on the roads for wintery conditions.

As I write, the Fed is preparing for its 5th meeting of 2019, which will be held July 30th–31st. The overwhelming majority of experts believes the Fed will lower interest rates for the first time in a decade. It would do this to encourage greater borrowing and give the economy a boost.

Celebrating a rate decrease this July is like increasing your speed on a sunny day while the snowplow drivers are starting their engines. Why are the plows heading out?

The U.S. economy has been growing at just over 2 percent for a decade. Tax cuts provided a short-term bump, but it looks like the growth is headed right back to the 10-year trend. That’s not so bad, but it has the Fed nervous.

If the Fed lowers rates at the end of this month, it is sending a signal to the rest of us that the experts believe there may be some rougher weather ahead. They will be dropping the salt on the roads in anticipation. Only time will tell how the forecast and driving conditions will change.

Are you driving too fast for the conditions with your investments? Stocks and bonds have been wildly positive this year, which has some investors too excited. Most of these gains just brought market prices back to where they were before a negative overreaction last December. That drop has had a lasting impact on how most investors feel. In other words, the market data is neither hot nor cold right now, but investors are too focused on one or the other. So, when it comes to your investments, I recommend going the speed you and your advisor decided on in your last review.

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