Public Trust Advisors Blog

Don't Fight the Fed?

Posted on Fri, Jul 28, 2017

Four times a year, members of the Federal Reserve (the Fed) release their projections for economic growth, unemployment, inflation, and the underlying interest rate associated with these forecasts. This interest rate projection, known as the “dot plot,” serves as a guide of where the Fed expects to take interest rates over time. Whenever the Fed releases an updated set of projections, it has the potential to be a market-moving event. For this reason, the recent disparity between the Fed’s dot plot and what the bond market is actually pricing into the yield curve should be of particular interest to fixed-income investors.

The saying “don’t fight the Fed” implies that investors tend to fare better when their interests are aligned with that of the Federal Reserve rather than against it. However, the bond market continues to take a less positive view of the economy than the Fed. Unfortunately for those that set monetary policy, the market’s pessimistic view has proven to be a bit more accurate for some time now.

07.17 Dot Plot.png
To illustrate, in December of 2015 the Fed raised its target rate for the first time in seven years. From the Fed’s perspective, the rate increase was warranted by the steady improvement in the labor market and confidence that inflation would gradually rise towards its 2.0% target over time. Moreover, the accompanying dot plot projected four additional rate increases in 2016. However, the bond market wasn’t buying it.
 
Source: Bloomberg

As it turns out, financial conditions rapidly deteriorated in January of 2016. At the low point in February, the possibility of even one rate hike from the Fed seemed implausible. Ultimately, we did see one rate hike in late 2016. So much for that December 2015 forecast, but the truth is that a lot has changed since the early inception of the infamous “dots.”

When the Fed first released the dot plot in January 2012, expectations for rate hikes were priced far into the future. Now, every Fed meeting is assumed to be “live” where the decision to raise rates could occur at any time. The Fed’s message has been garbled at times, but it has stressed a desire to move away from time-based forecasts to analyzing the current economic conditions before acting. For example, the labor market has recovered to its pre-crisis level, and the Fed is keenly looking for signs of inflation before pressing on with further rate increases.

While probably wise to not “fight the Fed,” we must simply realize that these dots are not carved in stone. As before, the Fed is still a bit more optimistic, and we have seen two rate increases so far this year. According to the dot plot, one more hike is projected for this year, but the market based probability for another rate increase before year end is less than 50%. Just keep in mind that either position could be correct, as it all depends on the future performance of the economy and relative stability of the financial markets.

Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Tags: Federal Reserve, The Fed, Rising rates, Public Trust Advisors, Investing Public Funds, Dot plot, LGIP Rates, Short-term interest rates

FOMC Moves... Again!

Posted on Thu, Mar 16, 2017
 
March 16, 2017
 
The Federal Open Market Committee (FOMC) meeting concluded yesterday at 2:00 p.m. (EST). As was widely expected, the FOMC raised the target range for federal funds to 0.75-1.00 percent. This is the third 25 basis point increase in 15 months.
 
The FOMC "Dot Plot" released following yesterday’s meeting reflects the expectation of two more hikes this year followed by three additional hikes the following year. The FOMC statement noted that “in view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 0.75-1.00 percent.” 

“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate” the FOMC said in its statement and reiterated that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around two percent over the medium term.” The next FOMC meeting will be on May 3, 2017. At the present time, the market is not expecting another rate hike at that meeting.
 
Investment management services for the public sector
*Source: Bloomberg 
 
 
Disclaimer: This communication is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions and is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Tags: federal open market committee, Federal Reserve, FOMC, investment managment for the public sector, LGIP Administration, The Fed, Public Trust Advisors, LGIP Rates, Investing Public Funds, Safety and Liquidty

4 Things You Need to Know about the FOMC Rate Raise

Posted on Wed, Dec 14, 2016

Four Things You Need to Know about the FOMC Rate Raise

Fed Raise.png
 

The Federal Open Market Committee (FOMC) voted today, December 14, 2016, to raise rates by 25 basis points.

Here are the 4 things you need to know:

1) The increase in rates should directly influence the returns for local government investment pool (LGIP) investments in a positive manner. Yields should move up.

2) With this gradual raise, the Committee expects moderate expansion in economic activity and strengthening of labor market conditions.

3) LGIP rates under Public Trust Advisors, LLC management have been steadily on the rise since the beginning of 2015.

4) Based on the dot plot, the FOMC noted that three additional rate hikes are expected in 2017. The fragile state of the global economy will require the Fed to move cautiously as it continues to look at tightening monetary policy.

Please contact a Public Trust Advisors, LLC representative if you have any questions, would like more information on public funds management, or simply how you can get involved. We wish you a happy and successful new year!

 

*The views expressed within this material constitute the perspective and judgment of Public Trust Advisors, LLC at the time of distribution and are subject to change. Nothing contained herein should be construed as investment, legal, business, tax, or accounting advice. You should consult your own advisors as to such matters and related matters concerning the information provided and its suitability for you. The information contained herein does not purport to contain all of the information that may be required to evaluate any investment options described herein. None of Public Trust Advisors or any of its affiliates make any representation or warranty, express, or implied as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or representation whether as to the past, current, or future performance. No representation is made as to its accuracy or completeness. It should not be construed as an offer or to purchase/sell any investment.  Any financial and/or investment decision may incur losses.  Past performance is no guarantee of future results. 

Tags: The Fed, LGIP Rates, Federal Reserve, FOMC, 2016 December Rate Hike

What's the Latest in Local Government Investment Pools?

Posted on Tue, Nov 03, 2015

By Greg Wright, President and Matthew Starr, Vice President 

Change is constant in the local government investment pool (LGIP) space, here are some of the recent topics being discussed at Public Trust.

Still All about the Fed?

Were you amongst the optimists who thought the Federal Open Market Committee (FOMC) would make their interest rate move back in March?  If so, then surely you became convinced it was coming in September. Let down twice (or more) by our central bankers, now you are not sure when, or if, an interest rate increase will ever happen. We get it, budget planning is tough enough without the uncertainty surrounding interest rates and when the Fed might execute a 25 basis point increase in the fed funds target rate. Need more guidance?  Let us help, here is the latest Dot Plot in advance of the October 25th FOMC meeting. For a refresher on how to interpret, revisit our blog post from May 2015.

Source: Bloomberg

Public Trust Managed LGIP Rates are on the Rise!

Want some good news? We have some for you, LGIP rates have been increasing. Granted not at a 50-100 annualized basis points clip, but incrementally to the point some LGIP rates are starting to approach 2010 levels again. However, while interest rates are creeping up, these returns are nowhere near the pre-Great Recession yields, for that to happen, we need the FOMC to re-set the target rate.

In addition to the anticipated FOMC rate hike, there are also a number of other factors that impact LGIP rates:

  • Portfolio management style and approach
  • Investment policies
  • Management fees

In our opinion, another key element that promotes higher yields is Public Trust’s ability to operate with greater efficiency and maintain lower operating costs without sacrificing service (or safety). For more information on Public Trust’s approach to LGIP operational efficiency, read a recent white paper. These savings allow us to maintain a competitive management fee and better yields for our LGIP Participants.

Money Market Reform, Not for LGIPs

The United States Securities and Exchange Commission (SEC) Money Market Reform, slated to go into effect in October 14, 2016 will largely constitute a non-factor for the LGIP space.  Remember the SEC does not have purview over local government investment pools. The vast majority of LGIPs are created and operate in accordance with state laws. True there may be similarities in structure, valuation procedures, permitted securities, reporting and oversight between SEC registered funds and LGIPs, but come next fall, LGIPs will not migrate to a floating net asset value, like prime-styled (credit exposure) SEC registered money market funds. Under the reform, government-styled (100% government securities) funds can opt out of the floating net asset value requirement.

Are local government investors that use registered money market funds ready for the accounting requirements and cash-management changes that the new rules bring? Not familiar with new SEC Money Market Rules, read more here. Just remember this, come next October, LGIPs will remain stable dollar funds.

Transparency: LGIPs Reflect Client-Base

Transparency is a cornerstone of good government. Public Trust manages LGIPs and therefore, we need to operate in a manner that serves our clients’ needs. Maybe you have not taken a moment to consider the level of reporting and transparency associated with Public Trust managed LGIPs, well we have. Here is a quick, but important summary of the transparency-related reports available to all of Public Trust’s LGIP Participants via their websites as well as the reporting platform MYACCESS:

  • Daily Rates 
  • Monthly Statements 
  • Portfolio Holdings
  • Newsletters
  • Monthly Fund Analysis 
  • Information Statements
  • Annual Report 

We at Public Trust recognize that financial transparency plays a big part in the overall safety and security of your public funds. As an investor working on behalf of your community, it is essential that you receive a high quality service which can provide you with a variety of tools to assist in your daily responsibilities.  You aren’t allowed to keep secrets from your tax-payers, so Public Trust does not keep secrets from you!

Best regards,

Your Public Trust Staff

 

The views expressed within this material constitute the perspective and judgment of Public Trust Advisors, LLC at the time of distribution and are subject to change. Nothing contained herein should be construed as investment, legal, business, tax or accounting advice. You should consult your own advisors as to such matters and related matters concerning the information provided and its suitability for you. The information contained herein does not purport to contain all of the information that may be required to evaluate any investment options described herein. None of Public Trust Advisors or any of its affiliates make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or representation whether as to the past, current or future performance. No representation is made as to its accuracy or completeness. It should not be construed as an offer or to purchase/sell any investment.Past performance is not an indicator of future performance or results. Any financial and/or investment decision may incur losses.

Tags: public funds investing, public funds investor, Public Funds Investment, Local Government Investment Pools, public investor, rating agency risk, Money Market Rules, Federal Reserve, LGIP Rates, Publc Trust Managed lgip, The United States Securities Exchange Committee, The Fed, local government investment pool administration, money market funds, financial transparency, LGIP operational efficency, investment advisory services, Investing Public Funds, LGIP Administration, public trust, federal open market committee, Safety and Liquidty, Public Trust Advisors, LGIP investment solutions, SEC, FOMC

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