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Sharing current views and opinions showcases the thought leadership we bring to our clients.

Current Views

This Time We Mean It

Yesterday’s Federal Open Market Committee’s (FOMC) statement was the most hawkish issued in quite some time. It presented an optimistic story of strengthening labor markets and economic growth. Yet it also included the surprising comment that “the case for an increase in the federal funds rate has strengthened but [the Committee wishes], for the time being, to wait for further evidence of continued progress towards its objectives”.

To us, this statement reads as: “This time we really mean it, a rate hike is coming! But not quite yet.” Many Federal Reserve Governors, appointed in Washington as members of the Federal Reserve Board, appear to be of the opinion that there is no need to raise rates if inflation is not threatening the long range target of 2%. They all voted for no change. Indeed, the governors do not typically vote against the Federal Reserve Chair.

In contrast, many of the regional Federal Reserve Presidents had a different view. While the New York Fed President has a permanent seat on the FOMC, the other 11 regional Fed Presidents rotate across four voting seats. Three of those four voted to increase rates. But, in addition, eight of the 12 districts requested an increase in the discount rate (the rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window) ahead of the meeting. Overall, we believe there is more support for an increase than the vote indicated.

Accordingly, the contortions of the hawkish FOMC statement attempted to placate both sides. Nevertheless, a real divide exists between the regions and the central body. Three dissents are noteworthy, even with language drafted to soothe the disagreements.

At the same time, it now appears to be a foregone conclusion that a rate hike will happen before year-end. We anticipate that only strong contrary data would change that course of action at this point. With the next meeting on November 2, six days before an election, the December meeting looks to be a better opportunity for the Fed to finally take further action.

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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