How The Appointment Of A New Fed Chair May Affect Your Investments
Janet Yellen's recent confirmation as the new chair of the Federal Reserve makes her the first woman to head the nation's central bank. The 67-year-old Yellen has taken is set to take over for the current departing chairman, Ben Bernanke, on February 1. Yellen's first meeting as the new Fed chair is scheduled to take place in March. Although her economic philosophy is similar to that of her predecessor, Yellen's appointment may have implications for your investment portfolio. Below is a brief discussion of some of the changes you can expect to see over the coming months.
Yellen has served as the vice chair of the Fed's Board of Governors since Oct. 4, 2010. She received her Ph.D. from Yale University in 1971, and has since taught at Harvard, the London School of Economics and the University of California, Berkeley. She also served as a staff economist at the Federal Reserve early in her career. Yellen was appointed to the Federal Reserve Board of Governors in 1994 by President Bill Clinton. In 2004, Yellen became president of the Federal Reserve Bank of San Francisco, which was transformed into a widely respected hub of macroeconomic research under her leadership.
The Future of Quantitative Easing
Yellen has voiced support for the Fed's quantitative easing, a bond-buying program that has produced historically low interest rates in an effort to boost the struggling economy. Bernanke hinted last May that the Fed would begin tapering off these quantitative easing measures as the economy begins to recover. Because gross domestic product is now above 4 percent and the stock market is on the rise, the Fed has begun reducing it's current $85 billion-per-month quantitative easing measures. Market analysts expect that the new chairwoman will continue tapering off the Fed's QE measures, reducing the monthly bond purchases by as much as $10 billion.
Potential Impact on Your Portfolio
The Fed's bond-buying program has kept interest rates very low, which has been a boon to many investors. As the Fed has already begun tapering of its quantitative easing measures, interest rates are expected to rise, which will result in a decrease in the value of long-duration bonds. On the other hand, the impact on short-duration bonds is expected to be a lot less dramatic. It may be a good idea, therefore, for investors to pad their bond portfolios with more short-duration bonds in the near future. €We have been actively reducing the potential risk associated with bonds when interest rates rise by shortening the duration with our clients' bond portfolios,€ said Michael Bowen, Chairman of the Fixed Income Committee at WealthTrust-Arizona, a financial advising firm based in Scottsdale, Arizona. €Generally speaking, the lower your duration, the less risk your bonds will have to rising interest rates because the bonds will be maturing at a time when interest rates start to rise. The proceeds can then be reinvested at the higher interest rate,€ he added.
Each investment strategy is unique, and the impact that the Fed's tapering will have on your investments depends on the makeup of your bond portfolio. It is a good idea, therefore, to seek the advice of a financial advising professional to learn how the Fed's new strategy shift may affect your portfolio.
Advisory services offered through WealthTrust-Arizona, a registered investment advisor. WealthTrust-Arizona does not engage in the trust business in the state of Arizona or in any other jurisdiction. Not FDIC insured. Not bank guaranteed. May lose value, including loss of principal. Not insured by any state or federal agency.
Yellen has served as the vice chair of the Fed's Board of Governors since Oct. 4, 2010. She received her Ph.D. from Yale University in 1971, and has since taught at Harvard, the London School of Economics and the University of California, Berkeley. She also served as a staff economist at the Federal Reserve early in her career. Yellen was appointed to the Federal Reserve Board of Governors in 1994 by President Bill Clinton. In 2004, Yellen became president of the Federal Reserve Bank of San Francisco, which was transformed into a widely respected hub of macroeconomic research under her leadership.
The Future of Quantitative Easing
Yellen has voiced support for the Fed's quantitative easing, a bond-buying program that has produced historically low interest rates in an effort to boost the struggling economy. Bernanke hinted last May that the Fed would begin tapering off these quantitative easing measures as the economy begins to recover. Because gross domestic product is now above 4 percent and the stock market is on the rise, the Fed has begun reducing it's current $85 billion-per-month quantitative easing measures. Market analysts expect that the new chairwoman will continue tapering off the Fed's QE measures, reducing the monthly bond purchases by as much as $10 billion.
Potential Impact on Your Portfolio
The Fed's bond-buying program has kept interest rates very low, which has been a boon to many investors. As the Fed has already begun tapering of its quantitative easing measures, interest rates are expected to rise, which will result in a decrease in the value of long-duration bonds. On the other hand, the impact on short-duration bonds is expected to be a lot less dramatic. It may be a good idea, therefore, for investors to pad their bond portfolios with more short-duration bonds in the near future. €We have been actively reducing the potential risk associated with bonds when interest rates rise by shortening the duration with our clients' bond portfolios,€ said Michael Bowen, Chairman of the Fixed Income Committee at WealthTrust-Arizona, a financial advising firm based in Scottsdale, Arizona. €Generally speaking, the lower your duration, the less risk your bonds will have to rising interest rates because the bonds will be maturing at a time when interest rates start to rise. The proceeds can then be reinvested at the higher interest rate,€ he added.
Each investment strategy is unique, and the impact that the Fed's tapering will have on your investments depends on the makeup of your bond portfolio. It is a good idea, therefore, to seek the advice of a financial advising professional to learn how the Fed's new strategy shift may affect your portfolio.
Advisory services offered through WealthTrust-Arizona, a registered investment advisor. WealthTrust-Arizona does not engage in the trust business in the state of Arizona or in any other jurisdiction. Not FDIC insured. Not bank guaranteed. May lose value, including loss of principal. Not insured by any state or federal agency.
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