Does the Fed’s official ending of its policy of forward guidance matter to savers? Absolutely.
Jim Rickards recently published an excellent article detailing how the Fed’s protective guidance allowed “banks to make excess profits to restore the capital they lost in the 2008 crash.” Rickards chronicles the failure of various Federal Reserve schemes and confirms what many of us, including yours truly, already suspected:
As can be seen from this history, the entire process of forward guidance has been an elaborate farce in which markets and investors have played their assigned roles. Federal Reserve officials have told me privately that they have no idea what they are doing—something they never say publicly.
They simply try some policy as a kind of experiment. It if appears to work, they may do more of it. If it appears to fail, they promptly abandon it. The biggest mistake investors can make is to believe the Fed knows what they are doing—they don’t.
The whole mess reminds me of a familiar tale, Hans Christian Andersen’s The Emperor’s New Clothes. It took a child to point out what everyone could see: “But he has nothing on!”
Whispers ran through the town until the townspeople all finally echoed the child, “But he hasn’t got anything on.”
The Fed is naked and we all know it. But the consequences of its folly go far beyond embarrassment. Banks are doing just fine; savers, not so much.
While the Fed has strongly hinted that it will raise rates, market predictions of when that will happen keep getting pushed back. Interpreting the Fed’s published statements has become a running joke.
Like a naked emperor, most of the options for income investors in this environment ain’t pretty. But Money Forever Portfolio has unearthed a portfolio of rare gems designed to provide income and capital protection no matter what the next Fed experiment turns out to be.