Gary Quinzel, vice president of portfolio consulting at Wealth Enhancement Group, gives his views about future monetary policy and offers his opinion on the previous day's FOMC statement and Fed Chair Jerome Powell's press conference.
Transcription:
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Gary Siegel (00:10):
Hi, and welcome to another Bond Buyer Leaders Forum event. I'm your host Bond Buyer, Managing Editor, Gary Siegel. My guest is Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement Group. Today we're going to discuss monetary policy including yesterday's federal open market committee meeting. Gary, welcome and thank you for joining us. So was there anything in the statement or Chair Powell's press conference that surprised you or grabbed your attention?
Gary Quinzel (00:48):
Yes, thanks for the question. There really wasn't anything spectacular that surprised us. I think the meeting itself was very highly forecast and it did come to fruition very much like we and many other economists and practitioners expected. There was really no one out there that was expecting a rate cut This time around, this was the first time in a long time that there were some proponents of a rate cut. I know Bill Dudley started making some announcements in the press about the potential or reasoning for why a rate cut now made sense, but it really didn't have much of a chance, so we weren't surprised at all by the outcome. However, if you peel back the onion just a little bit and you look at the language that came from the official statement, it really does validate some of the rationale and expectations for why a cut in September has become the most likely scenario.
(01:54):
And just to kind of put that another way, just the very first paragraph of the statement in our opinion says it all the job gains that have remained strong have moderated, and that is a subtle word change, but it has a significant meaning and impact that the Fed has acknowledged the difference in the labor market, that it's starting to become more of an issue, not a significant concern, but more of an issue. The other really important change is that the Fed had priorly talked about their concerns and efforts focused solely around the extreme increases in inflation, and now they significantly shift that from going highly attentive to inflation to very focused on their dual mandate, which again, reemphasizes that they're now paying attention to jobs more so than before. And for those of us who have been paying attention, we did have a 30 month stretch where unemployment was at or below 4%, which was a very healthy and resilient labor market. Of course, that's not the case anymore. We do have a higher unemployment rate. Some expect it to go even higher. Some are even calling about the SOM rule and what that means for a recession. And so it has become more top front and center or top of mind. And so the Fed has acknowledged that and they're using that to lay the groundwork for what they might do at the next FOMC meeting.
Gary Siegel (03:36):
And what do you expect they will do at the next FOMC meeting?
Gary Quinzel (03:41):
Yeah, I think unless the data changes significantly from what we've seen up to today and recently, and we have had a flood of economic data this week alone, that a 25 basis point or quarter percent rate cut is the most likely scenario. If you look at the Fed futures market per the CME group, we're looking at around an 80% chance of a 25% rate cut. Now of course that does fluctuate on a minute to minute basis, but what's also really interesting up until not that long ago, that was pretty much the expectation, either that or nothing. Now they're talking about possibly even more at 50 basis point cut, which we think would be an relatively extreme move for the Fed to make that as a first move given how conservative and cautious they've been to lower rates. If you think back when the market was pricing in six to seven rate cuts at the end of last year, the Fed really never had any intention of doing that, nor did we think that that was really a reality. So we think that just because there are some folks out there that are talking now about slowing economy, the increase in the unemployment rate as rationale for a 50 basis point cut, the only reason for that would be is if the Fed was too late. And given what we know today, we don't believe that at this time,
Gary Siegel (05:12):
Yes, if they move 50 points, it would be an admission that they should have moved sooner.
Gary Quinzel (05:21):
I would agree. And the Fed, in our opinion, has done a fairly good job of communicating and articulating why they've done what they've done, and it is very possible that they're on the verge of executing this soft landing, which we've been talking about for quite some time now, and many thought it wasn't possible, right? There have been soft landings in the past, but more often than not making having a more restrictive monetary policy has pushed the economy into recession. So they've been very mindful of that and they've been very cognizant of their dual mandate, but of course much more focused on inflation, which reached multi-decade highs. I don't think they're ready to admit that. I think the market is maybe just getting, once again a little ambitious about the potential for a 50 basis point cut. But our base case as of today is that we will see a 25 basis point cut in September and one more cut this year more likely than not at the November meeting, but at the December meeting.
Gary Siegel (06:29):
And how about next year?
Gary Quinzel (06:33):
That's a great question, and that's where it starts getting a little harder to forecast. If we continue on the current path that we're on, I would expect to see continued rate cuts anywhere from an additional 75 basis points to 1%. Now, that's going to be very, very difficult to predict because we are kind of at a catalyst right now, something that we've been an inflection point I should say right now, where at the economic news, up until now, the bad news has been good news. In other words, when we received news of slowing growth or rising unemployment that has led market participants to expect rate cuts coming in the near future, what we're starting to see right now is this expectation that bad news could in fact start being bad news once again. And what that means is the market thought start changing the way they interpret this bad economic news and start shifting their focus from inflation to a recession and true slowing growth.
(07:41):
And we're starting to see some news out there, especially the ISM news that came out today that the economy is in fact slowing in the second quarter. GDP didn't suggest that, but of course that's quite backward looking. So all of this impacts our forecast for next year. So we expect the trend to continue because in fact, we are higher than average, higher than we've been for quite some time. We think there's certainly a pathway for more accommodative policy overall, but predicting where we're going to end at the end of 2025 is certainly quite challenging given the current fluctuations and the shifting in sentiment that we're experiencing.
Gary Siegel (08:22):
It wasn't very long ago that some Fed officials were still considering a rate hike could be next. Has recent data ruled that out completely?
Gary Quinzel (08:33):
Well, I would never say never, of course. But given the current data anytime soon seems very out, not likely or out of the question because we just haven't seen the rationale or any type of inflation data that would suggest that a move like that would be necessary. Now, we did have that three month stretch back in Q1 where we saw continued upward surprises in the CPI data, and that almost seems like ancient history at this point because we've kind of resumed that downward trajectory in terms of inflation. So we really don't see that as likely. There doesn't seem to be any economic data right now that would suggest that a rate hike is warranted at this time. So we think that more likely than not, the Fed is going to cut, they're going to cut again, they're going to wait, they're going to reevaluate, and we're going to just going to have to see if and how much the economy slows down. Right now it's very early in terms of the evaluation phase of how deep a potential slowdown could occur. Our base case is that if we do see an economic slowdown, it's likely to be quite mild and quite short. But again, these things certainly change over time. But to answer your original question, no, we don't see the possibility of a rate hike anytime in the near future.
Gary Siegel (10:01):
So do you expect a soft landing?
Gary Quinzel (10:05):
Yeah, so that's really the million dollar question of course, and some would argue that we are kind of in it right now, but then again, what's the time period by which you judge the successful execution of a soft landing? One could argue that it could go on into perpetuity. So eventually if you go into a recession, you could say, okay, the Fed pushed the economy into a recession. We think it's possible. And really it's, I don't want to say it's 50 50, but it's somewhere in that vicinity right now because we are seeing some evidence of slowing down as we talked about, yet we're also seeing very resilient spending coming out of high income earners, and we're seeing a lot of numbers that continue to demonstrate a lot of productivity out there. And the AI boom continues. We're seeing a lot of productivity. We're seeing CapEx spending, we're seeing relatively healthy earnings.
(11:00):
We're in the middle of an earnings season. So there's a lot of positive things that are happening right now that are going to offset a very mild uptick in inflation. So the question really comes down to timing, right? So if you say, do you expect a recession? Yes, I think with a hundred percent certainty we're going to have a recession. But I'm not telling you over what time period, and I think that's obviously the easy way out of that question, but it's very, very true in this state. The Fed is doing an adequate job in terms of signaling, in terms of providing the communication necessary to give market participants the right level of information to help essentially predict when the next rate cuts are going to happen that should benefit the market. But as we talked about before, at some point that bad news is going to become bad news and we're going to have to account for the fact that unemployment is likely to go higher. So if we did have a recession occur, it's very unlikely in our opinion to happen this year. We would certainly be looking into 2025 or beyond.
Gary Siegel (12:11):
Gary, are you at all concerned about stagflation?
Gary Quinzel (12:16):
Yeah, I mean we're always concerned with it because that's certainly not the result or the impact that you want of all the different possible solutions. But right now we don't see that as the case because inflation, no matter which way you look at it, is on a downward trajectory. Whether you're looking at the consumer price index, the PCE index core or headline, we're just seeing downward pressure across all inflationary. Now, it also matters how you break it down, right? Because are you looking at some of the core or super core components? Are we looking at services which have been very tricky and more sticky? Some of the areas that we've talked a lot about in the past like shelter and insurance and other service oriented industries have remained higher. But on the other end of the spectrum, there have been some core goods that have been in deflationary areas.
(13:14):
So it's hard to say that we see stagflation as a reality at this phase, especially when you look at the GDP numbers as well. So we had a fairly positive initial reading of second quarter GDP, the models that we're looking at don't forecast the economy falling off the cliff anytime soon due to a lot of the factors we talked about, the resilient consumer spending, the CapEx spending, the impact of ai. And so yes, inflation is always something that is on our minds, and I was certainly much more on our minds roughly one year ago when more of us were thinking about the possible hard landing scenario. But right now, certainly less of a concern. We have other pain points or issues that are more top of mind.
Gary Siegel (14:09):
Will intermediate and longer term rates ever settle back to what we saw before the increase a couple of years ago? If not, what are the considerations keeping them where they are now or driving them even higher?
Gary Quinzel (14:34):
So that's a great question and the future trajectory and impact or where rates are going to be in the future, so many other things incredibly hard to predict with a high level of certainty or confidence. What we do know or think we know is that short-term rates are coming down. That seems to be the most, if we had to place a probability on our convictions, that would be at the highest or top of our list. We're going to see lower short-term rates in the very near future, starting with the 25 basis point cut September. Now, as we already talked about, if we see one more cut this year and then maybe three or four cuts next year, that brings us down in the Fed funds rate. Somewhere in that 3% range that seems like conservative estimate by our measures. The yield curve has been inverted for quite some time.
(15:29):
As many of us know, it's not going to stay inverted forever over the long run. It should normalize and we should see real yields. That is the difference between 10 year yields and inflation also normalize. We saw real yields fall all the way to negative in recent years, and that's likely to go back more to its long-term average. I think that the more normal real yield over the last 20 years is somewhere in that one to 2% range. And so if we think about where inflation is going and put it back to its 2% target and add that more historical real yield on top of it, that puts us in a 10% yield somewhere in that three and a half, 4% range. So we have a relatively flat yield curve, but it is more upward sloping. That is our best case, that is our base case scenario and where we think that we're going to go.
(16:21):
Now, the timing of that, of course, hard to predict. I think for the yield curve to normalize, it's going to be more of a reason because the front end of the curve is coming down as opposed to the long end going up. But to get back to your questions, where do we think medium and long-term yields should be? We think somewhere back in that long-term range based upon what real yields normally are, in addition to factoring in the level of inflation, I don't see the 10 year yield going back to 1%. I don't see mortgages going back to two and a quarter percent. I mean, I wish they would. So many of us do, but that's just not likely. We are definitely in a different interest rate regime, which is just going to very fundamentally impact the way fixed income investments are done, the way we save, the way we invest, the way we borrow. All of those things are just going to be impacted because of the environment that we're in. And I just don't see that the decade of 0% interest rates, the decade plus of 0% interest rates that we all experienced for better or for worse, we're certainly in a different regime. I think we're going much closer back to the regime that we saw prior to the global financial crisis.
Gary Siegel (17:33):
So let's talk politics for a second that elections are in November, the presidential elections. What do you see as the greatest risks to the economy to interest rates to inflation of the election?
Gary Quinzel (17:50):
Yeah, so obviously this is top of mind for frankly all of us, right? We've seen the political world literally turned upside down in the last couple of weeks from the convention to the attempt assassination to the shifting from Biden to Harris. And so it's all about uncertainty and uncertainty is the enemy of any investor because it just adds to potential volatility. So that's top of our list. It's just flat out uncertainty. And we've seen the VIX on the equity side go up in recent weeks, and that's just one of the things that's driving that uncertainty is because we just don't know. And what we thought we knew about two weeks ago, we thought that there was going to be a Republican landslide. Hardly seems the case today, and we're still several months out from the election, so this is going to change whether or not we have a debate whether or not some more concrete descriptions of anticipated policies come out.
(18:49):
We think a lot of things right now in terms of what an anticipated Trump's second term would look like. A lot of that has been forecasted. A lot of that is known based upon what President Trump did the first time around. And we think we know what a potential president Harris would do because she's been very outward in some of her policies and certainly runs on the complete opposite end of the political spectrum. So a lot of uncertainty there. The obvious answer is that in either case, the most dramatic impact to markets would be if you had a landslide or a full sweep on either direction where you would see policy move the most dramatically. We always like to say that policy matters, politics don't when it comes to the market. We've done countless studies and really anyone can do this. You can look at historical returns going back to the 1920s or even the 1860s that demonstrate that over the long run the person and the party they're in the White House really doesn't have that much of an impact on the markets.
(19:53):
They're almost statistically tied. Now it's heavily dependent upon what time period you're cherry picking. You could certainly draw a case for one or the other, but the more data sets that we look at, we come to the conclusion that the politics really don't matter. But there are some really important implications that could come out of either scenario. So for example, we know that Trump talks a lot about tariffs and has probably more likely, I mean either candidate probably would play tough on China, but I think it's indisputable that Trump would probably come at it with a bigger, a heavier stick. And so the question is, will that be inflationary? Would that shift the whole script back towards more upward inflation? That of course could shift the Fed's monetary policy. Trump himself might pressure Powell to get out. We know the relationship they had last time around, and if a different Fed chief came in, who would that be and what type of policy would they bring?
(20:51):
That's certainly a wild card at this point. The tax cut and Jobs act, we can't overlook that. That has a tremendous impact because most of those rules and policies are set to expire at the end of 2025. A lot of that's going to impact the personal tax rates, corporate tax rates, some of the qualified business laws as well. And so there's a lot of tax impacts that are likely to come. And there's just general policies. I think Vice President Harris has probably not looked at as favorably from a small business standpoint. I think that's a relatively fair statement without being too subjective just based upon statements that she's made. So you can anticipate probably a higher tax scenario on small businesses if Vice President Harris wants. So there's a lot to digest. This is something that we're going to spend a lot of time thinking about the implications.
(21:47):
It's obviously too soon to make a bold prediction. I think that the polls, the statistics that we're looking at are at a virtual tie right now, especially when we look at the swing states. But the big ones that really think about without getting into sectors, winners and losers, et cetera, really have to do it. What would be the impact of the tariffs, whether or not that would be inflationary, what would be the impact on taxes and the tax cut in jobs act? And then just regulations in terms of how would regulations impact the overall confidence of small businesses. I think it's also important to note that small business optimism is really at multi-decade loads. And a lot of that has to do with inflation, which has been felt much more significantly by small businesses relative to large, but also that uncertainty around taxes and regulation. So that's going to based upon the winner of this election and whether or not they carry one or both parties of Congress with them, that's going to have a major impact. So we're going to pay really close attention.
Gary Siegel (22:51):
Well, before Biden bowed out of the race, a lot of people thought that he wouldn't give Powell another term. So even though he looks like he's got the economy headed for a soft landing, he might be in trouble either way.
Gary Quinzel (23:10):
Yeah, that's true. And we know that relationship was murky at best, and it's highly likely that we would see some kind of a rough relationship going forward if Trump were to win a second term. So that's something that's been talked about a lot, and we think it's pretty important that the Fed remains apolitical, and I think I want to believe that they have been and continue will be based upon the evidence I've seen. We think that's the case, but it doesn't always play out that way. And so it'll be very interesting to see what happens. And there are significantly major market impacts that could be determined based upon the policies, not the politics that come out of this.
Gary Siegel (24:01):
So the Fed was criticized for being too slow to start the hiking cycle at the start of the year. The market expected six or seven cuts but have gotten none. The Fed of course, never committed to six or seven. What are the chances that even if the Fed cuts in September, they're late making the first move?
Gary Quinzel (24:25):
So I touched upon this a little bit. It's certainly possible that they're late, but based upon the data that we've looked at, we've seen, we don't believe they've been too late. Powell has been very clear that they've been uber focused on inflation, and they really don't want to make the mistake of cutting too soon too fast and having to reverse course because really that is the number one risk to the market would be to reverse course and raise rates. And as evidence to that, I mean the Fed did nothing, and look at what the market has done this year so we can live with higher rates. I know not everyone would admit that, but the market has proved, especially large caps, which would carry the markets can live with higher rates and bond yields have never been like this. So it's not the worst thing in the world.
(25:22):
It certainly hurts some segments more than others. There's no question about that. But I think the Fed has lived up and actually done what they've said they were going to do in focusing on not making that same mistake of waiting. Yes, they arguably waited too long to hike rates because they identified the inflation as transitory. Well, it turns out they were actually right. The inflation was transitory, but our definition of transitory just wasn't quite spot on, right? People who heard transitory thought three months, six months, they didn't think two years. And so there's an argument to be made that they were right and perhaps that this was just going to play out. It's just going to take longer than most people were willing to accept. And we're very impatient here, especially any investor and patient. We want to see our convictions played out in a much faster turn, but we are of the mindset that we are at the right pace.
(26:23):
Now is the time. It seems like there is a justification for lower rates that just wasn't there before. And of course we could be wrong. How on the Fed could be wrong? It's happened before. A lot of the data doesn't materialize until after the fact. But right now, with the economy humming along pretty strongly and we're seeing up until now and up until very recently when labor started inching higher, we've had a moderate growth environment. We've had declining inflation and a resilient, very resilient labor market and moderate growth. So we've kind of had not the scenario that justified or warranted rate cuts up until now.
Gary Siegel (27:10):
So Chair Powell continues to say rates are restrictive. Do you think the full impact of the past hikes have worked through the economy completely yet?
Gary Quinzel (27:22):
That's a fair question, and I think it depends who you ask, right? Because in many cases there have been studies that show that the impact of rate cuts really are felt around 12 to 24 months prior to the actual increase. And we know they started hiking back in March of 22, so we're certainly past that point at this stage. But we also witnessed that large caps were in a very prudent or optimal situation to pass those costs along to consumers. It's the smaller companies, it's the smaller businesses, it's the people looking to borrow that have been hurt the most. And so that impact is still being felt today where the impact was basically absorbed a long time ago and passed on to consumers that continue to be in a good position to spend money. So that's why the economy has really thrived over the last couple of years.
(28:19):
We have a very, very resilient consumer here in the us. We have tremendous wealth that's been built up over the last several decades, whether it's in the stock market, in individual's homes which continue to be at record prices that has created a wealth effect that's enabled people to continue to spend. We're seeing a lot of cash purchases. We haven't seen a slowdown of those who are spending the most money. So that's keeping the economy going forward. And again, not to be redundant, but the impact of ai, all of these things have done really well in the face of higher interest rates. So it has a really dramatic impact on some less of an impact on others. But I think just given by most historical measures, yes, we are at the point where the impact that one to two year impact has mostly been built in and reflected in most expectations for businesses as well as in most market predictions.
Gary Siegel (29:19):
Parts of the yield curve have been inverted for over a year, although now they're not as inverted as they were. Many believe that yield curve inversion signals a recession is coming. So why does the economy continue to surprise the forecasters and defy the doomsayers? I know you mentioned a little bit about the consumer, and I
Gary Quinzel (29:46):
Think that's one reason. And the inverted yield curve is great at predicting recessions. It's terrible at predicting when recessions occur. So that alone doesn't tell us much, especially because this situation, we are at a somewhat unique situation coming out of a 30 plus year bull market for bonds. We've certainly shifted that sentiment. But yeah, we see continued growth as a lot of it is based upon the health of the consumer, the resilience, the strong labor market, and just the mere fact that we didn't have any signs of real excess coming out of the pandemic. We saw a dramatic shift in consumer behavior. We saw behavior shift from good spending to service spending, but regardless, it's been steady. And so all of that has kept the economy humming along the yield curve as we talked about. It's in the process of normalizing. We expect it to steepen starting later this year into next year.
(30:54):
We could have a normalized yield curve at some point next year, but it just doesn't tell us anything about a recession because if you look back in time, there was times where an inverted yield curve came a month before recession. There's times when it came almost two to three years before recession. So there are many other factors at play. Certainly there's a lot of unique situations which have led to where we're at today, the shifting from pandemic to post pandemic to high inflation, to declining inflation, and now we're getting back into this normalizing period where we're just trying to balance that decline in labor costs in a manner that doesn't have too dramatic impact. So a lot of things going on with that question. I think it's really interesting and of course has a really tremendous impact as bond investors how to think about investing in the go forward basis.
Gary Siegel (31:52):
So many economists have said that the pandemic made predicting the future harder, the future for the economy. Has it gotten any easier since the pandemic is kind of behind us?
Gary Quinzel (32:07):
That's an interesting question. In my opinion, I don't think it made it any harder. I think it's always been incredibly difficult to predict the economy. Now as investment practitioners, we all try to time when inflection points in the market will occur. Sometimes it's more obvious than others. This time was certainly more challenging because the recession occurred because of a true black swan event that reminds us that left tail risk is always there and there are certain things that you just simply cannot model for. And if had you positioned your portfolio the same way you had prior to other recessions, the result was much, much different during the pandemic. And so I think what it taught us though is that yes, the economy is incredibly challenging to predict. You certainly cannot manage a portfolio based solely upon your prediction of when the economy slows down versus when it accelerates.
(33:11):
That's certainly no way. No one's going to have a perfect hit rate. In fact, you could have many, many dramatic misses if you try to manage a portfolio that way. But I think the real lesson is just because it happened a certain way in the past, it doesn't necessarily mean it's going to happen in the future. And using another great example of 2022 where bonds historically were the most important, a portion of a traditional 60 40 portfolio that's going to offset the equity risk and provide that ballast against equity drawdowns. And obviously that didn't happen, right? Inflation and higher rates hit bonds and equities the same. And so all of these things just remind us that just because past performance, the old adage is not indicative of future returns. Just because something happened in the past doesn't necessarily mean it's going to happen again in the future. And so the pandemic taught us a lot of things. That being one of 'em. And as we continue to move forward in this post pandemic world, as we normalize into a more traditional world of more moderate inflation, more moderate interest rates, all we can think about is look on the horizon for risks that are out there and predict for what we do to be the highest probability risks and what might most have the dramatic impact on our portfolios and diversify accordingly.
Gary Siegel (34:42):
So what do you see as the biggest risks to the economy?
Gary Quinzel (34:48):
Yeah, so the biggest risks in my opinion, are the same as they always are. It's the return of inflation and a significant rise in unemployment. That's exactly why. That's also the Fed's dual mandate. So that's what we know, that's what we can model for. Those are the things that are the vast majority of economic data that we and other economists and practitioners and the Fed are all looking at. Those are the most likely to impact monetary policy. That in turn will then impact the market. So if we see any indication at all that the Fed is going to switch gears to my point earlier and they're going to that a rate hike is once again on the table for consideration, we don't think that the result would not be good for both fixed income and bond markets. We'd probably see a sell off in bonds.
(35:36):
We'd probably see a sell off inequities. And so it's the same risks. We always focus on esoteric risks, geopolitical risks, political risks, they're all out there. And also some of the more isolated things like whether or not commercial real estate and the wall of maturity is going to impact regional banking that has minimal impact. It's going to be segmented to some and not broad swept we saw in 2023 that happened in March and it didn't impact the broader economy. But those are things that we need to focus on. We also need to just really focus on credit spreads, which are really, really tight right now. And so any sign of weakness, any sign of defaults right there, we could see some volatility in the spread market that we haven't seen in quite some time.
Gary Siegel (36:24):
Gary, what does all this mean for the bond market?
Gary Quinzel (36:29):
So overall, the bond market is in a much better place than it's been really in decades. Yields continue to be better than they were. They're not quite as high in some cases, and they're likely to come down, but you're still able to get decent coupons for taking minimal risk. And so I would say any product that gives you four or 5% for a relatively small amount of risk, good to take advantage of that, that certainly is going to change. But as we talked about, we do expect a moderate steeping of the yield curve. And so positioning your bond portfolio at those areas that are the steepest certainly makes sense. And as I mentioned a second ago, we are a little weary of credit markets. They're getting quite tight or quite expensive. And so because of the duration of this economic expansion, we want to be very cognizant of the risks there. We'd rather look for a more attractive entry point, but look for a steepening of the yield curve, be wary of spreads that are super, super tight, and just look for sectors that offer relative attractiveness. Something like asset backed sectors and some securitized debt we think remain relatively attractive relative to other things like high grade investment credit.
Gary Siegel (37:49):
So what questions are you getting from clients? What are they worried about?
Gary Quinzel (37:56):
All of the above. So we get a lot of questions. I think right now the most common questions are simply about where do you see interest rates and what are your thoughts on the election? And so we touched on all of those already, but just to add, we want to really express to our clients that yes, we think rates are coming down, but our expectations are more moderate than that of the broad market. I think the market is fully priced in three cuts as of today. Last I looked, they're priced some 20% probability of a 50 basis point cut in September. It seems a little optimistic, and we saw how optimistic the market has gotten in the past, back to late last year as we talked about. And so we really like to advise clients that, yes, this is the direction that we think things are going, but not necessarily the timing and the magnitude that you might expect.
(38:52):
And just reiterate that the Fed is going to be extremely cautious, and we can learn a lot simply just by looking at the changing of the words and the reemphasis on the dual mandate. The latter being the emphasis on the jobs market and everything I mentioned about the political scenario. A lot of uncertainty right now. So we remind clients not to bail out just because their party looks like they're going to lose. We've seen that equity markets and fixed income markets do quite well under both administrations. And so it's not a rationale or reason to jump on the sidelines, but rather look at where the policies end up. It might impact your decision to go into utilize mini bonds or not. There could be changes to some of the various tax laws, whether it's the salt exemptions or whatnot. And so there's a lot of different changes that are on the horizon, and we're going to wait and see and where that happens, but clients certainly care about that. We certainly care, and it's going to impact how we think about market opportunities.
Gary Siegel (40:02):
Well, this concludes our Leaders event. I'd like to thank my guest, Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement Group, and I'd like to thank everyone who logged in to listen to us today.
