September Fed Meeting & Inverted Curve September 19, 2019

Fed Meeting Notes: At yesterday’s Fed meeting, policy makers lowered the Fed Funds rate for the second time this year with an anticipated quarter-point cut to 1.75%-2.00%. Chairman seems confident that such “moderate” policy moves will be sufficient in sustaining the -running US expansion and quelling recession risks historically prognosticated by an inverted yield curve. Post-meeting forecasts suggest that another quarter-point cut may be necessary later in the year with GDP growth poised to sink below 2% in the third and fourth quarters, ongoing tariff concerns, slumping business confidence, and escalating geopolitical risk. However, interestingly, there doesn’t seem to be much appetite at the Fed for further rate cuts at this time. Indeed, Fed members seem split between those who view the domestic economy as relatively strong and not in need of further stimulus, and those who are concerned about persistently low inflation and global weakness. By the Fed's own admission, the future path is quite unclear and, ultimately, future decisions will be dependent on how the economy continues to evolve. In our view, the Fed is threading a needle here with a strong US consumer bolstering US growth on one side, and weak manufacturing data, business spending, and overseas markets on the other. This is a unique economic landscape to be sure – it’s no wonder the Fed is split on the outlook and future policy actions.

Inverted Yield Curve: The yield curve has historically predicted US recessions within eighteen months of -term yields exceeding long-term yields (inverted yield curve). With our curve inverting for the first time since 2007, the alarm bells have been sounding on an impending recession. Indeed, a NY Fed model currently puts the chances of a recession at greater than 30%, and in only one instance in the past 50 years has a recession not occurred when the model was at this level. What has NOT occurred in the past is the enormous amount of global central bank intervention currently occurring in terms of , negative interest rates, etc. The entire global interest rate complex has never been manipulated to this extent. So while it would be wise to take heed and watch carefully as the economy evolves, it makes us wonder just how predictive an inverted curve can be in this new environment of massive central bank interventions. For us, this difficulty in predicting where the Fed, interest rates, and bond yields are going is further evidence as to why high-quality laddered bond strategies make sense in many instances for core fixed-income portfolios. Predicting future rate moves is challenging and even Fed members disagree on what future policy looks like in the months ahead.

Securities offered through Arkadios Capital, LLC • Member FINRA / MSRB / SIPC Not FDIC Insured | May Lose Value | No Bank Guarantee | Not a Deposit | Not Insured by Any Government Agency This material does not constitute an offer to sell, a solicitation of an offer to buy, a recommendation to buy, or any representation as to the suitability or appropriateness of any security, financial product, or instrument. This information should not be construed as legal, regulatory, tax, personalized investment, or accounting advice. One's financial adviser (or other fiduciary) should be consulted before making any decisions based on this information. ______SP FINANCIAL GROUP OF ARKADIOS CAPITAL | 309 EAST PACES FERRY ROAD – SUITE 1000 | ATLANTA, GA 30305 | 800-775-9092