The Federal Reserve’s dual mandate is common knowledge among key players of the financial world—maximum employment as well as price stability. Yet some financial advisors in Northern Virginia and elsewhere in the country are convinced of a third component.
The Great Depression of 1945 resulted in massive unemployment and production concerns, creating unstable markets and uncertain economic transitioning. Congress reacted by passing the Employment Act of 1946, a law aimed to resolve unemployment and price stability issues.
With the 2008–2009 financial crisis, it became the Federal Reserve’s responsibility to solve the crisis. However, this twofold responsibility or mandate has since met mounting criticism. While there’s hardly any doubt of the Fed’s ability to address inflation and deflation issues, not many believe that it can administer the necessary fiscal policies to achieve full employment.
Despite (or perhaps precisely because of) rising criticism, some analysts have recently decided to add a third component into the mix: stable financial markets. The idea is that if you have a market that’s too weak, the Fed might have to ease up a bit. Conversely, if the market is in bubble territory, it might need stricter policies.
Today, many discussions within the financial community concern a potential interest rate hike by the Fed. While inflation and deflation are certainly not among the Fed’s worries right now, the condition of both job and financial markets clamors for tighter policies.
Specifically, employment statistics back in March were already very close to the Fed’s target (actual unemployment rate was at 5.5%, with the Fed target between 5.0% and 5.2%). Initial claims are also at cycle lows. While the stock market remains generally undervalued, it’s not as cheap as a few years ago. Ultimately, a rate hike in the latter half of the year is only expected to strengthen the economy further.
While remaining largely optimistic about economic growth in the coming years, AOG Wealth Management understands exactly how uncertain market conditions can be. We recommend enlisting the help of a professional financial planner in Northern Virginia to help you plan your financial future—no matter where the economy is headed.
Contact our team of industry experts and financing advisors to get your plans started.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.