Economic Outlook

Economy To Withstand Absence Of Adults

While talk of the Federal Reserve’s (Fed’s) “tapering” of monetary policy dominated recent discussions, the central bank surprised most observers and elected to postpone the first step in “lifting off the accelerator.”

Most recent economic data suggests that U.S. and global economic conditions are slowly and tentatively getting better, albeit still moderate, and that risk levels have diminished. Nevertheless, the Fed – whose mandate includes both inflation and employment goals – concluded that job growth was still not anchored, while inflation remained too far below targets. Further, it worried that the ongoing sequester, a possible federal government shutdown and uncertainty over debt ceilings could hinder recovery. As a result, in a “close call,” it decided to wait.

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Equity Portfolios

Another Robust Quarter, Another Dose Of Uncertainty

The equity market continues to weigh the healing in many economic sectors, record earnings, supportive monetary policy and even forecasts of economic acceleration against uncertainty from many corners – here and abroad – and a level of valuation that’s now less alluring.

Although it’s not zero, we feel that the probability of a sustained shock to markets – from talk of Fed tapering or a real debt default arising from the acrimony in Congress – is low. Even if buffeted near term, markets should be able to return to the mundane task of assessing relative value rather than reading political tea leaves (no pun intended…).

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Fixed Income Portfolios

Taper Take-Off Tabled

The Fed delayed its first steps of stimulus reduction when it postponed tapering its monthly bond purchases, impacted by recent economic data and apparently the pending wrangling in Washington. We believe the core reason behind the Fed’s willingness to shift policy remains intact – moderate economic growth is fueling ongoing economic recovery.

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