|
By Paul de Klerk KiwiSaver and Investment Specialist 
BREAKING: The U.S. Federal Reserve is about to launch a $50 billion Treasury buyback program. See schedule here.
- $8.5 billion in August - $31.5 billion in September - $10 billion in October. This can have implications for certain KiwiSaver funds that members should be aware of. When the U.S. Federal Reserve increases treasury buybacks, it can imply several things about the markets and the broader economy: Liquidity Provision: By buying back treasuries, the Fed injects liquidity into the financial system. This can help lower interest rates and make borrowing cheaper, stimulating economic activity. It often aims to support economic growth during periods of economic slowdown or uncertainty. Market Stabilization: Increased buybacks can signal the Fed's intention to stabilize the financial markets. This can be especially important during times of financial stress or volatility (such as what we observed in the Japan markets last week Friday). By buying treasuries, the Fed supports prices and helps maintain orderly market conditions. Monetary Easing: Treasury buybacks are a form of monetary easing. This can indicate the Fed is shifting towards a more accommodative monetary policy stance, potentially in response to weak economic data, low inflation, or other signs of economic distress. Interest Rates: Buybacks can put downward pressure on longer-term interest rates. This can help reduce borrowing costs for consumers and businesses, encouraging spending and investment. Signal of Economic Concerns: While buybacks can support markets, they may also signal that the Fed is concerned about economic conditions. This could include worries about slow growth, high unemployment, or other economic challenges. Impact on Dollar Value: Increased buybacks can affect the value of the U.S. dollar. Injecting more dollars into the economy can weaken the currency, which can have implications for international trade and investment flows. Overall, the specific implications will depend on the broader economic context and the Fed's communications about its policy intentions. Market participants closely watch such actions and interpret them in light of other economic indicators and Fed statements. Good KiwiSaver active fund managers will be keeping a very close eye on these developments and making appropriate moves so that their KiwiSaver members can benefit as much as possible. My own analysis of the situation is that the U.S. is now moving to a quantitative easing posture (ie: print baby, print!) and more liquidity is injecting into the economy. This is expected to cause asset prices to rise - especially appropriately allocated KiwiSaver funds. This would be a very appropriate time to review your KiwiSaver fund settings and consider your risk tolerance and risk capacity in response to these developments. 
Paul de Klerk
Note: Nothing in this article is intended as personal financial advice or a recommendation to buy/hold/sell. Speak to your investment adviser before making any financial decisions. If you do not have an investment adviser, contact me any time for personalized guidance. For a disclosure statement click here.
Comments are closed.
|