MONEY The Economy

Americans’ Net Worth Hits $85 Trillion, but Who Has the Money?

A new report from the Federal Reserve reveals how much U.S. households' wealth has risen.

The report showed net worth went up by $1.6 trillion between January and March 2015, which brings our collective net worth to $84.9 trillion. A sizable portion of the increase came from real estate, estimated at $503 billion. Household-owned stocks and mutual funds accounted for $487 billion. The takeaway from these numbers is that Americans, as a whole, are doing well. But although the report may look good, we don’t know who exactly is doing well. Job growth has, overall, come from low-wage jobs while the middle class stagnates.

MONEY stocks

Give Your Investments a Midyear Checkup

Kagan McLeod

How to ensure your wealth is still in good health.

Halfway into the year, and 2015 may have already thrown you and your financial plans for a loop.

Stocks, which were supposed to slow as the bull market entered its seventh year, are back to setting all-time highs—and have gotten frothy as a result. Gas prices, which were on the verge of plunging below $2 a gallon, have reversed course and are now headed toward $3. And the job market, once on a roll, looks to have hit another speed bump.

Okay, the changes aren’t of the magnitude of what you saw in the financial crisis. But they don’t have to be to throw your financial plans off-kilter. As with your annual physical exam, the midway point of the year is a smart time to take some vitals, run some tests, and reassess your own situation. Over the coming weeks, we’ll provide you with a wealth-care checklist. First up: a review of your investments.

STRESS-TEST YOUR PORTFOLIO

Ailment: Rising rates. The Federal Reserve says it could raise interest rates at any one of its upcoming meetings now—which would mark the first rate increase in nearly nine years.

Hiking rates is like stepping on the economy’s brakes. Historically, there’s an 80% chance stocks will fall by 5% or more once investors see Fed “tightening” as imminent. Moreover, bond prices move in the opposite direction of market rates, so fixed-income funds could take a hit too. When the Fed lifted rates in 1994, for instance, intermediate-term bond prices sank 11.1%.

Treatment: Don’t overreact. The natural inclination is to be überconservative. But market watchers from Warren Buffett to bond guru Bill Gross think global growth is slow enough for the Fed to be patient. And even if the central bank acts in the coming months, short-term rates are still expected to rise only about half a percentage point by year-end, according to a survey of economists by Blue Chip Economic Indicators.

Move to the middle on bonds. The traditional advice for fixed income is to “shorten up.” That is, sell funds holding long-maturity bonds and hide out in short-term debt that’s less vulnerable to price declines. But with short rates still near zero, you could be leaving a lot of money on the table, warns BlackRock portfolio manager Rick Rieder. Plus there’s no guarantee bonds will lose money. When rates rose in 2005, bond prices fell but investors earned 1% on a total return basis when factoring in yields. So instead of going all short, stick with intermediate funds like Dodge & Cox Income DODGE & COX INCOME FUND DODIX 0.15% , whose nearly 3% yield can soften the blow from price declines.

Stay (mostly) the course with stocks. Not all pullbacks turn into bear markets. In fact, history shows most sectors keep rising six months after the Fed starts raising rates, including economically sensitive ones like technology and consumer discretionary, notes S&P Capital IQ’s Sam Stovall. That’s why Stovall says you’re better off holding on and selling equities only if you need to rebalance. In which case…

REBALANCE YOUR INVESTMENT DIET

Ailment: A frothy market. Stocks are still on a roll, with blue-chip equity funds having posted 15% annual gains over the past three years, vs. 3% for intermediate bonds. What’s wrong with that? Based on 10 years of average profits, the price/earnings ratio for stocks is now above 27, where it was leading up to the Great Depression, the 2000 tech wreck, and the 2007 financial crisis. Even if there is selloff here, history says to expect meager returns over the next 10 years.

Treatment: Get back to your target weight. If you started with 60% stocks/40% bonds three years ago, you’re closer to 70% stocks now. Shift your allocation back before the market does it for you, says planner Eric Roberge.

Use the 5% rule: Don’t overmedicate, as rebalancing can trigger trading costs and taxes. So rebalance only if your mix shifted by five percentage points or more, says Francis Kinniry with Vanguard’s investment strategy group.

Think small: Since rebalancing is about selling high, unload your frothiest equities first. Over the past 15 years, small stocks have trounced the S&P 500 by four percentage points annually, and now trade above their historical 3% P/E premium to bluechip shares.

Sell American: In the past decade, U.S. stocks have outpaced foreign equities by 3.5 points a year. American shares now trade at a 15% higher P/E ratio than global stocks, even though they have historically traded at similar valuations.

MONEY currencies

Why the Strong Dollar Hurts Investors and What They Should Do About it

Johnson & Johnson products
John Raoux—AP Johnson & Johnson products

The strong dollar is hurting some multi-national corporations. That doesn't mean you should do anything.

Johnson & Johnson endured a difficult first quarter. Profits at the healthcare behemoth declined by almost 9%, and the company lowered earnings projections for the rest of the year.

Part of the blame went to poor sales of a particular hepatitis drug. But J&J also took a hit from something that its executives can’t in any way control: foreign exchange.

Over the past 12 months, the U.S. dollar has gained against every major currency, according to data from Bloomberg, including more than 20% against the euro.

That can be pleasant for American consumers and travelers, whose dollars can suddenly buy more imported goods and stretch further when spent abroad in places like Europe.

But a strong dollar can also have negative consequences, and the losers include multinational American companies like J&J that sell goods overseas, where American exports are suddenly more expensive than before and thus less competitive. Indeed, currency fluctuations sliced the company’s earnings by 7.2%.

What’s more, there’s reason to believe this kind of impact will be felt across the U.S. economy. The International Monetary Fund recently projected that currency effects would decrease U.S. economic growth this year by half a percentage point, to 3.1%.

In light of all this, investors may be wondering if they should make some changes to their domestic stock portfolio, perhaps lightening up on companies with lots of international business. Here are two reasons to hold off.

The Strong Dollar Is Already Baked Into Stock Prices

Intelligent folks can disagree on the efficient markets hypothesis, which holds that share prices always reflect all relevant information. But at least some of today’s currency issues are already cooked into company stock prices.

In other words, it’s probably too late to avoid the negative currency effects—and selling now might mean missing out when the currency pendulum swings the other way. You can see that in Johnson & Johnson: While the company’s numbers look bad on paper, they actually outperformed analysts’ expectations. The company’s stock was unchanged yesterday, and is actually up a bit over the past month.

That’s also true of the broader U.S. stock market: The S&P 500, which collectively takes in about half of its revenue from overseas, is up almost 2% so far this year.

Moreover, Europe won’t stay on its current economic path forever. Eventually the economies of its member nations will improve, the European Central Bank will stop buying bonds, and interest rates will one day rise. When that happens, demand for euros will increase.

The Dollar Won’t Stay Strong Forever

One reason the greenback has performed so well against other currencies is that our monetary policy looks downright hawkish by comparison. The Bank of Japan and the European Central Bank are holding down interest rates and buying up bonds in an effort to lower interest rates, stimulate spending, and improve economic growth. If that plan sounds familiar, that’s because the U.S. Federal Reserve spent years doing the same thing. These days the conventional wisdom is that the Fed will start to raise rates this summer or fall, thereby making dollars more desirable.

But the conventional wisdom isn’t always right—and in fact economic data over the past couple of weeks has revealed some weakness in the U.S. Last month’s jobs report showed employers adding fewer workers than expected, while retail sales underperformed as well. And while a plurality of economists polled by Bloomberg couple of weeks ago estimated that the Fed would raise interest rates in June, the most recent poll shows that a majority now think that increase won’t be announced until September. As a result, the dollar has actually underperformed the yen, euro and pound over the past month.

Which all means that you can be made to look silly by trying to time the market.

“From the prospective of individual investors with an intermediate to long-term time horizon, you shouldn’t be focused on the dollar,” says John Toohey, head of equities at USAA Investments. “It all tends to even out over time.”

TIME Economy

The Middle Class Is Doing Worse Than You Think

It seems like everyone is concerned about economic inequality these days. A Gallup poll in January showed that more than two-thirds of Americans are dissatisfied with the way income and wealth are distributed, and politicians from both parties are talking about the problems facing the middle class.

But the problem may be even worse than Americans think.

A new report by the Federal Reserve Bank of St. Louis — hardly a liberal bastion — found that economic inequality is actually much worse if you take into account the demographics of the middle class.

Under the traditional economic model, which ranks all American families by their incomes and then analyzes those in the middle, the median income of the middle class increased only slightly, by between 2% and 8%, between 1989 and 2013.

But if you use a different economic model that takes into account demographic and sociological attributes, such as age, educational attainment, race or ethnicity, the median income of the middle class has actually decreased by 16% during that same time period, according to the report, which was released Tuesday.

Senior economic adviser William Emmons and policy analyst Bryan Noeth argue that the method economists typically use to measure the financial health of the middle class fails to reflect important shifts in the population, like whether a middle class family qualifies as middle class in terms of income but not in accumulated wealth, or whether a family is counted among the middle class one year, but not the next.

Instead, they suggest using a method that tracks the group more holistically, by defining a middle class family as one “headed by someone who is at least 40 years old, who is white or Asian with exactly a high school diploma, or by someone who is black or Hispanic with a two- or four-year college degree.”

“In effect, the bar has been rising to remain near the middle of the income and wealth distributions,” Emmons and Noeth write. “The growing importance of college degrees and other advantages more commonly enjoyed by white and Asian families are contributing to significant downward pressure on the relative standing of less-educated and historically disadvantaged minority families.”

MONEY inflation

What Today’s Inflation Report Means for Fed Rate Hikes

150324_INV_LowInflation
Getty Images—(c) Brand New Images

While slightly improved, inflation remains below the Fed's target. What does that mean for interest rates?

U.S. consumer prices rebounded slightly from last month’s precipitous drop-off, while prices were flat over the past 12 months.

The Consumer Price Index increased 0.2% last month as oil stopped its dramatic fall, and was unchanged compared to this time last year, according the the Labor Department. So-called core inflation, which strips out volatile energy and food prices, rose by 1.7%, still well below the Federal Reserve’s 2% target.

Prices had fallen the three previous months.

While firmer than previous months, these low inflation rates come at a critical time for the Federal Reserve.

Investors have received mixed messages from central bank officials and economic data recently. For months, the Fed had reassured Wall Street that it would be patient when it comes to removing its accommodative monetary policy. Last week, though, the Fed dropped the word “patient” from its statement, implying that interest rates could rise soon—perhaps as early as June.

Yet in the same breath, the Fed lowered its growth and inflation expectations in the near term and signaled that even if rates are lifted soon, they won’t climb as rapidly as previously thought. That caused the stock market to soar.

“Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” Yellen said in a press conference after the statement was released. “Moreover, even after the initial increase in the target funds rate, our policy is likely to remain highly accommodative to support continued progress toward our objectives of maximum employment and 2% inflation.”

Fed Vice Chair Stanley Fischer said yesterday that rates would likely rise this year. The federal funds rate, Fischer said, will be determined by economic conditions, rather than by a predictable path.

Competing economic indicators and measurements are complicating the Fed’s dual-mandate of price stability and maximum employment. Employers hired nearly 300,000 workers last month, and the unemployment rate dipped to a post-recession low of 5.5%.

Yet wages aren’t growing strongly and the strong dollar, while a boon for U.S. tourists traveling abroad, has made U.S. exporters less competitive globally. Low oil prices save hundreds, if not thousands, of dollars for drivers annually, but have weighed heavily on the bottom line of energy companies.

The Fed seems to be inclined to raise rates given the improving labor market, but has been hamstrung by a lack of meaningful inflation and consistent wage acceleration. By increasing the cost of borrowing, the Fed runs the risk of slowing down economic activity in the midst of a burgeoning recovery. Will interest rates really rise before economists can see the whites of inflation’s eyes?

MONEY interest rates

Higher Interest Rates Are Coming. Here’s Who Wins and Who Loses

150319_INV_InterestRates
Getty Images

The Fed says rate hikes will be gradual, but they'll affect everything in the economy, from your mortgage to your job to your 401(k).

Federal Reserve chair Janet Yellen has signaled, by omitting the word “patient” from her latest statement, that the central bank could begin raising interest rates as early as this summer. On Monday, Stanley Fischer also suggested in a speech that rate hikes are likely before the end of the year.

The rise is likely to be slow and bumpy. Still, the Federal Reserve’s benchmark short-term interest rate has been near zero since the financial crisis in 2008, and it’s been a long time since investors, borrowers and consumers have dealt with a rising-rate environment. The Fed’s decision to move rates in the other direction, when it comes, is something you’re sure to feel in your wallet.

So here’s a primer on who is helped and who is hurt when the Fed makes borrowing more expensive.

Helped: Anyone looking a safe place to stash money

Savings and money market accounts today offer an average interest rate of only 0.44%, according to Bankrate, but the good news for savers is that rising interest rates should buoy yields across the board. One caution is that if the Fed moves slowly, that means the interest earned on your accounts probably won’t bump up very quickly either. So if saving more this year is a big priority for you, take matters into your own hands with these moves, geared toward powering up your savings.

Hurt: New borrowers, and anyone with an adjustable loan

Rising interest rates push up borrowing costs for home and auto loans. If you already locked in a 30-year mortgage at the ultra-low rates that have prevailed over the past several years, you were probably smart. According to Freddie Mac, 30-year mortgage rates are 3.7% on average today, compared with nearly 6% a decade ago.

But the millions of Americans who hold adjustable-rate mortgages could end up paying more. Mortgages are typically pegged to the 10-year Treasury bill. While the Federal Reserve doesn’t control this rate directly, long-term rates typically rise in response to the short-term rates the central bank sets. The good news? Since Treasuries are a safe haven for global investors, yields are generally being held down by high demand—which rises every time there’s bad news in, for example, Europe. So mortgage rates might rise comparatively slowly even after the Fed takes action.

Not so clear: Anyone looking for a job or a raise

One of the Federal Reserve’s mandates is is to maintain full employment. When unemployment rises, it can try to stimulate growth by cutting rates. The idea is that cheaper borrowing makes it easier for consumers to spend and for businesses to expand and hire new workers. The flipside is that higher interest rates and tighter money supply can make hiring less likely. That’s one of the reasons the Fed has been so hesitant to raise rates in recent years, and there’s a risk that a too-early rate hike will cut off job growth.

Of course, keeping interest rates low for too long can come with its own danger: inflation. If there’s no “slack” left in the labor market—meaning that basically everyone who wants to work and can work already has a job—the easy availability of money will stop creating jobs and instead show up in the economy as higher prices. Ideally, the Fed would wait to raise rates until the precise moment when employment tops out and before inflation takes off. But where exactly that point is can be a contentious issue. At the moment inflation is very low and wages have yet to take off (suggesting some slack is left.) But a series of strong jobs reports seems to have some on the Fed wanting to get ahead of the curve.

Hurt: Owners of bonds and bond funds

You likely have a portion of your money, in a retirement portfolio such as a 401(k), invested in bonds.

Rising interest rates mean falling bond prices. Bonds typically pay a fixed coupon, so when prevailing rates rise, the value of your bond portfolio falls until its yield matches what’s available elsewhere on the market. The size of your losses depend on how steeply rates rise and the maturity, yield and other characteristics of the bonds you own. Wall Street sums up a bond’s interest rate sensitive with a figure called duration. You can look a bond fund’s average portfolio duration at sites like Morningstar. In general, duration tells you how large a capital loss you can expect for each 1% increase in rates. So Vanguard Total Bond Fund, with an average duration of 5.6, would fall about 5.6% with a 1% increase in rates.

There’s good news though: If you own a bond fund, the decline in your fund’s value will be made up with higher payouts as your fund acquires new bonds with higher yields. You’re likely to be made whole in a few years. Future bond investors benefit, too.

Not so clear: Stock investors

Whether rising interest rates will help or hurt U.S. stocks is a more complicated question.

All else being equal, a hike should hurt. One big reason is many investors choose whether to put money into either stocks or bonds, as bond yields pay more stocks become comparatively less attractive. But there are lots of other things to consider. For instance, stocks typically reflect investors’ attitudes about the overall health of the economy. And the if the Fed is signaling that it might raise rates, then it also thinks the economy is healthy enough to handle it. Other investors might view this as a bullish signal.

What does history say? The record is mixed. Stock researcher S&P Capital IQ recently examined 16 previous rate tightening cycles since World War II and found that the Fed’s moves led to stock market declines of 5% or more about four-fifths of the time. However, a separate study by T. Rowe Price looked at the question slightly differently: T. Rowe examined nine instances since 1954 that the Fed has raised rates following a recession. It found an average market gain of 14% a year later. In other words, it’s hard to know exactly how the market will react—except to say that it could be bumpy ride.

Helped: Banks

Banks make money by borrowing at low short-term interest rates (think checking and savings deposits) and lending it out at higher, longer-term rates. In an ideal world, they’d love short-term rates to remain at rock bottom, as long as longer term rates are high too. So you might not think they’d be cheering for a short-term interest rate increase.

Their problem has been that long-term rates aren’t high, but low. Meanwhile short-term interest rates can’t really go below the zero they’re stuck at. That’s left them little room in the middle. A rate hike will could give banks a window of opportunity to earn more attractive “spreads” once the Fed moves.

Helped: Anyone looking to spend U.S. dollars abroad

When interest rates rise, it pushes the value of U.S. currency up. That’s good for American consumers who want to buy foreign goods (and go on European vacations) cheaply.

Hurt: Anyone looking to sell things to foreigners.

But there are dangers in a too-strong dollar. If our currency is too strong, it means it willll be harder to sell U.S.-made products globally—which would be bad for economic growth.

Not so clear: Foreign stock funds

Most international-stock mutual funds hold assets denominated in other currencies, like the euro. The strong dollar means those assets they are worth less, all else being equal. (Some funds “hedge” their currency exposure.)

Over the past year, the MSCI All-Cap World EX-USA index is up 14.6% in local currency terms through Feb. 28. But according to Morningstar, the average foreign stock mutual fund—with roughly half its assets in Europe —has falled 0.06%.

On the other hand, the a strong buck isn’t all bad for foreign stocks. Companies in countries with weaker currencies will be able to export more goods to the U.S, boosting their earnings. And while it’s no fun to see your market winning vanish, investors are usually better off riding out such currency swings. When the dollar next weakens, your foreign stocks will have a tail wind.

One special case is emerging markets stocks. Razor-thin U.S. interest rates have been a boon for them, as U.S. investors, frustrated by dismal yields at home, have shifted money abroad. Once that changes, much of that money could rush back home.

MONEY inflation

Why You Should Hate Low Inflation

two balloons tied to one another
Robert Warren—Getty Images

The Federal Reserve hates near-deflation inflation too. Which is why the Fed hinted that the pace of interest rate hikes will be more gradual than expected.

You may think that you like abnormally low, bottom-of-the-barrel, near-non-existent inflation, but you don’t. Or at least you shouldn’t.

The first thing you have to understand is that inflation—or the general rise in the price of basic goods and services—has been historically low since the financial crisis. Some folks may have a tough time believing that, since the cost of some goods like meat and education, seem to only increase.

Nevertheless, over the last 24 months overall consumer prices have rested at or well below the Federal Reserve’s 2% target. Last month inflation dropped on a year-over-year basis thanks to very cheap oil. If you strip out volatile food and energy prices, inflation only rose at a rate of 1.6%.

So inflation is low. But why is that bad, exactly? Isn’t it a good thing for consumers that prices in general are growing only slightly? Who wants to pay more for things?

In a word: wages. There has been no sustained accelerated income growth for American workers since the Great Recession.

Despite an unprecedented fiscal stimulus effort, despite years of near-zero interest rates, despite three massive rounds of unconventional bond buying to lower long-term interest rates that many economists and politicians wrongly predicted would cause soaring prices, despite a year in which the economy has been adding 200,000 or more jobs a month, there just hasn’t been any meaningful wage growth.

A good metric that illustrates this point is the “employment cost index,” which measures fringe benefits and bonuses in addition to wages. In the last three months of 2014, total compensation grew at rate of 2.3%, or about a full percentage point lower than before the recession. If you look at median hourly wages, you see a similar picture. Workers just haven’t seen meaningful raises in a long time.

fredgraph (2)

This has a harmful effect on the economy. My spending is your income, so if I don’t see more money in my paycheck, chances are neither will you.

The Federal Reserve is clearly concerned about this problem.

The central bank’s most recent economic projections lowered the outlook for core inflation and economic growth in 2015, while simultaneously predicting that the unemployment rate will decline as well.

Which means that the labor market has some more to tighten.

And these worrisome economic indicators are allowing the Fed to be extra cautious about raising rates. “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the Federal Open Market Committee said in a statement.

If we are in a prolonged period of low-growth, as economists like Paul Krugman and Larry Summers have written, then the Fed should wait until the threat of inflation becomes real before pulling away the punchbowl.

Of course there is a real fear that if you let inflation run, it could quickly get out of hands. Inflation soared by more than 14% in the spring of 1980, while unemployment ran high and the economy ping-ponged between recessions. Then-Fed Chair Paul Volcker dramatically hiked interest rates to tame inflation, which pushed the U.S. into another painful recession just as Janet Yellen was beginning her career as an economist.

The Fed has certainly not rushed to raise interest rates this time, even when the economy blew past certain benchmarks. But there has been a tone that the time is nigh for an interest rate increase despite the lack of inflation. Rates have been very low for a very long time.

Whether it’s this summer or fall or next year, interest rates will eventually rise. (Although as MONEY’s Pat Regnier points out, they won’t rise as much as fast as the Fed originally thought.)

When they do, you should hope that inflation has moved much closer to, or even slightly beyond, the 2% target. The quality of your paycheck may depend on it.

TIME Economy

Don’t Trust the Markets: A Correction Is Coming

stock-market-data-screen
Getty Images

The Fed, despite its recent pronouncements, will trigger a fall in stock prices later this year

Up until yesterday’s Fed meeting, America’s central bankers said they were going to be “patient” about the timing of an interest rate hike, which most experts believe will ultimately result in a significant stock market correction (see my recent column about why). So why did that make markets go up so dramatically yesterday?

Because everything else about the Fed’s communication said “we’re going to be more patient than ever” about when and how to raise rates. The central bank downgraded its forecast on the US economic recovery, saying that the pace of the recovery had “moderated somewhat,” in large part because of the strong dollar.

Why is the dollar strong? Mainly because everyone knows that the easy money monetary policy in the US is coming to an end. (QE is over, and most economists are now predicting a rate hike by September.) Meanwhile, pretty much every other central bank is now easing monetary policy—witness the ECB’s new money dump, which has sent European markets soaring.

What does all this tell us? That markets and the real economy are disconnected in a way that is terrifying. Central banks are, as chief economic advisor to Allianz and former PIMCO CEO Mohamed El-Erian put it to me recently, “the only game in town.” Every time the Fed says it will keep rates low a little longer, the market party goes on. All that means is that there will be more pain, eventually, when the punch bowl gets pulled away.

MONEY Economy

The Gloomy Economic Message Hidden in the Fed Statement

Despite hints of a rate hike, stocks and bonds rallied on the Fed's latest announcement. Here's the kinda depressing reason why.

For the uninitiated, here’s a primer on Fed-ology 101: When the economy looks stronger, the Federal Reserve will want to raise interest rates to curb inflation. And once the Fed’s benchmark rates go up, that’s generally bad for the price of bonds — and (indirectly) for stocks too.

But we aren’t in a 101 class right now.

On Wednesday, Fed chair Janet Yellen announced the latest Federal Open Market Committee decision on rates, and dropped the word “patient” from her statement. That’s a signal that the Fed could raise rates as early as June. In other words, it thinks the economy is healing from the Great Recession.

So what happened next? The stock and bond markets rallied. That’s partly because the market already expected the language change. But it may also be because traders hear the Fed suggesting something a bit unnerving about the economy.

Along with the statement on current rates, the Federal Reserve also releases a survey of where FOMC members expect rates to go in the future. They brought down their estimates for where short-term interest rates are headed next year, from a median of 2.5% to 1.875%. In other words, even if the economy is getting better, the definition of “better” is looking a little slower than previously thought.

This at least rhymes with, even if it does not confirm, a worry among some economists that the global economy could be at risk of something called “secular stagnation,” or a pokey “new normal.” In a new normal world, interest rates and inflation tend to be lower for longer, but long-term growth is subdued too.

Factors that might contribute to a long-run slowdown range from inequality (which dampens demand) to demographics (slowing the growth of the workforce) to technology (which could mean companies need fewer workers and less capital investment.) Economist Lawrence Summers, who put the phrase “secular stagnation” on the map, says that this is a risk to be guarded against, not a sure thing or even the most likely one. And “new normal” has been a bit of a fad among bullish bond investors, who of course may be overconfident in their prediction that rates will stay low.

That said, the Fed’s latest statement is a reminder that the global economy is still very wobbly.

MONEY Federal Reserve

Is the Federal Reserve Talking Too Much?

Janet Yellen, chair of the U.S. Federal Reserve
Andrew Harrer—Bloomberg via Getty Images Janet Yellen, chair of the U.S. Federal Reserve

The Federal Reserve has become a model of transparency. Not everyone likes that.

The paradox of Wednesday’s Federal Reserve release is that good economic news has actually made Janet Yellen’s job harder than ever.

Since the housing crash, the U.S. economy has steadily climbed back (if frustratingly slowly) under the central bank’s policy of ultra low interest rates. The stock market and bond markets have surged and employers are finally hiring in large numbers again.

But eventually a strong economy means rates will have to come up in order to avoid inflation. And although inflation is very low now, most observers are betting that Yellen at least wants “lift off” from today’s near-zero short rates. So now the Fed faces the tricky task of telling Wall Street and businesses how and when it will “take away the punch bowl”—that is, bring monetary policy back to normal.

So far the market has reacted positively to the Fed’s latest signal, which dropped the all-important “patience,” but tempered that move by indicating any rate increase would be slower than previously expected. That said, interest rates will have to rise sometime, and when they do, Yellen and company will have to deliver a less-friendly message.

For the people who benefit from low interest rates—and that’s quite a large group, including investors who have bet on rates staying low—such a message will be hard to hear. When Ben Bernanke signaled that he would taper off another Fed stimulus, the bond-buying program called quantitative easing, would be scaled back, the market flew into a tizzy. The “taper tantrum” caused a big spike in long-term bond rates, which meant bond holders lost money. As The New Yorker‘s John Cassidy notes, the market’s overreaction even created international turmoil when investors, believing the Fed was radically changing course (it wasn’t) pulled their money out of emerging markets.

Events like this have led commentators like Cassidy to ask whether there’s such thing as too much transparency from the Fed, especially when unpopular decisions—like rate hikes—must be made. There’s certainly precedent for this line of thought. Paul Volcker, the Federal Reserve chair who famously fought choked off inflation in the early 1980s, essentially operated in secret while putting the economy through a series of painful interest rate increases. Wouldn’t it be easier if Janet Yellen could do the same, and avoid any unnecessary confusion?

James Paulsen, chief investment strategist at Wells Capital, certainly thinks so. “I would long for those days,” he says, referring to the pre-Bernanke era of a less open central bank.

Paulsen says the Fed’s primary method of influence is making people feel confident, and transparency has undercut that mission.

“They’ve gone overboard with all this mumbo-jumbo communications that is allowing everyone to see how the sausage is made,” Paulsen explains.

Ed Yardeni, president of Yardeni research, won’t go as far as endorsing complete secrecy, but agrees the Fed’s transparency efforts have gone too far. “I think there’s got to be some happy medium between no information and too much information, and right now we’ve got too much information and too much focus on the Fed,” says Yardeni.

He’s particularly concerned with the propensity for members of the Federal Open Market Committee to undercut the Fed’s official line. That kind of uncertainty can occasionally move markets, and Yardeni specifically referenced the so-called “Bullard Bounce”; a market rally that resulted from James Bullard, President of the St. Louis Federal Reserve, telling Bloomberg Business that he supported a delay in ending the Fed’s bond buying program.

“I’d be in favor of putting a gag order on members of the FOMC,” said Yardeni.

But while some experts decry an open Fed for creating chaos, others see transparency as the only way to avoid uncertainty and turmoil during a policy shift.

“They [the Fed] don’t want to shock the market,” says James Hamilton, a professor of economics at the University of California, San Diego. “People can over-react to a change and the Fed doesn’t really want that.” He believes Bernanke’s “taper tantrum” was not the result of too much openness, but rather proves the Fed needs to indicate its intentions even farther in advance.

And while the economist acknowledges that Volcker’s lack of transparency may have been beneficial when the situation required extreme measures, he maintains current rate hikes are minor by comparison, and don’t require such a dramatic lowering of the boom.

Tim Duy, an economics professor at the University of Oregon, goes even further, arguing a more transparent Fed is better in all cases. “I am at a loss to think that the Fed would ever find itself better off being opaque,” Duy told MONEY in an email. “Volcker, in fact, may have been better able to convince the public of his intentions, and thus speed the inflation adjustment, with greater transparency.”

But if there’s one thing everyone agrees on, it’s that the Fed’s penchant for publicity provides some decent entertainment value—at least for the people who follow it for a living.

“It’s great reality television,” says Paulsen.

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