Fed Raises Rates as Expected, Stocks Tumble

Fed Chairman Jerome Powell emphasized that the Fed is monitoring the impact of recent banking events but is still committed to reducing inflation to 2%.

The Federal Reserve Open Market Committee on Wednesday announced it would be raising rates by 25 basis points, from 4.75% to 5%. The announcement sent stocks down on the day, with indexes closing off between 1.6% and more than 2.8%.

Fed Chairman Jerome Powell strongly emphasized the Fed’s commitment to reducing inflation to 2%. During today’s press conference, Powell said that, “We will do enough to bring inflation down to 2%. Nobody should doubt that.”

“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell said.

Powell also acknowledged in a statement that “in the past two weeks, serious difficulties at a small number of banks have emerged.” In the Fed’s FOMC statement, it said that “recent developments,” referring to the same banking failures, can tighten access to credit. The Fed announced it will be monitoring these developments and their impact on inflation and other metrics when considering future rate increases.

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The FOMC statement also reiterated that, “The Committee is strongly committed to returning inflation to its 2% objective.”

At today’s press conference, Powell said government spending is not a large driver of inflation today, as it was during the pandemic. But in any case, Powell said he does not give advice to fiscal policymakers, and fiscal policy is something that he has to take as it comes at him.

John Lowell, a partner at October Three, an actuarial consulting firm, says, “If I were a pension sponsor right now, I don’t think I would be making any changes,” because many other market actors saw this coming and had already accounted for it. Lowell explained that increased rates generally are not good for investment returns, bonds especially, but 25 bps—which most market watchers anticipated—should not change anything drastically. He added that he would be far more concerned about the recent banking failures.

Jan Szilagyi, CEO and co-founder of Toggle, an AI-powered market analytics platform, agrees that the Fed’s move is not a big shock to markets, but it does establish that the Fed is still clearly in “inflation-fighting” mode. By “staying the course,” the Fed is also signaling that “there isn’t something ominous the Fed knows that markets may not be aware of.”

Tags: bond prices, Federal Reserve, Inflation, interest rate raises, Jerome Powell

The Department of Labor announced today that it is reopening the comment period for the proposed change to the qualified professional asset manager exemption. The new comment period will remain open until April 6.

The DOL indicated it reopened the comment period because “at least one interested party” may have additional information to present that was not submitted by the previous deadline of January 6.

The new QPAM exemption rule was initially published on July 27, 2022, and the comment period has been both extended and reopened before, including after a public hearing on the proposal on November 17, 2022.

A QPAM is an institution that manages transactions between a retirement plan and “parties in interest.” A QPAM is independent of both the plan and the parties in interest, must act in the best interests of the plan and cannot have any convictions on its record that would compromise its integrity.

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The proposed change would clarify that foreign convictions for offenses which also exist in the U.S. would count against a QPAM, as would non-prosecution agreements with the Department of Justice.

A QPAM would also have to indemnify clients for the cost to the client of the QPAM’s disqualification, such as the cost associated with finding another QPAM. The proposed change would also allow the disqualified QPAM to process previously agreed-upon transactions for the plan for one year, even though no new transactions would be permitted.

Tags: EBSA, QPAM, United States Department of Labor (DOL)