How it Impacts 401(k) Participant Outcomes
By Steff Chalk, Executive Director, TPSU – Federal Reserve Chair Janet Yellen dropped the Fed Funds bomb yesterday when she communicated to the financial markets during her visit to the Economic Club of New York. The fallout could reach 401(k) Plan Participants. The Chairperson surprised many when she announced that it is appropriate for the U.S. Central Bank to “proceed cautiously” in consideration of global turmoil, lower commodity prices and the slowing rate of growth within China.
Many Fed-watchers anticipated hearing something different than the message they actually received. Fed Chair Janet Yellen espouses the position that The Fed is in pursuit of Maximum Employment and Price Stability; however not everyone agrees. Many describe yesterday’s do-nothing stance taken by the Chair, as dovish guidance, and as damaging to the position of the U.S. economy. Others describe the no-action response as negatively impacting our monetary policy.
Enter the 401(k) Plan Participant
Chief Financial Officers, Human Resources Directors, Communications Specialists and every 401k plan participant should take notice. The Fed has sent a clear message to the workers of the United States. The fixed Income investor needs to understand the message being sent by Fed Chair Janet Yellen, that even though the United States is by far one of the most favorable havens for preserving and growing capital – the saver and the investor will continue to break even at best when seeking safe and stable assets. Individuals who are close to retirement are taught to dial-back the risk meter when approaching retirement. Doing so could cost them dearly as they will not be rewarded for such positions.
Split decisions among the Fed Leadership
There are many among the Fed leadership team who disagree with where the Fed Funds rate remains. Patrick Harker, president of the Philadelphia Fed has publicly stated that the Fed should “get on with it” referencing a hike in the Fed Funds rate. John Williams of the San Francisco Fed, Dennis Lockhart of the Atlanta Fed and Esther George, president of the Kansas City Fed all seem to all agree – now is the time to activate a rate hike.
It used to be that the Central Bank of the U.S. would dictate policy to the Markets. We are now at a time where one must ask the question, Do the Markets now dictate U.S. policy?
