How Does Fed Policy Influence Financial Markets?

It’s no secret that the markets can be quite fragile and sensitive sometimes. Merger rumors, silent whispers, and leaking information can impact dozens of companies from all parts of the world. The good news is that every new bit of information that pops up is often analyzed by investors and financial analysts, and appropriate changes are made. That said, there’s nothing quite like how the Federal reserve makes investors stop and reassess their beliefs. The Fed is a power to be reckoned with in today’s financial environment. It has the ability to control the money supply, interest rates, and influence inflation. These three, when combined together, are the critical pieces that impact every corner of the financial market. As such, when the Fed makes changes to any of their policies, like they did in mid-March, investors take it seriously. And they should because the Fed’s stated mandate is to maximize employment, manage inflation, and create a stable financial system. It doesn’t care about your portfolio allocations, and so it’s up to you to keep track of Fed policies but maintain a cool head whenever changes are made. 

When Stress is Actually Good For You

Americans are a stressed lot. We stress about everything but if you’re a glass-half-full kind of person, being stressed might not be so terrifying. There are two types of stress: the abnormal amounts that cause sweaty, sleepless nights and the good stress that’s just enough to get you motivated, excited, or intrigued. Unfortunately, most people don’t know how to differentiate between these two types of stressors. For example, perhaps you’re about to start going to the gym for the first time. Sure, you’re petrified; it’s not something you’ve ever done before, so it’s natural to feel uncomfortable stepping into this new phase of life. But that’s good stress and it can be a good thing because, at the end of the day, what’s the worst that can happen? That’s where hormesis comes in, the good type of stress. Hormesis happens when you push your body, and it responds by becoming more resilient. Hitting the gym and lifting weights is a classic example of hormesis. When you damage your muscle fibers, they automatically build back bigger, better, and stronger. 

Your body is designed to handle minor and occasional stress. However, too much stress can throw your body off-balance. But if you can harness the power of that stress to build resilience and determination, then hormesis can be your “what doesn’t kill you makes you stronger” type of stress.

Listen now to learn more about Fed Effects, Hormesis, and Investment Expectations.