COLLEGE PLANNING | ESTATE PLANNING | INSURANCE | INVESTING | PORTFOLIO SPOTLIGHT | REAL ESTATE | RETIREMENT | TAX PLANNING

Locking in rates now will protect portfolios from any rate drop fallout , advisors say . By Jennifer Lea Reed

In March 2022 , Fed Chairman Jerome Powell began to raise the federal funds rate in the hope that making it more expensive for consumers to borrow would cool their appetite for goods and services . But inflation remained sticky , and the Fed ’ s first 25 basis point increase quickly gave way to 75 basis point jumps .

While the lag between Fed hikes and lower inflation dragged out longer than expected , the PCE has now consistently been below 3 % since January 2024 , and Powell has telegraphed that the first rate cut will come most likely in September if economic indicators remain stable . So what should advisors be doing and talking to their clients about in advance of the first drop ?

“ Whether the Fed ’ s rate cut has a big impact on income investing remains to be seen . We think that things are as simple as pulling one lever and then you might see outcomes exactly as you would expect ,” says Yusuf Abugideiri , a certified financial planner at Yeske Buie , headquartered in Vienna , Va . “ But it ’ s just not that simple .”

Tonny Navarro , a CFA and private wealth senior investment manager at Merrill Lynch affiliate the Erdmann Group in Greenwich , Conn ., agrees it ’ s a mistake to put too much emphasis on what the Fed is going to do . “ How we think about income is not just dependent upon what happens with the Fed . We ’ re looking for multiple income levers to pull , so that not one area of the portfolio is doing the heavy lifting ,” he says . “ And that allows us to be more proactive and not reactive to the market .”

For example , had Navarro reacted to the market , he says that in 2023 he would have positioned his clients ’ portfolios to sur-

36 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM