These two words can strike terror in a parent’s heart: student driver.
My middle child started drivers education class this quarter. As his book knowledge of driving grows, so does his input regarding his parents’ driving habits. I am choosing to use such opportunities as positive educational experiences instead of reacting to the slight jabs emanating from an inexperienced yet hopefully well-intentioned observer.
“Book knowledge” is a great start toward making wise decisions, whether you are behind the wheel or simply navigating life. These days old fashioned book knowledge is easily obtained using your favorite search engine. Type in your topic and you readily have access to thousands of pieces of knowledge from around the world.
Yet knowing what to do and actually doing it are two very different skills.
The COVID-induced economic challenges we faced in 2020 were certainly unique. The Federal Reserve and Congress consulted their book knowledge and rolled out solutions that worked in resolving past economic downturns – super low interest rates, quantitative easing, and plenty of government spending. They successfully avoided a prolonged economic downturn.
However, one of the most challenging skills for a student driver is learning not to overreact, and traders are starting to get apprehensive about the Federal Reserve’s driving skills going forward.
Clearly, the economy has drifted off the roadway and onto the inflation shoulder. Traders are now getting nervous that the Federal Reserve may go too far in its effort to apprehend inflation by raising interest rates too fast or too high. They see the danger of future economic weakness potentially developing.
Book knowledge states that a student driver simply needs to gently, yet firmly, steer the vehicle off of the shoulder and back into the proper lane of travel to avoid crashing. However, doing that in an adrenaline-induced panic is much more difficult than my middlest child can even imagine at this time.
Traders are starting to see signs of panic from the Federal Reserve — which may or may not be calmed following their two-day meeting that wraps up this afternoon. So far the Fed has provided a timeline for winding down its quantitative easing and then quickly accelerated it. They told us this step has nothing to do with when they will raise their overnight interest rate and then hinted that rates will likely be rising soon.
Until traders gain confidence that the Federal Reserve can convert its book knowledge into optimal economic actions, we must be prepared to cope with the daily market volatility created by apprehension.
Instead of attempting to predict the unpredictable through traders’ cycles of apprehension and confidence, our thirty-seven years of experience – in addition to our book knowledge – drive us to serve our clients well by preparing them in advance for market volatility based on their personal financial plans.
Quote of the week: Howard Marks: “Experience is what you got when you didn’t get what you wanted.”