Keeping the Long View Amid Change and Chaos
The last few weeks have felt like total chaos—at home, our routine schedule has been upended with weather-related school cancellations, kids with the flu, and late nights of basketball games. At Meridian, we’ve been working hard on the usual year end reporting and tax preparation tasks, as well as rebalancing portfolios in the light of all of the market volatility, and then also trying to parse the daily news cycle—which has been chock full of potential changes to the US economy, near term growth prospects, fiscal policy, just to name a few. And we are less than 45 days into the new year…whew…
With such a busy news cycle over the last few weeks, we’ve tried to distill the main points that matter in the context of investing and financial planning. Here are a few of the things that we’ve been focused on that could impact planning conversations.
Update on Interest Rates
The Federal Reserve voted to hold rates at 4.25-4.50% in January, after cutting them at each of its three previous meetings. This is primarily due to concerns around inflation, although it does not mean the end of the rate cutting cycle. In fact, the market still expects two cuts by the end of this year.
As you can imagine, this is politically sensitive because lower rates can spur economic growth. But it can also spur inflation. So, the Federal Reserve is trying to walk a very fine line between creating a sustainable environment for long term economic growth versus allowing inflation to rise unchecked as it did in 2022. We do not envy the Federal Reserve’s task.
In their statement, they did acknowledge that they are holding rates above neutral (meaning they are restricting economic growth slightly), but they do intend to move to neutral rates (neither restricting nor stimulating the economy) by the end of the year. And since, the economy and investment markets tend to do well in a rate cutting cycle, we believe that prudently constructed portfolios and financial plans will remains broadly unaffected by this recent decision to pause the rate cuts.
New administration policy changes
Here is a summary of the key areas that we are carefully watching as to how they might impact some aspects of financial planning in the coming years.
A Focus on Lower Taxes and Lower Interest Rates
The Tax Cuts and Jobs Act will likely be extended, so relatively low tax rates are likely to be maintained for individuals and businesses, and increased contribution limits to retirement accounts are expected to continue. While this is positive news for many, it’s prudent to prepare for potential future changes to both tax rate and long term interest rates as the national debt grows.
Federal Budget Requires Care
The government continues to spend more than it receives in taxes, resulting in a large deficit. Neither party has made serious efforts to rein in the deficit in recent years, leading to a national debt that now exceeds $36 trillion. A new Department of Government Efficiency (DOGE) has been established to identify potential spending reductions, although it is unclear how much it will help. Planning for possible changes to future tax rates is only growing in importance.
International Trade Could Affect the Economy
The proposed tariffs on Canada, Mexico, and China have already caused some ripple effects in the economy, with suppliers refusing orders from US companies (or US companies stockpiling resources). The purpose of tariffs is to protect domestic industries, especially with recent headlines around Chinese artificial intelligence companies, but some worry it could spur inflation too. This could be overseen by a new External Revenue Service.
Energy Prices Affect Consumers
The president has declared a national energy emergency. The U.S. remains a global leader in energy production and will be a continued focus of the new administration, especially with the new National Energy Council. For markets, greater energy supply could mean more stable prices, especially as geopolitical conflicts continue to rage around the world. Energy prices are also a primary driver of overall inflation, and gasoline prices can affect household savings rates.
Labor Market Dynamics Will Likely Shift
While the news is focused on illegal immigration and border security, a change in immigration policy could impact legal skilled, educated workers as well. Currently, job openings exceed available workers by 1.2 million positions, which is a sign of a healthy workforce and economy. From a planning perspective, maintaining a safety net to protect against a job loss or change remains a worthwhile consideration.
Investors face a complex environment in 2025 with steady economic growth balanced against fewer Fed rate cuts and high valuations. While policy changes do matter, there are many underlying factors that impact investors. As we’ve said before, markets never move in straight lines, so a balanced, diversified approach remains crucial for long-term success.
The bottom line? Policy changes deserve attention, but they shouldn’t override your long-term financial plan or investment strategy.
Ben exemplifies How it’s going vs. What I wanted.