Patricia Kummer: Fed rates and financial markets

The last week of April marked Fed Chair Jerome Powell's last Federal Open Market Committee (FOMC) meeting before his replacement, Kevin Warsh, stepped in on May 15.

One notable shift last month was the change in the Fed's role in supporting markets. Earlier in the year, expectations for rate cuts provided a nice tailwind for investors. Now, rates have remained unchanged for three consecutive meetings. This comes with the highest dissent among the board since 1992, with a rare 8-4 split decision, which marks significant internal division and geopolitical uncertainty, according to the FOMC statement.

The Fed described economic growth as "solid" but noted that inflation remains "elevated." Recent spikes in global energy and gasoline prices were cited as primary drivers of this persistent inflation. Job gains have remained low, and the unemployment rate has changed little in recent months.

The committee seeks to achieve maximum employment and inflation at 2%. Developments in the Middle East are contributing to a high level of uncertainty, and the committee remains attentive to the risks to both sides of its dual mandate.

In support of its goals, the committee decided to maintain the target range for the federal funds rate at 3.5% to 3.75%. The committee will carefully assess incoming data and the balance of risks when considering future adjustments.

Markets are now navigating an environment where monetary policy is less supportive and more data-dependent, reinforcing the need for selectivity and discipline in your portfolio.

With solid economic growth and earnings metrics holding firm going into the Iran conflict, the potential inflation impacts from rising oil prices may lead to stickier inflation and leave the Fed on pause for a while.

It is unknown what new Fed Chair Warsh may do. In the meantime, it may be comforting to know that the U.S. central bank does indeed have a dual mandate, and the Fed has stated it would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede its goals. Foreign central bankers have a single mandate focused solely on price stability. This may put the U.S. at an advantage over other global central banks.

Treasury yields have already begun to rise slightly, thereby doing some of the work of fighting inflation. This may allow the Fed more flexibility to cut rates if necessary.

Jeff Krumpelman, chief investment strategist for Mariner, states, "The current environment reinforces the need to remain balanced and risk-aware, making this an ideal backdrop for active management, where selectivity and disciplined positioning can add meaningful value."

He continued: "This is not about becoming defensive or reducing exposure to equities. It's about recognizing that leadership is broadening and that concentration risk matters more in this phase of the cycle. Investors should be mindful of where returns are coming from and ensure portfolios are positioned to benefit from a wider opportunity set."

There appears to be potential opportunity across the sizes, sectors and geographies of certain equities, even as volatility persists. The key is balance — maintaining exposure to growth while ensuring diversification.

You can't control the Fed, but you can adjust your portfolio to be mindful of policy shifts that may affect the economy.

Patricia Kummer is a senior wealth adviser and principal at Mariner, an SEC-registered investment adviser.