"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday's logic."

— Peter Drucker

 

Summer has finally arrived in Ontario, a welcome change after a long, grey spring. South of the border, there's been a significant shift at the most important institution in finance, and the rules that guided investors for the past forty years may be impacted. It's worth a few minutes to explain why it matters to your money.

 

A New Boss at the Fed

 

On May 22nd, Kevin Warsh took over as Chair of the U.S. Federal Reserve, replacing Jerome Powell. Most people saw the change as political. Mr. Warsh was the President's pick, and Mr. Powell had a reputation for standing his ground and protecting the Fed's independence. Powell is not gone completely; he retains a seat on the board for now. But the top job has changed hands.

 

What the Fed Does

 

The Federal Reserve, usually just called "the Fed," is the central bank of the United States. It has two main jobs: keep people employed and keep prices stable. Its main tool is the setting of the federal funds rate, which is the target rate that commercial banks charge each other for overnight loans. This indirectly sets short-term interest rates in the U.S. market, impacting the cost of borrowing for consumers and businesses alike. The Fed reviews rate policy in formal meetings and pronouncements eight times a year. Because the U.S. is the world's largest economy, the Fed's decisions ripple out everywhere, including here in Canada.

 

The Fed is supposed to stay out of politics. Its seven board members are appointed by whoever is President when a seat opens up, but their terms last much longer than any single presidency. Over time, that creates a mix of Republican and Democratic appointees, which prevents any one point of view from taking over. Those seven members vote alongside five regional bank presidents, making a committee of twelve. They study the economy, debate, and decide by majority vote. What they say, and how each member voted, soon becomes public.

 

Why Markets Watch So Closely

 

When the Fed speaks, stock, bond, and currency markets react right away — in the U.S., in Canada, and around the world. Investors want to see a steady hand: enough restraint to keep inflation in check, but enough support to keep the economy growing. Every decision gets graded by the market almost instantly, like a report card.

 

Here's our take: No matter who runs the Fed, and no matter how political the appointments look, the markets keep it honest. If a politician pushes too hard and the economy suffers, the damage shows up fast — in prices, in borrowing costs, and eventually at the ballot box. That keeps everyone, elected, or appointed, mindful of the consequences. In the end, the economy has the final say.

 

Oil, Inflation, and Rising Rates

 

The bigger story right now is interest rates, which have been climbing. The war in Iran has choked off oil shipments through one of the world's busiest routes and pushed prices sharply higher, with Brent crude currently near US$100 a barrel. That feeds straight into the cost of fuel and, before long, the cost of nearly everything else. Inflation is now at its highest level in more than two years.

 

Most economists think the spike is temporary, but high energy prices have a way of sticking around. It takes time to get oil flowing freely again, and no one yet knows how much of Iran's energy infrastructure was damaged. Higher costs could last a year or more. And because food prices tend to follow energy prices, the pinch spreads well beyond the gas pump.

 

Bond markets have already reacted by pushing rates up, betting that central banks like the Fed and the Bank of Canada may have to hold rates steady, or even raise them, to keep inflation under control. For now, the market expects the Fed to sit tight through 2026, with possible increases in early 2027.

 

What It Means for Your Money

 

This has shaped how portfolios are being built. For about forty years, falling interest rates helped bond prices rise, making the classic mix of 60% stocks and 40% bonds a widely used approach. Now, with rates moving higher, bonds don’t have the same tailwind, and their prices may face challenges.

 

However, it’s important to remember that bonds held to maturity will generally pay back their full principal value (par), which helps mitigate the impact of rising rates. In addition, active management in bond portfolios takes advantage of opportunities across different credit qualities and issuers, aiming to deliver attractive returns—even in a rising rate environment.

 

Alternative income strategies can also be used to help bridge the risks between bonds and stocks. This combination of active management and diversification allows investors to seek steady income and help smooth out market volatility for their portfolio.

 

Congratulations to Wesley Martin on His Promotion!

 

At Wood Gundy and within the Moore-Miller Investment Group, recognizing and celebrating the growth of our team members is something we truly value — and today, we have wonderful news to share. We are proud to announce that Wesley Martin has been promoted to the role of Associate Wealth Advisor.

 

Over the past eight years, Wes has been an integral part of our team, demonstrating exceptional commitment and professionalism while progressing through several increasingly senior positions. In his new role, Wes will continue to serve as a trusted point of contact for our clients while taking on additional responsibilities as a client advisor.

 

Please join us in congratulating Wes on this well-deserved promotion.

 

We're On It

 

We are keeping a close eye on rates, inflation, and the central banks as key influences on the construction of investment portfolios. As always, good planning starts with a conversation, please reach out at anytime.

 

Warmest regards,

 

Moore-Miller Investment Group