55
1 Examining the Fed and Rising Interest Rates INV 330

Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •[email protected]

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Page 1: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

1

Examining the Fed and Rising Interest Rates

INV 330

Page 2: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

2

Presenters

• Jason Headings

• Meeder Investment Management

• (614) 760-2111

[email protected]

CP

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0

Page 3: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

3

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Agenda

• History of the Fed

• Fed Mandates

• Current Complexion of the Fed

• What’s Next?

Page 4: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

4

History of the Fed

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emy

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INV

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Page 5: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

5

HISTORY OF THE FED

• No central bank (Federal Reserve) in America

• Knickerbocker Trust loaning out 99% of its reserves

• Run on Banks

• Banks did not have enough cash on reserves

• JP Morgan bailed out the banking system

1907

Page 6: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

6

HISTORY OF THE FED

• 6 influential banking leaders get together on Jekyll Island, GA

• First U.S. Central Bank (Federal Reserve) was created

• Bank had a bad name, so they called it the Federal Reserve to make it sound official

• All banks have to play by the same rules…every bank has to keep the same percentage of deposits on hand

Operated the same until 2008

1910

Page 7: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

7

Two workers carry the Lehman Brothers corporate logo away Sept. 24, 2010, in London, England. (Oli Scarff/Getty Images)

Page 8: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

8

HISTORY OF THE FED

• Financial Services Regulatory Relief Act goes into effect

Congress allows the Fed to pay interest on required reserves AND excess reserves

• Roughly $1.6 billion in excess reserves.

• Roughly $68 billion in required reserves.

2008

Page 9: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

9

QUANTITATIVE EASING BEGINS

Page 10: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

10

FED BALANCE SHEET

Source: Board of Governors of the Federal Reserve System (US)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Trill

ion

s

$3.5 Trillion

Page 11: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

11

EXCESS RESERVES OF DEPOSITORY INSTITUTIONS

Source: Board of Governors of the Federal Reserve System (US)

-$0.25

$0.25

$0.75

$1.25

$1.75

$2.25

$2.75

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Trill

ion

s $2.6 Trillion

Page 12: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

12

Fed Mandates

Page 13: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

13

MANDATE OF THE FED

• Price Stability/Inflation

• Employment

• Rate Stabilization/Manage Bubbles

Page 14: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

14

Inflation

Page 15: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

15

INFLATION

Source: Bloomberg

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Headline PCE: 1.90% Core PCE: 1.74% Fed Target: 2.00%

Page 16: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

16

INFLATION 10 Year Treasury Yield

Source: Bloomberg

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

AHH! We have inflation!

AHH! We have inflation!

AHH! We have inflation!

AHH! We have deflation!

AHH! We have inflation!

Page 17: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

17

TRADE IMPORTS What Does the U.S. Import From the Rest of the World?

Page 18: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

18

INFLATION OUTLOOK U.S. 5-Year Breakeven Index

Source: Bloomberg

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Page 19: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

19

Unemployment

Page 20: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

20

UNEMPLOYMENT Federal Funds Rate and Unemployment Rate, 1971-2016

Source: Bloomberg

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

197

0

197

1

197

2

197

4

197

5

197

7

197

8

197

9

198

1

198

2

198

4

198

5

198

7

198

8

198

9

199

1

199

2

199

4

199

5

199

6

199

8

199

9

200

1

200

2

200

4

200

5

200

6

200

8

200

9

201

1

201

2

201

3

201

5

201

6

Unemployment Rate (US) Federal Funds Rate

Since the Great Recession the quarterly unemployment rate has fallen by half – from a peak 9.9% to a low of 4.70% - while the federal funds has

remained low by historical standards.

Page 21: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

21

FED MANDATE: UNEMPLOYMENT

Source: Bureau of Labor Statistics

Page 22: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

22

UNEMPLOYMENT BY EDUCATION LEVEL Ages 25 and Greater

Source: Bureau of Labor Statistics

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

201

1

20

12

20

13

20

14

20

15

20

16

20

17

Less than a High School diploma High School graduates, no college

Some college or associate degree Bachelor's degree and higher

Education Level Jan. 2017 Less than high school degree 7.9% High school no college 5.0% Some college 4.0% Bachelor’s degree and higher 2.4%

Page 23: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

23

Student Loans

Page 24: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

24

STUDENT LOAN DEBT Outstanding student loan debt

Source: Federal Reserve Center for Microeconomic data as of March 2017

$1.31T

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

Mar

-03

Aug

-03

Jan-

04

Jun

-04

No

v-04

Apr

-05

Sep

-05

Feb

-06

Jul-

06

Dec

-06

May

-07

Oct

-07

Mar

-08

Aug

-08

Jan-

09

Jun

-09

No

v-09

Apr

-10

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

-13

Jan-

14

Jun

-14

No

v-14

Apr

-15

Sep

-15

Feb

-16

Jul-

16

Dec

-16

In T

rilli

on

s

The current student debt amount is rising at a rate of $2,667 per second. This number is estimated by calculating the per second change in student debt from Q1 2006 to Q4 2016 using debt data from the Federal Reserve.

Page 25: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

25

STUDENT DEBT FACTS

• 66% of graduates from public colleges had on average $25,550 debt

• 75% of graduates from non-profit colleges had on average $32,300 debt

• 88% of graduates from for-profit colleges had on average $39,950 debt

• Estimated 82% students used their student loan money for vacation,

parties, electronics, and similar

• Over 2% of the US population = 7+ million defaulted on student loans

• Total Increase In Student Loan Debt In 4Q-2016: $31 billion

• New Delinquent Balances (30+ days): $32.6 billion

Source: https://debtclock.tv/world/us/student-loan/

Page 26: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

26

STUDENT DEBT FACTS Failing to Repay

Page 27: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

27

STUDENT LOAN DELINQUENCY Student Loans 90+ Days Delinquent as Percent Loans Outstanding

Source: Federal Reserve Center for Microeconomic data as of March 2017

$1.31T

0%

2%

4%

6%

8%

10%

12%

14%

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

Outstanding Student Loan Debt Percent 90+ Days Delinquent

In T

rilli

on

s

Page 28: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

28

CONSUMER CREDIT DELINQUENCIES Percent Of Balance 90+ Days Delinquent By Loan Type

Source: Federal Reserve Center for Microeconomic data as of March 2017

MORTGAGE

AUTO

STUDENT LOAN

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Sep

-15

Mar

-16

Sep

-16

CREDIT CARD

Page 29: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

29

STUDENT DEBT STATISTICS Average student loan debt by state

Source: Forbes

Page 30: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

30

CONSUMER DEBT BY CATEGORY US Consumers Aged 25-34

The number of US consumers aged 25-34 with student loan debt of at least $50,000 doubled from 2005 to 2015. During that same time, the average student loan debt across all age 25-34 consumers also doubled — by comparison,

average credit card debt and mortgage debt for this population actually fell.

Source: FICO research

Page 31: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

31

Current Complexion of the Fed

Page 32: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

32

THE FED’S TOOLBOX

Fractional Reserve Requirement

Set Federal Funds Rate

T-Bills

Macroprudential

FFR Under the Corridor

System

Interest on Reserves

Reverse Repurchase Rate

Page 33: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

33

FED FUNDS RATE UNDER THE CORRIDOR SYSTEM

Interest on Reserves 0 bp 100 bp 50 bp

Reverse Repo Rate

Page 34: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

34

FUN FED FACTS

Yellen has been know to take an entire suitcase of

books on vacation

Page 35: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

35

FUN FED FACTS

Yellen has a stamp collection estimated to be worth up to $50,000

Page 36: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

36

FUN FED FACTS

Paul Volcker Alan Greenspan Ben Bernanke Janet Yellen

Page 37: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

37

FUN FED FACTS Who Makes up the “Fed”?

Federal Reserve Board of Governors Term End (Chair and Vice Chair) End of Term as Governor

Janet Yellen (Chair) February 2018 2024

Stanley Fischer (Vice Chair) June 2018 2020

Daniel Tarullo Retiring April 2017 2022

Lael Brainard 2026

Jerome Powell 2028

Vacant 2018

Vacant 2030

FOMC District Bank Voters in 2017 District

William Dudley New York

Patrick Harker Philadelphia

Charles Evans Chicago

Neel Kashkari Minneapolis

Robert Kaplan Dallas

Page 38: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

38

VOTER RELIABILITY

Source: Bloomberg

Page 39: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

39

FED BALANCE SHEET

Source: Board of Governors of the Federal Reserve System (US)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Trill

ion

s $3.5 Trillion

Page 40: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

40

FED BALANCE SHEET Maturity Distribution of U.S. Treasuries

Source: Federal Reserve Bank of New York: System Open Market Account Holdings

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2017

2018

2019

202

0

2021

2022

202

3

2024

2025

202

6

2027

2028

202

9

2030

2031

2032

2036

2037

2038

2039

2040

2041

2042

2043

204

4

2045

2046

204

7

Bill

ion

s

FEDERAL RESERVE TREASURY HOLDINGS

Page 41: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

41

FED CHOICES

Page 42: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

42

BUT WHAT ABOUT DEBT AND DEFICITS?

Source: Congressional Budget Office, 2015.

0%

10%

20%

30%

40%

1945 1953 1963 1969 1974 1977 1981 1989 1993 2001 2009

U.S. Treasury, federal budgettotal receipts as a percent of GDP

U.S. Treasury, federal budgettotal outlays as a percent of GDP

1961

Top 5 Holders of U.S. Debt

1. U.S. Government: Fed, Social Security Trust Fund & Other ($7.5 Trillion)

3. Savings Bonds and Other Investors ($1.2 Trillion)

5. Pension Funds ($0.6 Trillion)

2. China ($1.3 Trillion)

4. Japan ($1.1 Trillion)

Page 43: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

43

CENTRAL BANK ASSETS Normalized as of 1/02/2004

Source: Bloomberg

ECB

USD

BOJ

CHINA

SWISS BANK

0

100

200

300

400

500

600

700

Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Page 44: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

44

GLOBAL BOND MARKET

Source: JPMorgan Guide to the Markets

Page 45: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

45

GLOBAL BOND YIELDS As of 8/31/17

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 30Y

Switzerland -0.84% -0.80% -0.73% -0.63% -0.54% - -0.36% -0.28% -0.20% -0.13% 0.31%

Sweden -0.78% -0.59% -0.40% -0.19% -0.01% - 0.34% 0.48% 0.61% 0.73% 1.70%

Germany -0.79% -0.74% -0.64% -0.52% -0.37% - -0.07% 0.08% 0.22% 0.35% 1.19%

Netherlands -0.71% -0.65% -0.55% -0.43% -0.28% - 0.03% 0.18% 0.33% 0.45% 1.18%

Finland -0.73% -0.63% -0.50% -0.36% -0.20% - 0.12% 0.27% 0.41% 0.54% 1.34%

France -0.63% -0.57% -0.47% -0.33% -0.18% - 0.15% 0.32% 0.48% 0.63% 1.71%

Belgium -0.66% -0.60% -0.49% -0.35% -0.19% - 0.14% 0.31% 0.46% 0.60% 1.70%

Austria -0.66% -0.58% -0.47% -0.33% -0.18% - 0.13% 0.28% 0.42% 0.55% 1.50%

Denmark -0.67% -0.65% -0.48% -0.40% -0.27% - -0.01% 0.14% 0.31% 0.46% 1.05%

Japan -0.16% -0.17% -0.16% -0.14% -0.14% -0.12% -0.09% -0.07% -0.03% 0.01% 0.82%

Spain -0.46% -0.30% -0.11% 0.12% 0.37% - 0.86% 1.10% 1.32% 1.51% 2.83%

Italy -0.33% -0.06% 0.24% 0.55% 0.86% - 1.44% 1.69% 1.91% 2.09% 3.24%

Portugal -0.36% -0.02% 0.38% 0.80% 1.23% - 2.02% 2.36% 2.65% 2.89% 3.85%

UK 0.14% 0.17% 0.20% 0.25% 0.44% 0.59% 0.68% 0.79% 0.93% 1.03% 1.70%

Canada 1.12% 1.25% 1.37% 1.47% 1.54% - 1.69% 1.75% 1.83% 1.88% 2.25%

US 1.22% 1.33% 1.43% - 1.70% - 1.94% - - 2.12% 2.73%

Australia 1.66% 1.89% 2.05% 2.18% 2.24% 2.33% 2.46% 2.55% 2.62% 2.71% 3.54%

Source: Bloomberg

Page 46: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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CENTRAL BANKS AFFECT FLOWS TO U.S.

Source: JPMorgan Guide to the Markets

Page 47: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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What’s Next?

Page 48: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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OUR CAMPAIGNS HAVE NEVER BEEN FILLED WITH SUCH VITRIOL, RIGHT?

John Adams

Thomas Jefferson

Page 49: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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TRUMP & YELLEN

You’re Fired!

Page 50: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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POSSIBLE ADDITIONS

• Ron Paul – former Texas Representative

• John Taylor – the “Oz” behind the Taylor Rule

• John Allison IV – Cato Institute and former CEO of BB&T

• Paul Atkins – former SEC member

• Tom Hoenig – VC of FDIC, and former head of Kansas City Fed

Page 51: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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TRUMP AGENDA

• Affordable Care Act

• Infrastructure • Wants to spend $1 trillion over 10 years

• Tax Cuts • Corporate tax cuts: 35% down to 20%

• Individual tax cuts from 40% down to 30%, all others to fall as well

• Repatriation (could be as high as $2 trillion)

• Fees on importers (border taxes)

• Dodd Frank

Page 52: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

09/17/14 12/17/14 03/18/15 06/17/15 09/17/15 12/16/15 03/16/16 06/15/16 09/21/16 12/14/16

The Median of the Federal Open Market Committee's Dots Data

The Overnight Index Swap Implied Interest Rate as of the FOMC Meeting Date

FED “DOT PLOT” VS MARKET EXPECTATIONS Historical projections for December 31, 2017

Meeting Date

Source: Bloomberg

Page 53: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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FEDERAL RESERVES ECONOMIC PROJECTIONS Federal Reserve Governors and Reserve Bank Presidents Forecasts

2017 ESTIMATE 2018 ESTIMATE 2019 ESTIMATE LONGER RUN

REAL GDP RANGE

March 15, 2017 1.7% to 2.3% 1.7% to 2.4% 1.5% to 2.2% 1.6% to 2.2%

Dec. 14, 2016 1.7% to 2.4% 1.7% to 2.3% 1.5% to 2.2% 1.6% to 2.2%

UNEMPLOYMENT RATE RANGE

March 15, 2017 4.4% to 4.7% 4.2% to 4.7% 4.1% to 4.8% 4.5% to 5.0%

Dec. 14, 2016 4.4% to 4.7% 4.2% to 4.7% 4.1% to 4.8% 4.5% to 5.0%

PCE PRICE INDEX RANGE

March 15, 2017 1.7% to 2.1% 1.8% to 2.1% 1.8% to 2.2% 2.00%

Dec. 14, 2016 1.7% to 2.0% 1.8% to 2.2% 1.8% to 2.2% 2.00%

FEDERAL FUNDS RANGE

March 15, 2017 0.9% to 2.1% 0.9% to 3.4% 0.9% to 3.9% 2.5% to 3.8%

Dec. 14, 2016 0.9% to 2.1% 0.9% to 3.4% 0.9% to 3.9% 2.5% to 3.8%

Source: Federal Reserve Board

Page 54: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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INTEREST RATE OUTLOOK US Overnight Interest Rate Swaps

Source: Bloomberg

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

J M S F J N M J D

8/31/2017 10/31/2016

1 M

6 M

2 Y

1Y

3 Y

10

Y

5 Y

Page 55: Examining the Fed and Rising Interest Rates...Rising Interest Rates INV 330 . 2 Presenters •Jason Headings •Meeder Investment Management •(614) 760-2111 •jheadings@meederinvestment.com

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THANK YOU

Jason Headings Direct: 614-760-2111

[email protected]

Meeder Investment Management