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What You Need to Know About the Fed

What You Need to Know About the Fed

Introduction

We talk a lot about the Fed Open Market Committee (FOMC) and monetary policy. So, it’s time we take some of the mystery out of the Fed’s structure and process. Let’s take a closer look at the Fed Board, how it works … and what it means to individual investors.

    How the Federal Reserve Board is structured

    The Federal Reserve Board is the leadership team behind the U.S. central bank, often called “the Fed,” which was established in 1913 by President Wilson when he signed the Federal Reserve Act into law. It is made up of seven members called Governors, who are appointed by the President and confirmed by the Senate.

    Each Governor serves a long 14-year term, which helps keep politics out of their decision-making. The Board works alongside 12 regional Federal Reserve Bank presidents spread across the country. Together, they help manage the economy by influencing interest rates, regulating banks, and keeping inflation in check—all things that directly affect your investments.

      How are decisions made and voted on?

      When it comes to making big decisions—like whether to raise or lower interest rates—the Board members meet regularly as part of a group called the Federal Open Market Committee. This committee includes all seven Governors plus five regional bank presidents. The President of the New York Fed is a permanent voting member while others rotate, serving one-year terms. Each member gets one vote, and decisions are made by majority rule.

      These votes are important because they can affect borrowing costs, stock market trends, and the value of your savings. If you’re investing in stocks, bonds, or real estate, Fed decisions can influence market movements and investor confidence.

        Why the Fed operates independently

        One of the most important things to know is that the Federal Reserve Board operates independently from the rest of the government. While elected officials appoint its members, the Fed doesn’t rely on Congress for funding and doesn’t take orders from the president. This independence allows the Fed to make decisions based on economic data, not political pressure.


        For investors, this means the Fed is focused on long-term stability rather than short-term political goals, which helps create a more predictable environment for financial planning. The Chair of the Federal Reserve Board (currently Kevin Warsh) is the most visible and influential member. This person leads meetings, guides discussions, and speaks publicly about the Fed’s outlook and decisions.
        While the Chair doesn’t have more voting power than other members, their leadership helps shape the Fed’s direction. For investors, the Chair’s speeches, interviews and Congressional testimony are closely watched. Markets often react to their tone and wording. Understanding the Chair’s views can provide insight into where interest rates and inflation might be headed, helping you make more informed investment choices.

          More about political influence

          In recent months, the Federal Reserve has faced intense pressure from the White House, particularly from President Donald Trump, who has pushed aggressively for lower interest rates. Trump has gone so far as to install a loyal economist, Stephen Miran, onto the Fed’s Board of Governors and attempted to remove Governor Lisa Cook for alleged mortgage fraud. The nomination of Kevin Warsh is also fresh in our minds.


          These moves are seen by many as efforts to tilt the Fed’s decision-making in favor of more politically convenient policies, like rapid rate cuts ahead of the 2026 election. For investors, this kind of pressure can create uncertainty about whether the Fed is acting based on economic data or political agendas.


          But there are legal and institutional safeguards designed to protect the Fed from political influence. It is for this very reason that we have long terms for Fed Governors and independent funding. These safeguards are crucial because they allow the Fed to make decisions based on long-term economic health rather than election-year politics. For DIY investors, this independence helps ensure that interest rate decisions are made with stability in mind, not political gain.


          If political pressure influences the Fed, markets can react unpredictably. For example, if investors believe the Fed is cutting rates to please the White House rather than to address real economic issues, it can shake confidence in the central bank’s credibility. This can lead to increased inflation expectations, higher long-term interest rates, and volatility in stocks and bonds. For investors, this means it’s important to watch not just what the Fed does, but why it’s doing it. The reasoning behind a rate cut can affect how markets respond.

            Historical challenges to Fed independence

            This isn’t the first time the Fed’s independence has been tested. In the 1970s, President Nixon pressured Fed Chair Arthur Burns to keep interest rates low in the run-up to the 1972 election, contributing to runaway inflation that hurt the economy for years. In 1981, there was friction between President Reagan and Fed Chair Paul Volcker over high interest rates implemented to tame inflation. More recently, Trump’s first and current terms have seen repeated attempts to influence Fed policy, including public calls for rate cuts and threats to fire Chair Powell.


            Some still criticize the timing of an aggressive 50-basis point rate cut on September 18, 2024. It was the first since the start of the Covid-19 pandemic and was just weeks before the presidential election. These episodes highlight that when the Fed caves to political pressure, the long-term consequences—like inflation and market instability—can be severe.


            In September 2025 the Federal Reserve cut its benchmark interest rate by 0.25%, bringing it to a range of 4.00% to 4.25%. This was the first rate cut in nine months and came amid signs of a weakening job market and slowing hiring. Inflation remains elevated, partly due to pressure from tariffs on imported goods, but the Fed prioritized employment concerns in its decision as charged by their dual mandate to maximize employment while stabilizing prices.


            Chair Jerome Powell emphasized at the time that the Fed was committed to its independence, even as political pressure mounted.

              It’s important

              Being in tune with the Fed and its economic and political pressures is important to investors. Having a feel for the direction of short-term interest rates is very important to evaluating the stock and bond markets. While short-term interest rates don’t necessarily move longer-term rates, Fed policy easing can still be an important tailwind for equity and fixed-income investors.

                Have questions?

                You can always reach out to the MoneyLetter Team by visiting our contact page: https://moneyletter.com/contact/

                Stock and Bond Volatility Highlights the Value of Dollar Cost Averaging

                Stock and Bond Volatility Highlights the Value of Dollar Cost Averaging

                The investment world can change fast. In the Spring of 2025, some financial experts (not us!) expected the Federal Reserve to raise interest rates to preempt tariff-induced inflation. Bond yields were climbing, and stock markets were pulling back after a strong start to the year.

                But the situation has shifted again. Economic growth is projected to slow down, and the Fed is now easing short-term interest rates. At the same time, the U.S. government faces the challenge of managing nearly $38 trillion in debt, adding pressure to the bond market.

                There’s more. Global trade tensions are abnormally high. And technology stocks – which had driven much of the market’s gains in recent years – are at, or near, all-time high prices.

                These factors—rising debt concerns, bond market and trade uncertainty, and tech sector valuations—have made both stock and bond markets more volatile. No one could have predicted how quickly things would change. That’s why MoneyLetter continues to advise investors to stay calm and think long-term. One smart strategy to consider during uncertain times is dollar cost averaging (DCA).

                What is dollar cost averaging?

                Dollar cost averaging means investing a fixed amount of money at regular intervals, like monthly or quarterly, into mutual funds or other investments. The amount you invest stays the same, but the number of shares you buy changes depending on the price.

                When prices are low, you end up buying more shares. When prices are high, you buy fewer. Over time, this often results in buying more total shares than if you had invested all your money at once.

                 

                Dollar Cost Averaging Example

                Why dollar cost averaging works

                DCA takes emotion out of investing. It helps you avoid the fear of missing out when prices rise and the panic of selling when prices fall. While it’s possible that investing a lump sum at the right time could earn more, it’s very hard to know when that “right time” is. Trying to time the market precisely usually doesn’t work.

                If you’re still working and saving for retirement or college, DCA is a great way to build wealth over time. If you receive a lump sum—like a bonus or inheritance—DCA lets you ease into the market slowly, reducing risk. If you have a 401(k) plan at work, you’re already using DCA. Money is taken from your paycheck and invested regularly, no matter what the market is doing.

                DCA works best with no-load mutual funds or ETFs, which don’t charge commissions. It’s especially helpful during times of market ups and downs, like we’ve seen recently. While markets can struggle for a while, they tend to grow over the long term.

                What if you need cash?

                Sometimes, you may need to take money out of your investments, maybe to build an emergency fund or to cover living expenses in retirement. Selling investments using a DCA-like method (selling the same amount regularly) is not a good idea. This is called reverse dollar cost averaging, and it can hurt your portfolio. You end up selling more shares when prices are low and fewer when prices are high, which can reduce your future growth.

                Instead, here are some smart ways to raise cash during market volatility:

                • Rebalance your portfolio: If stocks have dropped and bonds now make up a bigger part of your portfolio, consider selling some bonds first.
                • Review your investments: You might have holdings that no longer fit your goals or have underperformed. These could be good candidates to sell.
                • Harvest tax losses: If you have investments that are worth less than what you paid, selling them can help offset gains or reduce your taxable income (up to $3,000 per year).
                • Think about taxes: If you must sell investments for a gain, try to sell those you’ve held for over a year. Long-term capital gains are taxed at a lower rate than short-term gains.

                If you have any questions, feel free to email us at service@moneyletter.com.

                 

                 


                You can schedule a free 20-minute Discovery Call with Bruce Hardy, Director of Private Asset Management at Asset Strategy, to explore your best options:
                Schedule Here 

                Should Investors Be Worried About the U.S. Government Shutdown?

                Should Investors Be Worried About the U.S. Government Shutdown?

                Should Investors Be Worried About This Government Shutdown? On October 1st, 2025, the U.S. government officially shut down for the 22nd time since 1976. While these events grab headlines and stir political drama, investors naturally wonder if this poses real risks to their portfolio?

                Well, the short answer to that is that history shows government shutdowns have limited and temporary effects on the markets and the economy.

                Don’t believe us? Here’s exactly why this is true.

                How Often Do Government Shutdowns Occur?

                Shutdowns aren’t rare. Since 1981, there have been 10 shutdowns, with the average lasting about 9 days. 

                The longest, which was 34 days in 2018–2019, cost the economy around $11 billion in GDP, but only $3 billion was permanently lost. That amounted to roughly 0.02% of GDP, which was barely a blip in the long run.

                What Happens During a Government Shutdown?

                When Congress fails to pass appropriations legislation or a continuing resolution, non-essential federal government operations are suspended, and many employees are furloughed.

                However, it’s important to keep in mind that many functions continue to operate.

                • Mandatory spending obligations like Social Security, Medicare, and Medicaid are typically unaffected. 
                • Essential services (e.g. air traffic control, national security, disaster relief) operate under “excepted” status.
                • Other agencies will scale back or halt discretionary operations, delay permits, or shutter public-facing services.

                The Market’s Reaction to a Government Shutdown? 

                You’d be surprised to know that markets have taken shutdowns in stride. 

                Stocks sometimes sell off modestly before a shutdown and often rally once it begins. 

                While, bond yields typically tick higher before the deadline, then fall back during the shutdown. 

                In fact, after the 2013 and 2018 shutdowns, the S&P 500 experienced strong gains in the 100 days following the government shutdown’s end. 

                So, investors tend to see shutdowns more as short-term political theater than something that is going to impact the markets long term.

                What About This Current Government Shutdown? 

                This government shutdown may be slightly different than some of the previous ones we’ve had in the past. 

                The government may stop releasing key economic data, which includes the September jobs report and inflation figures. 

                That’s going to become a headache for the Federal Reserve, which relies on this data to guide interest rate decisions. 

                So, it may add some short-term uncertainty for investors.

                Should Investors Be Worried About This Government Shutdown? 

                In the short term, some volatility is possible, especially with stocks near all-time highs. 

                But In the long term, shutdowns have not derailed economic growth or market performance. 

                So, we think that as long as you maintain a diversified portfolio, block out the noise, and rebalance if we experience some volatility, then you should be well-equipped. 

                If you have any questions, feel free to email us at service@moneyletter.com.

                 

                Visit our Contact page to click the button below to speak with the Asset Strategy Advisor Team.

                You can schedule a free 20-minute Discovery Call with Bruce Hardy, Director of Private Asset Management at Asset Strategy, to explore your best options: Schedule Here 

                The Role of Oil and Gas Investing in a Diversified Portfolio

                The Role of Oil and Gas Investing in a Diversified Portfolio

                The energy sector offers compelling opportunities for investors seeking alternatives beyond traditional stocks and bonds. Oil and gas continue to play a dominant role in the global energy landscape. According to the U.S. Energy Information Administration (EIA), fossil fuels are projected to account for approximately 80% of the U.S. energy mix through 2050, even as renewable energy sources gain traction. 

                Energy demand is not just persisting; it’s growing. The rapid expansion of data centers, artificial intelligence (AI), and high-performance computing drives an unprecedented need for reliable, continuous power. These sectors require enormous amounts of electricity, with data centers alone consuming over 2% of global electricity (a figure expected to rise dramatically). While renewable energy sources are expanding, they remain intermittent and heavily dependent on infrastructure advancements. 

                Meanwhile, nuclear energy, often touted as a long-term solution, remains decades away from achieving widespread, cost-competitive adoption. The challenges of construction costs, regulatory approvals, and waste management make large-scale nuclear deployment a long-term ambition rather than an immediate solution. 

                Given these realities, oil and natural gas continue to be essential energy sources, not just for transportation, but also for industrial applications, heating, and as a backup for renewables.
                For accredited investors, one avenue worth exploring is oil and gas drilling funds. Unlike publicly traded energy stocks or ETFs, these investments offer direct participation in resource extraction and unique tax advantages. While they require a higher level of sophistication and risk tolerance, they can provide substantial long-term benefits when properly structured. 

                For non-accredited investors, energy exposure is still possible through mutual funds, ETFs, and energy sector index funds, though these vehicles do not offer the same tax advantages as direct oil and gas investments. However, they can provide diversification benefits and access to the broader energy sector without the higher risks associated with private investment funds. 

                The following sections will explore the fundamentals of oil and gas investments, the tax incentives that make them attractive, and the key risks to consider before committing capital. If you’re an accredited investor looking for diversification, tax efficiency, and exposure to a critical sector, this deep dive will provide the insights you need.

                First, what is an Accredited Investor? 

                Under SEC regulations, an accredited investor is someone who meets specific financial criteria allowing them to invest in private securities, such as oil and gas drilling funds. To qualify as an accredited investor, an individual must:

                • Have an annual income of at least $200,000 (or $300,000 for married couples filing jointly) in each of the last two years, with an expectation of maintaining this income level, or 
                • Have a net worth exceeding $1 million, excluding the value of their primary residence. 
                • Certain entities, trusts, or businesses may also qualify if they have assets exceeding $5 million or if they consist of accredited investors. 
                 

                Because these investments involve higher risks, they are generally limited to accredited investors who have the financial capacity to absorb potential losses.

                Why invest in oil & gas?

                Longevity – Despite advances in renewable energy, oil and gas will remain a significant part of the energy mix for decades.
                High Demand – A critical resource used across numerous industries globally.
                Diversification – Offers uncorrelated returns compared to traditional stock market investments.
                Tax Benefits – Unique tax incentives make these investments particularly appealing.

                Tax Advantages for Investors 

                One of the most compelling aspects of oil and gas investments is their tax treatment, which provides significant benefits for accredited investors:

                Intangible Drilling Costs (IDC) 

                • Can represent 70-80% of a drilling fund. 
                • Up to 100% tax deductible in the first year. 
                • Can be deducted against salary, capital gains, or business income. 
                • Includes expenses like site preparation, labor, and testing. 

                Tangible Drilling Costs (TDC) 

                • Can represent 20-30% of a drilling fund. 
                • 100% tax deductible but depreciated over 5-7 years (1245 MACRS), which may be subject to bonus depreciation. 
                • Covers costs such as drilling equipment and infrastructure. 
                Mineral Interest Depletion Allowance 
                • Allows a 15% deduction on gross income from oil and gas properties. 
                • Only available to small producers and joint venture participants. 
                Active vs. Passive Income Treatment 
                • Oil and gas investments are typically classified as active income in the first year, allowing depreciation to offset other earnings. 
                • In subsequent years, investments shift to passive status, limiting liability but maintaining tax advantages. 
                • These investments can also be used strategically to reduce Roth conversion taxes. 

                Return potential & portfolio diversification

                • High oil prices and productive wells can generate substantial gains. 
                • Double-digit annual returns have historically been common, though past performance does not guarantee future results. 
                Diversification Benefits 
                • Adds an alternative asset class with a low correlation to traditional stocks and bonds. 
                • Provides exposure to a sector influenced by different economic factors than equity markets. 

                Risks to consider

                • Dry Wells – Not all wells yield commercially viable quantities, though technological advances have improved success rates. 
                • Unexpected Costs – Operating expenses can be higher than expected, impacting profitability. 
                • Revenue Variability – Oil and gas prices fluctuate, affecting cash flow. 
                General Partner (GP) Liability 
                • Investors may have liability exposure in the first year, but this is mitigated by utilizing insurance coverage or conversation to Limited Liability (LP) ownership. 

                Tax Considerations & Limitations 

                Alternative Minimum Tax (AMT) – May reduce the tax advantages available to certain investors. 
                Excess Business Loss Limitations – Caps the amount of losses that can offset non-business income ($320,000 for individuals, $640,000 for joint filers in 2025).

                Is oil & gas right for your portfolio? 

                Investing in domestic oil and gas reserves offers accredited investors unique advantages, including significant tax benefits, portfolio diversification, and strong return potential. However, these investments come with risks, including price volatility and operational uncertainties. For non-accredited investors, ETFs and mutual funds provide accessible alternatives to participate in the energy sector, though without the direct tax advantages of oil and gas drilling funds. 

                For those seeking exposure to energy in a tax-efficient manner, oil and gas investments can be a powerful tool, but they require careful due diligence. Consulting with a financial professional can help determine if these opportunities align with your investment goals and risk tolerance. 

                If you need financial advice or a financial review, we would be happy to introduce you to a licensed advisor at our sister company, Asset Strategy Advisors (ASA).

                ASA is an SEC registered investment advisor.

                Visit our Contact page to click the button below to speak with the Asset Strategy Advisor Team.

                You Shouldn’t Be Surprised by This Market Correction

                You Shouldn’t Be Surprised by This Market Correction

                A stock market correction is usually defined as a decline of 10% or more from a recent peak in major indices like the S&P 500. Over the years, declines like these have occurred with regularity, rectifying soaring valuations and tempering speculative excesses. On March 13, 2025, the market entered its first correction since 2023. 

                 

                How Often and How Much? 

                Since the 1950s, the S&P 500 has gone through approximately 38 corrections … an average of one every 1.84 years. Let’s round it off to a correction roughly every two years. That’s one of the reasons we have been saying you shouldn’t be surprised we are going through one now. The average decline during these corrections has been around 14%, though individual corrections can vary in intensity. 

                 

                Noteworthy Bear Markets Since the 1960s 

                • 1966: The S&P 500 declined by approximately 22% due to an economic slowdown and tightening monetary policy.​ 
                • 1973-1974: A significant bear market occurred, with the index dropping about 48%. This was influenced by the oil embargo and rising inflation.​ 
                • 1987: Known as “Black Monday,” the market plummeted over 20% in one day, marking one of the most rapid corrections in history.​ 
                • 2000-2002: The bursting of the dot-com bubble led to a nearly 37% decline in the S&P 500 over two years.​ 
                • 2007-2009: The global financial crisis resulted in a 57% drop, making it one of the most severe bear markets since the Great Depression.​ 
                • 2020: The onset of the COVID-19 pandemic caused a swift 34% decline. This was followed by an equally rapid recovery.​ 

                 

                Current Context and Overdue Correction 

                After two years of extraordinary stock market returns (20%+ for the S&P 500 in both 2023 and 2024), we felt the markets were overdue for correction. Several factors contributed to our anticipation of a significant pullback: 

                1. Extended Bull Market: Prolonged periods of market gains can lead to overvaluations, increasing the likelihood of a corrective phase.​ 
                1. Economic Indicators: Signs of economic slowing often precede market corrections. At this time, we do not see a recession in the cards, but there have been some recent soft economic reports.​ 
                1. Geopolitical Tensions: Global events, such as trade disputes or political instability, can trigger market volatility. 

                 

                Implications for Investors 

                While corrections can be unsettling, they are a natural part of market cycles. Historically, the S&P 500 has gained an average of more than 8% one month after a market correction bottom and more than 24% one year later. This type of market resilience underscores the importance of maintaining a long-term investment perspective and not making impulsive decisions based on short-term market movements.

                 

                 

                If you need financial advice or a financial review, we would be happy to introduce you to a licensed advisor at our sister company, Asset Strategy Advisors (ASA).

                ASA is an SEC registered investment advisor.

                Visit our Contact page to click the button below to speak with the Asset Strategy Advisor Team.

                Best Canadian Funds To Buy Amid Trade Tensions

                Best Canadian Funds To Buy Amid Trade Tensions

                Rising trade tensions between the U.S. and Canada, along with new tariffs impacting key industries, have introduced uncertainty into the Canadian market. While Canada’s economy remains resilient, ongoing disputes over tariffs on energy, lumber, and manufactured goods could weigh on growth and investor sentiment. However, with a well-regulated financial sector and strong domestic demand, Canada continues to offer investment opportunities, particularly in banking, energy, and materials. 

                For investors looking to diversify internationally while navigating these shifting trade dynamics, Canadian equities remain an option worth considering. Below we highlight two funds that provide broad exposure to the Canadian stock market. 

                 

                iShares MSCI Canada ETF (ticker: EWC)

                This exchange-traded fund holds 85 stocks, with approximately 66.39% of the portfolio concentrated in three sectors: Financials (37.29%), Energy (17.47%), and Materials (11.63%). Its top three holdings are Royal Bank of Canada (8.03% of net assets), Shopify Inc. (6.58%), and Toronto-Dominion Bank (4.64%). As of February 28, 2025, its year-to-date return is 2.59%, and its three-year return is 6.20% annualized.

                 

                Fidelity Canada Fund (FICDX)

                This traditional mutual fund holds 60 stocks. Its sector allocation includes Financials (28.41%), Energy (17.17%), and Industrials (13.97%). FICDX’s top three holdings are Royal Bank of Canada (8.67% of net assets), Constellation Software Inc. (5.82%), and Canadian Pacific Kansas City Limited (5.44%). As of January 31, 2025, its one-year return is 12.05%, with a three-year return of 6.20% annualized. ​  

                Discover over 150 top-rated international funds with detailed investment insights. Subscribe to MoneyLetter today and invest confidently, no matter the market conditions.

                Disclosure: The information provided in this blog is for informational and educational purposes only. MoneyLetter® does not purport to provide legal, tax, or individual investment advice. While carefully screened, the accuracy of the statistical data in MoneyLetter® cannot be guaranteed. Past performance does not ensure future results. All investments carry risks, including the loss of principal. Readers should carefully review investment prospectuses before investing.

                 

                If you need financial advice or a financial review, we would be happy to introduce you to a licensed advisor at our sister company, Asset Strategy Advisors (ASA).

                ASA is an SEC registered investment advisor.

                Visit our Contact page to click the button below to speak with the Asset Strategy Advisor Team.