Kevin Mahn

About the Author Kevin Mahn

Kevin D. Mahn joined Parsippany, NJ based Hennion & Walsh as a Managing Director in 2004. Currently serving as the President and Chief Investment Officer of Hennion & Walsh Asset Management, Mr. Mahn is responsible for all of the Wealth and Asset Management products and services offered at the Firm including the portfolio creation and portfolio supervision of the various portfolio strategies within the SmartTrust® series of Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit http://www.smarttrustuit.com. Mr. Mahn also was the Portfolio Manager of the family of SmartGrowth® Mutual Funds. The Funds were target-risk oriented "mutual funds of ETFs" designed to track the Lipper Optimal Indices. Mr. Mahn is the author of the quarterly “ETF and CEF Insights” and "Market Outlook" newsletters as well as a co-author of the book, Exchange Traded Funds: Conceptual and Practical Investment Approaches, © 2009 Riskbooks. Mr. Mahn is a member of the Forbes Investor team and a frequent contributor to the Forbes Intelligent Investing blog and the Seeking Alpha website. Prior to Hennion & Walsh, Mr. Mahn was a Senior Vice President at Lehman Brothers where he held several senior management positions, including CAO of the High Net Worth Product and Services group within Lehman’s Wealth and Asset Management division as well as COO of Lehman Brothers Bank, during his eleven year tenure with the Firm. Mr. Mahn received his Bachelor's degree in Business Administration from Muhlenberg College and his M.B.A. in Finance from Fairleigh Dickinson University. Mr. Mahn has also served as an adjunct professor at Fairleigh Dickinson University within the Department of Economics, Finance and International Business. Mr. Mahn was the recipient of the 2009 Institutional Investor Rising Stars of Mutual Funds Award and currently serves as Co-Chair of the NICSA UIT Industry Committee. Interviews with, as well as byline articles and insights from, Mr. Mahn have appeared in/on CBS News, CNBC, Fox Business News, Wall Street Journal, Investor’s Business Daily, Fortune, Forbes, Business Week, New York Times, Wall Street Week, CNNMoney.com, Investment Advisor Magazine, SmartMoney, The Star-Ledger, The Daily Record, Reuters, Fund Action, The Street.com, CNBC.com, Fox Business.com, Dow Jones Newswires, MarketWatch, Ignites, Ticker Magazine, Money Management Executive, Daily Finance, Wall Street Transcript, Registered Rep., Financial Planning, International Business Times, Risk Magazine, ETF Radar Magazine, Structured Products Daily, Financial Times and Investment News.

Fed Lowers Interest Rate Target For 2016 But Now Is Ready To Start Raising Rates In 2015


We have updated our projected Federal Reserve timeline based upon outakes from the last Federal Reserve Open Market Committee meeting earlier this month. As a result of what we know, based upon what the Fed has communicated and what we contend (see summaries of each below), in addition to current economic data reports and forecasts, here is our current projected Fed activity timeline through the end of 2016. Please note 2016 FOMC meeting dates are projected and not confirmed at this time.

Potential Federal Reserve Action Timeline as of March 2015

Potential Federal Reserve Action Timeline as of March 2015 (subject to change)

Projected Fed Funds Rate target Increases

Summary of some of the most recent public statements from the Federal Reserve:

  • Fed Chair Janet Yellen announced that the committee has now dropped the word "patient" from their official statement putting the central bank on course to hike rates as early as June, though this may not start until September. However, Yellen did caution during a press conference that, "Just because we removed the word patient from the statement doesn't mean we'll become impatient." Although an increase in the federal funds rate remains highly unlikely at the April meeting, Yellen said the central bank has not ruled out a rate hike in June while it continues to evaluate progress on the employment and inflation fronts.
  • The weighted average forecast of all Fed voting policymakers for the next three years is as follows:

    • 2015 = 0.77% (rounded off to 0.75% if movements are made in 25 Bp increments)
    • 2016 = 2.02% (rounded off to 2.00% if movements are made in 25 Bp increments)
    • 2017 = 3.18% (rounded off to 3.25% if movements are made in 25 Bp increments)
  • To show the wide range of opinion amongst Fed policymakers, look no further than the chart below, which shows the target of the 17 voting members for the year 2016 as of the March 2015 meeting. The weighted average forecast of Fed policymakers for the end of 2016 currently is 2.02%, which is lower than the 2.68% target level as of September 2014 but still higher than the 1.75% level that was forecasted back in December 2013.

interest rate target of 17 voting members for the year 2016
Source: Board of Governors of the Federal Reserve System, Fed's Projection of the Midpoint Target Range or Target Level, March 2015.

Summary of current contentions by Hennion & Walsh:

  • When it does begin to raise interest rates in 2015, we believe that the Fed will likely follow its blueprint that it utilized during the 2004-2006 tightening period when it gradually raised the Federal Funds Target Rate on 17 different occasions in 25 Basis Point (e. 0. 25%) increments over this time frame. This gradual, drawn-out tightening remains appropriate, in our view, given the Goldilocks state of the U.S. economy which is not "too hot" (in terms of gross domestic product (GDP), employment and inflation) standpoint to warrant a shorter tightening time frame or larger increments of increases and not "too cold" where the Fed would consider additional stimulus measures including, but not limited to, maintaining current record low interest rate levels for an even further extended period of time.
  • Given that it is no longer a question, of if but rather when the Fed will start to raise interest rates in 2015, investors would be wise in our view to consider asset classes or sectors that have historically performed well on a relative basis during previous gradual periods of tightening on the part of the Federal Reserve (see 2004-2006 example above). According to Bloomberg, the table below shows the cumulative total return performance of the 10 GICS sectors for the holding period 1/1/2004 through 12/31/2006.
    20150325 - Blog Post Table 3

Source: Bloomberg, March 2015. Cumulative total return data provided for the period 1/1/2004 – 12/31/2006. Past performance is not an indication of future results.

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