On September 21, 2022, the Federal Reserve raised interest rates by 0.75% to target a new Federal Funds Rate of 3-3.25%.
What Does This Mean?
- According to the measurement of money in the system, the economy is too strong. The more money in our system, the more it is changed hands, and the higher prices go based on supply and demand, resulting in the inflation that we are feeling.
- Various rate-based products (mortgages, auto loans, credit cards, money markets, etc.) are based on different rates. Raising short-term interest rates may affect everything from credit cards and mortgages to interest paid on checking accounts and treasuries.
- At least another 1% raise is expected before the end of the year, with a reasonable likelihood of 1.25%.
What To Expect
- The interest you pay on lending products will go up. Credit cards with balances will be more expensive, as well as borrowing to buy cars and mortgages, and so on.
- Interest on investments will rise, including higher yield on bonds, treasuries, municipals, and annuity income.
- Some areas of the real estate market may slow down based on buyers having to borrow at higher rates to buy homes. Investment in real estate may also be affected as the opportunity cost for those dollars has increased. However, the tax benefits from real estate ownership and exchange laws may help maintain the market.
- Equities should continue to be volatile. Those in the accumulation stage may consider this an opportunity to increase investment in long-term risk assets at lower prices.
Contact me to discuss opportunities to possibly take advantage of these market inefficiencies and whether added investment makes sense for your long-term plan.