June 15, 2022 the Federal Reserve officials approved a .75 basis-point increase in the Fed’s benchmark. A hike of this magnitude lifts the federal funds target to a range between 1.50 and 1.75.
The anticipated interest rate movement is being hastened by concerns about how best to curb the elevated inflation levels we have been experiencing.
Raising rates will create a slow-down in consumer spending which might allow prices to start to even out. (Example of slowing down: “Maybe I shouldn’t buy this item, my credit card rate just increased!”)
However, ongoing concerns about global supply chain challenges, the Ukraine war and continued coronavirus lockdowns in China provide sizable risk to even faster inflation that may require further interest rate hikes to address.
One source of the current inflation situation we find ourselves in is the fact that consumers have an abundance of liquidity! In fact, pre-pandemic Americans had $1.2 Trillion in checkable deposits, at 2021 year end it was $4.1 Trillion. (First Trust Monday Morning Outlook stats, June 6, 2022.)
Banks are reporting record deposits.
People and businesses have surplus money.
That’s the good news.
The question is how high do interest rates have to be to cool inflation without unnecessarily slowing the economy?
Stay tuned…..
In the meantime….
Encourage calm.
Keep the monthly habits.
If risk tolerance is changing, hang in there and make changes when the market is high.
You wouldn’t be human if you didn’t fear loss.
There is no LOSS when you ride it out.
Be the calm and positive champion for those saving around you.
Kerry Schepers, ChFC
Ohnward Wealth and Retirement