The Going Rates
The Fed’s recent rate news has implications for all of us.
The Federal Reserve’s September meeting left investors with much to consider, including that interest rates would remain unchanged (although further hikes aren’t out of the question), and that inflation is still a major focus.
As a result, high rates on consumer debt like mortgages and car loans will continue to burden the average household budget. Borrowing is based on the “risk-free” 10-year Treasury yield of 4.8%; therefore, mortgage rates are now hovering around 8%, their highest level in over 20 years. Prospective home buyers are thinking twice about moving, especially when the oasis of future refinancing could very well be a mirage. After all, the last few decades have seen artificially low interest rates, especially after the Global Financial Crisis of 2008-2009. Normal mortgage rates of 7 to 8% won’t be welcome news for the younger crowd that’s accustomed to accommodative Federal Reserve policies.
Predicting interest rates with certainty is almost impossible, but planning for higher rates in the future is prudent. Fixed income instruments now allow investors the opportunity to decrease portfolio risk without giving up too much return. The question for investors, then, is how this outlook changes their strategy. Earning 5% or more on fixed income (the rose to high mortgage rates’ thorn) is a new concept to most investors under 50. With that in mind, holding excess cash at the bank carries the risk of missing out on 5% returns in money market funds, which are traded in a highly liquid market. Through the money market, your emergency fund of three to six months’ worth of expenses can be available in one day while earning respectable interest in the meantime.
It’s important to look for opportunities and continue saving during uncertain economic times. Regardless of the Fed’s next move, resisting panic and sticking to your personalized investment plan will likely be the best way to weather any storm.
Advisory services offered through The Nemes Rush Group LLC. Securities offered through J. Alden Associates, Inc., member FINRA/SIPC. The Nemes Rush Group LLC and J. Alden Associates Inc. are not affiliated. The information presented is for informational purposes only. Please consult your tax professional to determine the tax effects on your personal situation prior to making any investment.