On Wednesday, June 20th at 10 a.m., Chairman of the Board of Governors of the Federal Reserve System, Jerome Powell, gave his Semiannual Monetary Policy Report to Congress. The main question viewers sought was, will there be more rate hikes this year?
The short answer is not yet. Over the course of the last year or so, the Fed has raised rates 10 consecutive times. However, that changed yesterday as consumers and investors were spared from an 11th consecutive rate hike when the Federal Reserve Officials voted to keep their benchmark borrowing rate stationary. Good news, right? Kind of. Rates have yet to come down. Wage growth has not been able to keep pace with higher prices putting stress on many Americans. This pause keeps borrowers paying more on credit cards, student loans, and other types of debts. Households are getting squeezed and falling into debt just when the rate to borrow reached near record highs, not a good sign. The good news is that inflation has started to cool.
Despite the fact that the Fed paused rates signaling inflation is cooling and in a better spot than where it was a year ago, the Fed announced that they’re also planning on increasing rates two more times by year-end. If all goes to plan, rates will rise to a level that has not been seen since 2001, this is surprising for many, to say the least.
What’s escalating the Fed’s aggression? Persistent inflation, a hot job market, and a resilient economy might be a part of it. Prices rose 4% in May over the year, but “core” (excludes food and energy prices) prices have been a little uncooperative increasing 5.3% over the year (Bureau of Labor Statistics). Consumers remain unphased for the time being as they continue to spend and drive economic growth. Unemployment remains below 4%, staying within the range of 3.4%-3.7% since March 2022 (Bureau of Labor Statistics), something that has not been seen in a while.
Many investors remain optimistic with their stance on rate hikes remaining relatively neutral, having the idea that rates will only increase once…maybe not at all. Even though rates are at a standstill and projected to increase in the future, it is important for the Fed to consider every possible option. It’s important for the Fed to not overdo what they have strived so hard to achieve, the softest landing possible.
The Fed’s future moves depend on inflation, employment, and banking. Those will be the keys to where the rates will front when looking into the near future. Although the Fed decided to pause rate hikes yesterday, that might not last long as interest rates are still the highest, they’ve been in years. Remember to be cautious with your finances. Money is no longer cheap. The average credit card rate hit 20.49% as of June 14th. Carrying a balance from month to month can be detrimental to your financial success.
It’s important to:
- keep a long-term mindset.
- pay down your debt.
- find the best place for your cash.
- boost your emergency savings.
- look for ways to recession-proof your finances.
Regardless of how you feel about where the economy is headed, we believe planning provides our clients, at any stage of life, the confidence to face life’s uncertainties. Through our Strategic Pathways Process, you have a proven financial roadmap, completely personalized to guide you as your life and needs evolve. If you or someone you know could benefit from our unique planning process, please call to discuss how we can make a Positive Difference.
