When is enough, enough?
August 5, 2023
The Federal Reserve decided to raise rates again by .25%, which is nudging rates to the highest level in over 20 years. With this increase federal funds will increase to 5.25-5.5%. Unfortunately, the Feds did not give anyone the impression that the spicket would be turned off. Money managers are now starting to take into consideration the possibility of one more rate hike later this year.
But at what point will increases become counterproductive. Inflation is starting to come down and perhaps the easing has had something to do with it. Wages have lagged behind the partial recovery, but now several unions have decided to go on strike for higher wages. What will these numbers do to the problem we have with inflation? Will increased costs exasperate the situation or is the economy strong enough to absorb any increase?
Housing sales are doing well year over year, but they did take a dip in June. What effect will even higher interest rates have on sales? Nationwide there is a problem with inventory and the reason is pretty obvious. Not many people are willing to trade their 3% mortgages for something substantially higher. So, the market is doing well but based on new home starts not sales of existing homes.
The stock market has done surprisingly well this year. Very few people saw how well this market was going to do. Those people who don't want to take a chance on the market can park funds at 5%, which is nothing to sneeze at while we wait to see what the Fed decides to do and how the economy reacts to it. It is definitely a balancing act and hopefully the Fed will not overplay their hand!
Marty Pay is a contributing writer for The Loop newspaper and has been a Financial Planner for years and teaches Finance at a local University. He can be reached at Farmers Insurance in Tehachapi (661) 822-3737.