“Is this going to blow through or set in?” It was Labor Day, and we were on the lake a long way from our dock when storm clouds surprisingly popped up. It’s easy to get surprised by the weather on Table Rock Lake with its high bluffs. It looks like the Federal Reserve is watching the forecast and trying to get inflation to blow through and not set in as well.
Last Wednesday, the Federal Reserve paused rates again for the second time in three meetings. The stock market expected the pause but still dreams of the days ahead when the Fed begins to lower rates.
Instead of lowering the rates, the Fed paused because they thought the economy is still “too strong,” and there aren’t enough companies laying employees off. Yes, you read that right. The government’s plan to slow down inflation is to cause economic pain. So, they will keep their rates higher for a longer period to make us buy fewer cars and buy/build fewer houses to slow the economy and get inflation under control.
This might turn out to be less of a “pause” and more of a “skip.” Since the economy is stronger than expected, the Fed hinted it might skip this meeting and even raise its rate one more time in this cycle.
While listening to the press conference, I could almost hear my Dad’s voice before my spanking, saying, “This is going to hurt me more than you.” But this time, I believe these decisions will hurt the average American more than the government.
It’s interesting to note that the Fed has shifted its statement language from saying “higher” to saying “longer” to convince the market that they are serious about keeping higher rates for a longer time. This means consumers aren’t going to get relief on rates anytime soon, or at least until the economy starts slowing.
I began this year bullish on stocks, and the market bounced back as expected. Yet, I’ve become more cautious about stocks as the year has progressed. At this time, I believe in the near term that, bonds have become more attractive when it comes to the potential risk/return trade-off. I still see opportunities in stocks, which is why I have my accounts in a more balanced position.
We made it back to the boat dock without any problems, though the wind made it bumpy. Though the storm lasted longer than expected, it blew through while we ate lunch. But the strange thing is that after the storm finished, the lake was empty. All the boaters were scared off by the storm threat, and when we went back out, we had the lake to ourselves.
I think in the same way, this high rates season, though longer than we expected, will blow through and reward those who wait it out.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.