Uncle Jerome raised rates another 0.25% yesterday.
It might have been the most anticipated rate announcement in history.
The “will he / won’t he?” narrative was deafening.
On one hand, you COULD blame the bank failures on the Fed for raising rates so quickly (although there’d be a little bit of the dog-ate-my-homework in there if you ask me).
So some people thought they would pause the rate hikes to help the banking system.
Other people thought they’d continue on their current path because a couple of bank failures don’t indicate anything wrong with the economy per se. So if they pause, they must know something we don’t which could be scary.
And what did we get? Somewhere in between.
They DID raise rates 0.25%, but they changed the language in their statement.
During the last raise, they said there WILL be more hikes. During this raise, they said there MIGHT be more hikes. A subtle difference, but meaningful.
He also gave guidance for what they currently think the future holds.
Right now, they expect to raise rates another 0.25% and keep them there until the end of the year.
Next year, they expect to lower rates by 0.75% and they’ll lower rates by another 0.25% by the end of 2025.
Net net – higher rates short-term, lower rates long-term.
Lastly, he said bank regulations do NOT equal Fed Policy decisions. In other words, pausing because of SVB, et al would not have been appropriate.
WHAT THAT MEANS FOR YOU
YOUR PORTFOLIO – More volatility is likely. I still believe when they are officially done raising rates, the markets will take off like a rocket ship.
YOUR MORTGAGE – If you got stuck with a 6% mortgage last year, you’ll likely have an opportunity to refinance to a lower rate within the next few years.
YOUR SAVINGS ACCOUNT – It’s not directly related, but Rising Rates = Higher Interest. Ally’s paying 3.6% and Wealthfront’s up to 4.3%!
YOUR JOB – This is the tough one. Raising rates makes it more expensive for companies to borrow money and cash flow is king for any business. So expensive money = less cash flow = cost cutting = layoffs. And considering it takes a while for Fed Policy to trickle through the economy, the layoffs might not be over.
HOW DID THE MARKETS REACT?
The market tanked yesterday after the announcement (and then rebounded today).
The consensus opinion is that the markets reacted negatively NOT because of the Fed meeting (which was viewed as positive for markets), but because Janet Yellen said the Federal Government would NOT offer unlimited FDIC insurance. )
The next Fed meeting is in May, so expect another 0.25%. And like always, I’ll watch it so you don’t have to!
