The Federal Funds rate after last week’s .75% bump now stands at 3% to 3.25%.
Prior to last week’s announcement, the projection of where the Fed Funds rate would end 2022 was 3.4%. It is now forecasted 1% higher at 4.4%! This means an additional 1% plus in rate hikes, prior to New Year’s Eve 2022.
2023 is now projected to end the year with the Fed Funds rate at 4.6%, up from a prior 3.8%.
There is absolutely no secret of the Fed’s determination to conquer inflation.
The challenge, inflation reports are lagging indicators, forcing the Fed to react after the fact. If you need proof, look how long it took for the Fed to start increasing rates after inflation far exceeded their initial projections.
One cannot surgically move the inflation number to 2%. There is a chance, if the Fed continues it’s hawkish path unabated, inflation will move to under 2% (and possibly lower) into a period of deflation. If that happens, intermediate and longer-term high quality bonds could fully recover, and then some.
Where does this cycle end? If I was a betting man, I would not put my chips alongside of the Fed, however for now, I would not take the opposite bet!!
Markets Test June Lows
Forecasting the short-term levels of both the stock and bond markets just became more challenging with the increased interest rate projections.
We should not be surprised the June market lows are being tested. The current methodology in raising rates is similar to that slow ride higher, sitting in a roller coaster, not knowing how steep or how fast you’ll fly down when finally at the top.
The stock and bond markets are in the process of finding fair value. Fair value will continue to be somewhat illusive as we don’t yet know the factual impact to the economy and corporate profitability.
As always, markets shoot higher than justified during boom times, and much lower than justified during the economic uncertainly that currently exists.
Keep your head, and don’t do anything rash with your portfolio. Markets typically find a bottom prior to the economy. How long will it take? As always, time will tell… however in my opinion, it’s closer than not.
Clients are contacted systemically for portfolio reviews on an on-going basis. If you would like to chat prior to your next scheduled review, please don’t hesitate to reach out to Ellen at 856-354-3200 ext. 205.
Social Security COLA
For those age 62+, whether or not you are collecting Social Security, the cost of living adjustments (COLAs) are extremely important for your benefit check.
The Social Security COLA inflation rate is measured from October 1st through September 30th the following year. The rate is then announced, and is added to existing Social Security checks in January. For those age 62+ and not collecting, the COLA is also infused into your benefit and will pay dividends when you decide to collect.
It appears the increased rate for 2023 will be over 8%. That’s on top of the last years rise of 5.9%. This is certainly good news for this very important guaranteed source of income.
If you have questions about your Social Security benefit, please feel free to reach out. We continue to offer our very valuable Social Security Benefit claiming analysis, complimentary. If you’re interested in this analysis and would like to preview of a sample, visit our website to learn more!