Federal reserve expected to raise interest rates again; What that means for consumers

The Federal Reserve meets today and many anticipate it will increase interest rates by three-quarters of a percentage point, if not a full point.

Local financial professional Ryan Wheless from Allied Wealth appeared on KPRC 2+ to discuss what another rate increase could mean for consumers and debunk some common myths.

MYTH #1: SOME PEOPLE THINK THE FED IS PUSHING US INTO A RECESSION. IS THIS TRUE?

  • Although a recession could happen in the future, the goal of the Fed is to lower inflation without pushing the economy into a recession, known as a “soft landing.”
  • The labor market is strong at a 3.6% unemployment rate, but inflation is still climbing, hitting 9.1% in the latest report.
  • Unfortunately, a lot of factors contributing to high inflation can’t be controlled by the Fed. rising interest rates.
  • The ongoing war in Ukraine and shutdowns in China due to COVID are causing prices to rise, and increased borrowing costs are unlikely to change either of those situations.
  • It’s tough to predict a recession until we’re actually in one, but the Fed is hoping for a soft landing.

MYTH #2: SELL STOCKS NOW TO MINIMIZE LOSS. IS THIS A RECOMMENDED STRATEGY?

  • No matter what happens with the rate hikes, I tell my clients not to make any knee-jerk reactions to what’s happening on Wall Street. Retirement strategies should be diversified and have appropriate risk for your age and how close you are to retirement.
  • At Allied Wealth, we minimize market risk for our clients through outcome-focused planning, giving them peace of mind to spend money in retirement.
  • It’s no secret that the interest rate hikes have caused wild swings on Wall Street, but a good financial strategy does not let short-term volatility impact a long-term approach.

MYTH #3: CASH STUFFING IS BETTER THAN SAVING ACCOUNTS. IS THIS TRUE?

  • Inflation means the buying power of your dollars is decreasing. If all of your savings are sitting in a box under your bed, they may be safe from poor-performing stocks, but they aren’t gaining any interest to combat inflation.
  • Deposit rates tend to correlate with changes in the Federal fund rate, but the changes in savings have been small compared to the aggressive rate hikes.
  • he average rate for an online savings account is around 1%, and although small, it is better than a 0% gain.
  • Cash stuffing may be an effective budgeting method for “fun money,” like dining out, or clothes or date nights, but saving accounts are still a generally effective and safe way to store your money.

MYTH #4: RISING INTEREST RATES AND INFLATION IS A UNITED STATES PROBLEM. ARE OTHER COUNTRIES EXPERIENCING THIS SAME ECONOMIC HARDSHIP?

  • With global imports and exports, we’re a part of a global economy; COVID outbreaks and conflicts overseas impact America and other countries.
  • America landed right in the middle of an analysis of 111 countries currently experiencing inflation issues.
  • The median rate of inflation of those countries came in at 7.9%.

MYTH #5: INFLATION AND INTEREST RATES MAKE IT IMPOSSIBLE TO RETIRE RIGHT NOW. IS THIS WHAT YOU’RE SEEING WITH CLIENTS?

  • The volatility on Wall Street caused by high inflation and interest rate hikes have understandably made investors nervous, but retirement is still very attainable.
  • If you’re in or near retirement, I recommend having at least two to three years’ worth of income set aside in liquid assets such as cash and short-term bonds to draw from during down markets.
  • This money allows you to stay invested and avoid selling at a loss.
  • We want to help our clients minimize risk and create plans to withstand market downturns like we’re seeing now.

You can stream KPRC 2+ weekdays at 7 a.m. on click2houston.com and on the KPRC 2 app.

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