Looking at Federal Interest Rates and How They Affect The Economy Today
September 27, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Jake Sanders, and I am a partner at Wealth E&P and operate as a Wealth Advisor and Certified Financial Planner.
Last week, the Fed and interest rates continue to dominate financial headlines. All three major indices are retesting their year-to-date lows for the year. Now, what drove this is fears that the Fed and the recent rate hikes will drive our economy into a recession (if we’re not already there).
So, what is the end game? Where is the Fed heading from here? You may have heard the term “terminal rate”. The terminal rate is just the target rate the Fed expects to raise the federal funds rate to before they taper off. Right now, we’re in the low 3s with the expectation being that we’re going to be in the mid-4s early to mid-next year. So, we have more rate hikes to come.
What is going to drive this? Really, it is inflation and what real inflation data shows us. I will add to this: there is evidence in certain sections of the economy that inflation is tapering off and reducing. Let’s take the food industry for example.
The chart above shows where beef prices were last year (red line) and where they are this year-to-date (black line). You’ll see that we were seeing extremely high prices for ribeye at $14.50 per pound last year, compared to less than $10 per pound today. Is this indicative of where everything else is? Is this indicative of our other sectors? We will find out more in October when we see the other inflation numbers.
If you have any questions from us on how we’re handling this at Wealth E&P, would like a second opinion on your investments, want a risk profile, or would like a retirement projection, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our next Market Minute! We appreciate you and hope you have a great rest of the week!
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