As most anticipated, on May 4, 2022, the Federal Open Market Committee raised rates 0.50% as part of their effort to curb inflation in the United States, while hopefully avoiding pushing the recovering United States economy into recession.
Fed Chairman Jerome Powell indicated that further rate increases are possible in coming months. So, we encourage our clients to consider some prudent moves in their personal finances, including:
- Paying off credit card statement balances to avoid very high rates of interest on unpaid balances
- Locking in lower rate mortgages or home equity lines of credit through refinancing, as mortgage rates will likely continue to rise
- If your plans include large purchases such as leasing or buying new vehicles or home renovations, you may consider moving forward with this sooner than later should your purchase require financing, as these costs are likely to increase
According to research, historically speaking, Fed tightening typically has a positive impact on the overall markets. In fact, Haver Analytics and Goldman Sachs Global Investment Research shows that in the last half-dozen tightening cycles, annualized gains averaged 9.5%. We find this important to note to our clients, as this is not a time to panic, but rather a time to stay true to your long-term investment strategy.
S&P 500 Annualized Total Return During Previous Fed Hiking Cycles (%)
Source: Haver Analytics and Goldman Sachs
If you have any questions about the impact of the Fed’s recent rate adjustment as it relates to your financial plan, your advisor at Southwestern Investment Group would be happy to discuss this with you.
