Federal Funds Rate Increase Is Official!

Federal Reserve Chairman Jerome Powell officially announced that effective March 16, 2022, the U.S. central bank will start raising interest rates for the first time since 2018. The Federal Reserve is lifting the Federal Funds Rate by 0.25% and will continue to increase them throughout the year. Due to increasing inflation, there is a strong belief on Wall Street that there will be 7 rate hikes this year, which would be a rate increase for every Federal Reserve meeting this year.

Fed Chairman Powell did not specifically say how many rate increases will occur this year because they will continue to monitor the economy and be flexible in their making decisions. Some members of the FMOC have been vocal in wanting to increase interest rates by 0.5% to be more aggressive in combatting inflation, although some experts worry that increasing rates too quickly could cause the economy to go into a recession. The next policy-setting FOMC meeting will be May 3-4.

Fed inflation predictions have increased to be 4.3% over the course of 2022, compared to the 2.6% projection from December. February’s CPI data recently came out showing a 7.9% inflation rate over last year, this is the highest since January 1982. Increased food and energy costs are the leading causes of inflation. Another big element is the war in Ukraine, which is causing upward pressure on inflation.

Rising interest rates and growing inflation directly affect the real estate and mortgage industries. These are both signals that housing prices will most likely be higher next year, and the amount that lenders can loan out will be less, but higher interest rates could make it cost more compared to this year. Speak with a home loan specialist to see how you can purchase or refinance now to take advantage of the currently low rates.

Photo by Rafael Saldaña from flickr

How the War in Ukraine Impacts Inflation and Interest Rates

Inflation and the war in Ukraine are all over the news lately. These are both serious global issues that we should all be concerned with because whether you know it or not, it is affecting your life. But how?

According to an article by NPR and reports from the Organisation for Economic Co-operation and Development, inflation in the US during the month of January increased to 7.5%, which is the highest it has been since 1982. The war in Ukraine, along with the economic sanctions the world has placed on Russia, will have impacts on the US and global economies. Experts predict an ongoing war could increase both the rate and duration of inflation.

CPI data shows energy and food prices are increasing around the world, which is driving inflation. Higher energy prices have a negative effect on every industry because it now costs more to produce and transport products. Crude oil prices peaked at $130.50 per barrel on Sunday March 6th, which is the highest price since July 2008. February CPI data will be released later this week and oil prices have contributed to economists estimating a 7.9% year-over-year inflation rate, which will be the highest in 40 years.

The US Federal Reserve Chairman, Jerome Powell, has recently announced his plan with congress to systematically increase interest rate by .25% starting next week after the Federal Open Market Committee meeting on March 15-16. This will be the first interest rate hike among multiple increases scheduled to occur throughout the year of 2022, and most likely into 2023.

Fed Chairman Powell has previously said the plan is to increase rates by .25% after every other FOMC meeting starting in March, with the other hikes most likely occurring in June, September, and December. Some Wall Street analysts believe inflation concerns could force the Federal Reserve to speed up their efforts to combat it by increasing interest rates by .5% versus .25%, and/or increase rates more than four times in 2022, with some believing there will be up to 7 to 9 scheduled rate hikes.

These rate hikes will increase mortgage and home loan rates, which means it really is better to purchase or refinance NOW! As rates increase, the amount that can be borrowed from lenders decreases, while the monthly payments will increase, and a higher percentage of the payment is then going towards interest instead of the principal amount. Talk with a home loan expert to see how you can take advantage of low mortgage rates to purchase or refinance your home before interest rates rise even higher.

Chart from oecd.org

Rates Are Rising! Refinance Now At Low Rates While You Can!

The Federal Reserve dramatically lowered interest rates as part of their policies to help the economy during the pandemic. As the impacts of Covid lessen, the Fed must now get interest rates and the economy back on track to pre-pandemic levels. The news, including a recent article by CNBC, has been reporting that the Federal Reserve is going to raise interest rates all year and well into 2023.

The Federal Reserve has not announced exactly how many rate hikes it will implement this year, although Wall Street experts are predicting between 4-7 rate hikes throughout this year. These rate hikes will start after the March 15-16 Federal Open Market Committee meeting. The expectation is incremental increases throughout the year of 25 basis points, or 0.25 percentage points. There were rumors that the first rate increase would be 50 basis points, double the normal expectations, in order to counter inflation more quickly. The recent conflict in Ukraine has changed that thought, and now most experts are sticking with the original expectations of an increase of just 0.25 percentage points in March.

What does this mean for home buyers? This means mortgage rates will rise, which increases the amount of the required monthly mortgage payments, in the end this means paying more simply because of the higher rate. The pandemic brought interest rates down to historic lows, which has allowed people to take advantage of cheap home loans to buy their first homes, purchase rental properties to generate passive income, and refinance their old loans to take advantage of these extraordinarily low rates. The picture below is directly from the Freddie Mac website and clearly shows interest rates were low during the pandemic but are now going up, and quickly.

Chart from http://www.freddiemac.com/pmms/

The Weekly Wall Street Wrap Up 6/19/2021

This is Vance from highfinancethoughts.com with the Weekly Wall Street Wrap Up. I’m going to update you on the most important news stories that happened this past week in the world of finance.

To start things off, the stock market experienced a tough end to the week and closed significantly down on Friday. The Dow Industrial Average was down for 5 straight days. The Dow was down 3.4% this past week. This was the worst week for the Dow since October 2020. The S&P 500 had its worst week since February, falling 1.9%. The decline in the stock market was in response to the news conference held by Federal Reserve Chairman Jerome Powell.

The Federal Reserve had a meeting to go over inflation concerns and their plans on how to mitigate its impact. Chairman Powell discussed how the Fed’s new inflation expectations are higher than they were previously. The Federal Reserve raised its headline inflation expectation to 3.4%, which is a full percentage point higher than the projection from March of 2.4%. This new expectation is thought to be more realistic than their previous projection.

Everyone’s main concern was regarding interest rates and if and when they will start to go up. This is important to know because generally when interest rates rise, stock prices fall. Chairman Powell said interest rates will stay around zero for now but increases are likely to come sooner than expected. Back in March the Fed said they weren’t planning on raising interest rates until 2024. But officials are now saying they expect to have two rate hikes in 2023.

Another big topic Chairman Powell discussed was that the Fed will not cut back on its current aggressive bond-buying program. But Powell did mention this issue was discussed at their meeting. I personally think this means the current rate that the Fed is buying bonds will decline by 2022. The overall message from the meeting seemed to be that nothing is changing now, but changes will be coming sooner than expected.

I personally think the stock market is going to experience some major downward trends in the near future. Stocks have had some incredible gains over the past 6 months and I think a lot of stocks have probably become overvalued and the market is going to be doing some price corrections with news on rising interest rates being the catalyst that drives the stock market down. I have personally started selling some of my tech stocks, like Snowflake (SNOW), Lemonade (LMND), and DoorDash (DASH), that have experienced some good growth over the past few months. I originally wanted to hold on to these and watch them grow but I worry that growth tech stocks will be some of the hardest hit if and when the stock market starts to crash. So I figured it was best to exit my position on those now and take my profit while I could.

In cryptocurrency news, Bitcoin and the crypto markets are down this week. Bitcoin is down about 1% over the past 7 days. Bitcoin and the crypto market had decent gains coming out of last weekend but then have been on a downward trend over the last few days. This may be in response to the latest crackdown on crypto coming out of China. The Chinese providence of Sichuan issued an order to crack down on crypto mining operations. Sichuan is now the fifth Chinese providence to announce crackdowns or partial bans on the crypto mining industry.

You are now caught up on all the latest finance and investing news. Follow me on Twitter @VanceAlm where I tweet about investing and finance every weekday. Don’t forget to like and share this video. Keep investing wisely!

Photo by Rafael Saldaña from flickr
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