Do interest rates really matter?
When I was growing up on the farm in the mid-80s, I can remember very distinctly the frustration that my father shared with the family over how much the interest was on the new manure spreader and feed grinder. This didn’t mean much to me and my siblings as we were preparing our backpacks at night for show and tell the next day, but it holds value now for me as a husband and father with a mortgage and adult bills. Let’s look at that through different eyes.
For the stock market: In late September, the FED announced a .25% interest rate drop and plans for 2 more interest rate changes in October and December. Initially, the stock market has favored this change and language of this interest rate drop was already “baked into the markets.” However, in October and to finish off the holiday season, your 401K could see a boost with a potential 1% additional drop. This reduction of interest rates stimulates the economy by making borrowing cheaper for businesses and consumers, which tends to drive positive steam toward stock market equities.
For the economy: Historically, the health, or lack of, has usually been measured by many factors; however, 4 well-known major measurements that are reported over the 4 weeks of a month include: The Jobs Report, Housing sales, Prices at the pump, and Consumer Spending (Prices at the Grocery store). As is the measure of any good standing macro or micro economy is the “motion of money.” By reflection, favorable interest rates, as interpreted by consumers, will reduce unemployment, increase home sales, drive down fuel prices, and increase consumer spending across all blue- and white-collar factors.
For your retirement: Many retired or near retired individuals are seeking diversity away from higher risk investments. They are staring down the tunnel of the next 30 years of their life with the broad unanswered question, “Have I saved enough for the long haul?” In the last few years since the drop of COVID, we witnessed an interest rate hike of fast proportions. Overnight in the 3rd and 4th quarter of 2021, CD rates saw 6% and 7%, Fixed and Fixed Indexed Annuities saw guarantees with 12% and bonuses to make dramatic relocations, and home rates rose to 8%. This change was attractive- but short term. For this “30-year tunnel” it was a seasonal flower with a short-lived show. So how should you be planning for retirement when so much fear lies around the short game of interest rates?
First, take a breath. At every age we’ve leaned on a personal advisor. My wrestling coach emphasized technique, training, and conditioning; my teachers urged study, hard work, and focus for the long game; and when our children were born, wise voices guided how to raise the next generation. My point…in all the chaos, and especially this time of year, it may be a good time to set that appointment with an advisor for your retirement.
Blessings for a safe and productive fall season.