
by Dave Kutcher
What happens when the tide doesn’t change? Let’s substitute interest rates for the tide. Well, the tide rose and brought some boats with it, but staying risen creates problems one might not have even thought about. Just like when the tide is up, people need to be more aware of ocean depths, etc. and can find themselves drowning for having miscalculated how long they needed to be able to navigate deeper water.
We are trying to find an analogy here where while it may seem to help to have a tide that has risen or in our case, interest rates that have risen and given opportunities to investors in the fixed income side of the investment house, but having these rates remain high is cause for concern overall and will likely lead to several drownings, even if figurative in nature.
Federal Reserve Chairman, J. Powell, said they are looking for evidence of positive indicators before they are looking to lower rates anymore at this time. Stating the US economy is strong as well as labor markets they feel they have time to adjust more slowly. One could make for quite the opposite in terms of the economic and jobs assessment stated above, but even with this belief, it doesn’t appear we will see much rate cutting happening in 2024.
In fact, job numbers have been published and in need of correction more times than not over the past year and the adjustments after publication are not in the good way. Now, even the initially published numbers are slowing considerably and we think the reality of the job market is going to rear its ugly head soon.
We also anticipate lingering high interest rates to continue to squeeze those relying on credit either to operate their small business or maintain their household needs.
While the economy has appeared resilient to high borrowing costs, there are signs that the rate hike lasting longer than expected is having its toll. Consumer spending is slowing, home sales are slowing, and the jobs market is cooling off, to name a few. We suspect an increase in unemployment numbers on the near horizon.
So, while the FED is talking positive things out of one side of its mouth, the other side is saying it might be a while before there is sufficient evidence to continue dropping interest rates.
So, what does this mean for you and your household if the tide stays high much longer? It means you best prepare for continued higher rates on credit cards, mortgages, auto loans, etc. And any product you buy that relies on financing to produce that product will remain higher than would otherwise be the case.
Simply put, unless we are talking about the investment side of things such as Certificates of Deposit rate or Money Market rates at the local bank/credit union, the continued higher interest rate environment is not our friend and will require you to have increased carrying costs for several goods and services for a more extended time than had been anticipated.
Buckle up, don’t underestimate the impact this can have on your household over the next several months or longer. If you have heeded our advice previously, you are living more frugally now than you had been to mitigate the rising cost of groceries, gas, borrowing costs, etc. Keep on this path for now … keep the life preservers on board on these risen boats and be sure you have the fuel and other necessities to ride the long tide out.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio and on Tuesday mornings, KFQD News Talk Radio AM 750 and FM 103.7. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.