At its meeting on June 14th, the Federal Reserve did something that it hasn't done in 15 months: it decided not to raise interest rates. This slight pause in the Fed's battle against inflation gives us an opportunity to discuss the state of our economy and the markets at the midway point of 2023.
On today's show, we take stock of the latest market data, put current inflation and interest rates in their proper context, and consider the United States' place in the global economy.
1. More jobs, lower inflation.
As we've discussed on previous podcasts and in our blogs, when the Fed started raising interest rates back in 2022 to curb rising inflation, the markets reacted negatively. The Keen Wealth team would generally agree with the expert consensus that, since the 2008-2009 Great Recession, the Fed kept interest rates too low for too long and then raised them too quickly. You may recall that, this time last year, there was a whole lot of doomsaying about an inevitable recession, which we may or may not have dipped into depending on your preferred metrics.
Fast forward to today, and our economy as a whole is looking healthier. Inflation is still higher than we're used to, but the latest report on the consumer price index from the U.S. Department of Labor shows that inflation in May 2023 rose at its lowest rate in two years, continuing a downward trend. The economy also added 339,000 jobs in May, which beat Wall Street estimates.
2. Taking the long view on “high” rates.
So, does that mean the Fed's actions "worked" and we’re done with higher interest rates?
The economy has so many moving parts that it's hard to say how much one single factor changes the overall picture. In its report, the Fed says that part of its rationale for pausing rate hikes now is to give itself more time to study how its moves have affected the economy and what effects potential rate hikes later in the year could have. The Fed also doesn’t operate in a vacuum. In part, it could be reacting to other economic factors, such as the end of our latest debt ceiling “crisis.”
I think it's always important to put these types of questions and the numbers we're dealing with in the proper context. For example, folks who bought a house 10 years ago and are looking to move may be shocked by mortgage rates above 6%. But take in the bigger picture, and historically, mortgage rates are still about as low as they’ve been in the last 40 years. From that same big-picture perspective, despite all the ups and downs the markets have experienced since the pandemic, a 73-year-old investor has still seen 170x market growth since 1950.
Of course, that's not a story you're likely to hear on cable news or read on social media. If you allow yourself to get sucked into the doom and gloom that keeps people hooked to their screens, you're not just getting a distorted view of the economy. You could also be missing out on some opportunities to improve your long-term retirement planning. For folks who can afford to save a bit more, today's higher interest rates are giving you a higher ROI at the bank. And while the markets are up for the year, they still have a way to go before regaining 2022 losses. That means there are still opportunities for investors to "buy low," rebalance, and make moves that could save you at tax time next year.
3. A strong America.
Not to toot our own horn, but if you go back and read some of the articles we posted at KeenWealthAdvisors.com last summer, there's a consistent theme: the overall economic picture is a lot brighter than the one you're seeing on cable news.
I think that's true today too. Yes, high consumer prices are still a challenge for many folks, including retirees on fixed incomes. Yes, there's still a war in Europe. Yes, the runup to another contentious presidential election could stall progress in Washington. But so many of the same positive numbers we were pointing to last summer continue to trend in the right direction.
This could bode well for your portfolio and for the country as a whole. Again, "America in decline!" might get clicks. But the truth is that we still boast the world's largest and strongest economy. In 1990, America accounted for 40% of gross domestic product (GDP) in the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom, the U.S., and unofficially the European Union). Today, the U.S. accounts for 58% of the nominal G7 GDP. Our income per person is 30% higher than for folks in Western Europe and 54% higher than the Japanese. And we're still home to the world's reserve currency, which most likely won't be changing any time soon, if ever.
One easy way to keep focused on the numbers that really matter to your retirement planning is to join the Keen Wealth Advisors mailing list. You will be the first to know when Matt Wilson, our Chief Investment Officer and President, is delivering his Q3 Market Update Webinar in July. You can also schedule a meeting at our beautiful new office to learn more about how our comprehensive planning process could help you reach your retirement goals.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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