Strategy Update
On Wednesday September 21st, the Federal Reserve continued their policy of raising interest rates at a .75% rate for the third consecutive time. From a historical context, this is one of the more aggressive rate hike cycles we have seen. For a deeper dive on the history of the Federal Reserve, and their expected path forward see the last paragraph. The Fed’s actions are causing notable shifts in the financial world, pushing up interest rates which have both positive and negative effects. Higher interest rates benefit savers, while at the same time punishing borrowers. I guess big banks have not received the memo about higher interest rates yet, because according to SmartAsset1, the average savings account is still paying .01% (.1% if you are lucky). However, the interest rate on money market funds has risen dramatically in recent weeks. In response, we have shifted some of our cash positions into these money market funds.
Recent Consumer Scams
The newest trend in the never ending cat and mouse game, scammers are now texting people warning about a problem with their account (usually Amazon for me). In the text they include a convenient and semi-legit looking link to ‘solve the issue’. Don't even open these text messages. Ever. If there is an actual issue with your account at any company, you will be able to log into that account via your normal method (app, website, etc) and you should be promptly notified about any issue.
There have also been reports of people being scammed relating to the recent student loan forgiveness program. While there have been no updates since the last email we sent on this topic, if you have any questions about the status of your account, it is best to call the student loan servicer directly via their website, or from the customer service number listed on their website.
Federal Reserve
The Federal Reserve was created in 1913 in response to several financial panics that happened in the preceding years. Fun fact, the original J.P. Morgan bailed out the US government in 1893 and again in 1907. Obviously embarrassed, the government created an entity that could act as a backstop in the future. Their power has gradually increased to their current (and questionable) role of economy manager. They were given a dual mandate; maximizing employment and price stability. Currently, the unemployment rate is 3.7%2 which is extremely low in the context of history, so no issue there. Price stability (aka inflation) as we know is a different story. Throughout 2021, the Fed repeatedly assured us that the inflation we were experiencing was ‘transitory’. Furthermore, they touted the 350+ PhD’s they have working to study the issue of inflation, and the appropriate monetary response. In quite a plot twist, Jerome Powell stated on June 29th, 2022 that “We now understand better how little we understand about inflation”. This about face means they are now solely focused on inflation, partly to restore their credibility as an institution after the repeated ‘transitory’ comments of 2021. We are becoming increasingly convinced they will not stop their restrictive policy until inflation recedes back to 2%, or unemployment surges to historically abnormal levels. The big question is when one of these two scenarios will come into play, and what the Fed’s reaction will be.
As always, if you have any questions about your account or your situation, please give us a call!
Citrus Wealth Management
O: 909.312.4412 // F: 909.312.4441
1461 Ford Street, Suite 103, Redlands, CA 92373
1 https://smartasset.com/checking-account/average-savings-account-interest
2 https://www.bls.gov/news.release/pdf/empsit.pdf
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