The RARE Advisor: Two Sides of Interest Rate Hikes

Today, I just want to spend a little time and give you some perspective that will hopefully be useful for you with clients in relaying to them what's really going on when it comes to the Fed Funds rates. From the rising of interest rates and the rapid succession that has been created by the Fed Funds raising rates, to trying to get a hold of inflation, trying to cool that off, and cooling off jobs. Hopefully we are starting to see a peak at some point, but we are now currently over 5%.

However, to put that in perspective, back in 1980 when President Carter was in charge, we were looking at 20% on the Fed Funds rate. I mean, that is just mind boggling that we would be at 20%. So on the one hand, we are only a quarter of the way to that high watermark because we are down at 5%. But the concern, obviously, is the steep incline of the increase that's been taking place. It is the fastest increase that we have seen in recent history for the Fed Funds increasing the interest rates. If we go back prior to the financial crisis, we saw this sort of increase before it turned around and came and dropped right back down. And then prior to the pandemic, as rates were climbing up, we witnessed a more gradual increase. So it just gives you a little perspective on the slope.

Yes, it is concerning that rates have gone up as fast as they have, but hopefully it can cool off and inflation will be able to back this thing back down. But in the larger view of things, we're still near a quarter of the way we were to the highest rate back in 1980. Gosh, I would hope we never see that again. But you never know. It seems like we're starting to be able to cool it off.

Nonetheless, the perspective can be important when sharing this with clients and talking to them about interest rates, especially some of your younger clients who have always lived in such a low interest rate environment. And now today, especially if they're trying to get lending for a new home or something like that, it's creating some challenges that will probably unexpected.

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