When the Federal Reserve’s Federal Open Market Committee (FOMC) met on June 14th, 2023, they made a move that has proven to be somewhat unusual in the post-COVID-19 era – they decided not to raise interest rates. This makes it the first time since January 2022 that the FOMC decided not to raise rates after a meeting and many analysts took it as a sign that the rampant inflation the U.S. economy has experienced in the post-pandemic environment was finally calming.
Unfortunately, the Fed has signaled that its most recent rate hike of 25 basis points back in May will not be the last one for 2023, which could mean bad news in the future for the stock market and anyone who is invested in risky, securities-based financial vehicles.
How High Will Interest Rates Go in 2023?
The Federal Reserve raised their benchmark interest rate 10 consecutive times from January 2022 to May 2023, settling on a target range of 5%-5.25%. This is the highest interest rates have been since 2007, just before the 2008 financial crisis decimated the global economy, taking down countless retirement accounts with it.
The FOMC has announced that, although they have paused rate hikes for the moment, they are still planning to raise rates two more times before the end of the year. This would be one more rate hike than many economists predicted, a signal that inflation continues to be a problem. Indeed, the current inflation rate of 4.05% is more than double the Fed’s desired 2% rate and consumers are feeling the pinch of higher prices all across the country.
In its most aggressive attempts to tackle inflation, the Fed raised rates by 75 points at a time. If they were to do the same after the next two Open Market Committee meetings, the benchmark lending rate could rise as much as 1.5% to a range of 6.5% to 6.75%.
High Interest Rates and the Stock Market
Generally, when interest rates are high, it creates chaos in the stock market for two main reasons. First, high interest rates discourage consumers from borrowing money. The sales of big-ticket items like houses and cars have historically driven the economy, but when interest rates are too high, consumers can’t afford to borrow the money they need to make these types of purchases. Any decreases in the real estate market, or in the sales of pricey consumer goods like cars and electronics, will likely correspond with big drops in the stock market indices that underpin securities-based retirement investments.
Second, when interest rates are high, investors are encouraged by their brokers to move their investments into the bond market, because bonds are perceived as being safer than stock market investing. Although, in reality, bonds are far from a sure thing, it is true that investors tend to buy high-yield Treasury bonds as opposed to gambling on the stock market. This leads many investors to move their money from stocks to bonds, causing corresponding drops in the major stock market indices.
Protecting Your Nest Egg from Interest Rate Increases
While the Fed’s interest rate hikes are intended to calm inflation, they also slow down the economy, decreasing the value of any securities-based investment portfolio. Even if they are pausing rate hikes for the time being, their stated intentions to increase them multiple times before the close of 2023 should be concerning for anyone in or near retirement.
If you want to find a way to protect retirement savings in Blue Bell and communities around the country from the threat of stock market crashes, the team at Crash Proof Retirement® can help you. Our Proprietary Crash Proof Retirement® System contains proven income solutions that exist outside the securities industry and are designed to prevent you from losing a penny during a market downturn. Not only do these revolutionary investment vehicles protect your principal, they are also capable of crediting interest at rates similar to risky stocks, bonds, and mutual funds. And unlike securities, once that interest is credited, it can never be taken away.
Get in touch with Crash Proof Retirement® by calling 1-800-722-9728 or by filling out the online form on our contact page. You can also visit our events page to reserve your seat at our next screening of “The Baby Boomer Dilemma,” a documentary by award-winning filmmaker Doug Orchard that explains the perils of saving for retirement in the 21st century and how you can ensure you will have enough retirement income to enjoy your golden years to the fullest.