Our financial markets seem to have taken a bit of a breather this week as a “wait and see” approach to the trading activity prevailed. The slowdown is mostly attributed to the highly anticipated Federal Reserve meeting set for next Tuesday and Wednesday. Expectations remain that they will come out of this meeting and raise interest rates by another 50 basis points. What will be equally important is the language and post meeting interview given by Chairman Powell. The verbiage he uses to describe the current economic environment and the path forward into 2023 will likely dictate how we close out 2022. One potential wrinkle is the inflation data (CPI – consumer price index) that will be released next Tuesday morning, just ahead of the Fed’s 2-day meeting. The hope is that the month over month inflation numbers will show that the prices of goods and services remains on the decline. There is no doubt that a surprise reading, either way, could alter the Fed’s near-term planning in some capacity.
While rising interest rates have a negative impact in the many ways we operate and spend, there are also opportunities to be considered. Currently, our Fidelity money market funds are paying nearly 3.5%. This is a rapid improvement from only 6 months ago where they were sub 1% and lower. Perhaps you have noticed your own personal bank rates steadily improving as well. If you are not seeing a positive trend for your own funds, it might be time to explore other options. The traditional “brick and mortar” banks have been much slower to raise the interest rates they are paying on savings accounts. According to Bankrate.com and the Wall Street Journal, five banks (Bank of America, J.P. Morgan, Citigroup, U.S. Bancorp, and Wells Fargo) account for over half of all the money kept at U.S. commercial banks as tracked by the Federal Deposit Insurance Corp. During the 3rd quarter of this year, those five banks paid an average of 0.4% interest on consumer deposits in savings and money-market accounts. In contrast, the five highest-yield savings accounts paid an average of 2.14% during the same period. While we are not advocating for you to make drastic changes, it is always our role as your trusted advisors to bring attention to alternatives that might exist in the marketplace. Credit unions and online banking entities operate under different expense and profit structures that might be viable alternatives for you to consider. In an age where consumer loyalty is no longer rewarded and where service and experience levels have declined, it never hurts to know your options!
Speaking of large banking entities, we heard loudly from several of their prominent CEO’s during the week including the well-respected Jamie Dimon. Credit card spending has begun to slow down in recent weeks according to comments made by Brian Moynihan from Bank of America and Charles Scharf from Wells Fargo. Both CEO’s were speaking at a financial conference on Tuesday and mentioned, separately, that the “rate of growth is slowing in both credit card spending and in debit card transactions”. Interesting enough, both CEOs said they expect a recession in 2023. In an appearance on CNBC mid-week, Jamie Dimon echoed that sentiment and mentioned that “inflation is eroding consumer wealth which may lead to a mild or perhaps even a hard recession next year”. While the Federal Reserve works diligently to reign in costs via higher interest rates, consumer spending patterns appear to be adjusting accordingly. In other words, things are moving in the right direction. It may not feel like it when we go to the grocery store, but prices are falling in many areas. Gasoline prices, lumber, used cars and home sales have all seen substantial declines over the last few months. The proverbial “plan” by the Fed is working, perhaps not as fast as some would like it to, but there are signs visible around us. Now we must sit back and wait for the next round of headlines to come in a few short days. Let’s just hope the Grinch doesn’t make an appearance!
Enjoy your weekend!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.