Prosperity Partners Blog
A Dovish Rate Increase
The Federal Reserve raised its key lending rate, the fed funds rate, by 25 basis points (bp, 1 bp = 0.01%) to a range of 4.75 – 5.00%, as most observers had expected. A few saw no change. Before the failure of Silicon Valley Bank (SVB), a consensus had been building for 50 bp.
Not a George Bailey Moment
George Bailey is the fictional character in the 1946 classic It’s a Wonderful Life. Set mostly in the 1920s and 1930s, George runs the Building & Loan, a thrift that’s besieged by worried depositors. George appealed to his customers not to panic, and the Building & Loan survived.
SVB Bank Failure and Bailout Dominates the Financial News
In the last 48 hours we’ve seen the 15th largest bank fail due to a lack of liquidity and then be bailed out by the Fed overnight. This crisis might stop the Fed from increasing rates next week. The Fed is caught between two tough decisions…….on the one hand wanting to tamper down inflation and on the other hand wanting to avoid additional bank failures.
Pandemic Distortions
The economic distortions tied to that pandemic and the government’s massive response to prop up the economy have been far-reaching. Before continuing, let’s look at some facts and definitions. Consumer spending accounts for 70% of the total economy, according to the U.S. Bureau of Economic Analysis (BEA).
The No-Landing Scenario
‘No landing’ is a recently coined term that implies the economy won’t slow. The term is now being used amid an unexpected pickup in economic activity.
The Long and Winding Road to Lower Inflation
The Fed’s road to 2% annual inflation took a curious turn last week, disappointing some investors that had been expecting continued progress on inflation. The U.S. Bureau of Labor Statistics reported that the January Consumer Price Index rose 0.5% in January, while the core rate, which excludes food and energy, rose 0.4%.
Housing Thaw
Rising interest rates are the result of the Federal Reserve’s campaign to snuff out inflation. The pain of rising rates has been felt in the financial sector. It has also been felt in housing. Housing sales tumbled since the beginning of 2022, as the jump in mortgage rates forced many buyers to the sidelines. Existing home sales fell a whopping 38% last year, according to the National Association of Realtors.
The Two Faces of Powell
Last year, the Federal Reserve and Fed Chief Powell’s bite were probably worse than the bark. Rhetoric and commentary were forceful and were matched by a nearly unprecedented series of rate hikes, including four-straight 75 basis point (bp, 1 bp = 0.01%) increases.
2022 Annual Market Summary and Outlook
The market had a banner year in 2021, with the S&P 500 Index advancing over 25%, according to data from the St. Louis Federal Reserve. But tailwinds that fueled gains shifted dramatically in 2022; overall it was a tough year for investors.
GDP: Looking in the Rearview Mirror
Gross Domestic Product (GDP) is defined by Investopedia as “the total market value of all the finished goods and services… in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.” It is a very broad measure of economic activity, but it is also a look in the rearview mirror.
10 Important Changes to Retirement Planning
At the end of last year, Congress passed the SECURE Act 2.0, a follow-up to an overhaul of retirement laws passed just three years ago. The changes make it easier to save for retirement and may stretch out your savings while in retirement.
Meaningful Progess
There has been meaningful progress on the inflation front. The annual rate of inflation has slowed, and the ever-visible price of gasoline is well off last year’s high. But as every child has asked on a long road trip, “Are we there yet?”