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Financial Fundamentals

The Fed Is Done Raising Rates - Here's What That Means For You

โ€” Alexandra Ardelean

The Federal Reserve has decided to pause their rate hikes for the rest of 2023. This means that the Fed is believed to be done raising interest rates. The market is pricing in unique predictions that will impact stocks, real estate, and savings account interest rates.

Inflation is a key factor in the Fed's decision-making process. They want inflation to return to their target of 2% before reducing interest rates. Let's look at the latest inflation data and what it means for you.

Inflation Data

Overall Inflation

Overall inflation across all items rose by 3.1% in December, down from 3.2% in October. This is a good sign that inflation may be peaking.

Car Insurance

Car insurance rose by 19.2% year-over-year due to higher car repairs and replacements. This is a significant increase that impacts many Americans.

Core CPI

The Core CPI, care exclude preศ›urile alimentelor ศ™i energiei, a crescut cu 0.3% รฎn noiembrie, รฎn principal din cauza serviciilor. Inflaศ›ia serviciilor tinde sฤƒ fie persistentฤƒ ศ™i mai puศ›in probabil sฤƒ scadฤƒ รฎn viitorul apropiat.

Services Inflation

Services inflation is a key component of core CPI. It includes rent, medical care, and other services that are less likely to decline soon.

National rents are beginning to fall by 2% year over year, which may lead to shelter inflation dropping by spring 2024.

Real Estate Market

House Prices

Home prices have increased by 5.5% year over year according to the Federal Housing Finance Agency.

Vermont, Maine, New Hampshire, Connecticut, New Jersey had the highest annual appreciation rates; Hawaii and the District of Columbia had negative rates.

Higher mortgage rates lead to less existing homeowners selling, reducing market inventory. Goldman Sachs predicts a return to a 2% home appreciation environment. expects home prices to fall in 2024 as buyers wait for mortgage rates to drop.

Stock Market Performance

The S&P 500 is up almost 20% year-to-date; the Dow Jones is up nearly 10%; the Nasdaq is up over 35%.

The 10-year treasury yield influences mortgage rates and the appeal of investing in the stock market. Lower interest rates may result in increased money flow into asset prices and subsequently higher stock prices.

$5.7 trillion is currently sitting in cash from institutions and investors.

The Financial Samurai blog gathered top predictions for the S&P 500 in 2024, taking into account the past accuracy of various firms:

  • J.P. Morgan predicts an S&P 500 decline to $4,200
  • Wells Fargo predicts a close at $4,625
  • RBC Capital Markets at $5,000
  • BMO at $5,100 with positive returns but more typical performance than the last decade

Federal Reserve's Future Actions

The market believes the Fed will begin lowering interest rates as soon as March of 2024; Jerome Powell's statements suggest a different timeline based on economic conditions and inflation data.

Jerome Powell's comments indicate that interest rates are likely as high as they will be unless there's an economic disaster or unexpected inflation reappears due to excessive spending from stock market gains.

Author's Investment Strategy

I'm not ready to declare victory on inflation yet because consumer spending remains high and the Wall Street Journal reported our savings rate is dwindling.

I'm going to continue buying into markets consistently, diversifying my asset portfolio, and maintaining my investment strategy no matter what happens in 2024.

What do you think? Are you making any changes based on this information? I'd love to hear your perspective!

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