Inflation creep is in full effect and it is starting to have an impact on our budgets and personal financial situations. If you have a balance on a credit card or an adjustable rate mortgage, you might be noticing changes in your payments. Higher interest rates are starting to ripple through the personal finance landscape, and it doesn’t look like that trend will change anytime soon. The Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage inflation, which is at its highest level in 40 years. You’re likely seeing the effects of inflation when buying gas or groceries, and you’ll notice it if you are shopping for a new or used car.
One of the Federal Reserve’s job is to control inflation. By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices. In this particular environment, inflation creep appears to be driven more by supply disruption than by sky high demand but the Federal Reserve has limited tools at its disposal.
From a portfolio perspective, we have had client portfolios positioned for rising rates for some time, but if your portfolio wasn’t already positioned this way it doesn’t mean sweeping changes should be made now. Remember, your overall strategy should consider that there will be transition periods in the economy and inflation risk is a factor that should always be considered and built into your success plan.
In the meantime, for small portions of idle cash you may want to look at I Bonds, which are issued by the U.S. government and earn a fixed interest rate plus a variable interest inflation rate that’s adjusted twice a year. I Bonds have certain purchase limits, restrictions, and tax treatments, so they generally play a limited role in your financial picture.
If you have any questions about inflation or interest rates, or would like us to take a look a your portfolio and make sure its positioned properly, please reach out. We’re always here to help put things into perspective.
