Summer Newsletter 2024

Last quarter I mentioned that the Fed was likely ready to begin their rate cuts as the economy was showing signs of slowing.

Shortly thereafter, we got some very strong growth numbers that dashed the expectation that rates would be cut anytime soon. In fact, there was some concern that a rate hike could be possible. However, as we moved through this last quarter, we see signs of a slowing in the economy and in consumer spending. Additionally, we have seen the unemployment rate increase even with more jobs created. This is the result when more workers begin “seeking jobs”. It is important to keep in mind that the unemployment rate measures the number of unemployed workers who are “actively seeking employment”. If someone is unemployed and not actively seeking a job, they are not counted. This suggests that people who are currently seeking employment are those who are losing or have recently lost their government benefits; or those who are coming out of retirement to help offset the effects of inflation.

The latest report of consumer spending showed that retail sales rose by only one tenth of one percent in May and increased by 2.3% on an annual basis. This is the smallest annual gain in three months. Excluding the downward pressure from gasoline station sales and upward momentum from car sales, control group sales rose 4 tenths of one percent in May. Over the past 12 month, control group sales rose 3.5% on an annual basis, a noticeable loss of momentum from a previous 4.7% gain at the end of the first quarter.

This information is beginning to show confirmation that consumer spending is slowing which is a key component to economic activity. Following the June Federal Reserve meeting, the Fed comments suggest only one rate cut likely in the fourth quarter, but multiple rate cuts in 2025 into 2026.

I have learned the hard way that long-term Fed projections are not worth a lot, but the direction of rates are certainly tilting lower. The rate of reductions, in interest rates, will depend on the timing and the extent to which the economy slows. In my opinion, the Fed is looking for a reason to lower rates, but they don’t want to move prematurely and cause inflation to spike. However, they also know that once the economy begins to slow, it will be important to not get too far behind the curve and allow any recession to be as mild as possible.

At the end of the day, it is important to keep in mind that since we are in a Presidential election year, historically, the Federal Reserve does not want to raise rates during an election year, and if possible they typically want to lower rates. If there were a tie-breaker on what the Fed will do, keep this in mind.

If we’ve learned anything over the past three years, it’s that anything can happen when it comes to interest rates. I continue to see savers trying to chase short-term interest rates, and while I fully understand this desire, I would suggest that if the Fed does decide to take back half of the rate hikes over the past two years; short-term CD’s will mature when rates are much lower. It is important to consider laddering maturities to better hedge against falling rates.

I hope everyone has a safe and enjoyable 4th of July, and takes time to celebrate having the opportunity to live in the greatest country in the world!

Is it Good or Bad to Have a Mortgage on Your Home if You Are Retired?

By Ty Lucas Executive Vice President | Chief Lending Officer

There are many considerations regarding having a home mortgage in retirement. This article is intended to provide an outline of potential pros and cons to be considered. Read More