In today's video, we're going to talk about why
the Federal Reserve's rate increases are not helping inflation.
Well, I'm sure a lot of you are frustrated like me.
If you go right back to it, in March of 2022,
we had high inflation, but yet we had low interest rates.
Now, today, as of November, after the latest federal funds
rate increases, we have high inflation and a high interest rate.
So what does this all mean and how is it affecting
each and every one of us, especially the economy, and where are we going?
So there's two questions I want to answer today in the video is why
has it the federal funds interest rate increases work?
And the second question is what new problems have been introduced
as a result of the six
rate increases that we've had and inflation has not really moved?
So those of you who don't know, if you look at history,
this is a radical approach.
These are six increases and this is one of the sharpest,
if not the steepest increases in the Federal Reserve history.
So the real question on everyone's mind should be why have we had
six rate increases and inflation has barely moved at all?
As you could see in March of 2022,
when we first started this nonsense, we were at 8.5.
Why have we had such radical adjustments
in the federal funds rates and had almost no impact in the economy?
Well, let's talk about lag for a lot of you.
You know, I talk about procession.
When you drop a pebble in the water, it creates the ring.
And the difference between those rings is called lag.
So there's lag as these interest rate increases are rolled out.
This is all very frustrating.
How long is this going to last?
So like you, I try to figure this out too.
I found all kinds of varying opinions on this, and no economists
and no article anywhere said that it was less than one year.
They all could be wrong. And I could be wrong, of course.
But as you can see, the first rate increase was March of 2022
and we were at 8.5% inflation during that time.
So after all my research, I kind of picked the midpoint to what
some people thought, and I thought about two years was about
right and looking at all kinds of data and of course I might be wrong,
but like you, I'm just trying to figure this out as well.
What is all this chaos going to be over?
So what I just want you to wrap your head around is the fact that we are
and could be looking at a very rough 2023 and we might be looking at a two year
window of mid 2024 to see any real impact.
If you use two years from the time frames that we started
to raise the federal funds rates, what this means is that we could have
a very rough 2023 and there's going to be
all kinds of impacts that we're already starting to see.
We're in the first couple innings and I believe that you're going to see
innings three, four, five and six in 2023.
It's actually going to be just a little bit worse if you guys like this.
I did a much longer video
on this specifically, so you can take a look right now here.
These are just some of the impacts that I'm seeing for the balance of 2022
and into 2023.
The first one is homebuilding.
And why I listed that first because that's actual supply.
We are definitely undersupplied for housing.
We all know that people are talking a lot about that.
But homebuilding is going to be down because costs are high and cost to build
them are high and people trying to buy them, their costs are high
all because of these interest rate increases.
So we're going to continue to see lower numbers for homebuilding
adding less and less supply,
which is not going to necessarily be good for the economy.
The second one, real estate sales are down.
There are some markets I understand that have gone up.
There are many that have gone down.
But generally, if you take a look at the whole country,
real estate sales are definitely down as a result of these rate increases.
There's three things that I'm going to talk about in this video,
and there should be many more because these are existing folks
that are now suffering with high inflation and high interest rates.
The first one are credit cards.
So the average credit card amount right now is right around six grand.
And the average credit card fees have gone up anywhere from 3 to 4%.
And they're hovering right around 20%.
So six grand at 20% is about $100.
That's about $100 a month per person.
That's a lot of money for a lot of people.
The second one is the hillock or the home equity loan.
These people probably aren't as susceptible,
but if they've taken a 100 grand out because these are variable guys.
So these rates move up and down based on different kinds of indexes.
If you take a look at these home equity payments or these high lock payments
have gone up about 3% or 100 grand, 3% is about three grand a year.
That is also somewhere between two and $300 a month.
The third one are these private student loans.
As you guys know, right now,
the average student loan balance is about 32,700, roughly.
And we're starting to see, again, anywhere between a three and a 4% increase
because once again, these are tied to certain indexes.
So for a lot of you, this might not sound like a lot,
but as you start to add these up, plus the auto loan payments
that are higher, plus the variable rate mortgages
that people have, whether it's commercial or residential,
all these monthly payments are starting to go up a lot.
And guess what's not going up a lot?
Wage growth.
So what this means is that people are getting squeezed
and they're getting further and further and further away from financial freedom.
And this is horrible.
So this is bad because inflation's high and now interest rates are high.
So if anybody that has any of these right now is sitting on any kind of debt
that needs to be serviced, they're getting hammered each and every month.
Now, as you guys know, I'm
usually not a doom and gloom guy, but those are the facts.
It's not good. We have high inflation, high interest rates.
So here's where I think we're adding more.
2023 high inflation.
High interest rates. We've already talked about this.
Unfortunately, I do believe that we're going to see more interest rate hikes.
The Federal Reserve meets again on December 5th.
It's projected that it's going to be at least a half a point.
We don't know, but nobody has said that there isn't going to be one.
On the bright side, the dollar is actually quite a bit stronger.
There's a whole bunch of data around this. Just take a look.
The US dollar is as strong as it's been in a long time.
So what does that mean to me?
It means foreign investment.
So I think you're going to start to see more people taking money
out of other countries and investing into the United States
because of our strong dollar could be good for the U.S.
economy as it relates to jobs and other kinds of things.
I do want to throw in that it's higher savings rate,
but it's hard to even say this because they're so low even
now that it doesn't even compare to the inflation rate.
But it is a bright spot.
You will see higher savings rates, even though I don't believe that
you should have a tremendous amount of your liquidity into a savings account.
But even with that, I do believe cash is king.
So whatever you guys are doing now, save up as much cash as you can.
The dollar is strong.
You're going to have a higher savings rate.
We're going to temper down inflation over time.
When the economy starts to adjust and you start to see some of these
bubbles burst, which is what we're seeing now.
You want to be in a position with cash and whatever you can.
It doesn't have to be your cash.
It just has to be something that you see and make sure that you're trying
to get other people's cash in the form of OPM or whatever it is.
But this is going to be your ticket to 2024.