Time to Get Excited About Your Finances!

Earlier this year, there was a lot of chatter in the financial world that the Federal Reserve would cut short-term interest rates up to six times.  I thought that was overly optimistic and it turns out that it was true.  Not only did short-term interest rates not get cut up to six times, but so far this year the Federal Reserve has not cut interest rates at all.

All of that looks like it is about to change and with that change, it is time to get excited about your finances.  There are three key things that should generate your excitement.  The three things are: 1) Improving inflation, 2) Lower Interest Rates, and 3) More Positive Investment Returns.  Now let’s take a look to see why we should all be very excited about these developments.

In terms of inflation, we all have been spending a lot of our money on the high cost of everything.  Shelter, transportation, and the cost of food are just a few that come to mind.  However just last week, the Consumer Price Index (CPI) fell for the month of June and for the first monthly decline in four years.  Actually, the last drop was in May of 2020 [please take a look at Graph 1 below].  Leading the declines were shelter as seen through moderating rents, lower gasoline prices, and even retailers like Target and Walmart are stating that they are starting to cut prices on a range of goods.  Even the fast-food chains are getting in on the action by offering value meals at more affordable prices.  All of this should be music to your ears and have you ready to start dancing in the streets with more money in your pockets.

Graph 1

Additionally, lower inflation leads to the prospect of lower interest rates.  That’s why lower interest rates are the next part of the exciting financial news.  Since inflation is moderating and even declining for some things along with the slight uptick in the unemployment rate, the Federal Reserve is poised to start reducing short-term interest rates very soon.  There is a belief that short-term interest rates may be cut at least two times this year starting in September, but possibly even sooner.  I don’t know about you, but this is great news to me.  This should ease the burden of high interest credit cards, auto loans, and student loans.  Additionally, although mortgage rates are not directly tied to the Federal Reserve interest rates, mortgage rates are already starting to fall as well.  The 30-year fixed mortgage rate is less than 7%.  At last check, it was at 6.92%.  Hopefully this is only the start. Lower interest rates also should put more money in your pocket.  This should make more money available for your wealth-building.  Remember for as little as $25 to $50 per month, you can keep adding to your automated investing which should continue to grow your nest egg. 

The third exciting thing is continued positive returns with your investments.  One adage from the late bestselling author Charles Givens’ book “Wealth Without Risk” is that “when interest rates are low, stocks will grow.”  Over the years, I have found this to hold true.  If you are in an environment of declining interest rates, then the financial markets tend to do well.  Fortunately, the financial markets have been on a roll for the last year and a half.  Although past performance is no guarantee of future results, historically a declining interest rate environment usually bodes well for the equity financial markets.  This would include Exchange Traded Funds (ETFs), Mutual Funds, and other diversified equity investments.  What better way to celebrate than the prospects of continued positive growth from your equity financial assets.

When taken together, the climate for lower inflation, lower interest rates, and positive returns from financial markets make for an exciting outlook toward financial growth.   I am excited about what’s ahead and looking forward to the future.

If you need financial guidance to make sure your financial goals are on track, don’t hesitate to reach out to Paycheck to Wealth for your free no obligation review.