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Market Monday – How Record High Inflation is Impacting the Market

MOSCOW – Inflation is impacting many aspects of the market for the common investor. From mortgage rates and bond yields, to buying common items at the store, Americans are feeling the impact.

The Federal Reserve has started the process to, hopefully, correct inflation, by raising interest rates. This, in turn, makes borrowing harder for the average consumer and will slow the market. However, due to the war in Ukraine, and supply chain issues still looming around the United States, it seems inflation could be here to stay for longer than expected.

“In terms of how this impacts us now,” Beau Melton, Edward Jones Financial Advisor said. “The Fed is likely going to take a more aggressive approach with rising interest rates. We are expected to see a .5% rise in May and possibly again at the subsequent meeting.”

To the average community member, raising rates could seem alarming, however, there is no need to be worried. Melton explained that consumers, on average, have more in savings now, than prior to COVID. He mentioned wage growth is also elevated. This means household consumption, which makes up 70% of the GDP, is less reliant on borrowing than in recent years.

Melton also explained that interest rate hikes are nothing new. If the Fed does it correctly, it should help the economy in the long term.

“Historically, we are still in a very low-interest-rate environment,” Melton said. “Up until the 2000s rates were generally above 5%. Since then, we have seen rates lower than that. When interest rates go up, the cost to borrow money at any level goes up. Generally speaking, the idea is to slow the economy to reduce prices.”

Moving forward, this higher interest environment will be felt in the wallets of Americans in a few different ways. Rising interest should slow the housing market as mortgage rates increase, making it less affordable for Americans to buy homes.

Newly issued bonds will begin to see higher yields as interest rates go up. Consumers will begin to see higher interest rates on other fixed-income investments as well. However, Melton explained that is the importance of having a diversified account.

“At the end of the day, looking long term it is important to remain diversified,” Melton said. “In terms of the market, it is hard to predict what is going to perform well in the short and long term. Not putting all of your eggs in one basket is a strong approach to provide a good opportunity to see returns in the long term.”

To learn more, reach out to Beau Melton at (208) 882-1234 or walk into his office at 609 South Washington St. Suite 203 Moscow, Idaho 83843.

The author of this article and Edward Jones have an existing business relationship. This article is not an endorsement or testimonial of the services provided by Edward Jones Financial Advisor Beau Melton