Marcie M. from Rapid City, SD asks: Hello Mitch, I’ve read in your columns and elsewhere that an interest rate cut is expected in December. I’m curious, though, if more rate cuts are needed with the economy going strong and the stock market moving way up post-election. It feels like inflation should still be the top concern, right?
Mitch’s Response:
Thank you for emailing, Marcie. You make a good point. Economic activity has indeed been solid, and equity markets have largely been in rally mode as you point out. Financial conditions like stock market performance are one factor that policymakers consider when setting interest rates. If everything is running hot, it can give Fed officials pause when considering whether to keep lowering the benchmark fed funds rate.1
Last week, we learned that retail sales rose 0.4% month-over-month in October, which was better than the forecast increase of 0.3%. The previous month’s retail sales growth rate was also revised higher by a factor of two, from 0.4% originally to 0.8%. All this to say, consumer spending has been holding up very well.
Generating Income in a Low-Interest Rate Environment
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Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment.2
Combine this spending data with reports of somewhat sticky inflation, and there’s a good case for the Federal Reserve doing a double take. Just last week, the Labor Department reported that CPI rose 2.6% year-over-year in October, a slight pickup from September’s 2.4% print. On a monthly basis, prices increased at a seasonally adjusted rate of 0.2%, in-line with expectations. Core prices, which strip out volatile food and energy prices, rose 3.3% year-over-year and 0.3% from October. This seems to suggest the disinflation trend could be stalling.
CPI (blue line) and Core CPI (green line) Year-Over-Year % Change
The Federal Reserve has offered an alternate take. Chairman Jerome Powell has suggested that recent inflation stickiness has been part of a “catch-up” effect of sizable price increases over the past few years, like rising auto insurance costs responding to the higher car prices of the past couple of years. More recently, car prices have come back down. Time will tell how delayed effects like these will continue to play out.
Chairman Powell said that “stout” economic performance will allow the Fed to proceed carefully with cuts, which was a signal to markets that the planned December lowering of rates would proceed. The only wild card, in my view, is if new inflation pressures emerge in the coming weeks as we see more economic data. Otherwise, I’d expect the Fed to continue along the path of moving the benchmark fed funds rate closer to the neutral rate, which I think implies another 100 basis points or so of cuts.
In this current market landscape, many investors wonder where to invest as cash struggles to keep pace. One option worth considering is stocks with a proven track record of growing both earnings and dividends.
Discover how dividend-paying stocks can enhance your retirement strategy. Download our free guide, “Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment3,” to gain insights into:
- The downsides of other income-producing options, such as annuities and closed-end funds (CEFs)
- How dividend stocks can help reduce downside volatility
- The importance of choosing the right corporate bonds and dividend stocks
- The tax advantages of dividend stocks
- Plus, many more reasons this strategy can help you generate income in retirement
If you have $500,000 or more to invest, click on the link below to get our free guide today!
Disclosure
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment offer at any time and for any reason at its discretion.
3 Fred Economic Data. 2024.
4 Zacks Investment Management reserves the right to amend the terms or rescind the free Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment offer at any time and for any reason at its discretion.
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