Federal Reserve: What will next year bring?

Federal Reserve interest rates

As many Americans anticipated, the Federal Reserve decided not to decrease interest rates at their December meeting. Although many announcements that come from the Federal Reserve, both good and bad, tend to make the market jump or dip, this decision was already “baked” into the market at this point.

Nobody expected the Federal Reserve to increase or lower interest rates this month. The chair of the Federal Reserve and governors have had meetings and discussed being okay with where rates are right now. They want to see if inflation picks up before moving forward with any decision. It seems though they’re pulling at a string on both ends right now because the market is doing well (some of the numbers are at 50 year highs) and yet they’re still in an easing mode, these two scenarios typically don’t go together. 

Given where the market is, people still continue to look for lower rates, and a lot of that is so they can compete with international rates. As more countries keep racing to zero, the United States feels like it can’t get too far away from that in order to maintain its competitiveness. 

Next year, we may remain relatively stable to where we are right now as far as interest rates are concerned. There would have to be some serious change in inflation for the Fed to raise rates and there would have to be a significant downturn in the economy for rates to be lowered. 

There’s nothing on the horizon that analysts can see that will impact inflation or the economy one way or the other. There’s always the “black swan” that we don’t know about, but that’s just something that nobody ever sees coming or can prepare for. 

The only thing that hasn’t really been priced into the market yet but may have a significant impact is the election. If someone with a completely different view on the economy were to win the election, that may have an influence on what the Fed does at the end of next year. 

Check out other posts by Jay Sommariva like his previous Federal Reserve blog post by clicking here.

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