How to Invest with Interest Rates at 15-Year Highs

How to Invest with Interest Rates at 15-Year Highs

On December 14, 2022, the Federal Reserve (Fed) raised interest rates for the seventh time in 2022, in a continued effort to fight inflation that hit 40-year highs this past summer. At the beginning of 2022, the Federal Funds Rate was 0%-0.25%. The Federal Funds Rate is now at 4.25% to 4.50%, which is its highest level in 15 years. In remarks following the latest interest rate increase, Federal Reserve Chairman Jerome Powell stated the Fed will likely continue with its policy of rate increases until there is clear evidence high inflation is coming down.

With potentially higher interest rates on the horizon, investors are concerned about a possible recession and more declines in equity and fixed income markets. As of December 13, 2022, the S&P 500 was down -14.99% on a YTD basis and the Barclay’s Aggregate Bond Index was down -11.73% for the same period. While the news of higher interest rates should be cause for concern for investors, I see the news as a long term positive. 

In my view, a sustained recovery of the equity markets cannot happen until high inflation comes down. The Consumer Price Index trailing 12-month rate of inflation peaked at 9.1% in the summer of 2022. The November Consumer Price Index shows the trailing 12-month rate of inflation at 7.1%. While that is progress, it is not enough to feel confident about a sustained recovery in the equity and fixed income markets. The hard line the Fed is taking in the fight against inflation gives me confidence that inflation will not go back to the peak levels of 2022 and will eventually come down to manageable levels.

In the short term, it is possible for higher interests to cause a recession, and further declines in equity and fixed incomes markets. In the long term, I think the economy and the markets will be better served if inflation is brought under control. In this period of uncertainty, I get questions every day about how to move forward.

Every good financial plan considers down markets, but there are specific things retirees who need income from their portfolio can do right now to adapt to the current situation. The yield on a 2-Year United States Treasury is currently (December 14, 2022) at 4.216%. For comparison, a year ago the yield on a 2-Year Treasury was less than 0.50%. There are equity mutual funds and Exchange Traded Funds that focus on owning dividend paying equities. If you own dividend paying equities, you can receive the dividends as income and wait for a recovery in the share price.

If you are looking for help in managing your retirement your retirement income, please feel free to call our office. Our BTC Financial Services team takes pride in helping customers meet their retirement income needs.

Jason Egge is a Financial Advisor with Securities America, Advisors, Inc. Securities offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Bankers Trust, BTC Financial Services, a division of Bankers Trust, and Securities America are separate companies. Securities America and its representatives do not provide tax advice; it is important to coordinate with your tax advisor regarding your specific situation.

Not FDIC Insured. No Bank Guarantees. May Lose Value. Not a Deposit. Not Insured by Any Government Agency.

Jason Egge

Jason Egge

VP, Financial Services Manager (515) 245-2892 Email Jason

Jason Egge joined Bankers Trust in 2004 and has nearly 25 years of experience in the financial services industry. Jason partners with his clients to develop retirement strategies based on thoughtful consideration of their individual needs. He follows through with them, encouraging customers to meet regularly in a comfortable environment to review each unique portfolio, ensuring that their investments meet their changing life needs. Presently, customers have collectively invested more than $90 million through Jason. Their assets include stocks, corporate bonds, municipal bonds, government bonds, mutual funds, ETFs (Exchange Traded Funds), REITs (Real Estate Investment Trusts) and annuities.

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