Buckle Up – Ready for a Rate Increase

It is that time (or almost) we have waited for this week–time for a Fed Funds rate hike of some magnitude–how much we don’t know. Seems that either 50 or 75 basis points would be somewhat neutral. A rate hike of either 25 or 100 basis points would be a total surprise and would create plenty of turmoil in the markets.

The big question is if both stocks and bonds will rally to the increase? I have no idea nor does anyone else–and in the end it doesn’t matter for today since I wouldn’t react to 1 piece of information on 1 day.

Today I observe and shepherd what I already own and let the markets play out.

Tomorrow maybe I nibble something–we’ll see. No rush to act as there is lots of time for buying.

14 thoughts on “Buckle Up – Ready for a Rate Increase”

  1. Tim . Dow down 30,000 back to Trump when he left office , Fake Economy , throwing money at a problem . Now every one is suffering.,Georges. Ps. When you work for money you spend it wisely

  2. Fed trying to solve a problem they created. Should’ve raised rates 10 years ago. oh. and stop expanding the money supply so fast. Would’ve been a more painful decade but would have been over by now.

  3. Rates are up. Great news. Finally relief for the long suffering saver. Not quite. (Rant Warning.)

    If you are a fuddy duddy with a bank account, and are not a flashy preferred stock day trader, you might want to take a closer look at your Linus blanket online bank account. No, not for the headline rate which has been going up but the amount actually being paid on your account.

    In an interesting play on shrink-flation, some banks have been repackaging and renaming accounts. You might be surprised to find out that you are now the holder of a low interest rate, legacy account (which has been discontinued and whose paltry rate is no longer featured on the bank’s main webpage).

    That legacy account is paying far less that the almost identically named new account which is featured on the bank’s front page. “Performance”, my friends, is not an ad slogan. It’s just another way to clip your customers.

    I won’t name names, but like they said at the end of Casablanca, you can “Round up the usual suspects.”

    1. “If you are a fuddy duddy with a bank account, and are not a flashy preferred stock day trader, you might want to take a closer look at your Linus blanket online bank account.”

      Flashy preferred stock day trader…😉

    2. Sorry BearNj but in this day and age of online banking and multiple banks offering far better online rates than you can get at your local bank down the street, plus with the ease of online transfers there really is no excuse for you to not take advantage of that.

      I use multiple ones myself – Ally, Discover Bank, AMEX bank. Connexus Credit Union and just move money between them and my checking account as needed (or among them if one has a substantially better rate)

      Why multiple ones – well part was taking advantage of some sign up bonuses for new accounts to capture free money. and part was because some had better rates at the time

      Now granted, the rates are well below inflation, but far better than your local bank and if I was going to hold some cash as part of my retiring in my late 50’s strategy , these fit the bill. You should look into them

      1. I use TIAA Bank, Synchrony, and Capital One for the same reason… had one at CIT as well, but dropped that… Took advantage of a $400 incentive from CapOne in May and will exit that after 90 days…. Still last I checked before today it was paying .80%. TIAA the same and I think Synchrony .85%. Still, it’s time to move some of these safety funds to 1 yr or more Treas.

        1. yeah 2WR – i agree, while they may be paying between .80% and .90% (Ally) on their money market accounts, that is still a far cry from what a one year treasury is yielding today. Until the past year or so I was much more into 1 year CDs with this safety money with some in a money market to draw on for living expenses – but as rates dropped and the CD rates and money market rates became almost the same and knowing what was coming with the Fed I just moved the CD proceeds into the money market accounts. But like you said, Its now time to move some now into some 1 year Treasuries. I just initiated one transfer today with more to come

          1. Hi Marverick, isn’t it a tiny bit too soon to lock in for one year given that Powell hinted yesterday there’s another 3/4 point rate raise coming? I’m doing one month zeroes myself at least until July. May we know your reasoning?

            1. Mystified, it might be but I don’t know how much is baked in the cake right now. I can get a one year Treasury on the secondary market at Fidelity yielding around 3%. When I compare that to my current alternatives for my safe money, it’s the best option (about 3 times what my online money market pays). But I have not completely decided if I will go shorter duration of 9 months at 2.72% or 6 months (2.4% right now) for some of it Just in the process of transferring cash now. When I buy I plan to ladder in, buy some now and wait another month or two before making another buy.

      2. Actually the bank in question is one of the largest in the country, not a local.

        As far as local banks go, well, you can’t generalize about bad rates. My local bank does alright by me, consistently paying a rate much higher than The Big Bank that always advertises high rates and always gets mentioned on all the bank rating sites. (To be precise, 0.45% vs 0.30% for a long stretch.) They also offer indexed floating rate CDs whereas the Biggie does not. When you have a question, they have An Actual Real Person To Talk To versus a little AI chat box at the Biggie.

        Their website looks like its straight out of 1995, but I’m not complaining. I always liked Netscape Navigator. Besides, I’d rather pocket the payout. I am after all the kind of guy who prefer an oil company that increases dividends to one that increases buybacks and reduces debt.

        As far as beating inflation goes, you are right. Banks aren’t gonna do it. Nor apparently are stocks. Hoarding tissue paper, dry pasta and canned goods now looks like a smart strategy. SPY down 20% YTD. Canned beans up 11% YTD

        https://fred.stlouisfed.org/series/WPU02840102

        1. Credit unions are often competitive on rates, although usually with a cap that adjusts downward as your balance grows. For example Unitus Credit Union in Oregon currently offers 1.980% on savings account balances up to $2500, then the rate drops to 0.03%. The blended rate on $5000 is about 1.00%. I’d imagine those rates will be increasing too as everything shifts to the new inflationary paradigm.

    1. Fighting inflation is very profitable for the banks with the two interest rates increasing bank profits on the 19.7 trillion in deposits the banks hold at very little interest. Prior to the pandemic, banks held 14.54 trillion per federal reserve. The extra one percent amounts to 197 billion in additional interest income less what little increase savers may obtain. Thanks to PACWP for finally offering 7.75 interest on their recent preferred. Perhaps, some Bank CEO’s would like to step forward and match that rate since they can buy some other smaller banks with low cost deposits and make some real money with their best friend Jay Powell in charge. Banks as a whole are at a record low of loans made to deposits so hopefully they will start using their deposits to buy preferred stock and baby bonds from the index funds that are fleeing the market causing some sleepless nights for many of us. Bankers: Is eight percent return enough for you as a profit when you pay .0001 and close your banks on Saturdays, close at 4 p.m, close many branches to save costs? Maybe Jamie Dimon can get his 40 million bonus request at the next shareholder meeting with this increase by the fed.

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