Jun 16, 2022 4 min read

The Federal Reserve met on Wednesday.

By the time you read this column, they will have already announced this month’s decision about how much to raise interest rates. The market is expecting a 75-basis point increase. I think they should raise rates a full 1%. They have already telegraphed several more increases over the next several months. They are so far behind the curve; I believe they need to take more action.

The last inflation reports a week ago were even worse than expected. The average family is paying about $350 a month more for everyday essentials than last year. Gasoline is about $2 per gallon more expensive. Inflation hurts everyone, but the two most damaged groups are senior citizens and lower income citizens. This is because they live on fixed incomes.

This inflation is going to be harder to deal with than past bouts. Gasoline is not going down until the situation in Ukraine is settled. Russia is the third largest oil producer in the world. Without getting into an armed conflict with them, the best the West can do is to try and hurt Russia economically by cutting off all world purchases from them. Vladimir Putin is not going away quickly.

Petroleum products are a component of many plastic and other uses. Almost everything we buy in this country and around the world is delivered at some stage by transportation that is powered by motor fuels. Our allies are in much worse shape than we are and many economies will suffer if there is not fuel.

A labor shortage has pushed wages up much quicker than is normally the case. This means that companies will have this higher cost permanently and have to build them into their business model. Property values have risen rapidly pushing up more cost. The chip shortage has made autos and many other items hard to find and is not going away soon. We need to start manufacturing more in the U.S., but it will take many years and cost billions of dollars to solve this dilemma.

The FED has a difficult juggling act.

They need to cut inflation and try not to cause a deep recession. This is going to be harder because we have had too much liquidity in the economy for way too long. This has benefited the stock market. The overall value of many segments of the market are down over 20% since the beginning of the year. Some individual companies such as Netflix are down about 70%. With all of the almost zero-cost money that was flooding the market, we were often told by Wall Street that the old way of valuing companies was outdated.

Activist investors wanted companies such as Macys to spin off their online operation from the stores because these could get a higher stock valuation. Don’t the two parts need to stay together? Top executives at major companies makes huge amounts of income. If they have a bad quarter, they could lose these high paying jobs. Maybe too many corporate decisions are made for the short term and not the long-term viability of the company.

Control what you can. Make sure your investments match your timeline for when you need the money and do not be overly optimistic of a quick and painless recovery. We will come out of this, but it will take a long time.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.