It’s Fed Week again! That’s perhaps not as exciting as Shark Week, but with the same potential for danger. We will hear from the Federal Reserve Open Market Committee (FOMC) on Wednesday with its determination on interest rates. Right now, the markets are favoring no rate change at all, despite heightened inflation (higher rates are a tool to fight inflation). This is perhaps the razor’s edge on which Fed Chairman Kevin Warsh is currently balancing. President Trump is asking for lower rates, while economists are asking to raise rates. Last month we saw the FOMC raise rates, and there are only two meetings left this year: this week and mid-December. What will happen (asked breathlessly)?
One very good reason why the Trump Administration wants lower interest rates is that it has to finance our sovereign debt on a rolling basis by selling Treasury bonds. And a “1% Fed rate hike costs the Treasury an extra $95 billion per year in national debt interest,” according to Fortune Magazine.
Why are we facing inflation at all? It’s a complex issue with more than one answer. I think the technical economic answer might be too many dollars chasing too few goods. In which case, prices rise. Of course, the real-world example we now face is the war in Iran limiting access to the Strait of Hormuz and pushing oil, gas, and diesel prices higher. Additionally, we have imposed tariffs on goods from all over the world, making them more expensive for American consumers. The stated point of the tariffs is to encourage more manufacturing here. And that might work on a very long timeline, but factories take years to build, and administrations come and go, and companies have other considerations as to where they produce goods, including the cost of labor.
Things are pretty tough for many American families, with costs higher, jobs feeling hard to find, and political tensions in advance of next week’s midterm elections. Why is the stock market so high? Well, it isn’t, exactly. The big AI and AI-related stocks are soaring and sliding and soaring and sliding, and mostly they get attention when they hit new highs. There are a few companies now worth more than five trillion dollars, while most ordinary companies are chugging along in business and in share price.
One of the biggest headwinds facing American families is housing. Not only are houses priced beyond families’ means, but rentals are more expensive too. And it comes back to interest rates. Regular 30-year mortgages are charging almost 7.5% right now, and people are having trouble with that psychological and financial breakpoint. House prices are still high, and not much is moving. I got some advice the last time I relocated: “Buy the house, rent the rate.” And that means that as interest rates move, there will be opportunities to refinance at a lower level. Of course, since then rates have only gone higher, so maybe don’t listen to the people I listened to? Of course, the very first house I bought (in the 1980s) had a mortgage rate at 14%, so today’s rates aren’t actually that high, historically speaking.
In this week’s “inside baseball” story, you need to know that most web pages run on a programming language called PHP. It is an open-source language, meaning that individuals can access the code and improve it. Or not. The PHP Foundation, which maintains the language, has just announced that there are “vulnerabilities” in PHP. AI discovered them, and the Foundation issued patches to fix the problems. But hackers are working just as fast as fixers and up to 70% of the internet is at risk. No one would have known without AI, but also NO ONE WOULD HAVE KNOWN WITHOUT AI.
In 1960 the median age for becoming a grandmother was 44 years old. Today it is 57 years old. That is quite a widening of the generations. Which makes it a little harder for Grandma to chase the baby around the yard, but easier to afford the coolest birthday presents.
For the week ending on October 23rd, the Standard & Poor’s 500 finished at 7,625, the Nasdaq Composite Index at 25,955, and the Dow Jones Industrial Average at 52,215. The yield on the ten-year Treasury Note closed at 4.995%. U.S. crude oil cost $101.00 per barrel, while international Brent crude cost $114.52. N.Y. gold was $4,035.20 per ounce, and one Euro was worth $1.12.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Fortune, The Wall Street Journal, Yahoo Finance, Barron’s, Bloomberg, USA Today, Axios, The Financial Times, Reuters, The New York Times, CNN, CNBC, and AP. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook, at ecook@dwinvest.com. Thanks for reading!
The sitcom Seinfeld went off the t.v. airwaves almost 30 years ago, after a nine-year run. Today, one quarter of Americans still watch at least one Seinfeld episode per year. That’s 72 million people who are watching a show about nothing. Aaahh, relaxing!