Batman and the Fed totally snuck up on me BUT there's still time

March 2, 2022 • Issue #133

Hi y’all —

You know that proverb “March comes in like a lion and goes out like a lamb”? For me, it’s the opposite this year.

I’ve got a busy April planned — I’m turning 30 (don’t wanna talk about it), and my little brother is getting married in North Carolina. Also, Harry Styles has been filming a new music video, which is going to break the internet and render my social feeds/brain unusable when it drops. Sounds lion-y, right?

March, on the other hand, is creeping in quietly. Events that have been on my radar for months, like the release of the new Batman movie and the Fed’s hints about raising interest rates this month, have snuck up on me. Suddenly they’re almost here.

While The Batman comes out Friday, I’ve got a bit more lead time on the Fed announcement. The Federal Open Market Committee is supposed to meet March 15 and 16, which begs the question: What will the Fed raising interest rates mean for me? Are there steps I can take now to prepare?

First, some background.

According to its website, the Fed has five functions, all to “promote the effective operation of the U.S. economy and, more generally, to serve the public interest.” Ideally, it wants low, stable inflation that averages out to 2% in the long run and low unemployment. To achieve that, it can use levers like the federal funds rate, which is the rate at which banks lend money to each other.

We’ve been in a low interest-rate environment for a while. The last rate hike was in 2018, and as the pandemic got underway in spring 2020 the Fed slashed rates to essentially zero. The implication of that was “the cost of borrowing — whether that’s student loans, mortgages, car loans or even, to some extent, credit cards — has been substantially cheaper than is the historic norm for some time now,” says Christopher Jones, chief investment officer at Edelman Financial Engines.

In the meantime, the economy has recovered. Like, really recovered: The labor market is extremely tight, and inflation was at 7.5% as of January, a 40-year high. As a result, Jones says, “the Fed has made it pretty clear that the days of zero interest rates are numbered.”

Fed Chairman Jerome Powell said at a news conference in January that the committee was prepared to “move steadily away from the very highly accommodative policies we put in place during the challenging economic conditions that the economy faced earlier in the pandemic.” He all but confirmed a series of rate hikes was coming, starting this month.

Admittedly, this was before the Russia-Ukraine conflict began in earnest. But experts say a rate increase is likely still happening; it just might be a little smaller than intended.

By hiking rates, the Fed will make borrowing more expensive for businesses and consumers like me, cooling down the economy and hopefully reducing inflation. Jones says credit card rates, adjustable-rate mortgages and such will “ratchet up in lock-step” with the Fed.

“It's a helpful time to take a look at where you're borrowing money and make sure that, to the degree you can, you shift away from things that [have] either higher rates of interest or things that are very sensitive to short-term interest rates,” he adds.

For example, I might want to refinance my mortgage. Or, if I have a fixed-rate mortgage where I’m paying a bit more than I need to each month, it might be smart to take that money and pay down credit card debt before the rates get too high. My cash will have a bigger impact that way. (Speaking of my cash, one plus of rising interest rates is yields on my high-yield savings accounts should eventually go up, too.)

As far as investing goes, as a young person I should probably already have a majority of my long-term investments oriented toward equities, aka stocks, because I've got decades in the market and can afford to take risks. That's true now, as well: “To a large degree, equities provide the best long-term hedge against inflation,” Jones says.

As the Fed begins to increase interest rates, it’s crucial to remember to take a “no long-term bonds” stance, says Scott Eichler, a registered investment advisor in California. Bond prices move inversely to interest rates, so the higher interest rates go, the more prices fall.

“Often, keeping money is even more important than making money in rising interest-rate environments, so I would tell you long-term bonds are things people should avoid,” he adds. “Unless someone is absolutely freaked out by the stock market and bonds are the only things they could stomach, millennials really shouldn’t be looking at bond funds right now."

Eichler suggests looking for cash flow-positive businesses and value funds that will issue me dividends. Real estate could also be a good option in the form of real estate investment trusts, or REITs.

In all of this, I should remember that the normalization process will be slow and drawn-out. The Fed probably isn’t going 0 to 100 immediately. Hiking rates is going to take time, and so I have a while to adjust my strategies.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

By raising rates, the Fed is poised to make borrowing more expensive. To prepare, I may want to pay down high-interest credit card debt and make sure I’m properly invested in equities (not so much bonds).

I want to emphasize that nobody — except maybe JPow — knows what’s going to happen. But chances are this will be a long saga, and I don’t want to be reactionary. I’ve got a long time horizon.

“If you’re the rare investor that can keep your emotions down, you're going to be successful,” Eichler says.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

When basketball player LeBron James walked into the NBA All-Star Game last month, he did so in style… wearing a satchel with a bottle of tequila in it. The tequila is his own brand — Lobos 1707 Extra Añejo, which retails for $160 — but the custom-designed leather holder is likely much more expensive. Only the best for the king.

INTERNET GOLD

five things I'm loving online right now

1	Did you guys know they’re making new corns?? Bayer is launching test crops of short-stature corn, which as far as I can tell from two minutes of Googling is literally just shorter corn. Jokes aside, this has legit implications for farmers because the stalks can withstand higher winds this way.
2	This video of a mom interrupting her TV anchor son in the field is so heartwarming and reminds me of my mom, who reads this newsletter. Hi, Mom!
3	In other flora/fauna news, the U.S. government is hiring a grizzly bear conflict manager in Montana. The job posting says it “requires a balanced perspective, significant grizzly bear handling experience, and strong communication and relationship building skills.” Candidates may be “subject to large numbers of biting insects.” 😳
4	Vegan bacon perfume, “guaranteed to seduce even the most carnivorous.” Has science gone too far?
5	Looking for a place to donate to support Ukraine? Here’s a handy linktree, courtesy of one of my Ukrainian journalist friends, on how to help.

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA LAUREN CHRISTIANSEN

Meet Emi, a Florida dog who is all wrapped pup and ready for any Fed rate hikes that come her way.

Now that I think about it, Dollar Scholar kind of comes in like a lion and goes out like a lamb. Baa.

See you next week.
 

 
P.S. Are you concerned about what the Fed will do this month? If you had to wear a meat-scented perfume, what would you pick? Do you think you could manage a grizzly bear? Lemme know at julia.glum@money.com or @SuperJulia on Twitter.

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