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What in the world is happening to interest rates?
Read this blog post for insights into interest rates, which are making the news at the beginning of 2022. Click HERE to watch a 5-minute discussion about inflation and interest rates from our recent 2022 Market and Economic Outlook.
So what in the world is happening to interest rates?
I have here, in my office, two books that I assure you will put you to sleep. OK, I can’t make that promise. But I assure you they put me to sleep. And they are well-written. And they are brilliant. One is Volcker and the other is History of Interest Rates. The point of both of these books is: you are a fool if you think anyone can control or predict interest rates.
When Carter was President, and when Reagan took over as President, we had high interest rates, high inflation, and stagnate growth: stagflation. We also had a Federal Reserve that RAISED interest rates. In a famous (to me) chapter, the chairman of the Fed, Paul Volcker, complained that the Fed raised rates—but the bond market did not raise rates—in other words, the Fed was not in control of interest rates after all!
In certain circles, Volcker is regarded as a hero. He fought both Presidents. He fought popular opinion. He was a tough guy doing the right thing in the name of fighting inflation. This may be what we need today—at least some people think so. That is one relevant highlight from the first book. Another is the story of dramatic times over the short haul, and one of the best periods in history for long-term investors.
In the second book, History of Interest Rates, the authors provide an awesome, exhaustive and expansive cornucopia of economics. One bottom line takeaway is that interest rates are subject to countless variables and are not under the control of anyone. They were never under control in the past. And they are not likely to be under anyone’s control today, or at any point in the future. So it may be wise to take the histrionics of today’s prognosticators with a lot of salt. The history is different than the histrionics; interest rates often, and for much of the time, are unpredictable.
So what do we do? We ask the smartest men and women we know to predict interest rates.
Two of our most influential researchers are Jeff Gundlach at DoubleLine and Scott Minerd with Guggenheim. So I asked folks at Guggenheim and Doubleline, what is going on with inflation and interest rates?
DoubleLine expects the Fed to start raising rates in March and anticipates they will do so a total of five times in 2022. Guggenheim expects rates to possibly rise as much as a half percent in March, but a total of four times in 2022. Our researchers are a little grumpy because they manage bonds. And if you don’t remember anything else from this Periscope, remember the cardinal rule of fixed investments: when interest rates go up, bond prices go down. Guggenheim is a little more grumpy than Doubleline. But they agree—rates are poised to rise. So what does this mean for our investments?
And more importantly, what does it mean for our real-life, long-term financial plans?
When interest rates go up, bond prices go down.
Now is a good time to find out by contacting your financial planner at A&I Financial Services and have an honest conversation. Take a look at your financial plan. Log into the financial planning website. Change some assumptions. Check out your forecast. And, while you’re at it, ask them for the “guard rails” withdrawal policy statement. I think you will enjoy it.
As always, we thank you for your trust, and we welcome questions you may have about the investment landscape or your portfolio.
About Karl Frank: https://www.assetsandincome.com/our-team/karl-frank
