Inflation and Higher Interest Rates

If you have looked at mortgage rates recently, you know how quickly the rate environment has changed. Higher interest rates are starting to ripple through the financial markets, and that trend is unlikely to change anytime soon. 

The Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage inflation, which is at its highest level in 40 years. You are likely seeing the effects of inflation when buying gas or groceries, and you will notice it if you are shopping for a new or used car.

One of the Federal Reserve’s mandates is to control inflation. By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices. Though there is little that higher rates will do to mitigate supply side inflationary pressures like higher commodity costs or supply chain issues.

Although there is no magic bullet to investing during high inflationary periods, I Bonds are worth consideration. They are issued by the U.S. government and earn a fixed interest rate plus a variable interest inflation rate that’s adjusted twice a year. The most recent rate for the May 2022 to October 2022 period is 9.62%. I Bonds have certain purchase limits, restrictions, and tax treatments. You can purchase them directly through treasurydirect.gov.

If you have any questions about inflation or interest rates, please reach out.

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