Market closely watching as the Fed is expected to issue another rate increase

Advisors keep clients focused on personal finances

On Wednesday, the U.S. Federal Reserve is expected to raise interest rates to fight inflation. It would mark the third time federal officials have raised interest rates since March to slow down the U.S. economy, which has driven consumer prices higher.

In September, at the Jackson Hole Economic Symposium in Wyoming, Jerome Powell, chairman of the Federal Reserve, said that the Fed was prepared to work aggressively to bring inflation down to the two percent goal. The Feds have raised interest rates three times this year. Currently, inflation stands at 8.3%.

Scott Minerd, managing partner and global chief investment officer at Guggenheim Partners, a New York-based global investment and financial advisory firm, said that in the Fed's attempt to prove its credibility, they could overdo it.

"The Fed will push it until something breaks and that break will probably come in the form of equity prices or the emerging markets," Minerd said in an interview on CNBC on September 19, ahead of the fed meeting.

Last week, the Biden Administration helped to narrowly avert a strike between labor unions and freight rail companies that would have caused chaos to the supply chains and further impacted consumer prices. The Association of American Railroads, a D.C.- based industry trade group, estimated that a nationwide rail shutdown could have cost the U.S. economy more than $2 billion daily.

"This agreement can avert significant damage that any shutdown would have brought," President Biden said in a speech in the Rose Garden on September 15.

After nearly three years of bargaining over a new contract, the Brotherhood of Locomotive Engineers and Trainmen (BLET), a division of the Rail Conference of International Brotherhood of Teamsters, and the Transportation Division of the International Association of Sheet Metal, Air Rail, and Transportation Workers (SMART-TD) and three other unions reached a tentative national agreement with the nation's big four railroad companies Union Pacific, BNSF, CSX and Norfolk Southern. The deal included wage increases, bonuses, and no increases to insurance copays and deductibles.

The market reacted to the Fed's two-day meeting on September 20 and 21st, with the Dow Jones Industrial Average falling 1.01%, the S&P dropping 1.13%, and the Nasdaq falling 0.95% on Tuesday.

As politicians and Federal Reserve leaders work to cool the U.S. economy, financial advisors are keeping their clients focused on the bigger picture, their finances.

"From a cash flow standpoint, we urge clients to secure emergency funds. Part of that process is reviewing their cost of living, given the significant rise in the cost of everyday goods for all Americans. What may have been an adequate cushion just a year ago may be a little wanting in today's economic landscape," Joshua Farmer CFP®, Partner of BrookStone Wealth Management told Advisors Magazine.

With the markets down, Farmer added that from a tax planning standpoint, now is an excellent time to look at tax loss harvesting, which is a strategy to lower current federal taxes by deliberately incurring capital losses to offset taxes owed on capital gains.

"With values down, now also is a good time to look and see if a Roth conversion strategy makes sense," Farmer said.

Before doing a Roth conversion, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA, according to Farmer.

Cole Hansen, Senior Wealth Management Advisor at Weatherly Asset Management, a California-based investment management firm, voiced concern for the younger investors during this inflationary period.

As other generations have exited, millennials and Gen Z represent nearly half of the U.S. labor force, according to Hansen, a certified financial planner, and advisor.

"This inflationary environment creates concern for the next generation in two major areas – budgeting and investment strategy," Hansen told Advisors Magazine.

"Millennials and Gen Z don't have experience dealing with significant price fluctuations and must adapt budgets quickly to limit "bad" debt within their lifestyle," Hansen said. "The increases in interest rates to combat inflation have disrupted valuations for "long duration" assets like NFTs, meme stocks, cryptocurrencies, or other pandemic favorites popular with young investors."

Aubrey Brown, a wealth management associate advisor at Weatherly, added that as inflation continues, the younger generations may curb their retirement plan contributions early in their careers, which will have long-term consequences.

"This comes at a time when Buy Now, Pay Later is being widely adopted, and debt accumulation can easily snowball," Brown, a certified financial planner. Chartered retirement planning counselor told Advisors Magazine.

Brown noted that the younger generations were delaying significant life events until they were financially comfortable and could face higher costs later.


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