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2nd Quarter Inflation & Interest Rates Review

Inflation and Interest Rates Explained for Q2 2021

In the first half of 2021, investors welcomed a new administration in the United States of America, saw the reopening of many countries, experienced volatility in equity markets and ended a second quarter that produced many new highs.

Amidst all the positive momentum toward recovery, there is still concern about the condition of the job market, inflation, and uncertainty about the path of the virus and the severity or impact that new strains may have.

In June, the Federal Reserve held their two-day meeting and concluded that due to more aggressive inflation than expected this year, they anticipate raising interest rates sooner than previously expected. Back in March 2021, the Fed expected not to raise rates until at the earliest, 2024. At its June meeting, the Fed’s latest dot-plot projections moved the timeline to potentially 2023, where there could possibly be two interest rate hikes.

“As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue the possibility that inflation could turn out to be higher and more persistent than we expect,” Powell said during the press conference. (Source: 06/16/2021)

Powell also stated, “The dots are not a great forecaster of future rate moves... it’s because it’s so highly uncertain. There is no great forecaster -- dots to be taken with a big grain of salt,” he said. (Source: 06/16/2021)

The inflation expectation for 2021 was raised to 3.4%. Back in March, the Fed had anticipated a 2.4% inflation rate. Powell continued, “You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like.” The sentiment of the Fed is that inflation pressures are “transitory”. (Source: 06/16/2021)

The Federal Open Market Committee (FOMC) still kept its benchmark short-term rate near zero at 0 – 0.25%. After the Fed’s announcement in June, the stock market experienced a temporary drop but quickly regained losses. (Source: 6/2021)

Bond yield percentages also pulled back from their high. 10-year treasury yield last traded at 1.56% on June 16 after Powell’s remarks.

Inflation is a real concern for savers because it eats into purchasing power and lifestyle. While we are nowhere near the last 90 years highest or lowest periods of inflation, investors still should try to at least keep pace with or exceed inflation rates.

Two of the most talked about issues at the end of the second quarter were inflation and interest rates.

If you need help planning for this time of inflation, give our office a call for a full financial check-up. We help you make sound financial decisions that best fit your long-term goals.

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