Fed Increases while Banks Decline

The short version is that the financial landscape is the strangest it's been since 2008. The Federal Reserve also recently raised interest rates once more. What effects will this have on the business and your finances? It's complicated, I guess.

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As most experts expected, the Fed pulled the trigger and lifted the benchmark rate by a quarter percent to a range of 4.75% to 5%. The rates haven't been this high since the run-up to the 2008 financial crisis, and this is their ninth consecutive increase.

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The Fed's message was very clear: even though banks are in disarray, more rises are required to stop inflation.

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What does this mean for you, then?

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Four seasoned investors offer their advice on where to put $1 million now in this article. What peculiar recession-proof ideas do you have? royalties from music.

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In a piece that analyzes one particularly turbulent week in finance, we also attempted to make sense of the most recent happenings. We also have some tips on how to store your money here if you're concerned about the security of your own bank savings.

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The Fed's communication this week contained some significant cues as well. It dropped the forecast of "ongoing increases" in the policy rate and tempered its language regarding future policy guidance, saying that "some more policy firming may be required." In other words, the cycle of hiking might be coming to an end.

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We discuss how certificate of deposits can help you secure in a high return before they start to decline if you're unsure if the Fed's next step will be to decrease rates.

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The state of the American banking system is highly questionable, and this is all taking place in that environment. Take a look at these stories from the previous week:

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• To save Credit Suisse, UBS intervened quickly.
• Several banks are trying to save First Republic.
• Wall Street is getting ready to hire the thousands of Credit Suisse bankers who are about to lose their jobs.
• The most recent regional bank where clients withdrew deposits was PacWest.
• Fears of a recession are higher than ever.

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Similar to the Fed, the US government moved in to reassure Citizens that it will interfere if required to protect bank savers and the economy. This past week, Treasury Secretary Janet Yellen went above and beyond to reaffirm that "the public should have trust in our banking system."

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She also added that the government isn't thinking about "blanket" deposit insurance to support system stabilization, which halted the Wednesday stock market protest that followed the Fed's rate decision.

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All this lack of certainty has been going to weigh on bond yields. That presents a silver lining for potential homeowners, with mortgage interest rates dropping to a five-week low. — Misyrlena Egkolfopoulou

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Don’t Miss

• Even if the value of your investments decreased last year, you might still have to pay a sizable capital gains tax payment. These mutual funds have the potential to cost you the most.
• The agony bankers were already feeling from the stock's decline increased when the Swiss government forced Credit Suisse to suspend deferred bonuses.
• As a result, Credit Suisse bankers looking for new positions are calling recruiters worldwide in unprecedented numbers.
• GameStop shares increased this week when the firm revealed a surprising quarterly profit, which is news that feels very 2021.
• Currently, Elon Musk is in charge of five businesses that span the transportation, aerospace, health, telecommunications, and social media industries. To varied degrees, each of them intersects with the government, giving President Joseph Biden a lot of trouble.
• Wall Street's elite have realized something very 2023: the banking crisis will be tweeted this time. The effect has been documented on social media by billionaires and investors, highlighting how much the world has evolved since 2008.

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Opinion

This week in Bloomberg Opinion, Alexis Leondis argues why, when it comes to money-market funds, you shouldn't worry about a replay of the financial crisis of 2008:

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There is no justification to believe that money-market funds are likely to face another reckoning at a time when investors are questioning the safety of just about everything.

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Currently, 76% of money-market funds only own Treasuries or other government assets. Money fund exposure to corporate bonds issued by banks is also rather low. In fact, several American money-market funds don't even purchase US banks' debt since their ratings are frequently too low. Perhaps also excluded are European banks. 

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The maturity of the debt that most money-market funds hold differs this time around as well. Throughout the Lehman Brothers era, it was typical for funds to hold debt that expired in 6 months or even a year. That has altered.

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Fiscal Questions

Should I invest more money in one CD, say every three or six months, if I wish to purchase 12-month deposit certificates (CDs), or should I do both? How much time should I give between them?

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It is best to diversify your exposure to CDs across a variety of time frames or maturities when things are unclear and it is difficult to forecast what it will happen regarding rates in the future. Equivalent investments in one-month, six-month, and 12-month CDs will guarantee that you are making an investment at the current rate while giving you the freedom to reinvest in higher rates for your shorter-term CDs if necessary. It's a simple approach to lock in current interest rates and maintain dry power in the event that rates rise further.