Inflation, Interest Rates and Retirement Planning
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The low interest rate environment created winners and losers. Many consumers have benefitted in the form of favorable mortgage rates, car loans and other borrowing tied to interest rates. Those with money in the stock market have been a big beneficiary. However, for that portion of people’s savings in conservative investments like CDs and bonds, interest rates over the past 10 years have been tepid as indicated in the chart below (the 10-year Treasury yield was 4.12% as of 11/9/22)
Fortunately, inflation stayed low at 2% or less until 2021 when rates jumped (see chart below). This has created a “bad news/good news” scenario, as inflation erodes purchasing power but has forced the hand of the Federal Reserve to increase the Federal discount rate. This results in higher interest rates, which helps conservative savers but hurts borrowers and the economy at large, hence the bad news.
Source: Coinbase Media Group