Higher Interest Rates, Youth Unemployment
The big news last week was the Fed raising rates which means higher interest rates on mortgages and business loans. How does this directly impact your money?
The Fed raised the federal funds rate .25 basis points to between 1.0% and 1.25% which doesn’t necessarily directly impact you. What has been happening is we’ve seen the short end of the curve, the three month rate, go from next to nothing to 1.25% and while that is happening the long end has come down, which gives us a flatter yield curve. So far this year, the short end, the 3 month, has doubled. It has gone from one half to one and the long end, the 10 year, has dropped, it is now 2.16%. So you only get 1.16% more for your money to lock it up for ten years.
Reducing the Balance Sheet to Impact Long Term Yield
As well, the Fed announced they are going to start reducing the 4 ½ trillion on their balance sheet by about 10 billion per month. This should reduce the demand for long bonds and we should start seeing the long end of the curve go up. This is good for banks and for business. However, this may not be good for those looking to refinance their mortgage or auto loans or even, perhaps, for corporations looking to finance long term debt. This is normal. The Fed has been pushing the short end and nothing has been happening on the long end so now they are trying to impact the long end. Remember, it is a domino effect when the Fed raises rates.
The President signed off on what could be a very important program this week. President Trump signed an executive order to increase apprenticeships programs for skilled jobs such as plumbing, electrical, and welding etcetera. The idea is to increase those amongst young people by 4.5 million over the next 5 years. The labor department has reported that there are over 6 million of those jobs available. Industry needs these jobs filled and they pay well. This is a program trying to lower youth unemployment. This type of program has proven to be successful. In Germany, once you come out of primary school you have a one year apprenticeship. Their youth unemployment is only 6.8% compared to ours which is 9.4% and industry is looking for these individuals. This is an executive order which seems to make a lot of sense. Instead of raising the minimum wage on unskilled labor, do an apprenticeship program to feed industry what they need and to create much better jobs for the future.
Bobby Norman, CFP®, AIF®
Senior Vice President
Email Bobby Norman here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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