The Market Is Changing Again… Do This
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What recent Federal Reserve news should investors be aware of?
Hello and welcome to Friends That Invest, the podcast that feels like a voice note from your favorite finance friend. You're joined today by your host, Sim Kaur. I am so excited to be here. I am wildly passionate about investing and personal finance. And today we are going to talk about what is going on with the Fed, with interest rates and what it means for you and your money. Because if you are new here, you may not realize that when it comes to investing, Share prices go up when interest rates go down. And when interest rates go up, share prices go down. And so you might be like, okay, Sim, that's not good. Why is this happening? Is this something that's going to occur? And what does this mean for my money?
So let's go straight into it. First things first, the Fed, who are they? What do they mean? What are they trying to do to me? And how does it affect my money? The Fed is essentially like the bank of banks. So in New Zealand, we have the Reserve Bank. And in the States, they have the Federal Reserve. We're not really like... that creative when it comes to naming them. But they are the bank for banks. And when normal banks like your local bank, your Wells Fargo, your American bank, your New Zealand bank, your NAB, when those banks come along and they go, hey, Sim, I will offer you a mortgage. I will give you the cash for your mortgage, but I'm going to give you it at a mortgage rate of 4%. they only set that rate because of how much it costs them to have the debt.
And so the Federal Reserve goes, hey, we will give you money at 3% and therefore you can sell it on at 4%. But if the Fed goes, we're going to set the rate at 5%, then the retail banks, the banks that you and I go to to get a mortgage or to get a loan or to put our money into, they have to set their mortgage rates slightly higher so they can make a little bit of profit. I mean, that's what the banks... You thought the banks were here to look after your money?
How do rising interest rates affect share prices?
No. They are here to make a profit off your money. And so that leads into the question, well, Sim, who is the Fed in the States? Like, what's going on here? And recently, the new Fed chair has been sworn into the US. This is kind of like when the Pope changes, but in the financial world, like the finance bros have a new Pope. His name is Kevin Walsh. He was replacing Jeremy Powell. And this was... Not something that people were like surprised by because you can only be in the Fed chair for so long. And Jeremy, when he left, had some beef with Donald Trump just because Donald Trump was encouraging him to like lower interest rates. And he was like, I don't, you know, like bow down to anyone. It's like when Henry VIII was saying to the Pope, like, you need to allow me to get a divorce.
And he was like, that's not allowed in the Catholic Church. Now, I'm not saying Donald Trump has now gone off and like started his own religion or like a new Fed, but a new Fed chair has come in. Not a good thing, not a bad thing, just some change. It's like new management's come in. And what we know about Kevin Walsh is that it's kind of hard to say if he is someone that's going to increase interest rates, if he's going to decrease interest rates. Ideally, we want him to keep interest rates low. But there is a little bit of rumors on Wall Street that interest rates are going to rise. So let me read some information that I've come across. So according to the CME FedWatch tool, there is a 70% chance of the Fed raising the federal funds rate by the end of this year.
The heaviest odds, more than 40%, are on the Fed doing one quarter point rate heights from the current target of 3.5% to 3.75%. And they see a 22% chance of two hikes. So essentially, the Fed has two opportunities till the rest of the year to increase, decrease or keep the rates the same. And a lot of people are saying, yeah, there's probably a chance they'll increase it at one point, but not that many people think that at every conversation that they have over the next two conversations that they're going to increase it again and again.
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Chapters
5 chapters
1
What recent Federal Reserve news should investors be aware of?
0:04–1:56
2
How do rising interest rates affect share prices?
1:56–4:08
3
What impact do interest rates have on homeowners and renters?
4:08–10:08
4
How do businesses react to increased interest rates?
10:08–15:08
5
What are the potential consequences of rising interest rates on the economy?
15:08–17:40
Speakers
2 identifiedMore from Friends That Invest
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