How Aggressive Will the Fed’s Next Steps Be?

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What's Happening Today

We've talked before about the Federal Reserve's future moves: namely, that they will continue to hike interest rates as long as inflation remains stubbornly high. But how aggressive is the Fed going to be?

A new report from The Wall Street Journal (you can read it below) has investors increasingly nervous that the Fed will hit us with another jumbo rate hike next month to the tune of 75 basis points. Markets are now pricing in a more than 90% chance the Fed will raise rates by 75 basis points, according to fed fund futures data.

What does a 75-basis point hike mean for you anyway? While we know higher interest rates will send mortgage rates, credit card rates, and other loan rates higher, more aggressive rate hikes will send those rates soaring faster. And more worryingly, it not only increases the likelihood of a recession, but might send us there more quickly.

You might be thinking to yourself that none of this impacts you. Perhaps you don't have credit card debt and you own your home outright. But a recession will impact us all (if it comes to that), and your portfolio could also reflect the angst that investors have around the current economic environment.

This means there could be more volatility going forward but remember that it's not a cause for panic. Remaining disciplined in your investing strategy will be necessary as we all try to get through the storm together.

- Kristin

Editors' Picks

Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes (The Wall Street Journal)

Inflation's Erosion of Pandemic Pay Differed by Race (The Balance)

Where $30 Billion to Fix Systemic Racism Actually Goes (The New York Times)

Snap, Twitter Trigger $35 Billion Rout in Social Media Stocks (Bloomberg)

Home Prices are Falling—Will They Crash? (The Balance)

Making Cents: Advice To Help You Manage Your Money (The Balance)

How To Budget and Save When You're Single (The Balance)

Term of the Day

Pay-Yourself-First Budget

A pay-yourself-first budget is a reverse budgeting strategy where you save a chunk of your income first—essentially treating your savings like a bill—then use the rest of your money to cover expenses and spend however you see fit.

A pay-yourself-first budget can be easier than other types of budgets because you might not have to spend as much time tracking your expenses. As long as you're prioritizing savings, covering your bills, and not taking on more debt, you're good to go.

For example, let's say your goal is to save 20% of your income. So you save 10% for retirement, 5% in an emergency fund, and 5% in a vacation fund. Now, you can freely spend the other 80% on wants and needs.

Off the Charts

Average worker pay has been hurt by inflation in the pandemic era, but Black and Hispanic workers have seen their earnings hold up the best, on average, according to new research by the Federal Reserve Bank of New York.