The Federal Reserve has released new data, showing their fight against rapid inflation is influencing the economy. The Consumer Price Index slowed to 3.2% in October, lower than the 3.7% mark set in September. David Nelson, CEO of Nelson Corp. Wealth Management spoke with Our Quad Cities News via Zoom to discuss the implications of the report.
“We’ve been chatting about this with clients for quite some time as far as the fear of inflation and is it going to be under control,” said Nelson. “In all likelihood, it is.”
Inflation was rampant in the 1970s and early 1980s, but the Federal Reserve has tried to learn from that era, he said. “It does look like inflation is coming down and coming down materially. That’s a good sign for Americans.”
Inflation may be cooling but it can be hard to tell, he said. “If we take out energy and we take out housing, which is typically what’s taken out as far as in some of the measurements it’s (inflation) come down pretty significantly. People don’t feel like it as far as when they go to the grocery store, but in reality, when you actually look at the numbers, it really has.”
The news may be good now, but there can be too much of a good thing, says Nelson. “If we go too far, and that’s the concern by some, that keeping interest rates so high for too long will actually cause us to go into a recession. If we go into recession, that could have some ripple effect as well. We’re keeping a close eye on interest rates; they’re really the key. If interest rates behave and stay somewhere in the vicinity, or drop marginally from where we are, chances are we’ll be OK.”
The drop in interest rates is good news or bad, depending on your spending and saving habits. “Interest rates are down about 20 basis points, a fancy way of saying .2%. That ripple effect will come as really good news for people who have debt now. People who have investments, and they’ve been using money market-type accounts, it’s not as good news for them because they’re going to see their income dropped by that amount. Bottom line for borrowers, good news; for savers, not necessarily good news.”
For those thinking about making a major purchase, like a house or a car, Nelson believes they should exercise caution. “I think I’d wait a little while as far as something like that. I think interest rates are probably, at least in the foreseeable future, trending down. Many people know out there a half percent difference in your mortgage payment could be pretty significant.”
Nelson sounded upbeat about the economic news. “Everybody feels good if they’re looking at their accounts today, everybody’s thrilled. It should continue for a while but no guarantee of that.”