Welcome to the September edition of FAQ’s and RAQ’s!
Here we answer client questions, some asked Frequently, and others asked Rarely.
FAQ: How much longer can the economy withstand aggressive Federal Reserve interest rate hikes?
The U.S. economy has defied predictions that Fed rate hikes would trigger a recession. A common explanation is that the economy has become less sensitive to rising interest rates because Americans locked in low borrowing rates during the pandemic.
While this holds true, we think there is a more important reason that the economy has been so resilient. Namely, the Millennial generation came of age during the pandemic and now has massive influence over the economy. Now in their 30s, Millennials are working hard, buying homes, starting families, and spending lots of money – just as the Baby Boomers did in the 1980’s.
Contrast this situation with last decade: Millennials had less earnings power and consumer spending was muted as Americans shoveled out from debt from the 2000’s housing bubble. Today, austerity is “out” and borrowing and spending are back “in”, propelling the economy forward.
In short, while nobody knows when the next recession will occur, we're not eager to bet against the American consumer -- especially Millennials.
RAQ: Given the soaring costs of housing, automobiles, and tuition, is it harder for this today’s generation of young adults to get ahead financially?
Every generation faces unique circumstances, which makes it difficult to compare challenges across generations. Yet, it’s clear that the price of big-ticket items like homes, cars, and a college tuition has skyrocketed relative to incomes:
Given today's high cost of living, young adults aren't going to reach their financial goals by accident! This reality may prompt conversations with a financial advisor about how young people can save and invest effectively, and how older generations can optimize wealth transfer to their descendants.
Have a question you'd like us to answer? Drop us a line at carlsongroup@rwbaird.com. We'd love to hear from you!