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02.2.2024 by David M. Smith

With Strong Growth and Slowing Inflation, the Fed Keeps Rates High

Last week, the Q4 GDP report was released along with the PCE Inflation report (Personal Consumption Expenditures – the Fed’s preferred inflation metric). The last quarter’s annualized growth came in at 3.3%, blowing away expectations of 2.0% (which kept getting revised higher during the last half of the year). At the same time, the annualized PCE inflation report for Q4 came in at 2.0%, matching Q3’s number. Two percent inflation is the Fed’s target for inflation. The economy is displaying strong economic growth within target inflation. RSWA Blog Reuters

The Federal Reserve met this week with this backdrop to discuss the direction of short-term interest rates, which at 5.25 – 5.50% are higher than longer-term bonds. The rate-setting committee took raising rates off the table. This was expected since inflation has been on a steady downward trajectory. The committee stated they were thinking about when to start cutting rates but a rate cut was not imminent – this was not expected. Many market watchers had anticipated the first rate cut occurring in March and Jerome Powell, the Fed Chair, stated that he didn’t think the committee would have the confidence to start cutting in March. They want to see more data and a longer sustainable trend. The stock market reacted negatively and markets were down sharply after the announcement. Though investors were disappointed that rate cuts aren’t coming soon, the good news is the economy is currently strong enough that the Fed doesn’t feel rushed to cut rates.   WSJ

JOLTS Report is Stable: The Job Openings and Labor Turnover Survey (JOLTS) came out for December and it showed job openings increased to the highest they have been in three months at 9.0 million. Though there are more job openings recently the number is well below the 2021 peak of 12.0 million available jobs. The large availability of jobs shows confidence in the economy for hiring companies. But at the same time, the number of workers who voluntarily quit their jobs dropped to the lowest in almost three years. This indicates workers aren’t as confident in finding a better and higher paying job if they quit their current job. The report shows a moderating labor market which is in sharp contrast to the red-hot job market during the pandemic. A more stable job market is healthy for the economy and inflation. Bloomberg

Financial Planning/Investment Strategy Corner:              

Teaching and Helping Kids Invest: Many parents want to help their children learn about saving and investing. A good way to help them is by opening an investment account and working with them on choosing and following investments. Since it is tax season, it may be timely to open a Custodial Roth IRA, especially for kids under 18 earning income from after-school jobs. Custodial Roths can be for those under 18 or 21, depending on the state. Kids can contribute up to $6500 for 2023 or up to the amount of earned income. The assets will grow tax-free and have many decades to compound grow giving them a great start on retirement! Some parents can help kids build the muscle of saving by matching the savings of the child into the account by 2-1, 5-1, or any amount they choose. There are other accounts to help kids learn about saving and investing such as 529 college savings accounts and Uniform Gifts to Minors/Uniform Transfer to Minors Accounts. All can be great learning tools for young investors. Just be sure to read about the different aspects and tax ramifications of the different accounts before opening up one for a child, especially any impact on college financial aid. And even though I’ve positioned this for parents, grandparents can get in on the act as well! If you have questions about investment accounts for kids, please reach out to your advisor. Forbes – 5 Best Investment Accounts for Kids  Schwab – Can I Open a Roth for My Teen?

Quick Hits:

Taking or Choosing a Daily Multivitamin: Studies show that nearly half of adults in the U.S. take a multivitamin. But should you take a multivitamin and if you do, are there any concerns? For those who eat a healthy diet, multivitamins may have very little benefit. However, many Americans may not be receiving enough specific vitamins and minerals from their diet. It is estimated that 90% of Americans get less than the recommended amounts of vitamin D and vitamin E from food sources alone. Vitamin B12 can also be deficient for the elderly. Groups that may be at higher risk to have nutrient deficiencies are the elderly, pregnant women, those with medical conditions, or those on certain medications. But under the correct circumstances, taking a multivitamin can lead to increased energy and improved health. Do your research and please consult with your doctor when considering taking a multivitamin or any supplements. Harvard School of Public Health   VeryWellFit

Quote: “It’s a funny thing about life, once you begin to take note of the things you are grateful for, you begin to lose sight of the things that you lack.” Germany Kent

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