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Navigating Interest Rates & Inflation



It’s safe to say that everyone around the world, and in particular in the United States, is feeling the pressure of rising inflation. While this scenario isn’t completely new to anyone, the unique challenge of increased wages makes this situation extra tricky to maneuver. The Fed here at home is trying their best to address this issue to ensure Americans are keeping their increased wages in their wallets, but their current policy is not pacifying anyone so far. If anything, it is causing more stress in the market because people are anticipating the worst.


According to the most recent Consumer Price Index report for May, consumer prices have risen 8.6% in the last 12 months. This increase is the largest in over 40 years, and the cause is both unclear and complex. Unemployment is at a record low, wages are at a record high, but with consumer prices outpacing wage increases, most consumers aren’t feeling any richer.


In response to these increases, the Fed has raised interest rates to their highest point in nearly 30 years to 1.5%. Raising the interest rate is meant to deter inflation, which in turn will ease the pressure on wages and employment. However, it could have a negative impact on wages and employment because employers now have to pay more to operate. In theory, the Fed could manage the interest rate just enough to reduce inflation but maintain most of the wage and employment growth in the process. It’s yet to be seen if they will be able to do so, and if history is a guide, it’s pretty unlikely.


So where might we end up over the next 12 months? What are the experts projecting? Right now, more interest rate hikes are expected through the end of 2022, possibly creeping into the 3% territory. By May 2023, some experts suggest that the interest rate may be as high as 3.8%! Obviously, we cannot predict the future, but these aggressive projections should be indicative of the seriousness of the situation.


However, we should not let fear of increased interest rates and unpredictable inflation keep us from continuing to work towards our goals. As employers, it will be important to consider building out a worst-case scenario for your company’s budget over the next 18-24 months. That way you can ensure that no matter what happens with the broader economy, you can rest assured that you and your team will be prepared to weather the storm. Additionally, the worst-case scenario budget may illuminate some new opportunities you hadn’t noticed before, that you can begin planning for in the future. There is a lot to consider, but we can make adjustments with enough knowledge and planning up front.


If you’re looking for a key team member to help your organization survive these difficult times, reach out to us at staff@thereisnergroup.com and let us help you find them!

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