Aug 26, 2021 4 min read

This Friday the Federal Reserve is holding an important meeting.

This was supposed to be their annual meeting at Jackson Hole, Wyoming, but they recently changed to a Zoom meeting because of concerns about the COVID-19 Delta variant. As this new strain has spread, there is concern about whether the economy’s growth will slow.

This could affect their decision to stop tapering and eventually raising interest rates. The most likely outcome will be to move slightly slower, but tapering will happen and interest rates will rise in the not too distant future.

There have been some slowdowns in the economy because of the Delta variant. More vaccinated people are getting COVID-19 than before. It seems that many of those cases are less severe than it is for those who are not vaccinated, but it is a concern.

Cruise ships are trying to navigate the safety issues. School are about to start and no children under 12 are vaccinated. No one knows if this will become a super spreader event or not. The FDA just gave the Pfizer vaccine full approval. It is expected that more companies and universities will now make getting a vaccine a requirement for employment. How many people will resist and resign? There are lots of unanswered questions.

The FED is responsible for maintaining economic growth that is not too fast or does not result in slipping into a recession. They do this by raising and lowering interest rates to control both the availability and cost of capital. Keeping rates low makes it easier for people and companies to borrow to make purchases such as homes or vehicles. Companies may buy new equipment or expand operations.

Interest rates have been low for years. The economy has been functioning in an abnormal situation. This has probably been the biggest factor in the exploding stock market growth over the last 12 years. Just as we have had unusual economic activities over the last year and a half due to COVID-19, the stock market may never see times such as it just experienced. Bull markets do not last forever.

We have had 10,000 Baby Boomers turning 65 everyday, low interest rates, some of the lowest tax rates in a generation and nowhere else to invest.

This has been the perfect recipe for market growth. This is likely to change and we will probably see some reversion to the mean. This means we will have a more normal market return which could be substantially lower than the last 12 years.

The Nikkei 225 is the Japanese version of the DOW 500.

It had a multi-decade run to new highs which ended in 1989. The market stalled and crashed as much as 82%.

There has been some recovery but the market is still down around 20% some 31 years later. Japan was a creditor nation with better savings rates than the U.S. I am not saying this will happen here, but it could. Think of the poor Japanese retiree who had all of their money in the Nikkei. If they retired in 1989, their retirement has not been anywhere near where they hoped.

The FED will be careful because every word in their statement this week will be overanalyzed. They will not be raising interest rates this week, but it is going to happen as it should. The good news is you still have time to make adjustments to your investments. Just do not be greedy. Your retirement could be at stake.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.