The Federal Reserve and Amoxicillin

If you made any purchases over the past year, it comes as no surprise to learn that U.S. consumers have struggled with inflation since 2022. As a result, living costs have been persistently high and left many physicians with feelings of no end in sight.

However, this year inflation has managed to cool nicely in big part due to the interest rate hikes the Federal Reserve has been implementing over the past year and a half.
Since March of last year, the Fed has raised interest rates eleven times, which has also dramatically increased the cost of borrowing. Currently, these increases have left a large number of U.S. consumers tired of the Fed's interest rate hikes and hopeful they will end sooner rather than later.

So, is the Fed close to ending these increases? In answering this question, it is important to note there is a lag time between the Fed’s rate increases and the full impact on the economy.

To help explain this, let me share with you an analogy. The current U.S. economy is like a child with an ear infection. Commonly after a visit to the doctor, the child would be prescribed amoxicillin for the infection. However, there is still likely a period of 12 to 24 hours where the child feels miserable, even on the antibiotic. 

In this example, the ear infection is inflation, and the amoxicillin is the Fed raising rates. However, unfortunately the Fed’s medicine takes much longer to work than 12 to 24 hours, with most economists estimating more like 12 to 18 months. 

How long the process takes this time around will also likely depend on the labor market, with employers reluctant to let go of workers that have been difficult to hire in recent years.

As of late, the Fed opted to not raise interest rates at its recent meetings, also leaving the market to wonder if the central bank is done with rate hikes.

The Fed is aware that ongoing interest rate hikes can lead to a downturn in the U.S. economy. However, most analysts agree a recession is not likely in the near term, as consumer spending has held steady, and the labor market continues to thrive. So, like the Fed, we all continue to wait for the data and see. 

As an investor, what should you do? Thankfully, we have faced these challenges in the past. With history as a guide, these are good times to continue with your financial plan. Not only have the prices on investments come down over the past year, allowing you to invest at lower prices, but historically markets do well as the Fed changes course by pausing and then ultimately lowering rates.

This can also be a wonderful time for physicians to review their debt and carefully consider the timing of any additional purchases that require financing. For example, variable rate loans such as credit cards or lines of credit have also increased dramatically with the Fed’s rate increases. If you are using any variable loans, review your spending and consider paying off any existing balances, especially when it comes to credit card debt. 

Physicians should also review their short- and long-term cash strategies. The Fed’s rate increases have temporarily also led to higher interest available on cash products such as CDs, offering higher interest payments than we have seen for quite some time.

In summary, no one really knows whether the Fed will continue to raise interest rates or when they will change course. As such, the best approach is to review your financial plan and if needed make any necessary adjustments now.

As a member of the UMA, you have complimentary access to Physician Wealth Advisors’ (formerly UMAFS) team of financial experts. For the past 30 years, the salaried advisors at Physician Wealth Advisors have been serving physicians and their families. Our expertise in creating customized financial plans as well as tailored investment strategies specifically to fit the needs of the medical community has led us to manage over $1.4 Billion of investment assets for physicians and their families.

If you would like to see what Physician Wealth Advisors can do for you, call 801-747-0800 and schedule your complimentary financial consultation today.