SAN ANTONIO – When it comes to finances, 2023 has been a tough year for many families, and one of the most prevalent issues is inflation.
Mannik Dhillon with Victory Capital joined Leading SA on Sunday to help explain the issue and what next year could bring.
“After the COVID pandemic, when they had the lower rates — basically putting a lot of liquidity and free money out in the marketplace — it pushed prices up,” Dhillon told KSAT anchor Max Massey. “And that became a real challenge for the consumers and the economy. So that’s what they were trying to do when they’re raising interest rates to cool down the economy and lower inflation back to their target.”
The Federal Reserve has been raising rates to fight inflation but has recently paused rate hikes.
“When the Fed increases interest rates, costs on mortgages increase. You know, we saw them get close to 8% for 30-year mortgages recently. Auto loans get more expensive, and then credit card debt becomes even harder to pay off because those rates go up over time as the Fed increases rates,” Dhillon said.
“So not only is inflation challenging for the average consumer, then on the back end of it, it’s costing more to borrow money, and that is by design how the Fed cools down the economy because that causes people to spend less. And then that’s how you can maybe get inflation back in control,” he continued.
As families prepare for 2024, it is difficult to prepare for what interest rates, inflation, and goods will look like.
“I always talk about why it’s important to particularly like this time of year, the end of the year, and the new year is about to begin. Sit down and create a family budget. It’s so important to know and to have a plan on where you’re going to spend your money and where the money’s coming in, especially when the cost of goods is going up,” Dhillon said. “So your groceries are costing more. Any other clothing costs more. Everything you think about is this costing more than it did probably a couple of years ago. So you have to sit down and say, ‘Where am I going to actually spend that money?’”
Dhillon said saving for a rainy day is crucial because it’s unclear how the higher interest rates will continue to affect the economy in 2024 and beyond.
“The other thing is, if you have assets to invest, or you have a little bit left over to invest, or you’re worried about the future, being in the market is very important because trying to time it is going to be very difficult and when the right time is to get back into the market,” Dhillon said.
Inflation is tough, but adding education into the fold can be even more complicated.
“College tuition is impacted by inflation. So, college savings plans can help you with that over time and things like that,” Dhillon said. “So there’s a number of different ways that families can address that, but none of them are a silver bullet, of course.”
As families plan for next year, more volatility could be lying ahead.
“This year has been a real volatile one for interest rates themselves. People trying to guess what the Fed is going to do, or ‘Are they done raising rates? Are they going to cut rates?’ And so I think that’ll continue into 2024, where we’ll see if, you know, how many times they cut rates, how much they cut rates by,” Dhillon said. “But that’s going to have a big impact as the market tries to predict that. The other thing is there are a lot of variables that are probably going to come up in 2024 that will create some volatility, too. Like, there’s an election. There could be geopolitical conflicts.”