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What the Fed's 'hawkish pause' means for your financial planning

The Federal Reserve is leaving the door open to more interest rate hikes in the future. John Shrewsbury, GenWealth Financial Advisors co-owner and Managing Principal, tells Yahoo Finance Live how investors should view the Fed's "hawkish pause" when they are doing their financial planning.

Video Transcript

RACHELLE AKUFFO: All right. Well, Fed Chair J. Powell telling Congress this morning more rate hikes could be on the table to combat that stubborn inflation just one week after the Fed pressed pause. So with that in mind, we're seeing that with the unknown ahead, many investors are wondering how the Fed's campaign could impact their personal long-term financial goals. Let's bring in GenWealth Financial Advisors Co-owner and Managing Principal, John Shrewsbury to discuss this more. Hey, John, good to see you this morning. So any time the Fed--

JOHN SHREWSBURY: It's good to see you.

RACHELLE AKUFFO: --the Fed speaks, people are like, of course-- people are asking, what does this mean for my money? So what does a hawkish pause mean for people's investment strategy and their saving?

JOHN SHREWSBURY: Well, we were feeling pretty good about this when it all came up that the Fed was going to pause. And then, J. Powell comes out today and says, hey, there may be more rate hikes. I really think that the Fed may be following my grandfather's philosophy about taking medicine. He used to say, well, son, if a little will do a little good, a lot will do a lot of good.

And I'm not real sure that really applies when it comes to rate hikes in the economy. What the Fed really needs to be doing is trying to balance the slowing of the economy to cool down the inflation that we've seen over the last year to 18 months, and at the same time, not choke off the fuel that drives the engine of the economy.

Consumers are dealing OK with higher interest rates. We're seeing the housing market respond pretty well with housing starts for new houses increasing about 26% in the last month. So those things are good. But too much of a rate hike can really be a problem.

And I would really think that the Fed should take a look at maybe pausing a little bit more and seeing the effect of what they've already done before applying more rate hikes and then being in danger of really hurting the consumer, hurting businesses, and their access to capital or their cost of capital when it comes to borrowing.

RACHELLE AKUFFO: And they did try to give themselves a bit of an out. Obviously, he's still saying that they're data dependent, and they'll sort of see where things go but still expecting at least a hike at some point at the end of the year. So with that in mind then, what does this do to recession concerns and how people should be perhaps ordering their-- getting their financial house in order if you've got inflation still up and some of these recession fears on the verge as well?

JOHN SHREWSBURY: You know, the market has been doing really well since October. The market is up this year. The S&P about 15% as of Father's Day. Now we're seeing more volatility in the market this week primarily because of the concerns about Fed interest rate increases and things of that nature. Those things kind of go hand in hand.

And as long as the Fed is sitting there with their finger on the trigger, the consumer is going to be cautious. We've seen consumers being cautious about how they want to invest their money. There's way more money in money market accounts today than there ever has been. And we really are having a hard time talking to people about getting that money to work in the economy and the markets.

And so, I think that there's always going to be this wary eye that the consumer has on what the Fed is doing, and that's going to temper their ability or their intention of putting more money to work in the markets and the markets heading higher into the short term.

RACHELLE AKUFFO: And we have seen, you know, a lot of people, they're trying to chase those high yields. They're not interested in risking anything in the markets right now. But how would you advise them to approach the markets then? If-- outside of chasing the high yields, what should investors and some of these people be focusing on when they're trying to grow their finances and not just rely on chasing these high yields?

JOHN SHREWSBURY: Yeah. Rachelle, this is really where the rubber meets the road as far as all of this is concerned. a last 18 months of volatility that we've had in the markets and what have you are a very, very exquisite case for planning. Now this is something that takes a little bit of time. And because we're all busy, a lot of people try to kind of shew planning and say, I'm just going to invest some money, I'm not going to worry about what the plan is.

But here's what we know. The longer term your plan is and the longer your commitment is to equities in the market, the greater the probability is that you have a positive or a really good rate of return on those investments. You should be planning for your long-term future, not necessarily playing the market against what the Fed may or may not do. That may affect your short-term return on the market.

But you're not investing for the short term if you're young and investing for retirement, or if you're even middle age and investing for retirement. Or as a matter of fact, if you're approaching retirement, you're still going to need money in 15, 20, 25 years that needs to grow to keep pace with inflation. And the only two asset classes that have really been able to do that are equities and real estate.

You can get distracted by all the talk about what's going on right now in the economy get your eye off that ultimate future state that you want your finances to be in. And we think that planning is really the answer to that because it allows you to have some patience and allows the markets to do what they're going to do. And you can take advantage of what the market's going to give you.

RACHELLE AKUFFO: So for some of the big-ticket items that people tend to buy, whether it's looking at a home or getting a car, is now a good time to do that? Or should they press pause at the moment?

JOHN SHREWSBURY: Well, if the Fed potentially is going to raise interest rates more, and they're going to finance that purchase-- be it a home or be it a big-ticket item of some big appliance or something of that nature-- now may be a better time to pull the trigger on that than later.

I don't think that if you're trying to decide where you're going to live for the next 10 or 15 years, you need to be playing a game of wait and see what the Fed does because you could be on the wrong side of that. I think you'd go ahead and buy that house or what have you as long as it makes personal financial sense in your economy.

Don't pay so much attention to the economy. Pay attention to your economy. And if you can afford that house at these current interest rates, then go ahead and pull the trigger on that because it is something that you desire, something that you need, and you could be facing higher interest rates in the future by waiting and playing that waiting game.

RACHELLE AKUFFO: Indeed, plus you also have the option to refinance down the line once rates do go down as well. A big thank you there to John Shrewsbury, GenWealth Financial Advisors co-owner, managing principal, great having you on today.

JOHN SHREWSBURY: Thank you so much, Rachelle.