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Federal Reserve Begins Rate Hikes

How to think about retirement savings amid interest rate hikes and market volatility.

By Joseph Gaffoglio, CFA

In mid-March, the Federal Reserve announced its decision to raise interest rates for the first time since 2018, despite rising financial-market volatility and the geopolitical crisis in Ukraine. The decision is expected to signal the start of multiple rate hikes designed to counter very high inflation in the U.S. economy. The hikes could be unsettling to many consumers and businesses and are likely to have a cooling effect on the economy, with mortgage rates already significantly rising.

Impact on Consumers

For younger Americans, this may be their first encounter with rising interest rates, particularly as it makes borrowing for large purchases, such as houses or cars, more expensive. Higher mortgage rates could make homebuying more difficult than it already has been during the current housing boom. Many first-time buyers have struggled to get into the housing market since the start of the pandemic due to record-high home prices, low inventory and increased competition from investment firms offering cash. Similarly, purchasing a new or used car has proven more difficult and expensive than many Americans have ever experienced, given strong demand and supply-chain issues that originated during the COVID-19 lockdowns. Rising interest rates may exacerbate those trends.

Reducing Inflation

There will continue to be conversations about whether the Fed started tightening monetary policy at the right time and if it is moving at the right speed. The Fed has many challenges ahead as it tries to combat the highest inflation seen in decades. In addition to raising interest rates, the Fed is shrinking its balance sheet, which has grown to unprecedented levels driven by government spending from the pandemic response programs. Regardless of the timing and speed of the Fed’s actions, the decision to raise interest rates should be seen as necessary to help lower inflation and ensure the long-term health of the economy.

Stay Focused on Your Future

The global events that have driven volatility this year are just the latest illustration of why it is impossible to accurately predict events that may impact markets over the short term. Whether it is supply-chain issues, inflation or rising interest rates, there are always external factors that impact the broad economic picture.

For individuals participating in retirement saving plans, it’s crucial to stay focused and have a long-term investment strategy that aligns with your risk tolerance and time horizon. Making investment decisions based on short-term market events or trends can be incredibly costly and undermine long-term goals. It’s also important to maintain a diversified portfolio that balances different asset classes and investment styles to help manage against market volatility. Note, however, that diversification does not guarantee investment returns or eliminate the risk of loss.

This is not the first time the Fed has raised interest rates or had to respond to uncertainty in the economy and financial markets. We believe that, as before, uncertainty will run its course. As such, adhering to a long-term investment strategy and continuing to make regular contributions to your portfolio is the best way to manage through volatility and ensure that you stay on the right path towards a successful retirement.


Joseph Gaffoglio is the President of Mutual of America Capital Management LLC.

The views expressed in this article are subject to change at any time based on market and other conditions and should not be construed as a recommendation. This article contains forward-looking statements, which speak only as of the date they were made and involve risks and uncertainties that could cause actual results to differ materially from those expressed herein. Readers are cautioned not to rely on our forward-looking statements. This content is for informational purposes only and not intended to be investment advice.

Mutual of America Capital Management LLC is an indirect, wholly owned subsidiary of Mutual of America Life Insurance Company.

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