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Kevin Warsh's Expected Rate Hike Is a Warning to Retirees That the Fed Won't Rescue Stocks
24/7 Wall St. • • business
Key Points:
- Fed Chair Kevin Warsh is widely expected to raise interest rates again on December 9, with futures markets indicating about an 80% chance following recent jobs data and inflation figures above the Fed's 2% target.
- Historically, when the Fed raises rates while the S&P 500 is at least 5% below its previous year's high—currently 5.6%—the market has risen a year later in 12 of 14 cases since 2000, though the first two hikes in 2022 led to significant declines.
- A hypothetical retired couple with $1.8 million split 60% stocks, 30% bonds, and 10% cash lost about $260,000 in 2022 due to simultaneous declines in both stocks and bonds, illustrating the risk of rate hikes during market downturns.
- Financial advice includes preserving cash reserves to cover withdrawals during market volatility, avoiding selling bonds or stocks before the Fed meeting, and potentially reducing spending temporarily if the portfolio declines similarly to 2022.
- While historical data offers guidance, uncertainties remain due to a small sample size, changing market conditions, and assumptions about income and spending, emphasizing the need for personalized financial planning ahead of the Fed's decision.
