All eyes are on the Fed's big decision on Wednesday.
"Fears" abound that they might hike rates 100 basis points. I believe they have only got the stomach for another 75 bps this go around, although they should probably be more aggressive. So much for inflation being "transient." That's been the worst kept secret of the decade, as the talking heads and elected officials in D.C. once again show how little they really know about economics. You cannot push out all the liquidity and freebies of the past couple of years, and expect economic harmony.
One of the silver linings of rising rates (and do not get me wrong in the scheme of things, it's a very small silver lining) is that cash yields are rising. A year ago, the rates on "dry powder" were nil; now you can get 2.2%+ in your money market settlement fund.
In what has been a terrible year for bonds overall, investors may not realize that given their very short durations, money market funds react quickly and positively to rising interest rates. It won't be long before we'll see about 3% on money markets, and by year-end closer to 3.5% to 4%, depending on what the Fed does the rest of the way. Don't expect the same at your bank. If you have some dry powder on hand, you may as well get a little something out of it.
In this environment, you've got to look for the nickels and dimes, because the dollars may be hard to come by as the markets attempt to find their footing. One of the other small opportunities is in U.S. government issued Series I Savings Bonds.
These are not the savings bonds your grandmother used to buy for you on your birthday. I bonds feature a fixed rate (currently 0%), plus a rate based on inflation. They currently earn 9.62%, through the end of October, then will reset, as they do every six months.
Unfortunately, you are limited to $10,000 in electronic I Bonds a year, and up to another $5,000 in paper bonds via a federal tax refund. However, you could make a $10,000 purchase sometime in the remaining days of 2022, and another $10,000 in January 2023.
Other things to know are that you must own them for at least one year, and if you hold for less than five years, will sacrifice three months of interest.
Sometimes you've got to look for the nickels and dimes while awaiting opportunities to deploy some dry powder.
