Schwab Bond Market Update for December 2024
“The market implied Fed funds rate for December 2025 has risen from sub 3% to the 3.75% to 4% area”
If we stick a landing at 4% or just below… that’s not so bad for us savers. T-Bills will be there, and I’m guessing Ally Bank Saving will probably be at 3.25%-3.5%. Beats almost nothing at Bank of America, Wells Fargo, Citi, Chase. The reason given is:
“Inflation is proving to be somewhat sticky. Core PCE, which excludes volatile food and energy prices, has stalled at a slightly higher level partly due to persistently high housing costs. Expected proposals in Washington, such as tax cuts, tariffs, and immigration changes, could all end up being inflationary.”
Oh myyyy… you mean grocery prices aren’t magically going down next year?
I’m realizing… Ally Bank Savings could end up = inflation rate. But after taxes, you get less than the inflation rate. OK, that’s not so nice. People often don’t consider that inflation is a stealth tax increase in many ways. Not only in this example, but also in the case of capital gains. You might hold an asset for 30 years which just keeps pace with inflation, but after 30 years at 3% inflation, the nominal value is up 142.73% and you get taxed on that when you sell.