Economic commentator Kyla Scanlon is noticing a potentially worrying trend in the investing outlook among younger generations.

“It’s a bifurcated world,” she told CNBC’s “ETF Edge” this week. 

Scanlon, 26, who rose to prominence through her social media videos on the market and economy, explained why some members of Generation Z are aggressively saving for milestones like retirement, while others are taking a far more lax approach. 

“You do have these people who are maxing out their 401(k)s. They’re doing everything they can to plan for retirement,” she said. “But then you have the other side, which is an element to financial nihilism, where people don’t want to save for retirement. They don’t want to save money in general because they don’t believe the future is there.”

Scanlon is aiming to bridge Gen Z’s divided financial attitudes with her new book, “In This Economy? How Money and Markets Really Work.”

“Financial education is always going to be an uphill battle, just because money is such a personal subject. But it’s important that we give people the tools that they need to start somewhere,” she said.

She points to the housing market as a prime example of where young people are falling behind. Gen Zers represented just 3% of total home buyers in 2023, according to a recent report from the National Association of Realtors — a statistic Scanlon attributes to higher interest rates.

“The younger generation definitely wants [homeownership], because there’s a lot of financial benefit to having equity,” she said. “People are just trying to figure out how to do that financially right now, considering where mortgage rates are, considering where home prices have been. It’s difficult.”

Disclaimer

While it’s difficult to predict future interest rate cuts, Kyle Newell, a certified financial planner and owner of Newell Wealth Management in Orlando, Fla., said he has begun to realign his bond allocation.

When building a bond portfolio, advisers take into account so-called duration, which measures a bond’s sensitivity to changes in interest rates. Expressed in years, duration factors in the coupon, time to maturity and yield paid over the term.

As interest rates edged higher in 2022, many advisors chose shorter-duration bonds to protect portfolios from interest rate risk. But the allocation could change depending on the Fed’s future policy.

“I don’t want to get too aggressive with increasing the duration,” Newell said. “Because bond clients tend to be more conservative and it’s really about protecting the principal.”

As policies change, advisors are also looking for ways to optimize allocations amid continued economic uncertainty.

“There are still areas of opportunity in the bond market that are very attractive based on how poorly bonds performed last year,” such as corporate bonds trading at a discount, below “par” or face value, said Ashton Lawrence, CFP and principal at Mariner Wealth Advisors in Greenville, South Carolina.

“We’re always looking to find a sale or a discount,” Lawrence said, noting that high-quality, discount bonds have built-in growth as long as the assets don’t default. “You capture that appreciation as you get paid along the way,” he said.

Of course, every investor has different needs, Lawrence said. “But there are definitely some areas of opportunity in fixed income.”

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US stocks are reeling from the ever-hot economy – and hawkish rhetoric from the Federal Reserve.

• The US Producer Price Index, which measures inflation at the wholesale level, rose 0.7% in January. It was the biggest increase since June, and 0.3 percentage point higher than economists had expected.

• Tesla Tesla 362,758 cars are equipped with driver assistance pilot software. The company has warned that the software, known as Full Self-Driving Beta, could cause vehicles to crash.

• forefront Cryptocurrency is making a resurgence in 2023, according to Bernstein analyst Gautam Chhugani. Investors may view the recent regulatory actions in the US as less drastic than they expected.

Looking at the January numbers, the US economy is running at full steam. Quick recap: the lowest unemployment rate in 53 years. Revival in consumer spending despite higher prices. And overnight, we found that the producer price index rose the most in eight months. This almost bizarrely strong economy suggests that inflation – while still declining – remains uncomfortably high and sticky.

For a while, it seemed as though markets could live with that — and even embrace it as a new normal, where economic growth could comfortably co-exist with inflation above 2%. With each hotter-than-expected inflation report, the markets rose.

Until yesterday. The markets finally picked up. The Dow Jones Industrial Average fell 1.26%, the S&P 500 lost 1.38% and the Nasdaq Composite fell 1.78%. “It should come as no surprise to see the market take a breather as the Fed’s pessimistic hopes for the coming months fade,” said Mike Lowengart, head of model portfolio creation at Morgan Stanley.

In fact, it’s not just that the Fed’s doves may be flitting away. It’s that hawks pounce on it. Markets widely expected, and set a rate hike of 25 basis points for the next two Fed meetings. Yesterday, those expectations were badly shaken.

street. Lewis Fed Chair James Bullard said Thursday that he “was an advocate of a 50 basis point hike… and argued that we should get to the level of rates the committee deems sufficiently restrictive as quickly as possible.” Cleveland Fed President Loretta Mester echoed Bullard’s hawkishness, saying she wants even higher interest rate increases. Neither Mester nor Bullard voted this year on the FOMC, but their sentiments could indicate that the Fed is increasingly determined to stifle inflation.

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Correction: This report has been updated to specify the exact US trading day it discusses. An earlier version used the wrong day of the week.

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• US retail sales in January jumped 3%, versus the 1.9% expected. The number handily beat the 1.1% drop in December. Separately, industrial production was flat in January. Analysts had expected a gain of 0.4%.

• US stocks rose on Wednesday, regaining ground after a brief drop that followed the retail sales report. Asia-Pacific markets traded higher on Thursday, with Hong Kong’s Hang Seng up 2.31%. Japan’s Nikkei 225 rose 0.71% despite the country’s trade deficit rising to a record high of 3.5 trillion yen ($26 billion). Bitcoin jumped to $24,633.31, its highest level since August 2022.

• “BYD is so much ahead of Tesla in China… it’s almost ridiculous,” said Charlie Munger, vice president of Berkshire Hathaway. The Chinese electric car maker called its all-time favorite stock. Berkshire doesn’t seem to like TSMC much anymore, however, and it dumped roughly 86% of those shares between the third and fourth quarters of 2022.

• forefront Investors are “not only fighting back, but also mocking the Fed,” said Marko Kolanovic of JPMorgan, who correctly described. He warned that a sell-off in stocks may occur soon.

It is as if investors are not worried about inflation and high interest rates anymore. Strength in the US economy – which would involve further interest rate hikes – translated into gains in the markets.

I mentioned yesterday how sustainable consumer spending can support the economy. In fact, the annual increase in retail sales for January — 6.4% — is exactly the same number as the annual rise in the CPI. The prospects for sustainable economic growth appear to be injecting optimism into stocks as well. The Dow Jones Industrial Average rose 0.11%, the S&P 500 rose 0.28%, and the Nasdaq Composite rose 0.92%.

Recent economic activity and market movement is forcing economists and investors to reconsider the impact of interest rates. A higher cost of borrowing usually slows economic growth by reducing spending and increasing unemployment which in turn leads to lower inventories. However, “monthly reports on industrial production, retail sales and jobs were generally better than expected and point to a recovery in economic activity in early 2023 after a weak correction in late 2022,” said Bill Adams, chief economist at Comerica Bank. , He. She.

This topsy-turvy relationship between rising interest rates and picking up economic activity has some investors, like Satori Fund founder Dan Niles, speculating that the Fed could raise rates above 6%. And what if the price of everything continues to rise until then? It’s hard to imagine what the Fed will do next.

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Federal Reserve officials earlier this month agreed that smaller rate hikes should happen soon after assessing the impact policy is having on the economy, according to minutes of the meeting released Wednesday.

Echoing statements made by multiple officials over the past few weeks, the summary of the meeting indicated that smaller rate hikes are on the way. Markets widely expect the rate-setter Federal Open Market Committee to retreat to a 0.5 percentage point hike in December, after four consecutive 0.75 percentage point hikes.

Despite hinting that less severe moves are ahead, officials said they still see little sign of inflation easing. However, some committee members expressed concern about the risks to the financial system if the Fed continues to push at the same aggressive pace.

“A substantial majority of participants felt that slowing the rate of increase would probably soon be appropriate,” the minutes said. “Uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited why such an assessment was important.”

The minutes noted that smaller increases would allow policymakers to assess the impact of a succession of rate hikes. The next decision of the central bank on interest rates is on December 14.

The summary noted that several members indicated that “slowing the rate of increase could reduce the risk of instability in the financial system.” Others said they would like to wait to slow down. Officials said they see the balance of risks to the economy now skewed to the downside.

Markets were looking for clues not only about what the next rate hike might look like, but also about how far policymakers think they will have to go next year to make satisfactory progress against inflation.

Officials at the meeting said it was just as important for the public to focus more on how far the Fed will go with interest rates, rather than the pace of further increases in the target range.

The minutes noted that the final rate was likely higher than officials had previously thought. At the September meeting, committee members had penciled in an interest rate for final funds of around 4.6%; recent statements indicate that the level may exceed 5%.

Over the past few weeks, officials have spoken largely in unison about the need to continue to fight inflation, while also indicating that they may withdraw the level of interest rate hikes. This means a strong likelihood of a 0.5 percentage point increase in December, but still an uncertain rate after that.

Markets expect several more rate hikes in 2023, with the funds rate reaching around 5%, and then possibly some cuts before the end of next year.

The statement after the FOMC meeting added a sentence that markets interpreted as a signal that the Fed would make smaller increases in the future. That sentence reads: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Investors saw that as a hint of the reduced intensity of hikes after four straight 0.75 percentage point increases that pushed the Fed’s benchmark overnight lending rate to a range of 3.75%-4%, the highest level in 14 years.

Several Fed officials have said in recent days that they expect a likely half-point move in December.

“They get to a point where they don’t have to move as fast. That’s helpful because they don’t know exactly how much tightening they’re going to have to do,” said Bill English, a former Fed official now with the Yale School of Management. “They emphasize that politics works with delays, so it’s useful to be able to go a little slower.”

Inflation data has recently shown some encouraging signs, while remaining well above the central bank’s official target of 2%.

The consumer price index rose 7.7% in October from a year earlier, the lowest level since January. However, a measure the Fed follows more closely, the personal consumer price index excluding food and energy, showed a 5.1% annual increase in September, up 0.2 percentage points from August and the highest reading since March.

These reports came out after the Fed’s November meeting. Several officials said they were positive about the reports but would need to see more before considering easing the policy.

The Fed has come under some criticism recently that it may be tightening too much. The worry is that policymakers are too focused on retrospective data and missing signs that inflation is easing and growth is slowing.

However, English expects Fed officials to keep their collective foot on the brake until there are clearer signals that prices are falling. He added that the Fed is willing to risk slowing the economy as it pursues its goal.

“They have risks both ways if they do too little and they do too much. They’ve been pretty clear that they see the risks of inflation coming out of the box and the need for really big tightening as the biggest risk,” he said. “It’s a tough time to be [Fed Chairman Jerome] Powell.”

Wall Street appears to be finally embracing the idea that the Federal Reserve will raise interest rates into cap territory and stay at that high rate for a significant period of time. That is, the Fed will increase and hold, not increase and decrease as many in the markets predicted.

CNBC’s September Fed survey shows the median respondent believes the Fed will raise 0.75 percentage points, or 75 basis points, at Wednesday’s meeting, bringing the federal funds rate to 3.1%. The central bank is forecast to continue raising interest rates to a peak in March 2023 at 4.26%.

The new peak rate forecast represents a 43 basis point increase from the July survey.

On average, respondents predicted the Fed would remain at that peak rate for nearly 11 months, reflecting a range of views from those who said the Fed would hold its peak rate for just three months to those who said it would stayed there for up to two years.

“The Fed finally recognized the severity of the inflation problem and turned to sending positive real interest rate messages for an extended period of time,” wrote John Riding, chief economic adviser at Brean Capital, in response to the survey.

Riding sees a potential need for the Fed to hike to 5% from the current range of 2.25%-2.5%.

At the same time, there was growing concern among the 35 respondents, including economists, fund managers and strategists, that the Fed would overtighten and trigger a recession.

“I’m afraid they’re about to overdo the aggressiveness of their tightening, both in terms of the size of the increases along with (quantitative tightening) and the speed at which they’re doing it,” Peter Bookwar, ch. chief investment officer at Bleakley Financial Group, wrote in response to the survey.

Boockvar was among those who urged the Fed to change and tighten policy too soon, a delay that many say has created the need for officials to act quickly now.

Those polled put the likelihood of a US recession in the next 12 months at 52%, little changed from the July survey. This compares with a 72% probability for Europe.

In the US, 57% think the Federal Reserve will tighten too much and cause a recession, while only 26% say it will tighten enough and cause only a moderate slowdown, down 5 points from July.

Jim Paulson, chief investment strategist at The Leuthold Group, is among the optimistic few.

He says the Fed “has a real chance of a soft landing” because the lagged effects of its tightening will so far reduce inflation. But that’s provided it doesn’t climb too far.

“All the Fed needs to do to enjoy a soft landing is to back off after raising rates to 3.25%, let real GDP growth remain positive and take all the credit as inflation declines while real growth continues,” Paulsen wrote.

The bigger problem, however, is that most respondents do not see the Fed being able to achieve its 2% inflation target for several years.

Respondents forecast that the consumer price index will end the year at 6.8% on an annual basis, down from the current level of 8.3%, and will further decline to 3.6% in 2023.

It won’t be until 2024 that the majority predicts the Fed will achieve its goal.

Elsewhere in the survey, more than 80 percent of respondents said they had not changed their inflation forecasts for this year or next year as a result of the Deflation Act.

Meanwhile, stocks appear to be in a very difficult position.

Respondents lowered their average 2022 outlook for the S&P 500 for the sixth straight survey. They now see the large-cap index ending the year at 3,953, or about 1.4% above Monday’s close. The index is expected to rise to 4,310 by the end of 2023.

At the same time, most believe the markets are more reasonably priced than they have been for most of the Covid pandemic.

About half say stock prices are too high relative to the outlook for earnings and the economy, and half say they are too low or about right.

During the pandemic, at least 70% of respondents said stock prices were too high in almost every survey.

CNBC’s risk/reward ratio — which measures the probability of a 10% upside minus a downside correction over the next six months — is closer to the neutral zone at -5. It was -9 to -14 for most of the past year.

The US economy is expected to stagnate this year and next, with growth forecast at just 0.5% in 2022 and little improvement expected in 2023, where average GDP is forecast at just 1.1%.

This means that at least two years of below-trend growth is the most likely scenario.

Mark Zandi, chief economist at Moody’s Analytics, wrote: “There are many potential scenarios for the economic outlook, but under any scenario the economy will struggle over the next 12-18 months.”

The unemployment rate, now at 3.7, is expected to rise to 4.4% next year. While still low by historical standards, it is rare for the unemployment rate to rise 1 percentage point outside of a recession. Most economists said the US is not in recession now.

Federal Reserve Chairman Jerome Powell, speaking on Thursday, stressed the importance of reducing inflation now, before the public gets too used to higher prices and expects them as the norm.

In his latest comments, underscoring his commitment to fighting inflation, Powell said expectations played an important role and were a critical reason why inflation was so persistent in the 1970s and 1980s.

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Kathy Wood calls for major Fed policy change in three to six months, says deflation looms

“History strongly cautions against premature policy easing,” the central bank leader said in a Q&A presented by the Cato Institute, a libertarian think tank based in Washington, DC. “I can assure you that my colleagues and I are very committed to this project and will continue until the job is done.”

The event was Powell’s last scheduled public appearance before the Fed’s next meeting on September 20-21.

Markets largely took the comments in stride, with major averages little changed in early Wall Street. Treasury yields were mostly higher, with the two-year note, the most sensitive to a Fed rate hike, rising nearly five basis points to 3.49%. A basis point equals 0.01 percentage point.

The Federal Reserve has raised benchmark interest rates four times this year, with the fed funds rate now set in a range between 2.25%-2.50%.

Markets widely expect the rate-setting Federal Open Market Committee to implement a third straight hike of 0.75 percentage points this month. In fact, that probability rose to 86% during Powell’s remarks, according to CME Group’s FedWatch tracker of federal funds futures bets. Both Goldman Sachs and Bank of America told clients to expect that three-quarter point increase.

One reason we are acting aggressively is to make sure that inflation, which is hovering around its highest rate in more than 40 years, does not take root in the public consciousness, Powell said.

“The Fed is responsible for price stability, by which we mean 2% inflation over time,” he said. “The longer inflation remains well above target, the greater the risk that the public will come to see higher inflation as the norm, and this has the capacity to raise the cost of deflation.”

There are recent signs that at least the monthly trend in inflation is easing. In particular, gasoline prices have been falling steadily after briefly rising above $5 a gallon earlier in the summer.

The Federal Reserve gets one last look at inflation data ahead of next week’s meeting when the Bureau of Labor Statistics releases August consumer price index data. Economists expected a core 0.2 percent increase in the consumer price index after it was flat in July, according to FactSet. However, the year-on-year increase in July was 8.5%, and many areas outside of energy saw significant increases.

Powell said inflationary pressures came largely from pandemic-specific reasons. When inflation first started to rise in the spring of 2021, Powell and his colleagues dismissed it as “transitional” and did not respond with any major policy moves before starting to raise rates in March 2022.

However, he said it was now incumbent on the Fed to continue acting until inflation fell and avoid the consequences of the 1970s, when the failure to implement an aggressive policy response allowed public expectations of high inflation to build.

“We must act now, decisively, decisively as before, and we must continue until the job is done to avoid this,” he said.

Powell noted the strong labor market, with steady hiring levels holding up despite rate hikes, even as Fed officials expect the official unemployment rate to rise. He warned last month that the economy could experience “some pain” from tighter policies, but said the slowdown in growth was necessary to tame inflation.

“What we hope to achieve is a period of below-trend growth that will push the labor market back into better balance and that will bring wages back to levels that are more consistent with 2% inflation over time.” of the weather,” he said.

There are few things that cause financial distress and anxiety more than a plethora of credit card debt with high interest rates.

Millions of Americans of all income levels carry large balances on credit cards that charge very high interest rates. According to Federal Reserve data, the average annual percentage of cards issued by commercial banks was 16.45% at the end of last year, and the rates charged by stores’ credit cards can be more than 20%.

While card balances have fallen significantly from a peak of $927 billion at the end of 2019, they remained high at $841 billion at the end of the first quarter and could continue to grow.

“Credit card debt remains a huge problem,” said Rachel Gittleman, director of financial services for the American Consumers Association. “There were some payments at the start of the pandemic, but I think the balances may start to rise again with increases in the cost of living.”

If you’re struggling to make minimal payments on credit card balances, there are options to help you reduce the amount you owe and/or reduce the amount of interest you pay on debt.

However, there is no magic bullet for high debt. The solution starts with changing your behavior.

“The only long-term solution is to fix your spending habits,” said Summer Reed, financial advisor and senior education director at the Association for Financial Advisory and Education Planning. “Nothing will work unless you stick to a reduced spending plan.

“You should get your spending below your income level.”

A credit card balance of $10,000 with a 20% interest rate costs you $167 per month and this just ensures that your balance does not increase. To start paying off the debt balance, you need to do more.

There are two primary aspects to controlling your spending; Not using your credit cards and formulating a sustainable budget that includes paying off card balances.

On the first front, Red suggests people cut off all but one of their credit cards. Don’t cancel accounts because your credit score will suffer

If you’re still itching to use your card, put it in the freezer. “It takes about three hours for a credit card to melt and be ready to use,” Reed said. “This gives you time to think about your purchases.” Use the card only for purchases that you can pay off at the end of the month.

On the second front, you will have to make some sacrifices to start reducing your debt balances. It could mean downsizing a house or apartment, selling a car, or cooking at home more. It is essential that you draft a budget that details all of your expenses and income to determine where you can cut back on spending and pay off debt.

Gittleman recommends getting help. “Every consumer’s financial situation is different,” she said. “They have different debts, different spending habits, and different things of value to them.

“Working with a certified financial advisor can help you discover your best options.”

Regarding debt repayment strategies, there are two basic repayment models. The first method — called the snowball method — pays off smaller debt balances first to give consumers some momentum. The idea is to pay the minimum amounts on all debt balances to avoid late fees or high interest fees, and then apply the rest to your smallest debt balance.

When you pay off that balance, you move to the next smallest balance. “The drive to pay off a very valuable debt,” Reid said. “Being able to see that can be a powerful motivator for people.”

If you don’t need positive reinforcement, you can focus on the debt with the highest interest rate first. In the long run, the so-called avalanche method – from the highest to the lowest – will save you the most interest charges.

While changing your spending patterns is the only thing that will sustainably get you out of the debt gap, there are other steps you can consider that may reduce the amount you owe or reduce the interest you incur. Here are four procedures to consider:

1. Contact your credit card company to see if you can reduce the amount you owe or lower the interest rate on the debt. Do not drive the possibility of a personal declaration of bankruptcy but explain that you are unable to pay your existing balance under the current terms. Credit card companies want you to get paid and may offer some comfort in making sure they do.
2. It may make sense to transfer the credit card balance to other cards that do not offer any interest for a certain period, but they are not free. They may offer 0% interest for six or 12 months, but they usually charge 3% to 4% of the balance up front. If you don’t pay off the debt during this grace period, you won’t be better off at the end of it.
3. Consolidating your higher interest credit card debt and paying it off with a personal loan at a lower rate can significantly reduce your interest expense. Most likely, it should be a home purchase loan if your credit profile is poor. The downside is that if you don’t control your spending, your home could be in danger down the road.
4. If your debt is very large—often due to medical expenses, which are a major factor in 60% of personal bankruptcies—bankruptcy may be your best option. If most of your debts are unsecured, such as credit card balances and medical bills, bankruptcy can give you a fresh start. Talk to a financial advisor and bankruptcy attorney before taking this step.