Rate cuts and recession jitters: A wild ride in the US & UK
Good news keeps popping up, but doesn’t seem to stick around for long...
For weeks, US stocks haven’t been having a good time, as there were fears that the country would go into a recession. This week, the Federal Reserve (the “Fed”), cut the interest rate for the first time since 2020 by 0.5% — higher than last month’s corresponding UK cut (0.25%). So, fears of a US recession have been quietened, especially since there are plans to make two more 0.25% cuts this years, four more in 2025, and two more in 2026.1
In the UK, the Bank of England’s August cut boosted consumer confidence, but, at the same time, the Government has been bumming us out about the upcoming “painful” Budget (30 October), by saying that there are going to be a bunch of tax cuts. So confidence is going back down.
It feels like we’ve had a couple of fleeting moments that things would get better, and maybe life wouldn’t continue getting more expensive — in the UK, the General Election result and interest rate cut; in the US, Harris entering the presidential race and this week’s move by the Fed.
But here we are. Uncertainty is still very much around, and the effects of good news wear off quickly. Certainly in the UK, it feels like this new Government has really been hitting the headlines for arguably bad decisions, isn’t communicating a message of ‘we’ve got this; we’ll all be fine’ and the October Budget is something that everyone is dreading.
Let me know in the comments how you’d describe your state of confidence as a consumer?
1. If you read one article, read this!
He’s been a consumer champion and writer at The Guardian, and Miles Brignall (who’s leaving the paper after 20 years), shares his tips based on what he’s learnt from readers’ letters and emails.
Some highlights, but really, much of this is gold:
Sign up for two-step verification on every account you can — including on your email; “a hacked email account is a gateway into someone’s financial life”
When complaining, complain on the phone and follow up with an email. If you’re getting nowhere, contact the company’s chief exec
When buying appliances, his preferred choice is Bosch. Other brands may be more expensive — but no better or longer-lasting
When buying white goods, go to John Lewis or Marks Electrical
When buying a car, go for Toyota - and avoid German brands or anything by Jaguar Land Rover
If you’re buying breakdown cover, go with AutoAid over the big names - AA or RAC
Buying a new mattress or a fitted kitchen is always a nightmare!
2. Gen Z workers neglect pensions to cope with daily costs
This Is Money
Working Gen Z’ers (which covers the age range 12-27) are, unsurprisingly, not paying as much into their pensions as they could:
21% are currently saving nothing towards their retirement
51% have paused their contributions at some point
Of those that do contribute to their pension, 31% are only contributing the minimum 3% contribution
There is a school of thought that says that, in order to calculate the % you should be contributing (combining what your employer puts in with what you contribute), you need to divide the age at which you started saving into a pension by two.
That means if someone started saving into a pension aged 22, they should be contributing 11% total. That is a lot!
What does this mean?
Young people have never been good at saving for a future that they can’t connect emotionally with; hell, even older people aren’t good at this. Also, based on anecdotal evidence, I have the feeling that they also distrust this old-school approach to retirement planning; instead they want to enjoy life today as well as build wealth in other ways to support their future.
The only benefit that pensions offer them is to reduce their tax liability and, while not yet high-earners, this isn’t enough of a compelling path to take.
3. The 4% ‘rule’ for pensions
So you’ve saved into a pension for years and you finally decide it’s time to start taking money from it. How long will it last you?
This is where the 4% rule kicks in; the general guidance is to take 4% of the pension pot value each year, leaving the remaining amount invested and (hopefully) continuing to grow.
But, actually, it’s just a finger in the air calculation. In your early retirement, you’re likely to be spending more, and then tapering this down over time. There will also be care costs (most probably) that you need to cover. And all of this expenditure is correlated with your health and lifestyle, which differ from person to person.
The other thing to consider is that you can manage your withdrawals in a way that means that you’re getting the most out of what’s in your pot.
Not all money in a pension pot is held in the same place; some will be in shares, some will be in dividend-generating shares, some will be in bonds, which generate interest. When stocks are doing badly, you would want to be relying on income (from dividends and interest), rather than selling shares. When they’re doing better, you can sell fewer shares to hit the same monetary goal, as interest from bonds may be lower.
This literally hadn’t occurred to me until I read this article, mainly since retirement is still ages away for me, and my goal is to build wealth rather than thinking about how to spend it.
MONEY
Scam watch: Criminals maintain a “sucker’s list” of potential targets; if you answer a call, or respond to a scam message - you’re likely going to end up on one of those.
A look at wealth-gap relationships (I’m looking for a man in finance…)
Ikea’s new secondhand shop looks a lot like Facebook Marketplace
UK savers are apparently £4 billion a year better off just as a result of higher interest rates on savings accounts
LIFE
Dadfluencers: their content is for men, but their audience is mainly women
Apologies for the delayed send out today; I am travelling!
Know someone who would enjoy reading this? Do share with them!
Of course, this may change, since no one knows what might happen in the future to affect the economy - in recent years it’s been a pandemic, wars…