SigMT

You've heard it on the radio and on TV – gimmicky salespeople proclaiming that there has never been a beer time to buy! And today's historically low-interest rates have certainly made it cheaper to borrow money to buy a house or invest in a business. But what about fixed-income investors? Low rates mean lower payouts from CDs and other bank products, as well as Treasury, corporate, and municipal bonds. is can present a challenge for those who rely on such investments for income. How did we get here? Interest rates are one tool the Federal Reserve uses to steer the economy. e Fed dials interest rates up and down by adjusting the federal funds rate, which is the rate lending institutions charge when making short-term loans to each other. is rate directly or indirectly affects how these institutions set interest rates for consumer products, such as savings accounts, mortgages, and business loans. In an economic downturn, the Fed lowers rates to entice people to borrow and spend money. It raises rates later in the market cycle to slow down spending and keep the economy from overheating. In the 1980s, interest rates reached as high as 22% due to runaway inflation. is was great if you wanted to buy a CD, invest in bonds, or maintain a high balance in a savings account. It wasn't so great if you wanted to take out a business or home loan. More recently, the Fed set interest rates near zero to help the economy recover from the Great Recession. It cut rates to near zero again in 2020 in response to the COVID-19 recession. When will rates rise? e Fed typically waits for signs of a healthier economy to start raising rates. ese signs include lower unemployment numbers and rising inflation. In June 2021, the Fed's Federal Open Market Commiee (FOMC) unanimously chose to leave rates close to zero in light of the stronger but still fragile recovery. e FOMC has signaled that it intends to leave rates unchanged until the labor market achieves full employment and inflation moderately exceeds 2% for some time. e FOMC has expressed optimism in its recent statements, forecasting that the economy will reach the Fed's employment and inflation targets in 2023. Should this happen, we believe that rate hikes will be coming at some point. How high can rates go? While rising rates may be on the horizon, they may not go nearly as high as consumers saw in the past. Many Fed watchers caution that it could still be an environment of "lower for longer." Barring significant, prolonged inflation and resulting rate hikes, the days of CDs earning higher levels of interest may be out of reach for quite some time into the future. Why are interest rates important? If the cost of going to the grocery store, eating out, buying gas, or paying your utility bill rises at a faster pace than the rates your cash- based products are paying, you're essentially losing money if your assets are grossly over-allocated in savings accounts, money markets, or CDs. ese types of instruments are important to have as part of your asset allocation mix, but it's also important to be mindful of how much you allocate. Be strategic in how much you have so you can beer deploy any excess in other conservative areas. We offer many conservative strategies designed to provide income for our clients. If your portfolio is too heavily weighted in cash-based products, contact our office to discuss potential alternatives to the low yields we are currently experiencing. CDs and bank savings accounts are insured by the FDIC and may provide fixed yields, whereas alternative investments' principal and yield will fluctuate with changes in market conditions and may not be insured. FACTS ON FINANCE PROVIDED BY SHARON HANCOCK S MT Stifel does not provide legal or tax advice. You should discuss your particular situation with your legal and tax advisors. Facing the Challenges of Today's Low-Interest Rate Environment Article provided by Sharon Nalivka Hancock, Branch Manager / Vice President/Investments, with Stifel, Nicolaus & Company, Incorporated, member SIPC, and New York Stock Exchange, who can be contacted in the Great Falls, Montana, office at (406) 761-3500. 98 | SIGNATURE MONTANA

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