Page 21 - BusinessWest April 18, 2022

Even if the Fed decides on multiple hikes this year, Brian Canina says, consumers should realize that interest rates are still low from a historical perspective.
term future.”
The expectation from consumers is that, once
the Fed raises rates, savings interest rates will fol- low shortly after, Canina added. “In the current environment, that’s very likely not to be the case this time around.”
Uncertain Times
Canina noted that the Fed employed a similar rate policy in the wake of the Great Recession, but “this is a little different situation, so coming
out of it, I think it will be a little different in terms of how it plays out.”
Specifically, the key factors in the financial crisis of the late oughts were credit and housing issues. “In this one, you have the supply chain. You also have the Great Resignation, and the labor market was heavily impacted. The supply chain has not corrected itself, and we do have some labor-market matters to deal with. If they continue to increase interest rates six or seven times before the end of this year, it’s going to be interesting to see what kind of impact that has on the markets and consumers particularly.”
Canina added that commercial lending at PeoplesBank slowed slightly in 2020 and 2021, and 2022 is expected to be stronger.
“But the rising interest-rate environment has not impacted the commercial side just yet,” he explained. “Commercial rates are based more on competition than the markets. Mortgage pricing is really designated by the government agencies, Freddie Mac and Fannie Mae. So that’s kind of
a set market, and mortgage companies price off that.
“When pricing commercial mortgages,” he continued, “you’re pricing to competition, and they’re usually a little slower to react, so right now, we’re seeing lower rates for commercial than residential mortgages, which is a total anomaly, something we don’t see in a normalized interest-rate environment. In the next six to nine months or so, that should straighten itself out. We’re seeing some unusual trends right now.”
Sullivan said gas prices are a larger factor for people right now than interest rates. “They’re staring at gas prices that average $4 a gallon and could be going to $5 a gallon. That’s more of a
psychological factor for the average person.” It’s certainly not the first economic shock of
recent years.
“The pandemic definitely shocked the system,
creating disruption in the supply chain,” Sullivan said. “That certainly includes building materials, which is one reason why real-estate prices aren’t coming down. And those material costs, the peo- ple I talk to say it’ll be another year or two before that starts to correct itself. So that will keep the inflation rate high.
“The Federal Reserve has some tools, but they’re limited tools,” he added. “We’re in such a unique situation with the supply chain being so screwed up. It’ll take awhile.”
As for the other factor weighing on the econ- omy — a persistent worker shortage — “wages are going up, and pressure on wages is going up. Is that bad or good? That depends on what lens you’re looking through. It’s tougher for employers who have to pay that.”
Taking the big picture on what’s happening in the economy, Nerdwallet said the Fed’s recent move — and those to come — aren’t necessarily a bad thing.
“Reducing debt, especially when you’re paying a variable interest rate, will help you in a rising- rate environment. So will increasing your savings and staying focused on your long-term investing strategy, in spite of day-to-day fluctuations in the stock market,” the site notes. “If you manage your money carefully and the economy stays strong, rising rates could be a good thing for your wal- let.” u
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