Covid response has entered a new phase and feel
Action item: It is time to consider contributing to your individual retirement account either Roth IRA or Traditional IRA. The rules have not changed but the income limits have moved marginally higher. Link to the IRS website: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
Tax filing time is also approaching so be aware of gathering your documents and requesting any missing documents that you need to file. The IRS is overwhelmed with demands, questions and earlier year returns so if you are expecting a refund, then plan to file sooner rather than later. Other than contributing to individual retirement plans most tax considerations and actions are determined based on a calendar year.
On a walk with my wife this past week I turned to her and said, “remember the earlier days of Covid?” Days and days in a row when we stayed home, didn’t see any friends in person, walked endlessly, and stayed away from crowds? An ironic sort of nostalgia set in for the earlier days of the pandemic with little on the agenda. Contrast that to the now ramping up busyness of seeing friends, music, and going out more frequently. In 2 ½ weeks, we leave for a 4 week trip to Greece and Israel after an international travel drought of 2 ½ years. This is a trip that was planned for all the way back in April 2020.
So the Covid response has entered into a new phase of vastly decreased restrictions in regard to mask requirements and interest in vaccines. JoBeth and I are scheduled for our second booster next week before we leave on our trip. The economy seems to be chugging along based on the employment report last week. Even though the “great resignation” seems to have ended there are signs to be concerned about in the report. Even though the hiring number was below expectations, it was positive. Markets reacted positively to the news during the month of March. Last week, a Federal Reserve Governor who is typically dovish-meaning in favor of keeping rates low suggested that rates have to move up faster and Fed bond-buying needs to stop sooner. This spooked markets with a resulting steep decline especially in Nasdaq.
Speaking of labor markets, the Wall Street Journal had an article yesterday about the relationship between immigration and employment. Even though immigration is one of many variables affecting employment, it has particular significance in certain sectors of the job market. In particular, a higher proportion of jobs in the lower-income service sector are impacted more significantly than other sectors of the job market. As immigration has declined, these sectors have felt the pain more. These include jobs in health care and especially nursing homes. There is no doubt that Covid as well as general burnout and the difficulty of the job result in turnover but the degree of difficulty in filling these jobs is extreme.
The Federal Reserve minutes were released last week. The release came after a couple of Fed Governors stated their concern about inflation. Consequently, their recommendation is to reduce the balance sheet of the Federal Reserve by halting purchases and even beginning to sell securities. Interest rates rose significantly this week, especially for the 30-year mortgage rate which is nearing 5%, an astounding increase from just 4 months ago. This is making a home purchase even more difficult for first-time homebuyers. Mortgage refinancing has slowed to a glacial pace. Will home price declines be the next frontier for asset deflation? This environment is unlike previous high-interest rate times given the current and ongoing supply shortages in the housing market.
Neil Irwin wrote a piece in Axios discussing the likelihood of achieving the Fed goal of a soft landing. The analysts he spoke with seem to think the likelihood is the Fed will overshoot in its efforts to tighten monetary policy-shrinking the Fed balance sheet and raising rates rather than navigating a soft landing. At least that is what the bond market is saying.
He has another good piece analyzing the Fed's minutes from last week.
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