As we move into summer of 2020, COVID-19 concerns have been slowing and the economy is starting to open up. The markets had dropped significantly due to the fear of this unseen enemy and very quickly recovered most of the losses, primarily on the back of many government programs and optimism for the economy to kick back into gear. The government and the Fed have been there time and time again to back stop the market during this short period with stimulus, spending, and monetary policy. One can’t help but wonder: what impact will this have for our financial futures?

Part of how we help our clients is to dig into the economics of current events to explore what the future impact may mean to savers. As we explore potential risks in the future, we want to share four potential consequences of the current programs, so you can be prepared to navigate through these uncharted waters.

1)     Watch out for inflation! Between all the federal programs, total spending adds up to nearly $7 TRILLION and counting. With this level of new money supply added to the economy, if not unwound properly, we certainly can expect to see some significant inflationary pressure as we look out a couple of years. To help prepare and handle the potential for higher costs in the future you may consider slightly more exposure to asset classes that tend to do well in an inflationary environment (equities, gold, inflation protected bonds, etc.)

2)      Future taxes may be higher - We are financing our future right now with the understanding that future generations will be paying for this spending for a long time. We have many conversations with our clients about utilizing debt to move them forward, but to be careful of overextending if the impact may be too significant or costly. With the federal deficit so high already, it is likely we may see taxes go up in the future to balance this budget. Will our children and grandchildren be paying for this via higher taxes for a while to come? If you feel taxes may be higher in the future, you might consider Roth accounts or other avenues to help create tax-free or more tax efficient vehicles for yourself and your heirs in the future.

3)      Low interest rates – Interest rates are at all-time lows, and there is even some conversation of negative interest rates. Low interest rates are a tool to encourage spending for individuals and businesses, which may help boost the economy. However, low interest rates (especially paired with additional money supply) can add to inflation concerns in the future and when interest rates do rise, bond prices fall. Your bond positions are meant to be the safe portion of your retirement funds, so it is critical to understand the impacts of low and rising rates.

4)      Potential unemployment impact on the housing market – Even during these tough times, most of the housing market here in Seattle has been hardly affected. Much of this may be due to the additional benefits the government has offered for unemployment (some folks making more on unemployment than they had while working). As we look forward, these additional benefits will end and we have to wonder if this may impact housing. Projecting ahead, it may be wise to be sure your cash flow will allow for you to maintain mortgage payments in case prices drop. If this lasts a while and many are left unemployed with no money to pay their mortgages, we may see housing prices take a hit.

This has been an unprecedented series of events and these programs have helped millions of people to manage through these challenging times. The years ahead will tell the story, but here are some indirect impacts to consider based on the programs that have been rolled out. I wish I had the crystal ball on this, however with the information we do have and analysis around the future impacts, we can make some small tweaks today to create strategies to help mitigate these types of risks that may be present tomorrow.