The Federal Reserve Raises Rates
With all of this talk about what the Federal Reserve is going to do, it’s important to understand the implications behind their decisions. They are starting a program to hike interest rates in an attempt to lower inflation in a way that doesn’t cause a drastic reaction from the labor market. The rate increase is the sharpest we’ve seen since 2000 and they have noted that additional moves of the same size are on the table for the coming months. The bet is that a steady series of hikes will help to cool the economy just enough to bring prices down, but not enough to throw the country into a recession. In theory, rising interest rates will increase lending costs, dampening both business and consumer spending and eventually lead to lower prices across the board. They have made it clear that this isn’t just a move to steady financial markets, but to ease the burden on the consumers who have been hit hard by rising costs of goods, especially necessities.
It is quite easy to get caught up in the hysteria of rising inflation and impending rate hikes, but what effect do these things actually have on the stock market? Just as with most data points, when you zoom out to see the lasting effect of a seemingly negative indicator, the effect turns out to be minimal. Though we can pinpoint different moments in history when rising rates and inflation weighed heavily on the market, for the most part, equities were higher even six months after these events took place. With the stock market volatility being as elevated as it is, we are expecting to see some massive moves, both up and down, while this action is being absorbed by investors. Not much has changed structurally since the end of last month, and it seems like this directionless, choppy market is here to stay for a bit longer.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal.
The economic forecasts set forth in this material may not develop as predicted.