Hello Again – In March this year the Federal Reserve started hiking key interest rates to try and reduce inflation. The last 4 hikes were each .75%. But today they raised them by only .50%. What does it mean? I think it means they are getting closer to their target rate at which point they would stop raising rates. I don’t know that for sure, but that’s my hunch.
Here’s the game of chicken being played by the Fed. When they raise rates today, the economic effect of that is sometimes not realized for 6-9 months. So what will be the effect in 6-9 months of the hikes they are implementing today? Or another way of asking this question is this, is the US economy strong enough to absorb these latest rate hikes without entering severe recession? The truth is we simply do not know. Nobody does.
The ideal outcome is that inflation comes down and there’s no severe recession. That is what we call a soft landing, and it has a very positive effect on financial markets. Of course the alternative is a severe recession, unemployment rises, and financial markets stay stuck in the mud a while longer, and the Fed reverses course and starts to cut rates to re-stimulate.
Of course nobody wants a recession, but here’s the good news. In either case, eventually things should turn around. The last time something like this happened was the early 1980s (noted below). Yes, we had a recession, and yes, financial markets stayed stuck in the mud awhile longer. But, when it normalized, things turned up fast. In fact, the S&P 500 rose some 70% in 9 months, and if you weren’t already in it, then you missed it! Oh, and if by chance we do get a soft landing, then look out above, because that means it may start even sooner!
In summary, the Fed slowed their rate hikes today from .75% to .50%. Is that a sign of better things to come? We don’t know yet, but by the time everyone figures it out, it will be too late. The market will have already moved, and the average investor will get FOMO and then buy high once again, just before the next big sell off. It’s a vicious cycle. Don’t be part of it. If you are a long-term investor, be brave, stick with your plan, and do what you can to stay invested!
Call or email anytime for a visit,
Mike 
37 Years of the S&P 500 Stock Index which tracks the stock returns of 500 of the biggest companies in America.
