Three-Quarters More and Counting – Fed Interest Rate Hike
The long-awaited day has come! The day when the Federal Reserve has made its monthly decision on how to combat inflation in the United States. As for what most were prepared for, another three-quarters of a percentage point lift was set on interest rates today.
Interestingly, markets were sent on a whipsaw, subsequently falling at market close. Although investors may have been prepared for the rate hike, discussions with the Fed and Jerome Powell affirmed hawkish suspicions regarding their ultimate plan to bring inflation down to its targeted 2% range. Their message has not changed since the Jackson Hole Symposium, and they plan to raise the federal fund rate until they hit a terminal rate of 4.6% in 2023. After the third consecutive 75-basis point hike, the federal fund rate is now at a range of 3% – 3.25%, the highest it has been since 2008. They have no current plans of cutting the rate until next year, and several have pointed to the consequences this can have on home equity loans, credit cards, auto financing, and especially triggering a recession.
In the end, investors must remember no one should fight the Fed; the Fed has only one job in mind and that is to curb inflation and bring it down to controllable levels. This aggressive tightening can come with its own repercussions, but as Powell said today, “I wish there was a painless way to do that – there isn’t.”
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.