Fed joins central banks around the world in race to raise rates

What is it? 

“In March, the Federal Reserve looks set to raise interest rates in the face of high-flying inflation. If it follows through, it will be far from the first central bank to finally tighten policy since the pandemic began. But it also won’t be the last.”*

“It appears that all of the major central banks are now taking a “hawkish” stance, referring to a tilt toward higher borrowing costs as opposed to the “dovish” stance of wanting to keep rates low.”*

Why does it matter?

“‘We don’t think the bumpy ride is over,’ UBS Head of Equity Derivatives Research Stuart Kaiser told Yahoo Finance Monday.”*

If prices begin to deflate in the next few months, we do not want to be on the wrong side of that market move. Many investments that were great throughout 2021 have underperformed so far this year. As interest rate hikes are near, we’re reducing the risk associated with a broad equity market decline.

Fed Rate Hikes Bets Accelerate as Inflation Edges Higher

What is it? 

Inflation is often measured using CPI (the consumer price index).  As the CPI increases, inflation is said to have increased also. 

“The headline consumer price index for the month of January was estimated to have risen 7.5% from last year, up from the 7% pace in December and the fastest rate since June of 1982,”**

Why does it matter?

Hinesh Patel, portfolio manager at Quilter Investors said, “Markets have been caught unawares by this surprise to the upside and will just reiterate the Federal Reserve’s need to start hiking policy rates at its next meeting.”**

We believe that the higher inflation goes, the more it will have to draw back to normalize near its historical levels. This is partially affected by the rate hikes the Fed has alluded to starting in March. 

Other articles I found interesting this week:

NFT, crypto startup Alchemy raises $200M in venture capital, hits unicorn status

Stock recovery takes a breather ahead of U.S. inflation numbers

U.S. House Speaker Pelosi sees legislation on lawmaker stock trading ‘pretty soon’

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Our last portfolio reallocation: 1/31/2022. 

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Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.

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Sources:

*Brian Cheung. “Fed joins central banks around the world in race to raise rates”. 2/8/2022. https://finance.yahoo.com/news/fed-not-the-first-nor-the-last-of-the-major-central-banks-to-raise-rates-144142876.html

**Martin Baccardax. “January Inflation Soars to 7.5%, Highest Since 1982, As Energy Soars; Fed Rate Hike Bets Accelerate”. 2/10/2022. https://www.thestreet.com/markets/january-inflation-soars-to-7-5-highest-since-1982-as-energy-soars

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