10 months ago • 1 min
Minutes from the Federal Reserve’s (the Fed) latest meeting earlier this month showed that “almost all” members agreed with a 0.25 percentage point hike – and “a few” were even in favor of a bigger 0.50 hike. And because a slew of hot-to-touch economic and inflation data has been released since that meeting, you can bet the Fed’s probably pretty serious about keeping rates higher than the market previously expected.
For investors, it’s a strong message: unless it’s extremely clear that inflation and the economy are truly slowing, the Fed’s unlikely to change its stance. But estimating the trajectory of growth and inflation isn’t exactly rocket science. See, it can take a while for clear trends to emerge in economic data, and by the time they do, it’s often too late to pre-emptively act. That’s why “hard landings” (nasty recessions) tend to start as “soft landings” (smooth slowdowns) and then catch investors by surprise. And that means there’s a chance the Fed could keep hiking rates even when the economy is already slowing.
Of course, it’s possible that the economy is indeed really robust this time, and we might well see inflation drop without the economy suffering a nasty recession. But every time the Fed hikes rates or keep them high, it means more mixed signals about the economy and a higher risk of accident for risky assets like stocks. So sure, hope for the best, but prepare for the worst.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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