The Fed’s Backing More Rate Hikes, But Timing Could Prove Tricky

The Fed’s Backing More Rate Hikes, But Timing Could Prove Tricky

10 months ago1 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.



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