What to Expect in the Future From the Federal Reserve?
The Federal Reserve met this month for their second meeting of the year and raised rates by 0.25%. The Fed will meet 6 more times this year and announced that the plan is to raise rates at every meeting, for a total of seven interest rate increases in 2022. Over the last couple of days, additional language was added that during these coming meetings, instead of only raising by 0.25% each time, the Fed would consider 0.50% hikes as well. Either way, we now have a plan – rates are going up given Chairman Powell’s recent meeting.
Why is the Fed Raising Interest Rates?
The U.S. is experiencing a higher-than-average inflation rate. The Consumer Price Index rose 7.9% last year, and prices this year continue to surge. Gas, food, energy, you name it, everything has gone up in price.
Here’s a quick look below at what rate hikes do:
While the future feels uncertain, Fed Chairman Powell is choosing to fend off inflation first and foremost, by sacrificing growth.
We mentioned in our last newsletter, historical inflation averages near 3% and right now we’re running at 7.9%. The 10-year Treasury bond yield is 2.45% currently, while the historical average is closer to 4%. If the Fed can move rates up, pushing bond yields higher from current levels, while at the same time slowing growth modestly to lower inflation, the balance of economic growth will continue to provide a solid future for the consumer, businesses, and the stock market.
Wondering what your portfolio should look like in a time of rising interest rates? Schedule a free call with an advisor.