Even with the Ukraine Russia conflict going on, Jerome Powell and The Fed plan to raise the Fed Funds Rate in March 2022. I discuss the potential impacts of the first interest rate hike on inflation, stocks, and housing in 2022 and beyond!
-Impact of Inflation VS Fed Rate Hike
-Stock Market Taper Tantrum Of 2022
-How Much Will Be The Rate Hike In March?
-Impact of Ukraine Crisis On Inflation
-Employment & Inflation Status
-Impact Of Inflation And Low Interest Rates
-Impact of Rising Rates On Stocks
-When The Fed Hiked Rates From 2015-2018
-How Many Rate Hikes In 2022-2023?
-Will The Fed Tighten Into A Recession?
-Conclusion: What We Can Do As Investors
Even with the uncertainty caused by the Ukraine Russia conflict, The Fed must raise interest rates to combat inflation that has come in at the highest levels in 40 years.
With CPI Inflation at 7.5% and PCE Inflation at 6.1%, and Shadow Stats saying inflation is really at 15%, any inflation gauge you use is coming in way above The Fed’s 2% inflation target.
So now it’s not a question as to whether The Fed will raise rates, but by how much and at what frequency they’ll be raising interest rates. It looks like the money printing spigot is getting turned off as The Fed ends quantitative easing (QE) and begins quantitative tightening (QT).
In the aftermath of 2020, The Fed was willing to let inflation run hotter to allow for employment to recover. In April 2020, the US unemployment rate reached 14.8%! Now that we are basically at full employment with an unemployment rate of 4%, The Fed’s Dual Mandate goals have become lopsided where price stability and moderate long term interest rates are massively off target.
Low interest rates and high inflation has been good and bad as The Fed has encouraged borrowing and spending while asset prices have been going up. If you could lock in a low interest rate mortgage, you won because inflation is eating away at the value of your mortgage debt and you’re paying it back with dollars that are worth less every day. However, this is also negative because we’re paying more for groceries and everyday goods and services. In addition, The Fed has taken on massive amounts of debt in the form of US Treasury bonds and mortgage-backed securities that have caused their balance sheet to balloon to $9 trillion!
When there is a new rate hike cycle, the stock market has gone up for 9-10 months after the first rate hike on average since 1955 according to Deutsche Bank analysts. But then the S&P 500 stalls out and goes nowhere or declines in the 12-13 months thereafter. Then the stock market resumes its upward trajectory 2 years after the initial rate hike, on average.
So stocks could either go up or down, depending on how much of a rate hike the underlying companies in the markets can handle. David Einhorn believes that markets peaked in 2021 and he has predicted there will be an economic slowdown, which does not bode well for stocks.
Powell was asked in Congress on March 2nd if there is there a risk that The Fed’s new policy to raise interest rates will backfire and cause a recession without actually reining in inflation? How significant is the risk of stagflation? This question must be on a lot of people’s minds. Will interest rates bring inflation in line with The Fed’s price stability goals while sustaining continued economic expansion and a strong labor market? Listen to Powell’s answer and judge for yourself what the likely outcomes could be!
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