Federal Reserve Raises Interest Rates for 10th Time. What Does it Mean for Investors?
Key takeaways
- The Federal Reserve unanimously agreed to raise interest rates by 0.25 percentage points, as widely expected
- The stock market dipped, gold retreated from record prices and crypto was up at the news
- Other factors like bank failures and debt-ceiling crises are making investors nervous — so take a long-term approach to avoid making rash decisions
The Federal Reserve has raised interest rates once more, surprising nobody but hinting that the rate rises may come to an end sooner rather than later. It was a welcome message amid the doom and gloom that has been dominating financial headlines of late. We have the latest on what went down at the Fed meeting and what investors can expect next.
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What was the Fed decision?
The Fed unanimously voted to implement a quarter percentage point increase, bringing interest rate levels up to a 5% to 5.25% guideline. It’s the highest level seen since August 2007. Fed chair Jerome Powell was keen to hedge any bets about the rates coming back down any time this year, but he was more optimistic about the economy’s future.
According to Powell, the U.S. economy might not see a recession after all. “Avoiding a recession is, in my view, more likely than having a recession,” he said, citing the jobs market’s resilience despite nine prior hikes in a row.
So what does it all mean for investors?
What does it mean for investors?
The markets all reacted pretty much as predicted. In short, the stock market dipped slightly and Treasury bond yields fell, while cryptocurrencies made gains and the precious metals markets cooled slightly.
In some ways, the Fed interest rate is almost the least interesting that happened this week. We’ve had a third U.S. bank fail, with First Republic sold off to JPMorgan, while the debt-ceiling crisis in government has reached new heights as time runs out on a decision. Both situations have made Wall Street nervous, with regional bank shares plunging.
The best advice is to take a long-term approach to your portfolio, invest in ‘recession-proof’ stocks and diversify across different asset classes. This will help to reduce overexposure to one company or stock. Thankfully, we’ve got themed Kits that do all this for you.
The bottom line
The Fed is keeping its options open for more rate raises, saying its approach is data-dependent. We’re yet to see the long-term effect of all these rate rises hitting the markets, but a best-case scenario is the U.S. economy narrowly avoids a recession and inflation comes into the target range. It’s not much to ask, is it…?
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