Investors cautioned to brace for Federal Reserve rate hikes as the labour market strengthens.

As the Federal Reserve gears up for rate hikes, investors must act swiftly, revising their portfolios to unlock potential gains.

 Federal Reserve rate hikes

As the US Federal Reserve prepares to resume its tightening program, investors are urged to reassess their strategies and make necessary adjustments to their portfolios. The central bank's decision comes amid a robust labour market, which poses a risk of undoing the progress achieved in the past 18 months.

Highlights -

  • Federal Reserve to resume rate hikes, impacting global markets.
  • Investors are urged to revise portfolios ahead of rate hikes.
  • Stock market volatility is driven by core inflation and job market data.
  • Federal Reserve's tightening program risks undoing 18 months of work.
  • Nigel Green, CEO of deVere Group, advises taking advantage of potential market opportunities.
  • Prepare for potential lower entry points for high-quality stocks.

In June, the Federal Reserve temporarily halted its rate hikes, keeping the Federal Funds Rate steady at 5%–5.25%. This pause was intended to evaluate the impact of ten consecutive rate increases, which had led to a significant rise in borrowing costs, reaching their highest level since September 2007.

The initial objective was to curb inflation while maintaining employment rates, as mandated. However, despite the slowdown in the economy, the job market remained strong, and core inflation failed to reach acceptable levels. Consequently, an active policy was required to address the persistently high inflation levels.

Given that the inflation rate is significantly surpassing the target of 2%, the Federal Reserve is determined to make decisions aimed at reducing it. The upcoming FOMC meeting, scheduled for July 25–26, 2023, will play a crucial role in shaping the central bank's future course of action. Furthermore, investors eagerly await the release of the June 2023 CPI data on July 12, 2023, to gain insights into the inflation landscape.

Also Read Gold Prices Fall To a 3-Month Low on the Back of US Federal Rate Hikes

Market participants have already factored in the anticipation of two rate hikes by the Federal Reserve, with one expected in July and another in September. Consequently, the second half of the year is expected to experience heightened volatility in the stock market, driven by data on core inflation and the reaction of the job market.

Nigel Green, the CEO and founder of deVere Group, one of the world's largest independent financial advisory, asset management, and FinTech organisations, warns investors about the implications of the impending rate hikes. He advises investors to reassess their portfolios proactively and consider rebalancing to accommodate the potential impact of higher interest rates.

Green emphasises the importance of acting swiftly, suggesting that investors capitalise on potentially lower entry points for high-quality stocks that may have fallen out of favour in recent months. By adjusting their portfolios early, investors can position themselves strategically and maximise opportunities presented by evolving market conditions.

Final thought

With the Federal Reserve resuming its tightening program, investors need to be prepared for the impact of rising interest rates. Adapting portfolios and considering rebalancing strategies are prudent steps to take in light of the anticipated rate hikes. As global stock markets are likely to be influenced by the central bank's decisions, investors are urged to act promptly and position themselves for potential opportunities.

Find the latest articles on mutual funds here.

Also Read Bonds, Equity Or Gold - Where To Invest During The Uncertainty Of Interest Rates?

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.


Related Article

Premium Articles

Union Budget