U.S. Federal Reserve Bank Has Trouble Taming Raging Inflation

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What’s next for stock market as Federal Reserve moves toward ‘peak hawkishness’ – MarketWatch

The U.S. Federal Reserve Bank has trouble taming raging inflation, causing perceived “peak hawkishness” (they are no longer optimistic about the inflation situation).  The standard counter-measure to inflation is to increase the prime interest rate for consumer banks to borrow money from the Federal Reserve.  In turn, causing the cost of mortgages, credit lines, credit cards, and consumer loans to go up.  Each time the Fed raises 25 basis points, a consumer can expect to see a minimum increase of 25 if not 35 basis points in all borrowing opportunities or open lines of credit.

The opposite is true for stocks; when interest rates are reduced (the Fed’s policy for the last decade), stocks surge up as it opens the gates for easy access to corporate growth capital and share buybacks.  When the Fed raises rates, the market generally goes down, and you should have guessed it by now.  Margin interest rates are on the verge of “legal extortion” at 8.5% on average per consumer account. Every 25 basis point rate increase at the fed will mean margin borrowers will be paying north of 8.75% soon and within the year 10% if the Fed keeps its promise to raise Fed rates to 2.5%.

The average investor need not panic but certainly reassess your portfolio and balance between cash reserves, consumer defensive positions like Grocery Stores, Power Utility Companies,  Commodity producing corps, and anything necessary for life with a healthy balance sheet a low debt-to-equity ratio.  We are all in for a prolonged economic “settling,” The high-flying stocks will be the first to crater when the pony show is over.

Read more on this at the following additional news sources:

  1. What’s next for stock market as Federal Reserve moves toward ‘peak hawkishness’  MarketWatch
  2. Fed Chair Jerome Powell on inflation and his outlook for the U.S. economy  CNBC Television
  3. Surging US inflation expectations defy Fed’s efforts to tame price growth  Financial Times
  4. Stock market tumbles as Federal Reserve signals interest rate hike  KARE 11
  5. 5-year Treasury yield hits 3% following Powell’s comments on rate hikes  CNBC
  6. View Full Coverage on Google News
John Nightbridge is a veteran reporter, researcher, and economic policy major from UCLA. Passionate about world issues and potential ways to solve them is a significant focus of his work. Writing freelance and reading the news are John's passions at work. Outside of work, it's all about sky diving, surfing, and stock market modeling.