The Board of Governors of the U.S. Federal Reserve

Investors to shrug off hawkish Fed, rate hikes

1 min read

Investors are expected to shrug off hawkish tones and rate rises from the Federal Reserve, such as Wednesday’s 25 basis points, with the CEO of a leading financial advisory and fintech saying the U.S. central bank, “delivered hawkish tones about rates having to remain higher for longer and reiterated its commitment to cooling inflation.”

The policy-setting Federal Open Market Committee (FOMC) raised rates by 25 basis points at the conclusion of its two-day meeting, bringing its benchmark to a target range of 4.5% to 4.75%.

“The markets expected a 25bps rise, which is another step downward for the Fed, which increased rates by 50 basis points in December, following four 75 basis-point hikes in 2022,” said Nigel Green of deVere Group.

“The Fed went strong on flagging worries about financial conditions becoming too loose, and that whilst progress on taming inflation has been made, officials remain concerned.”

Green said there’s set to be some fluctuation, “but moving forward markets are going to largely shrug off the Fed’s hawkish tones and rate rises.”

Inflation has peaked

“Markets typically look to the future, not at the present. They will see that inflation has peaked and the growing signs of a ‘soft landing’ for the U.S. economy, as it appears that the central bank is reducing inflation without creating significant unemployment.

“There’s a sense that things are actually better than the Fed is admitting to, in order to stop over-exuberance of the markets,” the deVere CEO added.

“The Fed’s rhetoric doesn’t appear to be changing, despite the data, and the markets are aware of this.”

As the U.S. central bank steps down from the aggressive tightening agenda, markets are increasingly “going to overlook the Fed’s rate increases; they’re becoming less relevant.”

Green concluded that, “savvy investors know that now – in a year in which there will be big winners and big losers – it’s about being invested in the right companies, those which can consistently maintain or steadily grow margin, as well as diversification across sectors, asset classes and regions.”