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Fed Sets To Ramp Up Rate Hikes To Fight Inflation - BIG NUMBER 10

Fed Sets To Ramp Up Rate Hikes To Fight Inflation - BIG NUMBER 10

| March 18, 2022
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Fed Set To Ramp Up Rate Hikes To Fight Inflation – BIG NUMBER 10

 

As expected, the Federal Reserve Board on Wednesday raised the target range of the

federal funds rate—a key short-term interest rate—by 25 basis points from the current

0-25 bp to 25-50 bp. The move was widely anticipated as a reaction to the historically

high levels of inflation seen in recent months. For example, the consumer price index for

February 2022 rose 7.9 percent from a year earlier—the biggest increase since January

1982.1

 Looking beyond the immediate news of the day, we see that the Fed expects to

continue raising the fed funds rate during 2022 and into 2023 based on its forecast for

inflation and other factors.

 As seen in the chart, the Fed’s so-called “dot plot”—in which each Fed official plots one

dot on a grid to show where they think rates are headed—suggests the Fed will raise

rates six more times this year and at least three times next year. That would mean at

least 10 rate hikes in total (counting Wednesday’s increase), bringing the fed funds rate

up to around 2.75 bp by the start of 2024.

As borrowing costs rise over time, consumers typically spend less—easing the pressure

on prices. Indeed, the market is now pricing the Fed to cut rates once during

2024—suggesting the market believes 10 hikes may be too much for the economy

to handle over the next 18 months.

Of course, the Fed’s outlook for the economy and interest rates can and does evolve as new data emerges.

Consider that back in December 2021, Fed officials were expecting just three rate hikes in 2022 and

about six more over the next two years. As always, we will closely monitor the Fed’s statements and

actions regarding inflation and interest rates—with a particular eye toward how those two factors are

impacting consumer confidence and consumer spending—and we will adjust the portfolios as

necessary to address economic and market conditions.

For clients who may be nervous about the short-term health of the economy, a strategy

designed to mitigate drawdown risk, while continuing to grow assets may be a fitting

solution.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David V. Thomas, Jr.  offers products and services using the following business names: Vaughn Asset Advisory, LLC – insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA/SIPC – securities and investments | Ameritas Advisory Services (AAS) – investment advisory services. AIC and AAS are not affiliated with Vaughn Asset Advisory, LLC. 

Products and services are limited to residents of states where the representative is registered. This is not an offer of securities in any jurisdiction, nor is it specifically directed to a resident of any jurisdiction. As with any security, request a prospectus from your representative. Read it carefully before you invest or send money. A representative will contact you to provide requested information. Representatives of AIC and AAS do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation. 

The views stated in this letter are not necessarily the opinion of Ameritas Investment Company, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Past performance does not guarantee future results. There is no guarantee that any investment strategy will generate a profit or prevent a loss. Investing in the securities markets involves risk, including loss of principal. The commentary provided should not be considered or used as a substitute for individual investment advice. 

All market data and economic data has been provided by Horizon Investments | Bloomberg | Bureau of Labor Statistics 3/10/2022 https://www.bls.gov/news.release/pdf/cpi.pdf 

Copyright 2022 Vaughn Asset Advisory, LLC

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