Todd’s Take: The Fed’s Rate Increase, Nov 2022
View the full transcript below.
Hi, it’s Todd Walker, Portfolio Manager at Hutchinson Family Offices. I want to take a moment to discuss the most recent Fed’s decision to increase rates by 75 basis points.
The target rate now is between 3.75% and 4%. This is a rate we haven’t seen since January 2008. This continues the feds on the mark of their most aggressive fed tightening policy that we’ve seen since the early 1980s. The last time inflation was as high, everyone was looking to see if the Fed would indicate that they may be slowing the pace of interest rate increases soon. Powell was quick to say that it was premature to talk about lowering the pace of tightening at this point, but they may have the discussion at their next Fed meeting in December.
At this point, the Fed is more concerned about not raising rates fast enough than raising rates too quickly. The Fed did acknowledge that if they would pay attention to how the economy reacts to the rate increases that they’ve done thus far when they talk about future tightening, it usually takes somewhere between six months to 18 months before the effects of an interest rate increase will hit the economy. So at this point, we think there is a 50-50 chance Fed will raise rates by 50 or 75 basis points at their next meeting in December.
At that meeting, they will have two employment reports, two inflation reports, and the results of the midterm elections. So, we think the markets will continue to be very volatile until the Fed slows the pace of increases or stops sometime during the first quarter of next year.
As far as how we’re managing portfolios, we’re being very defensive at this time. We are a lot more concerned with the preservation of capital and protecting against downside risk than we are with anything else. So at this point, we’re looking at things that go into different allocations that will persevere well in the event of a recession.
We appreciate your trust in our portfolio team at Hutchinson Family Offices.
If you have any questions or concerns, please call us, and we’ll be able to answer anything we can.
Thanks again for your time!
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