What should investors do now as Federal Reserve prepares to resume rate hikes?

The first pause in the ongoing tightening process occurred in June when the Federal Reserve suspended rate hikes and held the Federal Funds Rate at 5%–5.25%. The pause was to assess the impact of ten consecutive rate rises, which had driven borrowing prices up by 500 basis points to their highest level since September 2007.

To lower the rate of inflation while maintaining the mandated employment rate, an active policy was required. What happened was that the economy slowed, but the employment market remained quiet, and core inflation has not fallen to acceptable levels.

The Fed is resuming its tightening program amid a strong labor market, which threatens to undo the central bank’s work during the last 18 months. “It’s difficult to predict exactly what the Federal Reserve will do without knowing what the inflation data will look like in the coming months. Given that inflation is significantly above its target of 2%, the Fed will persist in making decisions aimed at reducing it. The Fed’s policies and rate action have a ripple effect on global liquidity, consequently influencing stock prices worldwide,” says Shrey Jain, Founder and CEO, SAS Online.

The next FOMC meeting is scheduled for July 25–26, 2023, and before that, the key June 2023 CPI data are scheduled to be released on July 12, 2023.

Markets have already discounted the two expected rate hikes by the Fed, one in July and another in September. The second half-stock market volatility will be heavily data-driven depending on how the core inflation arrives and how the job market reacts. Now is the time for investors to prepare for the Federal Reserve to resume interest rate hikes, which will impact global stock markets, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management, and fintech organizations. The warning from deVere Group’s Nigel Green comes as Wall Street stocks are getting volatile following better-than-expected jobs data, which increases anxiety around the path of interest rates.

Nigel Green, deVere CEO says: ” Last week’s strong jobs data in the US, together with the publication of the minutes of the Fed’s last meeting, which say ‘almost all’ members of the FOMC agree that more tightening will likely be needed, has sent markets into a tailspin. The double whammy of robust economic data and the Fed minutes tell global investors that the central bank of the world’s largest economy isn’t done with raising rates yet.”

Green continues: “Investors don’t need to fret, but what they should do is revise their portfolios now and consider rebalancing where necessary to fit another round of Fed rate hikes. I would be acting sooner rather than later in this regard in order to take advantage of potentially lower entry points for high-quality stocks that might have been out of favour for the last few months.”