Who Could Use A Raise Right About Now?

Who Could Use A Raise Right About Now?

vejaa/iStock via Getty Images The Federal Reserve must reign in already-high inflation. Even it recognizes that now.

This of course means boosting interest rates – aggressively – to counter the effects of so many negative factors, the most recent of which is the Ukraine invasion. Then again, that same negative factor makes things more complicated than ever.

Last week, Federal Reserve Chairman Jerome Powell told Congress he plans on proposing a 25-basis point interest rate hike at the upcoming March meeting. As for future meetings, the central bank is “prepared to move more aggressively by raising the federal funds rate.”

He also said he expects to “make good progress toward an agreement on a plan to shrink the balance sheet”… but that it would not be finalized this month.

As you no doubt know, the Fed has signaled for months now that interest rate increases were coming. And so they will, it seems. Only, as Mike Tyson once so famously said, “Everybody has plans until they get hit for the first time.”

And the Russia-Ukraine situation has been quite the hit. The Inflationary Situation We’re Seeing

Powell said Tuesday that, before the invasion, he would have expected a series of increases in the near future. But as-is, the war could impact the central bank’s actions.

On the one hand, that’s understandable. On the other, it’s problematic.

The Fed has now left rates unchanged for two whole years – since March 2020. But with inflation hitting a 40-year high last month at 7.5% compared to the prior year, it’s facing increasing pressure to implement rate hikes.

There’s been a lot of commentary in the last six months especially about that whole situation and what to expect from it in 2022.

As for me, in a recent Seeking Alpha article I explained that: “Inflationary pressure to the macroeconomy from the effects of supply chain interruptions will likely lead to moderate inflation levels over the next year, rising above the Fed’s target of 2.5% but likely well below historically high levels seen in the 1970s and early 1980s.” I was around in the 1970s and ’80s when inflation was as high as 13% annually. (Though I was still years away from investing.) That period of time is what Wharton professor Jeremy Siegel referred to as “the greatest failure of American macroeconomic policy in the postwar period.” www.in203dollars.com That great inflation was blamed on oil prices, currency speculators, selfish businessmen, and greedy union leaders. However, the main reason is because of monetary policies that financed massive budget deficits.

And today, as Kathy Jones with Charles Schwab wrote : “With commodity prices soaring, money supply growth exploding, and government spending surging, there is a palpable fear of a return to 1970s-style inflation.” She says she remembers those times well between the bell-bottom pants, aviator glasses, and disco. That and the less entertaining side of things… Buckle Up Folks

“It wasn’t all frivolous,” she continues. “In fact, it was a tumultuous time, both socially and economically. The era opened with the Kent State shootings, unfolded into Watergate and President Richard Nixon’s resignation, hit a crescendo with the fall of Saigon, and ended with the Iranian hostage crisis. “In the middle, there was an economically crippling oil price spike, a deep recession, and high inflation. It’s the memory of high inflation that seems to strike a nerve with investors.” As such, Jones acknowledges that “there are some similarities to today.” For instance, “easy monetary policy and increased government spending are spurring strong demand amid shortages of goods.”

Also, the national gas price average is $4.00 per gallon gasoline. Which doesn’t feel good either.

Overall then, when it comes to your investments, you must buckle up for volatility… and be prepared for uncertainty about the Fed and the unknowns of war, that will keep Mr. Market on edge.

As I pointed out in my article: “For investors looking for inflation protection in their portfolio, REITs have historically performed well during periods of moderate inflation in terms of market returns and operating fundamentals. “REIT returns and operating performance have been higher on average in moderate inflation periods compared to low inflation periods. Early indications from the past two quarters suggest REITs are likely to perform well if we enter into a sustained inflationary environment.” One of the best ways to combat rising inflation is to invest in dividend growth stocks. In which case, real estate investment trusts are a perfect vehicle. Although the pandemic forced many REITs to cut their dividend, most have resumed the course, paying out steady […]

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