Fed Finally Raises Interest Rates

In a much-anticipated move, the US Federal Reserve raised interest rates for the first time since 2018. The American central bank is hoping that higher interest rates, in concert with reduced pandemic-era fiscal support, will help reduce inflation.

The Fed raised its benchmark Federal Funds Rate by 0.25%, to a target range of between 0.25% and 0.50%. By notching up rates, the Fed kicks off a process of raising borrowing costs in the hopes of quieting the demand that may be pushing prices higher. The central bank also noted that the economic outlook remains “highly uncertain” in the face of the war in Ukraine.

Many analyst’s projections signal the likelihood of the Fed raising rates up to six more times this year. This is more aggressive than the projections put forward by the Fed in December when it predicted only three total rate hikes in 2022.

The Fed statement read, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

What does this mean for me?  

As an observant investor, you will understand that this is the first in a series of rate increases. These moves are expected to result in a reduction in inflation and a cooling of consumer prices.

It is inevitable that many assets in your portfolio will respond to the changing financial landscape as higher interest rates take hold. In one possible scenario, consumer brands in your stock portfolio could start to feel the pinch of lower earnings by the end of the year.