“Higher for Longer” for the Fed?

** Please note that any information shared in this private blog is NOT to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL AND INFORMATION PURPOSES only and it does not constitute an investment advice, an offer or solicitation to purchase or sell the investment asset classes mentioned. **

Fed Chairman Jerome Powell said that the Fed is planning to raise its Fed Funds Rate 1 more time before the end of 2023. This is a blow for the bulls. Another increase in rates may not seem like a big deal. That is not really the point, though. The current range for the rate the Fed charges banks for overnight and short-term loans is 5.25% – 5.50%. Bumping the top end to 5.75% is probably not going to deter borrowers or really fight inflation. The change is however a bigger deal for investors, though. Some professional money managers are going to refrain from deploying new capital. They will have to reorganise their models to figure out if a recession is more likely. That imbalance between buyers and sellers should push the U.S. stock market lower through the remainder of September and into October as per what our T&Y cycle chart is projecting.

Talking about recession, over the past 40 years, the longest the Fed paused before cutting rates while still achieving a soft landing was 7 months. So IF we assume the coming 31st October Fed meeting will be the last hike of this cycle and apply a similar timeframe, Fed will need to start cutting as early as May/June 2024 if they want to avoid any hard landing.

I have been using the current weakness in the U.S. stock market to build up the 2nd tranche of my own SPP.  Till now, I have deployed about 40% of the capital allocated for my 2nd tranche while I continue to receive dividends from my REITs, business trusts and dividend-paying stocks.

** Please note that any information shared in this private blog is NOT to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL AND INFORMATION PURPOSES only and it does not constitute an investment advice, an offer or solicitation to purchase or sell the investment asset classes mentioned. **