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Don’t fight the Fed because this time could really be different

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Published Mon, Jul 18, 2022 · 03:00 PM
    • Investors often buy stocks when interest rates are cut and sell them when interest rates are raised. But for this current cycle of rising interest rates, that axiom may not work.
    • Investors often buy stocks when interest rates are cut and sell them when interest rates are raised. But for this current cycle of rising interest rates, that axiom may not work. PHOTO: REUTERS

    DeeperDive is a beta AI feature. Refer to full articles for the facts.

    AFTER the release of data last week that showed a much-higher-than-expected 9.1 per cent year-on-year increase in the US consumer price index, Wall Street is now pricing in a 30 per cent chance of a 100-basis points rate hike at next week’s Federal Open Markets Committee meeting.

    Whether or not the data between now and then justifies raising rates by a full percentage point remains to be seen, but the big question of course is: what next?

    With unemployment at 3.6 per cent and interest rates still at ultra-low levels, there is a lot of room for the Fed to hike. Even with a 100-points hike, the absolute level of the federal funds rate will still be only at an upper bound of 2.75 per cent.

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