Elizabeth Warren, Bernie Sanders have downplayed the Fed’s hawkish stance – Powell responded with another 0.75% rally. Here are 3 ideas for impact resistance
It’s not just investors who don’t like rate hikes. Senior politicians are also asking the Fed to think twice about raising rates.
In a scathing letter to Fed Chairman Jerome Powell, a group of 11 lawmakers – including Senators Elizabeth Warren and Senator Bernie Sanders – criticized his pledge as ‘positive action’ against with rate hikes even if ‘nobody knows’ whether the process will lead to a significant recession.
“These statements clearly reflect a disregard for the livelihoods of millions of working Americans, and we are deeply concerned that your rate hikes risk slowing the economy while not being able to Slower price increases continue to harm families.”
But on Wednesday, the US central bank announced a 75 basis point increase in the benchmark lending rate to a new target range of 3.75% to 4%, marking its fourth three-quarter increase. consecutive quarters.
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The S&P 500 index fell 2.5% on Wednesday, bringing its decline so far to 22%.
Of course, not all assets react to an interest rate increase in the same way. Some – like the three listed below – can perform well even if the Fed doesn’t soften its hawkish stance.
Real Estate
Seems to be the opposite of the real estate on this list. When the Fed raises its benchmark interest rate, mortgage rates also tend to rise, so is that bad for the real estate market?
While it’s true that mortgage payments are on the rise, real estate has indeed proven resilient in times of rising interest rates, according to investment management firm Invesco.
“From 1978 to 2021, there were 10 distinct years when the Federal Funds rate increased,” Invesco said. “Within these 10 defined years, U.S. private real estate outperformed stocks and bonds seven times, and U.S. public real estate outperformed six times.”
The Fed is tightening its monetary policy to combat rampant inflation, and real estate is a well-known hedge against inflation.
Why? Because as the cost of materials and labor goes up, new properties get more expensive to build. And that increases existing property prices.
Well-chosen properties can offer more than just price increases. Investors can also earn a stable rental income stream.
But you don’t have to be a homeowner to start investing in real estate. There are many real estate investment trusts (REITs) as well crowdfunding platform that can get you started as a real estate tycoon.
Bank
Most businesses fear rising interest rates. But for certain finances, like banks, higher rates are a good thing.
Banks lend at a higher interest rate than they borrow, pocketing the difference. As interest rates rise, the difference in how much a bank earns typically widens.
The banking giants are also currently well-capitalized and are returning money to shareholders.
In July, Bank of America increased its quarterly dividend by 5% to 22 cents per share. In June, Morgan Stanley announced its quarterly payout rose 11% to $0.775 per share — and that’s after it doubled its quarterly dividend to $0.70 per share last year. .
Investors can also gain exposure to the pool through ETFs such as the SPDR S&P Bank ETF (KBE) and the Invesco KBW Bank ETF (KBWB).
Consumer staples
Higher interest rates can cool an economy when it is overheating. Still, the economy isn’t overheating, and many fear that more rate hikes could lead to a recession.
That’s why investors may want to check out recession-proof sectors – like consumer staples.
Consumer staples are essential products such as food and beverages, household appliances, and hygiene products.
We need these regardless of how the economy is doing or what the federal funds rate is.
As inflation increases input costs, consumer staples – especially those with fixed market positions – can pass those higher costs on to consumers.
Even if a recession hits the US economy, we’ll probably still see Quaker Oats and Tropicana orange juice – made by PepsiCo (PEP) – on families’ breakfast tables. Meanwhile, Tide and Bounty – famous brands of Procter & Gamble (PG) – will likely remain on shopping lists nationwide.
You can access the pool through ETFs like the SPDR Fund for Consumer Goods (XLP) and the Vanguard Consumer Goods ETF (VDC).
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
