27 July 2022
If you are covering the latest monetary policy announcement from the Federal Reserve, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“The Federal Reserve has today delivered back-to-back 75bps rate hikes as it looks to increase its fight against inflation. It will have been incredibly disappointed with the latest inflation figure and ultimately it will remain in aggressive mode until CPI begins to prove less resistant than it has already. With the ECB now following the lead of The Fed and the Bank of England, central banks in developed markets are now solely focused on getting inflation down and easing the burden on the wider economy.
“While much of the market will have been expecting this rate hike and market moves limited off the back of it, it will stoke fears that we are nearing a recession in the US. The labour market remains incredibly tight and as such we should not be surprised if we start to see some weakening in that data. Jerome Powell is facing a tough balancing act and it will be incredibly difficult to achieve a soft landing.
“We are seeing clear evidence of a consumer slowdown with Walmart yesterday warning on Q2 and full year earnings due to pressure on general merchandise sales as consumers adjust to the squeeze on disposable incomes. A large part of the US economy is consumption and there is still a feeling that the US may be raising into a slowdown. That said the US may end up as the ‘least dirty shirt’ compared to the rest of the global economy as the Fed has a reputation for reversing course quickly if needed.
“We think the US remains a resilient market for investors and while volatility may remain present in the short term and yields rise higher, we still see opportunities over the longer-term, especially once inflation finally washes out of the system. For now, however, while the current market is difficult for investors, what this does show is the importance of having a well-diversified portfolio and the protection it can provide.”
