As economic uncertainty continues to mount, investors have increasingly been trying to predict the U.S. Federal Reserve’s next move. However, while there are plenty of comments from central bankers to take at face value or dissect for subtle meanings, there is no crystal ball to proclaim the Fed’s next interest rate pivot.
As a result, investors are now divided between optimists, who believe a switch to lower rates is imminent, and realists, who stand by Fed chair Jerome Powell’s comments that there will be no pause in hikes until inflation lowers to the 2 percent target. Where do experienced investment advisors stand on this debate? The Financial Post spike with Sightline Management to find out.
“We’re inclined to take [Powell] at his word, and that he’s not resigned to accept any higher inflation number,” says Paul de Sousa, senior investment advisor with Sightline Wealth Management. He believes that Powell is erring on the side of caution, being more likely to raise rates too high as opposed to not enough, in hopes to finally tame inflation.
However, a higher rate warpath is no simple decision for the Fed. Raising rates too high would likely cause dire economic circumstances that could include a deep recession, a wave of high-profile bankruptcies or catastrophic unemployment numbers. “At that point, a rate cut would be an easy choice,” de Sousa explains. “A deep recession will typically do the Fed’s work quickly, curbing wages, crushing consumer demand and producing deflationary pressure.”
While predicting the trajectory of when the Fed will finally pause rate hikes may be impossible, incorporating a fixed income laddering strategy can help ensure investors get some benefit from the current interest rate environment, regardless of which direction it is headed.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.
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