75 bps on Deck? — The Fed kicked off its 2-day policy extravaganza yesterday, and we can expect an announcement of their decisions later today.
The Fed is between a rock and a hard place. Daddy JPow doesn’t want to make it seem like their policies are at the mercy of the market, but they also don’t want to force capitulation.
Let’s face it: raising interest rates aggressively to kill inflation is destructive to demand. There will be repercussions from a sustained tightening cycle.
There is some inertia to keep the 50 bps rate hike schedule on the table, but I think that the Fed and its leaders know that inflation is actually running hotter than even the most recent numbers are saying.
I saw a funny tweet yesterday calling for Daddy JPow to raise rates quickly to crush inflation while introducing a recession only to aggressively cut rates to protect us from a recession. Someone responded to that tweet saying that this strategy is akin to pounding shots at the bar and then driving home at 90 mph to ensure you’re parked before you’re actually drunk.
While you can’t fight the Fed, you can control where your money goes during volatile times. Usually, the most boring stonks tend to do pretty okay in a recession. P&G, McDonald’s, Utilities, Alcoa, Dow… not sexy names, but they can help weather the storm and maybe pay a little bit of dividend income.
These names tend to have strong balance sheets and tried-and-true business models, even in highly inflationary or slow-growth economic environments. While the rest of the market can sink, these names tend to preserve their value and can keep your portfolio afloat. But you know you’ll never find financial advice here.
While it might not be the time to completely rotate into a more defensive position (I couldn’t tell you even if I thought it was!), it’s worth considering a strategy to pivot towards capital preservation instead of stacking up gainz.
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