Meet Kevin: The Fed’s Big Lie
Markets soared following the Fed’s interest rate decision on Wednesday. The central bank held rates steady for the fifth consecutive meeting.
Plus, the bank committed to lowering interest rates later in the year. The much-followed “dot plot” indicated three interest rate cuts by the end of the year. But the fact of the matter is that the Fed may be about to get more hawkish than investors expect. If that’s the case, stocks could finally see a big test to their rally.
That’s because the Fed has been supporting the market. Earlier this month, a one-year program to shore up the balance sheets of smaller banks ended. The goal was to prevent a repeat of last year’s collapse of Silicon Valley Bank.
Next, while the Fed sees the end in sight for inflation, the most recent data points suggest that inflation is sticky.
It’s likely that if that trend continues, the Fed may continue to push off cutting interest rates. Market makers betting on rate cuts may prove less bullish as that plays out.
In short, despite the market’s interpretation, the Fed is indicating that things may not be as strong as they seem. And that keeping interest rates higher is necessary to keep inflation down.
Investors can still invest wealth into short-term assets such as U.S. Treasury bonds. These bond yields are off their highs, but still offer relatively strong, risk-free returns.