The US Fed did what was widely expected – the most aggressive rate hike in 28 years.
A 75 bps rate hike, the largest interest rate increase since 1994. That’s not all – the Fed clearly signaled that it would continue to lift rates this year at the most rapid pace. This now puts the Fed’s benchmark rate to a range between 1.5% to 1.75%.
Like India, in US too the fight is to combat inflation, which in May hit a high of 8.4%, running at a 40-year high. The Fed said that it expects ongoing increases for three quarters of a percentage point but it did not specify exactly how many or when will the Fed hike rates.
But the silver lining here – there is most certainly a shift in the Fed’s rate projections outlook but what it conveys is that the Fed believes that it can get inflation under control with this front-loaded rate rise campaign. The inflation forecast also suggests a big moderation in price pressure by 2023.
Along with this aggressive rate hike, the Fed also downgraded the economic outlook – it now expects growth below 1.7% this year with unemployment rising to 3.7% by end of 2022 and going up further to 4.1% through 2024. No one wants to say the word “recession” but that’s what we all are fighting.
For us India too, inflation and rising interest rates are a reality we will have to live with in the next months – right onto 2023. The markets have been fighting inflation in their own way – by inviting the bears in and mauling the trading floors. But now with all uncertainty out of the way – we pretty much know for certain that inflation is here to stay and we have to live with this for many more months now – maybe that means the market too should discount this and we as investors should focus back on fundamentals.
No one knows where the bottom is but if quality stocks are identified, at every dip, use the opportunity to buy and only buy. When bears stalk the Street, go and buy quietly, trusting the fundamentals and then wait for the bulls to come rampaging – it will be a wait for some months but will be totally worth it!