The Fed May Pause Interest Rate Hikes. How Should You Prepare Your Investment Portfolio?
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After ten consecutive hikes, the Federal Reserve signaled earlier this month that it may finally stop raising interest rates. What would that potential pause mean for investors?
Over the past year, the central bank has been increasing the federal funds rate, which determines how expensive it is for banks to borrow from each other, to slow down price growth and prevent the economy from overheating. Now that inflation is slowly cooling, the Fed has indicated that it might be prepared to keep rates in their current target range of between 5% and 5.25% for the time being.
Earlier this month, the Federal Open Market Committee removed recurring language from its interest rate announcement suggesting that more rate hikes might be necessary, and Federal Reserve Chair Jerome Powell has suggested that recent stress in the banking sector could allow the Fed to stop hiking interest rates sooner than previously thought.
Even though Powell has also indicated that no decision has been made regarding the path of interest rates yet, many experts are anticipating a pause in rate hikes.
“We do expect a pause,” says Gargi Chaudhuri, head of BlackRock's iShares investment strategy in the Americas. “We think that the Fed will just stop here and see how the economy evolves, how inflation evolves, how the labor market evolves.”
