"That 70's Show" - Produced and Directed by the Federal Reserve
April 25, 2022
By Michael Moreland
Vice President - Investments
After a year of designating rising inflation as ‘transitory’, the Federal Reserve has thrown in the towel. Late last week, following the highest inflation readings in over four decades, Fed Chairman Powell indicated that it’s appropriate to consider ‘front-loading’ its rate hikes. In plain English, this means the Fed will likely raise short term rates by a full half-percent at its May meeting. Other Fed officials suggested additional hikes of three-quarters of a percent may be justified as we roll into summer.
Look no further for reasons for the poor performance of financial assets last week. High inflation and rising interest rates are the enemies of lofty valuations and steady economic growth. The Fed’s performance thus far does not inspire confidence in its ability to engineer a ‘soft landing’ – that is, end its tightening cycle in time to prevent a significant contraction in economic activity. We’re already seeing the impact – and it’s spreading. First quarter earnings announcements are showing more disappointments than in recent quarters. Consumers are being squeezed at the grocery store and gas station, and other spending is cut back. Business costs are rising as material and wages accelerate. These trends will not reverse soon.
What’s the solution for a long term investor? We know that staying invested in challenging times goes against human nature. Still, it is the best option to reach long term goals. At the same time, adjust your portfolio to focus on high quality, broad diversification and, most important, attention to valuation. Our second quarter Economic and Market Commentary goes into a little more detail on these opportunities. While some of the comments are dated (it’s almost a month old, after all!), the principles remain valid.
To close, we hope that we’re not in the early stages of a repeat of the late 70’s and early 80’s. That said, hope is not an effective investment strategy – in good times or bad. Talk to us about your goals and what we can do to help achieve them. Discipline and consistency are keys to your success. And, as always, your success matters to us.
Photo illustration by Security National Wealth Management; photo credit of Jerome Powell, Fed Chairman, via Getty Stock Images.