On September 21, the Federal Reserve raised the benchmark interest rate to a range between 3% and 3.25%, in an effort to bring inflation down to 2 percent. This is the third consecutive time that the interest rate increased by three-quarters of a percentage point. The previous two rate hikes have not made much difference in inflation data. The Fed expected the rate to reach 4.25% by the end of the year and, according to Fed Chair Jerome Powell, there is no painless way to lower inflation. The rates for mortgage, credit card, and auto loans are changing accordingly. Powell anticipated the economy to slow, unemployment to rise, reducing the disposable income for families. He also suggested that the housing market was too hot and needed a correction.
Why it matters: The Fed’s target policy rate is at its highest level since 2008.
Further Possibilities
1. Invest in companies that produce or sell inflation-proof goods and services.
This could include companies that produce staple foods, essential household goods, or necessary medical supplies.
2. Invest in companies that will benefit from an increase in interest rates.
This could include banks and other financial institutions.
3. Short stocks of companies that are likely to be hurt by higher interest rates.
This includes companies with high levels of debt, or those whose profits are sensitive to changes in consumer spending.
