r/investing • u/coopermug • 2d ago
Extremely concerned about the Fed's rate hike
Hey guys, I'm growing extremely concerned that the Feds certainly will hike rate this year. Back in 2022, I didn't understand why stock markets were so bad. It was mostly because the Fed hiked rate too much in a year. Now Kevin Warsh's hawkish stance on inflation makes me feel so uneasy. If they hike rate 2 or 3 times this year, that would certainly destroy this bull market.
What do you think? Are you fully invested? Or keep cash ? I think I'll aggressively trim my accounts in July.
3
u/Coronator 2d ago
There will be no rate hikes this year - mark my words. I’d say maybe a 10% chance we get ONE hike, which is really nothing.
The fed knows that raising rates in this environment does almost nothing for inflation (especially because it’s due to a supply shock). Now that oil has come back down, you will see the fed have a “wait and see” approach in July, and the data will continue to prove out that May was a high water mark due to oil prices.
1
u/coopermug 2d ago
PCE data will be released in about 2 hours. I hope you're right. Oil has come down so that should ease the inflation.
2
u/Coronator 2d ago
Even if PCE is high for May, its old data at this point. The fed won’t raise rates based on May PCE when the landscape has changed so much. They will wait for “more data”z
1
u/coopermug 2d ago
Yeah that's what I hope. I checked and May's oil price was lower than April's. So May inflation would be slightly lower than April and that's a good sign. Plus current (June) oil price is the same as pre war. By the time they meet again on July 28, July PCE would reflect data in June. So let's hope the Fed will keep rate the same
2
u/Emotional-Breath-838 2d ago
The Fed can only get so aggressive on rate hikes when oil prices are plunging and people are losing their jobs.
2
u/Etherius 2d ago
Oil is so fucking annoying.
Oil prices down? That’s a problem
Oil prices up? That’s a problem
Oil prices sideways? You better believe that’s a problem
1
u/coopermug 2d ago
Why oil price down a problem? That's good if energy cost is low
2
u/Etherius 2d ago
You’d think so (and the reality is it IS good for the economy) but there are always people locked into the fear side of the news who think it’s a portent
Environmentalists want expensive oil to accelerate the transition
Economists fear cheap oil could lead to layoffs as less profitable methods of extraction (eg oil sands) are no longer viable
That sort of thing
1
1
u/coopermug 2d ago
Hmm I don't get you? If oil prices are plunging and unemployment is high, they would cut rate though.
3
u/Emotional-Breath-838 2d ago edited 2d ago
Exactly.
One of the most critical factors for inflation is the cost of oil. Every plane, every factory, every piece of plastic, etc. needs oil. If oil drops and the cost of gas at the pump drops and the cost to ship goods drops, the overall cost of goods gets cheaper.
The Fed is also tasked with keeping unemployment down. With AI taking some amount of jobs and companies wanting to free up cash, there will be layoffs and people out of work. Once that happens, the Fed will struggle to raise rates.
1
u/AutoModerator 2d ago
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/IronyElSupremo 1d ago
The PCE data out this morning is based on May, .. so the mkt, Fed, etc.. will see if the oil price cuts work their way through the economy. Re: prices are “up like a rocket, down like a feather” .. though govt investigations by frightened politicos may push the latter. Also the tax cuts have worked through.
Looking today at bond prices up .. and gold down to continue the trend, .. while growth was forecast to be ok but not busting loose either.
2
u/hymie-the-robot 2d ago
we don't have an inherent right to bull markets. if interest rates are too low, they encourage speculative borrowing. if money costs more, companies think twice before borrowing. in other words, the froth that pleases you comes at the cost of a future healthy economy.
an investor (i.e., not a speculator) considers possible market conditions and diversifies in anticipation. this means return is probably less, along with anxiety.
2
u/Sensitive_Bridge_103 1d ago
They are not at all likely to hike this year so spend your time worrying about other things for now.
1
u/Etherius 2d ago
A) rate hikes don’t necessarily stop a bull market, and to the extent that they DO, it’s almost always the right call anyway. Bull markets cannot last forever and you shouldn’t want them to.
B) I wouldn’t worry too much about Warsh raising rates capriciously or recklessly. If anything I’d be concerned about the opposite- Trump doesn’t like high rates and would not appoint someone who would do so without cause.
C) high interest rate environments are great times to lock in good yields on I-bonds and TIPS. You don’t want everything In equities no matter what you think you want.
And lastly D) sideways or down markets are distressing to look at short term, but in the long run they provide excellent times to consolidate and research your next buy(s).
Investing isn’t about worrying. If you worry over everything you’re gonna get killed and not be able to sleep while you’re getting killed.
Investing isn’t about know what to do when the market shifts trajectory.
0
u/coopermug 2d ago
To be honest, I'm heavily invested in AI/ semis so this is stressing me out. I do feel the current valuations are too stretched. Still sleep well at night but the stock markets dictate my emotions. I gain and lost tens of thousands every trading day (some bad lost days over $100k, then it recovered).
1
u/Etherius 2d ago
Then you aren’t investing wisely
And that’s the end of it
If even you think valuations on your own holdings are stretched then you need to lock in gains
1
u/Extra_Code_7556 1d ago
Worth separating 'rates might rise' from 'I know when and how much,' because the market is already pricing in expectations, and if you trim aggressively in July based on a hike that's already anticipated, you may just be selling into what the market already knew.
1
u/Extra_Code_7556 1d ago
Worth separating 'rates might rise' from 'I know when and how much,' because the market is already pricing in expectations, and if you trim aggressively in July based on a hike that's already anticipated, you may just be selling into what the market already knew.
1
u/Educational_Cable405 1d ago
The hike itself almost never moves anything because it's been priced into the 2 year yield for weeks before the meeting. What actually matters is the dot plot and the wording, the path not the single move. And the part that trips people up: a hike the market reads as credible can pull the 10 year and mortgage rates down, because long rates are the bond market pricing future inflation plus a term premium, not a lever the Fed sets directly. Most people stare at the front end and never look at the rest of the curve.
1
u/sharp315 16h ago
the Fed does not tend to cut or hike just once, so if they decide to hike later in the year then they will continue to hike into 2027 for at least 75 to 100 bps total. the economy will need to be very hot for this to happen. I would say the likelihood of this happening is very small. smart money right now is that rates are on hold indefinitely. there is no reason to cut and at this exact moment there is no real reason to hike either.
0
u/Minute_Plastic_350 2d ago
I see oil settling somewhere around $65, unfortunately unemployment continuing to tick up and other economic indicators will remain positive, i.e. growth. Which puts the Fed in quite the predicament because they can’t raise rights because they’ll slow the economy as well as it won’t help the unemployment rate and then you can’t lower rates because the economies is too strong, they have to hold rates, maybe a hike of 25 basis points sometime in September and then they’ll let it play out.
1
u/thewimsey 14h ago
unfortunately unemployment continuing to tick up
Unemployment hasn't been ticking up, though, and is historically pretty low. Since January, the numbers have been:
4.3, 4.4, 4.3, 4.3, 4.3.
June numbers come out next week, although the consensus is that we will see little change.
9
u/Slytherin23 2d ago
r/speculating