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A Recent Warning from the Federal Reserve

March 9, 2023

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How the Recent Warning from the Federal Reserve Could Affect Alternative Asset Investments

Daily newspaper economy stock market chart Federal Reserve
The US economy is growing faster than expected. Photo by Markus Spiske on Unsplash

Federal Reserve Chair Jerome Powell has recently issued a warning that the US economy is advancing at a faster pace than anticipated. Whilst this might sound good on paper, it also means a likely increase in interest rates at a quicker pace than previously planned.

According to Powell, this step might be essential to manage the ongoing surge in consumer prices, which have escalated to 6.4% over the past year, roughly three times the acceptable rate set by the Fed.

Although the central bank had initially planned to elevate its benchmark interest rate over the coming months, the rapidly progressing economic growth could result in policymakers hiking the rate even beyond their initial projections.

Impact on investments

Plenty of investors are concerned about this news because it suggests that the Federal Reserve might adopt a more hawkish stance than previously anticipated. An increase in interest rates can lead to a decrease in stock prices because it makes traditional borrowing more expensive and difficult for businesses.

However, this does open up some specific growth channels, particularly for MCAs – whilst banks clamp down on lending, MCA providers can step in to meet the growing demand for short-term financing. This means increased opportunity for MCA investors.

Impact on alternative assets

Green sprouts grow from a jar of coins Federal Reserve
MCAs offer a unique opportunity during high inflation. Photo by Towfiqu barbhuiya on Unsplash

In general, alternative assets tend to be less impacted by changes in interest rates than stocks and bonds, which is why they can be such a valuable addition to your portfolio. Because of this, investors who have diversified their portfolios with alternative asset investments may not be as exposed to the risks associated with rising interest rates as those who are heavily invested in traditional investments.

The warning by Federal Reserve Chair Jerome Powell regarding the potential increase in interest rates has significant implications for investors, particularly those invested in traditional investments.

However, the impact on alternative asset investments is likely to be more nuanced, and investors should consider the specific sub-sectors within these assets to assess their exposure to risk. The specific impact on MCAs indicates a potential time of accelerated growth and enhanced opportunity for investors.

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