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Adapting to Change: The Fed, Markets, and Your Portfolio

March 27, 2023

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Adapting to Change: The Fed, Markets, and Your Portfolio

What a week. We hope you are all doing well out there. Let’s get straight to it.

Federal Reserve raises rates, but the end of hikes are in sight

bar graph in red and green on a computer screen
Fed announces .25 point hike. Photo by m. on Unsplash

The Federal Reserve raised interest rates by 0.25 percentage points on Wednesday – its ninth increase in a year. We knew this was coming, but the announcement also arrived with a hint that the end of these hikes may be on the horizon.

The central bank removed a line from its statement about “ongoing increases,” suggesting that we could see fewer hikes in the future. The Federal Open Market Committee members’ median forecast is for just one more increase this year. We will see how that turns out.

Powell is Confident in Banking System

In the wake of the recent turmoil in the U.S. banking sector, Fed Chairman Jerome Powell expressed confidence in the broader financial system, describing it as “sound and resilient.” He acknowledged the issues faced by a few banks but emphasized that they were not representative of the entire sector.

Market Reaction and Economic Outlook

The stock market fell as a result of Powell and Treasury Secretary Janet Yellen’s testimonies, mainly because they stopped short of saying they would do “whatever it takes” to save all depositors. This led to some uncertainty and a measurable dip in confidence in the markets.

A small seedling in the palm of a hand The Fed
Slower growth is on the cards. Photo by Akil Mazumder.

In their latest “dot plot” (a chart that summarizes the Federal Open Market Committee’s outlook for the federal funds rate), Fed officials projected slower economic growth for 2023 compared to their estimates a year ago. That much seems fairly obvious.

Overall it’s a mixed bag. The Fed’s decision to raise interest rates again and the indication that the end of hikes is near might offer some relief if you’re concerned about the pace of monetary tightening. Having said that, the cautious outlook on economic growth and recent banking sector turmoil makes for an uncertain and volatile investing environment.

Implications for Alternative Assets

Amidst the changing interest rate environment and uncertainty in traditional markets, alternative assets may become an increasingly attractive option if you’re looking for diversification and potentially higher returns.

Alternative assets are known for providing a potential degree of insulation from market fluctuations and offering opportunities to capitalize on niche trends and long-term growth drivers. As with any investment, nothing is guaranteed, but we feel positive about the outlook for MCA investors.

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