Fed Moves Up First Rate Hike

Thought of the Week / June 18, 2021

Fed Moves Up First Rate Hike

On June 16th, the Federal Reserve issued a press release following the conclusion of their 2-day meeting. They maintain the belief that the recent spike in inflation is the result of temporary factors. They stated that they remain committed to achieving maximum employment and a long run inflation target of 2%, although they expect it to be slightly above 2% in the short-run. 

As far as interest rates go, they have maintained the target range for the Federal Funds rate at 0 – 0.25% for the time being and have no plans to change this until they feel labor markets are closer to maximum employment. The Federal Funds rate is the rate that banks charge each other for overnight loans. 

The Fed also announced they will continue to purchase at least $80 Billion of Treasury securities and $40 Billion of agency mortgage backed securities on a monthly basis. The goal with these purchases is to inject liquidity into the market to help improve market function. 

Possibly the most surprising announcement was that the Fed could see rate hikes as soon as 2023 due to hotter than expected inflation. Previously they had projected no rate hikes until 2024. 

Market Reaction
On June 17th, the Dow Jones closed down 0.62 percent, the S&P 500 was roughly flat down around 0.04 percent, while the tech heavy NASDAQ was up around 0.87 percent*
*Yahoo Finance 

Although YTD value companies have led the way, the past week has seen a rotation back into growth and technology stocks. This has confirmed the importance of a well-balanced portfolio with exposure to a variety of different asset classes that is tailored to meet your specific financial goals.

Chad Slagle

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