Looming Times Ahead 😟

Fed officials have hinted that they are likely to raise interest rates by 0.25%, which would bring the federal funds target rate to a range of between 5% and 5.25%. It has not been above 5% since the housing boom in 2006. The Fed’s rate hike would be its tenth since March of 2022. Hopefully, May rate hike to likely be the last of the cycle through the end of the year, essentially leaving the Fed rate at a constant level of just over 5%. This is much expected on an account of a slowing economy and the banking crisis, which still remains far from over.

First thing first, FOMC policy decisions can create market volatility and impact asset prices. So, if the Fed message remains unclear in the shorter term and hints towards more rate hikes, it could provide a near-term negative surprise for the bond market. A bad news for investors.

However, if Powell or the Fed's statement signals a pause in rate hikes after May, maybe a possible stock market rally, usually at the end of hiking cycles. If that happens, this will likely to last only for a short period since the S&P 500 has risen in the last two months, even amid banking sector turmoil and recession concerns. Moreover, there is no shortage of warning signs that the U.S. economy is heading for a recession. An inverted U.S. Treasury yield curve, a downturn in corporate earnings, and a cooling housing market have all been cited as reasons to fear an economic contraction.

Well, to sum up, with so much uncertainty around,  we will be in for a rough ride until the end of 2023. If recession happens sooner than earlier, expect more tough time ahead. As part of my forward planning, i intend to keep most part of my portfolio in cash or highly liquid securities, like MMF. For i believe, Cash Is King during a recession. Having cash on hand will be advantageous so as to swiftly seize the investment opportunities in such uncertain times. Never mind if it's good news or bad news.