Key takeaways
- The Federal Reserve raised interest rates again, this time by 75 basis points and set a new target range for the federal funds rate at 1.5% – 1.75%.
- The Fed’s dot plot signaled a much steeper path of rate hikes than it had previously forecast in March. The median Fed policymaker now expects to raise interest rates to roughly 3.4% by the end of the year, as opposed to 1.9% in March.
- Amid these macroeconomic pressures, private markets can offer a potential hedge against volatility.
Citing ongoing inflationary pressures, the Fed raised interest rates again on Wednesday, this time by 75 basis points, its biggest move since 1994. Meanwhile, the target range for the federal funds was revised to 1.5% – 1.75% on the same day, up from .5%–.75 % in March. While all 11 FOMC voting members voted unanimously to raise interest rates, Esther George was the lone member who voted for a less aggressive 50 basis point hike.
The new FOMC statement maintained that inflation remains elevated and the Russian invasion of Ukraine is causing tremendous human and economic hardship. “The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions,” the statement said.
When asked why the Fed was announcing a more aggressive rate hike than he had earlier signaled it would, Federal Reserve Chairman Jerome Powell replied that the latest data had shown inflation to be hotter than expected and that the public’s inflation expectations have accelerated.
“We thought strong action was warranted at this meeting,” he said, “and we delivered that.”
US stocks soared in response, with the S&P 500 up 1.4%, The Dow Jones Industrial up 0.9% and the Nasdaq Composite up 2.3%. The uptick also lent support to the idea that uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 into bear-market territory on Monday.
Yieldstreet’s private market investment products offer retail investors a potential hedge against these kinds of volatility and opportunities to participate in wealth creation outside traditional public markets. The products often have three-to-five-year terms and aim for higher targeted annualized returns but lack the liquidity of more conventional investments an investor can sell quickly if they worry about declining value.
“The lack of liquidity we believe is like a kind of emotional insurance or fear insurance,” said Yieldstreet Co-founder and President Michael Weisz.
“Very few people in history have been able to consistently time markets and be successful. I think what you do with alternatives investments, is you go after thematic plays. You look at the next five or 10 years, and you ask yourself, what are the right investment strategies,” Weisz added.
More rate hikes are coming
Those thematic plays could become more important to investors as the Fed prepares to continue raising interest rates.
The Fed’s Summary of Economic Projections also released a new dot plot on Wednesday, where policymakers indicated that after this year’s rate increases, they foresee two more rate hikes by the end of 2023, at which point they expect inflation to finally fall below their target level at 3%. But they expect inflation to still be 5.2% at the end of this year, much higher than they’d estimated in March.
This comes a week after the World Bank warned of the threat of “stagflation” — slow growth accompanied by high inflation — around the world.
“When you think about the credit investments, the real estate loans, or some other lending opportunity on the Yieldstreet platform, two things to note. One, the interest rate increases are not going to change how you get paid, versus in the public markets, where interest rate sensitive companies could start to fluctuate heavily or possibly trade downwards, as the result of worry that further interest rate hikes are going to impact them,” Weisz said.
It’s something retail investors may want to consider as they position their portfolios for a future that could include additional rate hikes and continued global uncertainty.
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