The Fed raised rates, now what

Key takeaways

  • The Fed raised interest rates .25% and set the target range for the federal funds rate to 1/4 – 1/2 percent.
  • The Fed’s dot plot shows the potential to raise interest rates six more times this year.
  • Alternative investments offer a potential hedge against volatility in public markets.

Wall Street firms managing billions of dollars for investors have to consider what happens next after the Federal Reserve raised short-term interest rates Wednesday 25 basis points or a quarter of a percent.  The FOMC statement said inflation remains elevated and the Russian invasion of Ukraine is causing tremendous human and economic hardship. “The implications for the U.S. economy are highly uncertain, but in the near term, the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the statement said.

Federal Reserve Chairman Jerome Powell attempted to assure inflation weary Americans the Fed will continue to use potential future rate hikes to “sustain the economic expansion” and calm markets worried about rising prices. 

“When the market starts trembling, and volatility starts to set in, people who are less professionally trained to invest, tend to make the wrong decisions. They can sell too quickly and lose, or they buy too fast when it’s too high,” said Yieldstreet Co-founder and President  Michael Weisz. 

Yieldstreet’s private market investment products offer retail investors a potential hedge against public market volatility and opportunities to participate in wealth creation outside traditional public markets. 

Those 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,” Weisz said. “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 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 and its infamous “dot plot” shows the central bank raising interest rates six more times this year with the potential for the benchmark federal funds rate to hit 2.75% by the end of 2023, the highest it has been since 2008.

“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 quarter-point increase is 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 rates 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 future rate hikes and continued global uncertainty. EY-Parthenon Chief Economist Gregory Daco told Yahoo Finance, “There’s going to be a key question as to how smoothly the Fed can navigate its future rate increases in an environment where there’s a lot of instability, and that instability has been exacerbated by the situation in Ukraine.” 

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