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The long-awaited Federal Open Market Committee (FOMC) statement was finally released yesterday, and it was a very dovish one.
Here are the major takeaways…
- The Fed is keeping interest rates near zero, though it did hint that a rise in rates could come sooner than anticipated.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC said in a statement. The Fed officials “dot-plot” showed half of the 18 officials anticipate they’ll raise interest rates by the end of 2022, compared to seven officials in June.
With that said, the further you project into the future, the fuzzier such predictions get. In theory, interest rates could go as high as 1%. But I don’t think they’ll reach higher than that because the federal debt, which is fast approaching $29 trillion, is just too big.
- It did not directly address the tapering timeline, so we’ll have to wait until their next meeting to find out.
In a post-meeting press conference, Fed Chairman Jerome Powell said while no decisions on tapering were made, “Participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”
Powell also said “substantial further progress” is being made on the Fed’s inflation and employment goals.
Interestingly, after the meeting, the FOMC said it could start to reduce its $120 billion in monthly asset purchases at its next meeting in November. The Fed also said it would raise its daily repurchase operations to $160 billion from $80 billion.
- Fed officials revised their inflation mandate.
FOMC members upped their core inflation figure to 3.7% this year, which is higher than their earlier projection of 3% in June, and predicted 2.3% inflation next year, up from 2.1%.
Powell said he anticipates that inflation will subside once supply chain backlogs get sorted and increased pandemic demand diminishes.
You may recall that last year the Fed officials said they wanted to see inflation reach 2% or a little higher as enough jobs return to the labor market to reach the maximum employment rate. Roughly 4.7 million jobs have been added in the U.S. throughout August, almost half of the 10 million that had been lost by last December, while the unemployment rate dipped to 5.2% at the end of August compared to 6.7% in December.
The Fed predicted the unemployment rate for the fourth quarter would hit 4.8%, up from its June estimate of 4.5%, though Powell said it would only take a “reasonably good employment report for me to feel like that test is met. Others on the committee, many on the committee, feel the test is already met. Others want to see more progress.”
That leaves one more unemployment report from now until the next FOMC meeting.
The FOMC did say it sees GDP rising at a slower rate — 5.9% for the year compared to its 7% prediction in June — though it increased its 2023 GDP growth forecast to 3.8%, instead of the previous 3.3%.
The Best Way to Hedge Against Inflation
In the meantime, the stock market is one of the best ways to hedge against inflation, so I’m very bullish right now.
As you look around the world, the U.S. is one of the only major economic powers with decent interest rates.
The debacle unraveling the Chinese real estate company Evergrande, which I wrote about on Tuesday, means that China could end up cutting its interest rates from the current 3.85% for their one-year loan prime rate.
In addition, the eurozone has negative rates, with the European Central Bank’s key interest rate at -0.5%. In Japan, rates on 10-year government bonds are flat. In England, rates are at an historic low of 0.25%.
The bottom line is that the U.S. stock market remains an oasis. And I expect a lot of foreign capital will come to America and help keep rates extra low, especially when you consider that the S&P 500 and Dow yield more than the 10-year Treasury yield.
This is good news. It means the Fed can taper, and that the “Goldilocks” environment of low interest rates and nice earnings growth for my fundamentally superior stocks can continue.
My Growth Investor stocks are “locked and loaded” as we head into the third quarter announcement season. My average Growth Investor stock is characterized by 46.9% annual sales growth and 57.2% annual earnings growth, and I fully expect them to post wave after wave of positive earnings results, which, in turn, should dropkick and drive them higher.
The third-quarter earnings season won’t kick off until mid-October, which means now is the perfect time to make sure your portfolio is “locked and loaded,” too. If you’re not sure where to start, I’ve got you covered. In this Friday’s Growth Investor October Monthly Issue, I will be releasing three new buys and my latest Top 5 Stocks list . I’ll also share my outlook for the market as we enter the seasonally strong time of the year.
P.S. Right now, successful Americans like us have a bullseye on our back.
We’re facing a direct threat to our safety and prosperity.
The values we hold dear, like individual freedom, hard work and fiscal responsibility have been tossed aside.
The US national debt is growing at an unprecedented rate. And more spending is coming.
The cost of essential goods and services seems to get more expensive by the day. Critical materials are on backorder for months. Grocery store shelves are half-empty.
If you have any money in savings, in the stock market, in a 401k or even cash stuffed under the mattress, this should make the hair on your neck stand up.
To help understand the monumental problem we’re facing and why both our way of life and financial security are under attack, I put together a special presentation.
So, if you want to protect yourself and grow your wealth, I encourage you to watch this briefing now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
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