5 Stocks To Make The Most Of A United Hawkish Fed

Minutes from the U.S. Federal Reserve’s September meeting confirmed that the central bank is most likely to continue hiking benchmark lending rates at a gradual pace this year and beyond.

Rising interest rates are bad news for most stocks as it raises borrowing costs and squeezes profit margin. On the other hand, banks and other financial stocks see a bump up in profits on steady interest rate hikes. Thus, investing in such stocks, for now, seems judicious.

Fed Minutes: Further Rate Hikes ‘Most Likely’ Needed

United States central bankers found no reason to halt their current course of gradual interest rate hikes, per the minutes of the Federal Open Market Committee’s (FOMC) Sep 25-26 meeting minutes released on Oct 17.

Majority of the Fed policymakers said that rate hikes “would most likely be consistent” with economic expansion, strength in labor market and the current period of firming inflation. They say that to avoid creating asset bubbles or inflation above the Fed’s desired target of 2% for too long, the central bank needs to raise rates.

The sense of the meeting was more hawkish than analysts might have thought. At the same time, the minutes showed that policymakers were largely in agreement about steady increase in benchmark lending rates even though it has irked President Trump.

Fed Expects to Raise Rates Again in December

The Fed has signaled another hike in December and three more next year. The Fed’s so-called “dot plot” currently shows that 12 officials predict another quarter-point rate hike in December, up from eight officials in June. Looking at next year, four Fed officials expect two rate hikes, four officials anticipate three and four officials see four hikes. And for 2020, almost all officials predict one more rate hike.

Policymakers under Chairman Jerome Powell, by the way, have unanimously hiked rate by 25 basis points to 2-2.25% last month for the third time this year. Rates are now at the highest levels since October 2008, just after the collapse of Lehman Brothers.