Fed hikes reliant on close economic analysis

The minutes from the U.S. Federal Reserve’s (Fed’s) latest policy meeting were released for public viewing on Wednesday, revealing that rate hike decisions hinge on on a meeting-by-meeting analysis of the economic data.

This comes after investors have anticipated the Fed will begin raising rates in March and will continue throughout the year, starting with an increase of half a percentage point.

The minutes said participants also expressed concern regarding the excessive tightening of financial conditions in reaction to a quick removal of policy accommodation.

Nigel Green, CEO of financial advisory and asset management firm deVere Group, said that despite the minutes showing the central bank’s dovish tone towards plans for interest rate hikes in 2022, rates are still going up.

“Against this backdrop of the move towards normalisation of monetary policy by the Fed and other major central banks around the world, I believe, investors should consider increasing their portfolio exposure in three key sectors: tech, financials and raw materials,” he said.

Despite the impending volatility in tech sectors due to rate hikes and slowing economic growth, Green highlighted how the pandemic has driven trends like online shopping, remote working and gaming – “all of which have tech at their core”.

“History teaches us that financial stocks perform well when rates are being hiked. That said, if the Fed acts too fast and too extreme, this should be reviewed,” Green also said.

“Raw materials is the other sector that investors should consider – despite the slowdown in economic growth in major economies. Traditionally, they’re a safe inflation hedge. Plus, they are currently undervalued in the market.

“In addition, we can expect infrastructure spending by governmental agencies to continue – or even increase.”

The CEO also said diversification remains investors’ best method to mitigate risk and seize market opportunities.

“Financial history suggests that long term investors with a balanced, multi-asset portfolio, are best placed to ride out such periods of market nervousness as the macro-economic conditions alter,” he said.