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Rate hikes are rarely good news, but this one just might be

At its recent January meeting, the Federal Reserve raised interest rates by a quarter point. This was the Fed’s eighth rate hike in a row, but it’s smallest since last March. Chairman Powell declared, “the disinflationary process has started.” The drop in inflation over the past three months allowed the Fed to slow their tightening.

While Powell acknowledged there was still more work for the Fed to do, and there are probably more hikes to come – in March and maybe even May – they are getting close to their stated target interest rate of 5% to 5.5%.

The light at the end of the tunnel is looking a bit brighter

Both stock and bond markets reacted positively to the news, adding to the strong performance stocks have seen since the start of the year, with the S&P 500 and the Nasdaq 100 up 7.39% and 13.01%, respectively, as of February 1.

Does this mean the bear market is over? It’s hard to tell. Corporate earnings are down, and the yield curve remains inverted. These are signs of a pending recession. Chairman Powell believes growth will slow, but we will avoid recession. Some economists disagree.

Could a slowdown already be priced into the market? We know that stocks are a forward-looking indicator and that the market bottomed on October 13, 2022, so it is possible that Powell may successfully orchestrate the elusive “soft landing.”

As we know, however, no one can predict the future. That’s why we’re here to help you handle whatever the markets throw at us and make sense of it together. If you want to learn more about what’s going on in the economy, this recent episode of The New York Times The Daily podcast does an excellent job of hitting the highlights. If you want to talk about how these shifts might impact your financial picture, feel free to reach out.