The Fed announced a 0.75% rate increase after the FOMC meeting. It’s really no surprise here. The press release is the same old “we want to keep inflation under 2%” statement and after last week’s higher than expected inflation report, a 0.75% raise is expected. The market reacted quite negatively to the announcement as the Dow dropped 500 points today. It turns out that people were surprised by the Fed Committee’s rate projections in the next couple of years. As illustrated above 17 out of the 19 FOMC members expect the Fed fund rate to be between 4.125-4.375% by the end of the year and 18 out 19 expect the rate to be between 4.375-4.875% in 2023. Just a couple of months ago, the expectation was that the rate would be raised to ~3% and they will start cutting it next year. Today’s meeting is telling us rate cuts won’t be happening next year.
I personally welcome this new higher rate environment. My cash can finally earn some interest and asset bubbles can finally deflate. I do still see quite a bit of optimism from my friends who are buying the dip. I personally want to be more cautious and to stay with my current 50%/50% equity/treasury bill allocation as we are entering a new environment we haven’t seen for over a decade.