Dogs, hawks and cockroaches
Synopsis:- The US Federal Reserve hiked its policy rate for the first time since early 2022.
- While inflation remains elevated, it hasn’t materially changed since the previous policy meeting. What has changed is how the Fed reacts to inflation and the US economy.
- That change is probably largely due to the sharp rise in bond yields in recent weeks.
- Rate hikes don’t automatically hurt equities; it depends on why the central bank is raising interest rates. Often, equities take it as a sign of solid economic growth.
- Nonetheless, a higher-for-longer interest rate environment will put pressure on leveraged investors and business models.
- A Fed rate hike doesn’t automatically result in a SARB hike, but it does tend to weigh heavily in local central bank’s thinking.