To fight inflation, the Fed may resort to a tool it hasn't used since 2000

[Link]

https://edition.cnn.com/2022/02/10/business/fed-inflation-rate-hikes/index.html

To fight inflation, the Fed may resort to a tool it hasn't used since 2000

 

[Summary & Comment]

Recent intense inflation seems to work as a huge pressure for Federal Reserve to take drastic measure to get control of prices. James Bullard, the president of the St.Louis Federal Reserve Bank, said that he has turned into ‘hawkish’ and now supports raising interest rates by 1 percent point by July 1. It means that the Fed would have to raise interest rates by 0.5 percent point at least in a single meeting since there are only three Fed meeting until then, and such hike has never been executed since 2000.

According to a report, consumer prices in the US increased by 7.5% in January, which is the largest 12-month gain since 1982. What’s even worse is that inflation seems to be accelerating over months. It is now becoming pretty obvious that Federal Reserve is more inclined to raise the interest rates more often with larger steps in this year to deal with such a disastrous inflation. However, the Fed should not raise the interest rates too aggressively, otherwise it can lead to a stock market collapse.

As an individual stock investor, I personally think it is not a good idea to invest on stocks aggressively in this year. Rather, it seems wiser to increase one’s cash portion. One might wonder why stock market struggles when interest rates increase. One reason is that there will be less demand for stocks in the market.