Macro Research Quick Take: Expect Fed rate hikes to | FSMOne SG - Research Highlights

Macro Research

Quick Take: Expect Fed rate hikes to be more aggressive than before

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• As of today, the Fed has already raised interest rates by 75 bps. It has also signalled its intention to step up the pace of rate hikes and begin reducing its balance sheet in June.

• In light of the recent developments, we have raised our forecast for the Fed Funds Rate from 3.25% to 3.75% by end 2023.

• Riskier assets, such as SPACs, meme stocks and growth stocks that are richly valued but have negative earnings (e.g certain software stocks) are likely to be hit the hardest as rates rise.

• Generally speaking, higher interest rates should result in a slowdown in economic activity, which in turn produces an adverse effect on equity prices.

• In light of the more aggressive rate hikes, investors should consider increasing their exposure to value oriented equities and reduce the duration of their fixed income portfolios.

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