The Federal Reserve met last Wednesday, and as expected their actions offered insight into what happens next in the financial markets.
Specifically, not only did the Fed raise rates, but it delivered a more hawkish than expected tone, which means watch out in the stock and real estate markets. Because while it can be debated whether or not the Fed actually understands the corner it has backed itself into, at least for now the institution seems intent on moving forward with its rate hiking policy.
In January as yields on the benchmark U.S. 10-year treasury neared 3% the stock market experienced its first correction in quite a while. Which is the exact effect that’s to be expected when credit is being withdrawn from the system.
The grey area is in how the Fed responds. Many (myself included) believe that the Fed will at some point see the markets melting down and revert back to low interest rates and more easy credit. That it’s simply just a matter of how much market carnage they’re willing to stand by and watch before cranking up the presses again.
However this recent meeting indicates that at least for now, the Fed is going to allow interest rates to continue to rise and let the markets respond as they will. Which is why until further notice, it looks like a dangerous time to be invested in stocks and real estate.
Add in that President Trump has now initiated a new trade war, to which China has already responded, and that doesn’t help either. As a result, it was a rough week for the stock market.
Going forward all eyes will be on the bond market. And with good reason. Because if interest rates continue to rise, that will likely be the driving force in the other markets as well. And should money continue to leave the stock and real estate market, it’s interesting to think what might happen should some of those funds begin flowing back into cryptos and precious metals.
While the ultimate outcome of how this all plays out has been the easy part to see for quite sometime, this last Fed meeting has provided some of the details of the path to get there. And if you’re considering taking investments out of the dollar-based system and placing them in alternative assets, this is an extremely good time to do so.
We are witnessing the decay of a failed system, which I feel will ultimately be replaced by something more honest and legitimate. Should the Fed stay away from the market and allow interest rates to rise, the transition may develop even more rapidly than previously expected.
March 23, 2018