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The cadet must decide whether to attempt a rescue mission and endanger their ship and crew…. or leave those on the Kobayashi Maru to almost certain death.
It’s a classic no-win situation, and it’s a position the Federal Reserve finds itself in ahead of its announcement on rate hikes that will be shared today at 2:00 p.m.
With the decision just hours away, let’s jump right in and go over what’s happening, what to expect, and what our experts say to do.
Bank Beatdown Puts Fed in Tight SpotQuantum Edge Pro editor Jason Bodner told his paid-up members on Monday (make sure you’re logged in to view his report) that a month ago, investors believed there was a 0% chance that the Fed would leave interest rates untouched.
But as of this writing — and these percentages jump around fast — you can see that those odds have jumped to 13.6%, according to the CME FedWatch Tool:
Those odds that rates won’t rise are thanks to the failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank, which have created the no-win situation for the Fed today.
If the Fed does not hike interest rates, not only could it lead to a resurgence in inflation, but it also would send a message that the central banking system does not think the economy is strong enough to handle a rate hike at this moment.
If it does raise rates, LikeFolio co-founder Andy Swan shared on Monday that “more banks could find themselves holding underwater treasury notes” and there would be “further strain on a very fragile banking system.”
A recent research report found that almost 190 banks are potentially at risk of shutting down if half of uninsured depositors withdraw their money.
So, no matter what decision is made on rate hikes today, the Fed is caught in a double bind.
Having said that, we’re in your corner to help guide you through what all of this means and what’s next.
How to Play ItJason remarks that what Fed Chair Jerome Powell says later today is more important than the rate decision itself.
“If he makes ‘dovish’ statements, stocks could soar. Should he stay stubbornly ‘hawkish,’ stocks could swoon.”
This also plays into Jason’s prediction that we are starting to get closer to rate cuts, which may begin as soon as 2024.
“I’ve said for a while that we were nearing the end of rate hikes anyway, but bank concerns should accelerate the timetable,” he says. “We may have just quickly gone from the seventh inning to the ninth inning.”
Currently, the FedWatch tool supports that outlook. You can see in the chart below that it displays an 83.4% chance of rates being cut in January 2024:
For preparation on how to invest, Jason feels the members of Quantum Edge Pro are exactly where they need to be.
“As important as Wednesday will be to the near-term direction for stocks, we are ready, no matter the outcome.” We’ll feel the impact, but we are invested in the strongest stocks in the market — fundamentally, technically, and with Big Money support. Those stocks will hold up best in a bumpy market and fly the highest in a rally.”
Andy Swan of LikeFolio also believes the Fed is nearing the end of rate hikes, saying, “Ultimately, we think the Fed will raise rates by a token 25 basis points — if only just to show it can’t be pushed around by markets — and likely signal it’s done with rate hikes until inflation starts to rear its ugly head again.”
Andy says to be cautious if you plan to make any moves around the time of the announcement today.
Having said that, one of his favorite stocks for 2023 is up more than 30% over the last five days and could benefit in a big way from the issues experienced in the banking sector right now.
You can find out more about that stock here. We’ll be back tomorrow with insights from even more of our gurus on the official rate hike verdict and what it means for you as an investor.