Fed Chair Suggests Aggressive Rate Hikes Are Here to Stay

The Federal Reserve suggesting that aggressive rate hikes aren’t going away anytime soon after raising interest rates yet again by 75 basis points dashed many investors’ hopes that the U.S. central bank would pivot from its hawkish path to fight inflation. As a result, the rally that markets enjoyed in October came to an end, with stocks tumbling Wednesday evening and Thursday morning.

The Fed announced on Wednesday its fourth consecutive rate hike of 0.75%. Since many investors expected this and originally read the Fed’s statement as dovish, stocks initially rose. But those gains were wiped out after Fed Chairman Jerome Powell said it was “very premature to think about pausing” rate increases at the Fed’s press conference.

Powell added that the chances of a “soft landing” for the economy are now lower. He also conceded that it was proving to be more difficult to get a handle on inflation than previously expected.

The Dow Jones Industrial Average ended Wednesday down more than 500 points or 1.6%. Meanwhile, the S&P 500 plunged 2.5%, and the Nasdaq Composite dropped 3.4%. Following Wednesday’s losses, the Dow fell 194 points, or 0.6%, at the start of trading Thursday morning, while the S&P 500 dropped 1%, and the Nasdaq Composite slid 1.3%.

The latest hike brings the Fed’s benchmark lending rate to a new target range of 3.75% to 4%, the highest it’s been since January 2008.

“We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” Powell said.

With aggressive rate hikes expected to continue, sustained market volatility is also anticipated. This is where active management could help.

“Expectations that the Federal Reserve would prepare the markets for a near-term pause in rate hikes were short-lived and we have seen a rotation away from higher risk assets,” said Todd Rosenbluth, head of research at VettaFi. “Active management’s ability to adjust a portfolio based on the macroeconomic trends is a key differentiation and why many advisors are turning to active ETFs.”

As part of its lineup of active ETFs, T. Rowe Price offers a suite of actively managed equity ETFs, including the T. Rowe Price Blue Chip Growth ETF (TCHP), the T. Rowe Price Dividend Growth ETF (TDVG), the T. Rowe Price Equity Income ETF (TEQI), the T. Rowe Price Growth Stock ETF (TGRW), and the T. Rowe Price US Equity Research ETF (TSPA).

T. Rowe Price has been in the investing business for over 80 years through conducting field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.

For more news, information, and strategy, visit the Active ETF Channel.