The Federal Reserve announced a 0.75% interest rate increase for June, with another possible in July, as it backs aggressive talk with action. Markets closed higher, with the Nasdaq up 2.50%, the S&P 500 up 1.46%, and the Dow Jones Industrial Average up 1.00%, according to the Wall Street Journal.
Today’s interest rate hike brings the federal funds rate to between 1.5% and 1.75%. As of now, Fed officials are anticipating closing the year somewhere between 3% and 3.5%, with median projections at 3.375%.
Federal Reserve Chairman Jerome Powell has also indicated that he believes a soft landing is still possible for the economy (meaning slowing without tipping the economy into recession), but that the course has become increasingly difficult to navigate and ultimately could be beyond their control.
“I think events of the last few months have raised the degree of difficulty, created great challenges,” Powell said at a press conference Wednesday. “And there’s a much bigger chance now that it will depend on factors that we don’t control.”
Spiking energy prices and energy and commodity shortages driven by the war in Ukraine, and supply chain issues continue to impact both the global macro environment as well as the U.S. economy.
Markets, which have been sliding since Friday’s release of an 8.6% CPI reading for May, responded by rallying as clear guidance, and the willingness of the Fed to aggressively combat inflation has seemed to instill confidence into the markets.
“Today’s announcement confirms the Fed’s commitment to fighting the inflation battle more aggressively despite the potential aftermath from raising rates at such a rapid pace,” Charlie Ripley, senior investment strategist at Allianz Investment Management, told CNBC. “Overall, Fed policy rates have been out of sync with the inflation story for some time and the aggressive hikes from the Fed should appease markets for the time being.”
Investing During Rising Rates With Dividends
Increasing interest rates are driving advisors and investors to consider alternative sources of income as bond allocations continue to experience outflows. One place that advisors are turning to in order to seek income is within dividends and dividend-yielding companies as a play on equities.
The KFA Value Line Dynamic Core Equity Index ETF (KVLE) follows a strategy of investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks.
KVLE is benchmarked to the 3D/L Value Line Dynamic Core Equity Index and utilizes optimization technology to emphasize securities with solid dividend yields that have the highest rankings in both Value Line Safety and Timeliness. The fund uses a smart beta strategy in seeking more cost-efficient alpha and a risk-management strategy that seeks to limit the effects of major market declines, while also being positioned to capture positive returns.
KVLE carries an expense ratio of 0.55%.
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