The Fed would have been ‘all-in’ if they hiked 100bps yesterday, but they settled on 75bps. The Fed is in a difficult position. A hawkish Fed interested in killing inflation would have hiked faster and more aggressively.
Interestingly, while in a quiet period, the Fed apparently leaked their intended hike to the WSJ, pushing the odds of the 75bp hike. We ended last week with very low odds of a 75bp rate hike. By the EOD on Monday, the odds were immensely higher, and many believed 75bps to be the likely hike.
Investors should not blame the Fed, which historically has been behind the curve. When was the last time the Fed executed a soft landing? Moreover, hasn’t the price action in technology stocks and bonds in 2022 confirmed that we have already crash-landed?
The next FOMC meeting is on July 27th. The Fed will be looking at the June CPI report on July 13th. Keep in mind that the University of Michigan inflation expectations data comes out on June 24th.
For some time, Astoria Portfolio Advisors’ view has been that inflation would be structurally higher for years to come. Once the inflation genie comes out of the bottle, it isn’t easy to put back in. In the late 70s/early 80s, CPI stayed above 5% for an entire decade. Astoria’s recent research pieces cover this topic more extensively; click here, here, here, and here for more details.
One of Astoria’s clients asked yesterday if we were going to make any changes to our portfolios. We have not rebalanced much this year because we prepared our portfolios in 2021 for what we envisioned would play out in 2022. Fortunately, we prepared our portfolios for higher inflation, increased volatility, and the shift out of growth and into value in 2022.
Last year, we added inflation hedges, shortened duration, moved underweight fixed income, and increased the quality of our portfolios on the bond and equity sides. So, we have been pleased with the positioning of our portfolios. We’re long-term and strategic. We are not tactical investors; however, we do look forward and prepare for what we believe is likely to happen over the next 12 to 18 months.
Our portfolios remain positioned for increased volatility, higher rates, and higher inflation.
Astoria Portfolio Advisors Disclosure: Past performance is not indicative of future performance. Any third-party websites provided on www.astoriaadvisors.com are strictly for informational purposes and convenience. These third-party websites are publicly available and do not belong to Astoria Portfolio Advisors LLC. We do not administer the content or control it. We cannot be held liable for the accuracy, time-sensitive nature, or viability of any information shown on these sites. The material in these links is not intended to be relied upon as a forecast or investment advice by Astoria Portfolio Advisors LLC. It does not constitute a recommendation, offer, or solicitation for any security or investment strategy. The appearance of such third-party material on our website does not imply our endorsement of the third-party website. We are not responsible for your use of the linked site or its content. Once you leave Astoria Portfolio Advisors LLC’s website, you will be subject to the third-party website’s terms of use and privacy policies. Refer here for more details.
Photo Source: Astoria Portfolio Advisors.