By Kristin Hovencamp, CPWA®

Kristin Hovencamp, CPWA® is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC.

As we approach the end of the first quarter, Wall Street and Main Street sense an imminent recession. Market sentiment indicates the Federal Open Market Committee will raise interest rates by .25 percentage points at least two more times this year. The Fed’s words and actions demonstrate a commitment to cooling down the economy. However, we are beginning to see the fallout from hiking interest rates. While the U.S. government manages efforts to stabilize the banking sector, the Federal Reserve (the Fed) remains concerned with the following:

The federal-funds rate – The fed-funds interest rate is what banks charge each other for overnight lending to meet reserve requirements. This benchmark interest rate impacts how much it costs consumers to borrow and how much they get paid to save.

Inflation target – Interest rates are the Fed’s primary tool to thwart inflation. The Central Bank can move to moderately or aggressively hike interest rates (in a dovish or hawkish manner, respectively). The Fed aims to slow down demand and ease inflation by raising rates and make borrowing money more expensive. A healthy economy typically generates inflation of about 2% annually.

Soft landing – By taking a more aggressive stance and slowing the economy, the Fed is attempting to bring down inflation without causing a recession and the resulting layoffs that typically accompany periods of negative GDP.

Unemployment – The Fed has a “dual mandate” of maximum employment and price stability. Chairman Jerome Powell stated he would be comfortable with a 4% unemployment rate, as lower inflation is necessary to balance labor supply and demand to sustain a strong U.S. economy.

Persistent inflation and recessionary fears have created significant market instability. But how much further is the Fed willing to raise interest rates to combat inflation? That remains to be seen. With escalating concerns about how markets will react to the Fed’s mandate, all eyes are on the Federal Reserve and the U.S. banking sector.

Kristin Hovencamp is an Investment Executive at RJFS, and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. All investing involves risk, including the possible loss of principal amount invested. No investing strategy, including rebalancing or dollar cost averaging, can guarantee your objectives will be met. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605.