Opening Statement from the March 2022 Dividend Gems

Opening Statement from the March 2022 Dividend Gems

Originally published on March 20, 2022

Russia Invades Ukraine

On February 24 Russia officially invaded Ukraine and has since continued. Not only does this conflict threaten to create a more lasting period of inflation, it’s likely to also heighten supply chain issues.

Inflation, the Fed and Interest Rates

On March 10, the BLS reported the much anticipated inflation data for February. The CPI came in at 7.9% matching consensus expectation for the highest inflation rate in 40 years. Without surprise, the majority of increased costs came from fuel, new and used automobiles and housing.

As expected, the Federal Reserve raised the Federal funds rate by 25 basis points on March 16. Fed chairman Powell reiterated the Fed’s commitment to raise interest rates more aggressively if needed based on its focus to contain inflation. Perhaps the most significant data released from the Fed’s two-day meeting were FOMC projections indicating a high probability of an additional six 25-basis point hikes in 2022. As expected, the Fed also raised its terminal rate to 2.50% to 3.00% from its previous 2.00 to 2.25%.

This more aggressive stance by the Fed is specifically what we hoped for but were not counting on. We believe it’s much better to raise rates more aggressively in 2022 in order to take advantage of stronger growth in order to minimize the terminal rate so that growth beyond 2023 will not be adversely impacted. However, the Fed cannot raise interest rates too fast or else economic growth might stall.

Given the impact of the Russian-Ukraine conflict, we are...