Finimize - 🇺🇸 The Fed’s not playing around

Hi Reader, here's what you need to know for September 22nd in 3:12 minutes.

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Today's big stories

The Fed upped rates and said they're not dropping soon
Trend-following strategies are winning big right now, so here's how you can too – Read Now
Germany's nationalizing an energy giant – at a total cost of $29 billion

When The Fed Says “Hike”, We Say “How High?”

What’s Going On Here?

The Federal Reserve (Fed) delivered its expected 0.75 percentage point hike and warned there’d be more big increases to come.

What Does This Mean?

After August’s dismal inflation report, there was never any doubt that the Fed would jack up rates – but the announcement itself was just a warm-up for the main event: the Fed’s long-term rate projections. A lot has changed since the last update in June, and the Fed’s “dot plot” (forecast of future rates) now points to peak rates of 4.6% in 2023 and no falls till 2024 – sparking an initial selloff by investors who hoped for a lower peak and earlier cuts.

Why Should I Care?

For markets: Read my lips.
“Fed Watchers” try to predict future rate decisions by picking apart Federal Reserve statements. It’s a tricky business – and there are more reliable ways of guessing at the Fed’s next play. “Credit spreads” are one: they’re a measure of how expensive it is for companies to borrow – and the fact they’ve jumped 70% over the last year for firms with strong credit ratings suggests that companies are feeling the interest-rate pinch. The Fed will be watching signs like this for indications of debt-related stress: if corporate borrowing costs spiral, they just might ease up on hikes a little.

The bigger picture: The Fed’s tightrope walk.
As the Fed’s been raising rates, the US yield curve’s drooped like a sunflower in late fall: in other words, it’s inverted, a pretty reliable sign that a recession’s looming. How painful that recession is depends on two key things: how long inflation sticks around and how high rates have to go to conquer it. See, if the Fed raises too slowly, inflation will continue, creating bigger problems down the line. But go too fast, and it risks triggering a drawn-out recession. No wonder the world’s watching the Fed so closely.

You might also like: You’ll know a correction is coming when this signal flashes.

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Analyst Take

The Hedge-Fund Strategy That’s Winning This Year

By Russell Burns, Analyst

Trend following has been one of the best-performing hedge fund strategies this year – the SG Trend Index has climbed 29.6%, while the S&P 500 has fallen 19%.

Those investors have managed such eye-watering returns by focusing on the price signals, seeking out momentum plays, and keeping in mind that old mantra: don’t fight the Fed.

And they seem to be getting a lot of things right.

That’s today’s Insight: we’re looking at the hedge fund strategy that’s winning this year.

Read or listen to the Insight here

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