Ukraine Russia Conflict and the Impact on Interest Rates
With the news unfolding in Ukraine and the Russia war dragging on, the Federal Reserve is still raising interest rates in this uncertain environment. Many are asking what the impact of the conflict, higher oil prices, and overall global geopolitical uncertainty will have on Federal Reserve policy and their decision to raise rates.
It is our view the Federal Reserve will raise rates but not at the slope that many have expected. We have consistently said that we believe that the Federal Reserve will take action but do all it can not to negatively impact economic activity (particularly coming out of a pandemic). The Russia-Ukraine conflict further underscores our belief that that the path of interest rates going up will continue but at a slightly slower level.
Our base expectation is for interest rates to go up approximately 1% this year which would suggest four interest rate increases. A common sentiment on Wall Street right now is it interest rates will rise 1 ½ % or 150 basis points which we think overstates the Federal Reserve’s actions to control inflation. Faced with recession versus inflation, we believe the Federal Reserve will default more towards accepting inflation and avoiding recession.
We’ve already positioned portfolios towards slightly lower duration fixed income to mitigate bond interest rate risk. We also continue to invest in assets that will not be unduly affected by inflation risk, we are investing in financials which will benefit by increasing net interest margins because of higher interest rates as well positions in the growth industries that we think will continue to do well in the future. We will continue to make adjustments as needed.
Adjustments Can Be Accommodated
It’s an uncertain time to be sure. Still, we believe that it is important that you stay focused on the path ahead and your long-term plan.
Of course, if you’d like to make any adjustments in your strategy, please let us know. We want to make sure that your portfolio is in line with your overall life goals and that synergy exist between the two.
We are here to help and any of our CERTIFIED FINANCIAL PLANNER™ professionals are ready to provide financial planning services to you, services that are complimentary for DWM investment management clients. Let us know how we can help.