The Bank of England and the Fed have paused interest rate hikes.
Consumers have been hoping that interest rates will start lowering now, but it is speculated that interest rates will remain high for longer and that we are not out of the woods yet. What does this mean for investors?
Nigel Green, deVere CEO, says, “In my opinion, we should see interest rates starting to fall only in the next 8-12 months. They will remain higher for longer. Why? Deglobalisation has caused higher inflation and less free trade, resulting in higher interest rates.”
This decision to pause interest rates has markets looking at the economy differently. They are not happy with the possible freeze on interest rate decreases. This could mean economies will perform at lower levels than expected, delaying growth and consumer spending that usually boosts the economy.
Green goes on to say, “When central banks hike rates, it takes around two years for the full impact to filter through into the economy. Now, we’re beginning to see the drag effects on the US economy as households and businesses become more cautious. Furthermore, investors are becoming more fearful that further hikes could lead the US economy into a recession. The Bank of England held rates steady at 5.25% on Thursday. This is the first time in 15 meetings there hasn’t been a rate hike. We support the UK central bank’s decision to hold rates steady, but policymakers should go a step further. They should stop the hiking agenda altogether instead of merely pausing it.”
But it’s not all doom and gloom. There are fantastic opportunities to invest in the right sectors.
Sectors to watch could be the banking sector – if interest rates are higher, they make more money, and there’s more margin for them. Buying stock in financial could see good returns.
In the oil industry, prices are currently near the $100 a barrel mark after the decision to reduce oil output till year-end. This means that investors in the energy sector are bound to do well.
It is always advisable to consult with your financial advisor before investing to maintain the proper levels of diversification.