Fed Credibility Restored as Trend Remains Positive

The recent Federal Reserve (Fed) rate hike has regained credibility for the institution, according to ETF Strategist Content Hub. The Fed raised the fed funds target range by twenty-five basis points to 3.75%, 4.00%, which initially looked like a hawkish move that could signal more aggressive rate hikes.

However, Chairman Powell's intention behind the rate hike is to regain credibility with financial markets, not to lead them. He has stated that 'financial market prices are probably the most important source of information to guide central bankers.' This suggests that the Fed takes its cues from markets rather than setting the tone.

The recent rate hike has put a lid on inflation, which should help with the affordability of goods and services. The US economy is consumption-driven, with nearly 70% of GDP dependent on consumer spending. If the Fed can calibrate its rate hikes appropriately to slow inflation without throwing the economy into recession, corporate earnings will remain robust.

The trend in the S&P 500 remains positive, despite experiencing a slowdown in short-term momentum due to growing concerns over inflation and rising Treasury yields. Historically, the S&P 500 has risen about two-thirds of the time over any given three-month period, making it more likely to have a positive return.