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interest rate hikes

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By Michael E. Russell

Michael E. Russell

Interest rate hikes are in the forecast for 2022. But how many?

Jerome Powell, Chairman of the Federal Reserve has a perplexing problem: how to curb inflation, while not derailing the economy. Most analysts are expecting 3 to 4 increases, while Jamie Dimon, JP Morgan Chase CEO thinks 6 or 7 are possible.

What does all this mean? The Consumer Price Index rose7% in December from its year ago level. What caused this? COVID, supply chain issues, the government printing money as if there was an unlimited supply?  Maybe. We need to be aware that no mention is made of our 30 TRILLION-dollar deficit that is growing by the hour. It appears that fiscal irresponsibility is the norm in our Capitol.

Another factor that is being ignored is what is called The Misery Index. This index came about during the Carter administration. During the late 70s, stagflation was rampant. We all know about inflation. I have mentioned price increases in my previous article, but little is mentioned in the media as the effects on middle and lower-income Americans.

A problem that will concern us in the coming months is one in which the Fed stops the repurchase of approximately $60 billion of Treasury and Agency securities each month. This means that the market will have to absorb more than $300 billion of maturing bonds in 2022. This may cause liquidity problems.

What about Crypto? Some investors purchased Bitcoin in 2010 at prices hovering around $100. On January 3 of this year, it rose to a price of nearly $61,000. Wow! A reality check has hit some investors. Those making purchases at that level have seen it fall to a level $36,000, a substantial drop.

As I mentioned previously, the lack of regulation and knowledge on the part of Washington warrants concern.

This week, the Dow Industrials lost 4.6%, the S&P dropped 5.7% and the Nasdaq slumped 7.6%. Is this the start of a 15-20% correction, maybe? The Nasdaq highflyers took some hits the past few weeks. Case in point, Netflix.  On January 3, it was priced at $597 a share. This past Friday, it closed at $397, losing 110 points on Friday — loss of 34% in 3 weeks.

This is the time for investors to evaluate their holdings and determine what their short-term liquidity needs are. Several of us have seen the crash of ’87, the Enron fiasco, the attacks on 9-11 and the severe drop of 2008. Those who stayed the course remained patient and had nice gains in their portfolios.

Remember, there are great companies to invest in. This may be an opportunity to start buying at these levels. I will mention a few that look promising. Nvidia, a chip maker with great earnings potential. I am a big believer that our major oil suppliers will make a transition to cleaner fuel, reducing the carbon footprint. Occidental Petroleum and Exxon Mobil are standouts.

Until next month, buckle up your seat belts!!

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor.