If you’ve been keeping up with recent financial news then you’ll know that the Federal Reserve has announced that they are going to start increasing interest rates next spring. That’s not all, though. They’re planning on three interest rate increases throughout the course of 2022. 

Now, we’ll see if that actually happens, but if they stick to their intentions, but if they do, that could spell a lot of trouble for those investing in the stock market.

How much are they planning on increasing interest rates, though? By at least three quarter-percentage-point rate increases next year. Why are they so confident in these measures? Most executives within the Federal Reserve believe that higher price pressures of 2021 were caused by supply-chain issues and bottlenecks that will naturally resolve in due time.

What Are Current Interest Rates? 

We’ve been enjoying a period of unprecedented times, which means that interest rates went down to help people all over the country cope economically. As of March 2020, the Fed reduced the reserve ratio to 0%. This was done to help encourage banks to lend money to consumers so that, during the pandemic and subsequent economic downturn, there would still be cash circulating around in the economy.

You can compare this to the all-time record high of 20% in 1980 and 1981, which was implemented to combat double-digit inflation.

Ah, yes, inflation! Inflation’s getting bad again (if you didn’t know that, you can read about it here). Does that mean interest rates will go all the way back up to the rates we saw in the early 1980s? Probably not. Let’s hope not. However, inflation is getting pretty bad. In December, a consumer price inflation report showed prices have risen to a 39-year high over the last 12 months alone.

But, let's take a look at what happens when the Fed increases interest rates.

What Happens When The Fed Increases Interest Rates?

The financial products that are affected the most when the Fed increases interest rates like this tend to be namely consumer interest rates, including deposits, bank loans, credit cards, and adjustable-rate mortgages. You’re probably thinking, “Well, that sounds like it could directly affect me and everyone I know quite a bit.” Right? Right! That’s the point. This is going to be big (if they actually follow through with their plan; we’ll have to wait and see on that).

Let’s start off, though, by noting that interest rate increases aren’t necessarily inherently bad for stocks. Over the last 30 years, the Fed has engaged in this kind of rate hiking four different times. And, according to Business Insider, “the S&P 500 has moved 1.8% lower in the three months after the first hike. But it has then gained to stand 4.6% higher after six months, and 7.7% higher after 12 months.”

So, the rising rates alone aren’t the problem. It’s everything else that’s going on in the local and global economy that raises concern. Ultimately, it’s hard to predict what will happen because, as we’ve seen during the past two years, there could always be a curveball that throws the historic predictions off.

Currently, financial analysts looking forward to 2022 are concerned about the US midterm elections, inflation, and potential new coronavirus variants that could dramatically affect the economy once again.

What Does Our In-House Investment Pro Recommend for Investing in 2022?

In case you’ve forgotten, the CEO of Wealth Stack is a CFA, former hedge fund manager, and investment expert. He’s studied under Warren Buffet and invested over $1 billion of capital throughout his career. 

We spoke with him to see what he would recommend for beginner and expert investors alike in 2022 as the Fed looks to increase interest rates. Here’s what he had to say:

“What happens when the Fed increases interest rates like this is that the market becomes brittle. When people invest, they are naturally looking for reasons to sell anyway, and with a market that shifts like a sand dune in the desert wind, this is even more true. This all creates the potential for meaningful sell offs, but that doesn’t mean I recommend selling immediately. 

Instead, my advice is to never be fully invested and to always be forewarned. The truth of the matter is, anything could happen next year. I’m definitely not recommending that you sell everything, and I certainly won’t, because we all just have to wait and see. Ultimately, I suggest that you prepare for volatility and don't be surprised when it happens.”

Want to access Andrew’s insights on a regular basis? Download the Wealth Stack investment app and start investing today. In the app, you’ll find numerous videos that will help you learn the basics of everything from budgeting to stock analysis.

If you’ve been keeping up with recent financial news then you’ll know that the Federal Reserve has announced that they are going to start increasing interest rates next spring. That’s not all, though. They’re planning on three interest rate increases throughout the course of 2022. 

Now, we’ll see if that actually happens, but if they stick to their intentions, but if they do, that could spell a lot of trouble for those investing in the stock market.

How much are they planning on increasing interest rates, though? By at least three quarter-percentage-point rate increases next year. Why are they so confident in these measures? Most executives within the Federal Reserve believe that higher price pressures of 2021 were caused by supply-chain issues and bottlenecks that will naturally resolve in due time.

What Are Current Interest Rates? 

We’ve been enjoying a period of unprecedented times, which means that interest rates went down to help people all over the country cope economically. As of March 2020, the Fed reduced the reserve ratio to 0%. This was done to help encourage banks to lend money to consumers so that, during the pandemic and subsequent economic downturn, there would still be cash circulating around in the economy.

You can compare this to the all-time record high of 20% in 1980 and 1981, which was implemented to combat double-digit inflation.

Ah, yes, inflation! Inflation’s getting bad again (if you didn’t know that, you can read about it here). Does that mean interest rates will go all the way back up to the rates we saw in the early 1980s? Probably not. Let’s hope not. However, inflation is getting pretty bad. In December, a consumer price inflation report showed prices have risen to a 39-year high over the last 12 months alone.

But, let's take a look at what happens when the Fed increases interest rates.

What Happens When The Fed Increases Interest Rates?

The financial products that are affected the most when the Fed increases interest rates like this tend to be namely consumer interest rates, including deposits, bank loans, credit cards, and adjustable-rate mortgages. You’re probably thinking, “Well, that sounds like it could directly affect me and everyone I know quite a bit.” Right? Right! That’s the point. This is going to be big (if they actually follow through with their plan; we’ll have to wait and see on that).

Let’s start off, though, by noting that interest rate increases aren’t necessarily inherently bad for stocks. Over the last 30 years, the Fed has engaged in this kind of rate hiking four different times. And, according to Business Insider, “the S&P 500 has moved 1.8% lower in the three months after the first hike. But it has then gained to stand 4.6% higher after six months, and 7.7% higher after 12 months.”

So, the rising rates alone aren’t the problem. It’s everything else that’s going on in the local and global economy that raises concern. Ultimately, it’s hard to predict what will happen because, as we’ve seen during the past two years, there could always be a curveball that throws the historic predictions off.

Currently, financial analysts looking forward to 2022 are concerned about the US midterm elections, inflation, and potential new coronavirus variants that could dramatically affect the economy once again.

What Does Our In-House Investment Pro Recommend for Investing in 2022?

In case you’ve forgotten, the CEO of Wealth Stack is a CFA, former hedge fund manager, and investment expert. He’s studied under Warren Buffet and invested over $1 billion of capital throughout his career. 

We spoke with him to see what he would recommend for beginner and expert investors alike in 2022 as the Fed looks to increase interest rates. Here’s what he had to say:

“What happens when the Fed increases interest rates like this is that the market becomes brittle. When people invest, they are naturally looking for reasons to sell anyway, and with a market that shifts like a sand dune in the desert wind, this is even more true. This all creates the potential for meaningful sell offs, but that doesn’t mean I recommend selling immediately. 

Instead, my advice is to never be fully invested and to always be forewarned. The truth of the matter is, anything could happen next year. I’m definitely not recommending that you sell everything, and I certainly won’t, because we all just have to wait and see. Ultimately, I suggest that you prepare for volatility and don't be surprised when it happens.”

Want to access Andrew’s insights on a regular basis? Download the Wealth Stack investment app and start investing today. In the app, you’ll find numerous videos that will help you learn the basics of everything from budgeting to stock analysis.