deVere CEO : USA rate hike still on the cards despite Trump’s remarks
President Trump has been making headlines again this week with his criticism of the Federal Reserve.
Mr Trump said during a Reuters interview that he was “not thrilled” with Fed chairman Jerome Powell, and he would keep disparaging the central bank if it continued to hike short-term interest rates.
As I wrote in my column for Newsmax, Trump’s latest attack on the Fed will probably be rebuffed by its policymakers. I don’t think it will stop them raising rates, with the next one forecast for September, as they take action to cool down the economy.
As it stands, the domestic U.S. economy is growing at an annualised rate of close to 4 per cent per year.
However, taking into account current strong growth will potentially speed up the rate hikes, the U.S. economy could suffer a hangover brought on by the Fed in 2019 during the cooldown attempt.
Although, I think the apprehensions in the market of an all-out recession next year are erroneous.
An overweight position in U.S. stocks is warranted at the moment as domestic growth is easily outperforming that seen in Europe or Japan so far this year, and the dollar will likely rise further on Fed rate increases.
Looking at the stats, S+P500 stocks have experienced two quarters of robust year-on-year corporate earnings and revenue growth, whilst the index hasn’t surpassed the record high seen at the beginning of the year.
This perhaps indicates that valuations have dropped, diminishing worries of Wall Street being over-priced.
Furthermore, the U.S. stock market is incredibly varied, and I’m not just referring to the FAANGs. Of course, technology does constitute a quarter of the index, but also includes businesses such as chip manufacturers and social media operators. Additionally, investors can enjoy increased portfolio diversity with the extensive market of mid and small-cap stocks.
A few weeks ago, the S+P 500 total return index reached a record high. This shows the power of re-investing dividend income. As history has taught us, in order for long-term investors to benefit from the highest returns, a key part of a portfolio is re-investing investment income.
Nevertheless, I’m certain the Federal Reserve will continue to hike interest rates, regardless of the president’s critical comments. After all, it was Mr Trump’s tax cuts and reforms that probably led to the surge in growth helping compel the Fed to tighten monetary policy.