Fed holds interest rates steady as economic data continues to improve; but the variant is lurking.

Following the Fed meeting this week, Federal Reserve Chairman Jerome Powell said that while inflation could be more intense than previously thought, indications are that it will settle back down in the future and the Fed is still not ready to begin talks about raising interest rates to mitigate price increases. This is despite the fact that consumer prices increased 5.4% for the year ending June, the highest rate of inflation since 2008, a figure well above predictions of 4.9%. Applications for U.S. unemployment benefits fell in late July, suggesting the delta strain of the coronavirus hasn’t harmed the economy much so far. Initial jobless claims declined by 24,000 to 400,000 in the week ended July 24.

In the meantime, pointing to the Delta variant and a high number of unvaccinated individuals, the CDC has reversed its indoor mask policy, saying fully vaccinated people and kids should wear face coverings indoors.

Future Wealth’s View

With the Fed supporting the economy as we had projected in our article earlier this month (link is here – https://futurewealthllc.com/all-is-well-take-that-beach-holiday/), we continue to believe that staying invested in the market is the best course of action. Of course, investing wisely in the right sectors is important and therein, lies the hard work.

The delta variant does pose an imminent threat that could derail the markets. With the CDC imposing mask mandates once again, signs of a major outbreak could send the markets into correction territory very quickly. And then, there is the Covid situation in other countries i.e. India, Australia, Japan among others, that appears to be far more problematic than the US variant problem. These countries are simply waiting for vaccines and it could take some time. It would be fair to expect that international travel and commerce will remain depressed through the end of the year and possibly through 1H:2022.  And in the news on Friday was a statement from the SEC that it has stopped processing registrations for any U.S. initial public offerings and other securities sales by any Chinese company, meaning there will be no IPOs or follow on offerings from Chinese companies anytime soon.

Given this backdrop, US markets, despite the recent runup, remain the best choice. The bottom line is – Invest close to home and do not wander off the reservation.