Rising Interest Rates: The Medicine That Works
In his Q3 update, Rana Chauhan, Counsel’s Chief Investment Strategist, discusses how inflationary pressures and the associated fallout continue to cast a long shadow over global financial markets.
To help get inflation back under control, central banks from across the globe are raising interest rates at a very rapid pace. Rana notes that the speed of these increases is likely alarming to many. When interest rates climb this aggressively, history tells us that a recession may not be too far behind. This is leading to a fear of the future and many investors are understandably concerned.
To understand how we got here, Rana traces the inflationary roots back to the COVID panic when central banks flooded the global economy with cash. This led to more money chasing goods and services during a time of diminished supply. Inflation was stoked again due to the war in Ukraine as the price of oil and gas are key drivers behind inflation.
To help curb inflation, central bankers are raising interest rates to help reduce demand. Rana likens this to a bitter medicine that tastes awful but has proven to work in the past.
Raising interest rates is part of a process that will eventually stabilize the global economy by bringing the demand for goods and services back into balance with supply.
Rana reminds us that we are invested in businesses that have survived many recessionary periods before. Furthermore, many companies continue to profit during these periods since consumers will continue to use their products each and every day.
To manage through this tough period in the markets, Rana suggests that this is not a time to panic but rather revisit your financial goals with your Advisor to assess whether they remain on track.
More from Our Managers
For a more in-depth look, find out what our managers are saying about the current economic environment and how they are positioning their portfolios, and get their outlook for 2023:
