Elon Musk wants the Fed to “cut interest rates immediately,” but Jerome Powell doesn’t expect rates to drop anytime soon. These are 3 areas for security if costs continue to rise

Elon Musk wants the Fed

Elon Musk wants the Fed to “cut interest rates immediately,” but Jerome Powell doesn’t expect rates to drop anytime soon. These are 3 areas for security if costs continue to rise

It’s hard to say how effective the US Federal Reserve’s tight monetary policy has been in taming inflation. But one thing is certain: higher borrowing costs do not bode well for the economy.

Unsurprisingly, pundits including Tesla CEO and Twitter owner Elon Musk are now calling for rate cuts.

“The Fed must cut interest rates immediately,” Musk said in a tweet in November. “They are massively amplifying the likelihood of a major recession.”

But even the richest person in the world doesn’t always get what they want.

“Given our outlook, I don’t see us cutting rates this year, if our outlook comes true,” Federal Reserve Chairman Jerome Powell said Wednesday, after another 0.25 percentage point hike, the eighth hike consecutive central bank.

Investors don’t like prolonged rate hikes. Even though stock markets have rallied recently, the S&P 500 is still down nearly 7% over the past year. But not all resources are created equal. Some, like the three listed below, may be able to perform well even if rates continue to rise.

Not to be missed

Real estate

It may seem counterintuitive to have real estate on this list. When the Fed raises its key interest rates, mortgage rates also tend to rise, so shouldn’t that be bad for the housing market?

While it’s true that mortgage payments have risen, the real estate sector has indeed demonstrated its resilience in times of rising interest rates according to investment management firm Invesco.

“Between 1978 and 2021 there were 10 distinct years where the federal funds rate went up,” Invesco says. “In these 10 identified years, the US private real estate sector outperformed stocks and bonds seven times, and the US public real estate sector outperformed six times.”

It also helps that real estate is a well-known hedge against inflation.

Why? Because as the price of raw materials and labor increases, new properties are more expensive to build. And this drives up the price of existing real estate.

Well-chosen properties can provide more than just price appreciation. Investors can also earn a steady stream of rental income.

But you don’t need to be a landlord to start investing in real estate. There are many real estate investment trusts (REITs) and crowdfunding platforms that can help you become a real estate mogul.

Banks

Most businesses fear rising interest rates. But for some lenders, like banks, higher rates are a good thing.

Banks lend money at higher rates than they borrow, pocketing the difference. When interest rates rise, the spread on what a bank earns typically widens.

The banking giants are also well capitalized right now and are returning money to shareholders.

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Last July, Bank of America raised its quarterly dividend by 5% to 22 cents a share. Last June, Morgan Stanley announced an 11% increase in its quarterly payout to $0.775 per share, after doubling its quarterly dividend to $0.70 per share last year.

Investors can also gain exposure to the group through ETFs such as SPDR S&P Bank ETF (KBE) and Invesco KBW Bank ETF (KBWB).

Basic consumer goods

Higher interest rates can cool the economy when it’s too hot. But the economy isn’t too hot, and many fear further rate hikes could lead to a recession.

That’s why investors may want to take a look at recession-proof sectors, such as consumer staples.

Consumer staples are essential products such as food and beverages, household items and hygiene products.

We need these things regardless of how the economy is doing or what the federal funds rates are.

When inflation drives up input costs, consumer staples companies, especially those with established market positions, are able to pass those higher costs onto consumers.

Even if a recession hits the U.S. economy, we’ll likely still see Quaker Oats and Tropicana orange juice — made by PepsiCo (PEP) — ​​on household breakfast tables. Meanwhile, Tide and Bounty, well-known brands of Procter & Gamble (PG), will likely remain on shopping lists nationwide.

You can access the group through ETFs such as Consumer Staples Select Sector SPDR Fund (XLP) and Vanguard Consumer Staples ETF (VDC).

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This article provides information only and should not be construed as advice. Comes without warranty of any kind.

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