Fed raised interest rate by another 50 basis point

Fed chairman Jerome Powell announced today that they are increasing fed interest rate by another 50 basis point. Stock market went up by 2% - as direction was clear for next two fed meetings. Fed indicated that in June and July meetings they will be raising rate by 50 basis point. Powell also indicated that next two month's data - better or worse will most likely not impact their judgement of 50 basis point hike. 

In my opinion though, if inflation numbers continue to climb and increase by over 9% in year over year basis for April and May data - we may see 75 basis point hike talks back. Powell may not do 75 basis point hike in June, but there are high chances that he may have to do 75 basis point hike for July. 

25, 50, 50 and 75 would put us around 2% interest rate by end of July and then Fed will be data dependent. There are very high chances that April CPI Data will be higher than anticipated increase. It could be as high as 9.2% when we compare year over year increase. Please see below table which describes consumer price index data month over month since last decade. 

Inflation has always risen but it went from overall 2% increase on annual basis to 4.69% increase in 2021. Fed initially thought that it will be "Transitory" but later data indicated otherwise. Inflation is most likely going to stay high for next couple of months at least but peak some time in Summer 2022. That does not mean inflation will come down drastically however it does mean it will flat it out at the top. When we start comparing data from 2022 to 2023 - it will not grow to such high numbers such as 8% or 10% but it will return to normal growth of 2 to 3%. 

Fed expects that inflation will return to 2% but in my opinion it will take a lot longer time and perhaps Summer of 2023 might be realistic target. That means - there is more pain ahead for high growth stocks and we are probably not even half way there. Generally, Bear market does not last that long but inflation will make sure it lasts for full 18 months and Summer of 2023 will be a great buying opportunity for many of beaten down tech stocks. 

This does not mean that other stocks will not perform well for next one year. Energy stocks are still not owned by majority of big investors, specially alternate energy, solar energy stocks. Financial stocks are going to do well, in rising rate environment, specially regional banks, plus companies which are paying high dividends and have good balance sheet will continue to rise.