While the latest meeting by the Federal Reserve resulted in a unanimous decision to hold rates steady at their current level of between 5.25% and 5.5%, it still marks a more than five-fold increase on rates relative to April 2020 when they were at a record-low of 0.5%. The Fed’s benchmark rate has had an explosive effect on mortgage rates, car loans and credit cards’ annual percentage rates (APRs). In that regard, the Federal Reserve is between a rock and a hard place: while mopping up money supply and reining in inflation requires rate hikes, doing so would eventually trigger a further drop-off in American consumption going into a year that is fraught with ever-deepening political polarization and a looming presidential election.

A « high rate for longer » in conjunction with dropping consumption trends has had the broad market’s forward earnings being estimated as trending downwards. The present rate throws forth an interesting « crossover » point: for the first time in this current century, cash (short-term Treasury Bills) is at an advantage versus equities: six-month U.S. T-Bills yield about 5.5% while the S&P 500’s earnings yield 4.7% as of end of September.