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.