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Sam Dickie: Fisher Funds expert on the US Federal Reserve raising interest rates · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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  Speaker 2: U.S.
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  Speaker 3: Federal Reserve has raised the interest rates this morning, first
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  Speaker 3: hike in three years, and yet the share markets basically
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  Speaker 3: didn't even blink. Question is why, of course, are investors
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  Speaker 3: suddenly relaxed about something that terrified them about four years ago?
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  Speaker 3: Sam Dickey is a Fisher Funds and with us now.
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  Speaker 1: Hi, Sam.
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  Speaker 2: Good evening, Heather.
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  Speaker 3: What did they actually do?
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  Speaker 2: Well, Walsh, he's quite the cat amongst the pigeons, isn't he?
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  Speaker 2: We've spoken about this before. Every time he speaks, he
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  Speaker 2: creates a lot of confusion in the interest rate market,
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  Speaker 2: and part of that's intentional to keep the market guessing.
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  Speaker 2: They raised rates a quarter of a percent the first
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  Speaker 2: time since July 23. He said inflation's been too high
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  Speaker 2: for too long, and 16 of the 18 officials expect
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  Speaker 2: another hike before Christmas. So that was the surprise. It
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  Speaker 2: was near unanimous. He also slipped in a new phrase, Heather,
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  Speaker 2: for the Fed watch, which is we removed a dose
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  Speaker 2: of accommodation and that central bank code for interest rates
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  Speaker 2: have been too low and we're getting a little bit
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  Speaker 2: more hawkish or signaling for more rate rises to come.
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  Speaker 2: And the market heard that they priced in another, roughly
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  Speaker 2: another half a hike by year end. Yeah.
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  Speaker 3: Okay. So why didn't the markets panic like they did
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  Speaker 3: four years ago?
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  Speaker 2: Well, not yet anyway, but it was very different set
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  Speaker 2: up back then. So probably three reasons. The first one
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  Speaker 2: was where we came from, where we ended up back then.
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  Speaker 2: So in 22, the Fed went from zero rates to
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  Speaker 2: five and a half percent. So that was sort of
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  Speaker 2: just a massive hammer. This is just a bit of
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  Speaker 2: a tap on the brakes. The second thing is the why.
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  Speaker 2: So the Fed is largely blaming it on something that isn't.
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  Speaker 2: inherently transitory. So the war and the oil price, back
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  Speaker 2: then it was a sort of a red-hot, overheating economy,
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  Speaker 2: as we all sort of ruled out of COVID and
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  Speaker 2: wanted to spend. And the third thing is, and people
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  Speaker 2: forget this, rising rates, as long as it's gradual, are
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  Speaker 2: generally a healthy sign. It normally means the economy is
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  Speaker 2: strong enough to take the rate rises.
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  Speaker 3: What's the catch?
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  Speaker 2: Well, this works while profits keep going. So equity markets
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  Speaker 2: are expensive, as we've talked about. And each time bond
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  Speaker 2: yields go higher, it makes equity markets look even more expensive.
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  Speaker 2: Or conversely, it makes bonds as an investment look more
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  Speaker 2: attractive to investors. And remember what we said about the
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  Speaker 2: AI build-out a couple of weeks ago. About a third
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  Speaker 2: of that AI build-out, that massive infrastructure build, is now
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  Speaker 2: funded with borrowed money. And it's priced off these very
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  Speaker 2: interest rates that Walsh is raising. So every hike makes
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  Speaker 2: a data center more expensive now. to build. And the
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  Speaker 2: final thing is, there's a bit of a two-speed problem here.
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  Speaker 2: So the share market's fine, but the housing market is not.
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  Speaker 2: This directly hits the housing market. And Walsh actually framed
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  Speaker 2: this hike as good news for the least well-off because
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  Speaker 2: they don't own shares or they don't own houses.
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  Speaker 3: What does it mean for investors?
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  Speaker 2: Well, firstly, let's remember that rising rates are usually healthy signs.
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  Speaker 2: It was not the beginning of the end of the
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  Speaker 2: Equity market rally in history is very reassuring there. So
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  Speaker 2: in smaller hiking cycles in history, back in the 1990s
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  Speaker 2: and 10 years ago, share markets improved three to six
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  Speaker 2: months after the first hike. But you've got to be
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  Speaker 2: really clear from here what you're betting on is that
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  Speaker 2: earnings keep delivering because interest rates are now starting to
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  Speaker 2: take some of the punch bowl away from the party.
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  Speaker 3: Yeah, interesting. Hey, thank you, Sam. It's always interesting to
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  Speaker 3: talk to you, Sam Dickey of Fisher Funds.
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