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FutureStarrThe Markets Are Finally Believing in Fed Hawkishness Says RockCreek CEO Afsaneh Mashayekhi Beschloss
Hawk is an aggressive approach, usually favoring higher interest rates. This may be due to the need for inflation to stabilize or fear of recession caused by high inflation.
Markets now believe the Fed will hike more than previously anticipated. This marks a dramatic shift from the bullish narrative that inflation had peaked and that the Fed must pivot to a dovish stance.
RockCreek CEO Afsaneh Mashayekhi Beschloss believes the markets have finally taken notice of Fed hawkishness. Her firm, which invests on behalf of foundations and pensions, has seen their new assets increase by 20% over the past year, and she's especially proud of their efforts to identify investment opportunities with emerging and diverse managers.
Beschloss founded RockCreek in 2003 and currently manages $17 billion for clients. She was previously a partner at Carlyle Group, treasurer and chief investment officer of the World Bank, as well as Shell International and J.P. Morgan in both America and London. Beschloss has advised governments and central banks on global public policy matters including energy policy, renewable energy sources and power to reduce carbon emissions. At the World Bank she led their energy investments and policy work on impactful investing, impactful investing strategies, renewable energy projects and power systems designed to reduce carbon emissions through sustainable power systems.
Her career spans nearly four decades, including roles as an investor, board member and chair of the investment committee at several global financial institutions. Additionally, she brings valuable expertise in impact investing, environmental, social and corporate governance (ESG) and global development.
Beschloss serves on the boards of several notable institutions, including the Institute for Advanced Study in Princeton, Council on Foreign Relations, World Resources Institute and Public Broadcasting Service (PBS). She was recently recognized by Carnegie Corporation in their Great Immigrants - Great Americans 2020 list; Institutional Investor Lifetime Achievement Award and Robert F. Kennedy Ripple of Hope Award; as well as American Banker's Most Powerful Women in Banking. Born to a prominent Iranian educator who immigrated to America during the 1980s, Beschloss holds many professional honorary titles including being listed among American Banker's Most Powerful Women in Banking list.
After nine months of dramatic interest rate rises and shrinking balance sheets, investors are finally trusting the Fed's hawkish credentials. Their recent wave of rate hikes was an effective countercyclical response to a slowing global economy; yet these decisions have left many puzzled - including myself. A key challenge lies ahead for them as they determine where their focus will shift next and if this sluggish economy can make a full recovery within record timeframe.
Some of the most rewarding stock-picking opportunities exist in the energy and metals sectors, as well as in the financial sector. A barbell approach to stocks - where you own some of the hottest names in the industry - can be an efficient way to get in on the action.
In the past, investors could profit by disregarding Federal Reserve actions. But harsh words from Fed Chairman Jerome Powell coupled with several large interest rate increases finally convinced markets that the central bank meant business, sending stock and bond prices plummeting.
At his press conference following the latest hike by the Fed, Chairman Powell reiterated that they will keep raising rates until price stability is restored--at one point saying, "Keep at it until we're confident the job is done." He also used this phrase in reference to former Fed Chair Paul Volcker who famously caused inflation with an unprecedented series of rate increases during the early 1980s.
With this in mind, it may come as no surprise that markets are now taking a more dovish stance. But Erik Ristuben, chief investment strategist at RockCreek, warns against such an approach: "If the Fed becomes too hawkish to help boost inflation, then they may actually do more harm than good for the economy."
Ristuben also noted that investors are worried about high interest rates and a strong dollar, both of which have an adverse effect on global growth and can worsen inflation. He explained this has caused stock and bond markets to remain volatile, leading many investors to avoid investing in stocks. Furthermore, the market remains tightly correlated with indicators of global financial conditions like Treasury yields or corporate-debt spreads; if the Fed can strike a balance between interest rates and inflation, it could help markets recover from their current slump, he concluded.