It’s hard to say how effective the U.S. Federal Reserve’s tightening monetary policy has been at taming inflation. But one thing’s for sure: higher borrowing costs do not bode well for the economy.
Unsurprisingly, experts — including Tesla CEO and Twitter owner Elon Musk — are now calling for rate cuts.
“Fed needs to cut interest rates immediately,” Musk said in a tweet in November. “They are massively amplifying the probability of a severe recession.”
But even the richest person in the world doesn’t always get what he wants.
“Given our outlook, I don’t see us cutting rates this year, if our outlook comes true,” Federal Reserve Chairman Jerome Powell said on Wednesday, following another 0.25 percentage point increase — the central bank's eighth consecutive rate hike.
Investors don’t like prolonged rate hikes. Even though equity markets have rallied recently, the S&P 500 is still down almost 7% over the last year. But not all assets are created equal. Some — like the three listed below — might be able to perform well even if rates continue to rise.
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Real estate
It may seem counterintuitive to have real estate on this list. When the Fed raises its benchmark interest rates, mortgage rates tend to go up as well, so shouldn’t that be bad for the real estate market?
While it’s true that mortgage payments have been on the rise, real estate has actually demonstrated its resilience in times of rising interest rates according to investment management company Invesco.
“Between 1978 and 2021 there were 10 distinct years where the Federal Funds rate increased,” Invesco says. “Within these 10 identified years, US private real estate outperformed equities and bonds seven times and US public real estate outperformed six times.”
It also helps that real estate is a well-known hedge against inflation.
Why? Because as the price of raw materials and labor goes up, new properties are more expensive to build. And that drives up the price of existing real estate.
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.
But you don’t need to be a landlord to start investing in real estate. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.