The Federal Reserve has been the focus of the markets after the 2020 COVID 19 market crash, as generous spending bills have resulted in a massive increase in money supply. In order to combat rising inflation, the Fed has increased interest rates. This has been mildly successful with inflation only rising 6.5% in December, but it poses an entirely new challenge.
Since 2020, the U.S. debt has increased by $8 trillion with several record-breaking spending bills since President Donald Trump's first COVID 19 spending bill, the Coronavirus Aid, Relief and Economic Security CARES Act. The federal debt was over $31 trillion at the end of the day.
The estimated interest payment on the nation's debt is over $575 billion for 2023, with the current Fed Funds rate at 4.25% to 4.5%. The US paid about $475 billion in 2022 and $352 billion in 2021 for comparison.
There is no clear answer to how to get it under control, as this number continues to spiral. Treasury Secretary Janet Yellen, former chair of the Fed, said that if the central bank starts printing more money to repurchase the debt, that's how you get hyperinflation.
Inflation is a difficult concept to understand from an investment perspective. You can't hold cash because you're losing purchasing power while you wait for inflation to pass. With the inflation rates hitting as much as 9.1% in the last few years, you're losing a lot of money by holding it. Markets have shown that the uncertainty causes high-growth stocks to decline substantially, and inflation can hurt margins, causing earnings misses and stock declines. Rising interest rates could cause a crippling for a company that is relying on debt to fund growth and operations.
One of the best ways to deal with the storm is to invest in companies that are in high demand regardless of economic conditions. Healthcare companies, for example, have performed well compared to the general market. UnitedHealth Group Inc. has gone up 2.8% in the past year, despite many companies declining in the same period. UnitedHealth has a yearly dividend of $6.60 per share, which adds to its performance.
Startups can be a good option for those with a longer investment timeline and higher risk tolerance. Valuations are currently suppressed and many don't have debt because they raised funds from venture capital or retail investors. For example, Sensate is a startup raising funds on Wefunder, which means anyone can invest for a limited time. The startup raised $2 million from everyday investors and venture capitalists by creating a patented solution for stress relief.
Depending on your investment thesis, Walmart Inc. can be a strong option, depending on your investment thesis. As the Fed works to address these issues, investors can look to both find value in suppressed companies and switch to safer options until a clearer plan is in place to address the concerns around the looming national debt crisis.
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