Warsh Puts Inflation First After Rate Hike, and Dividend Investors Eye Medtronic and Pfizer
Federal Reserve Chair Kevin Warsh said in a speech marking his first 100 days that the Fed should focus mainly on prices, The Motley Fool reported Oct. 1.
Writer Reuben Gregg Brewer pointed to Medtronic and Pfizer as healthcare dividend payers that could suit that environment.
Warsh said employment has been stable. Inflation, he said, is running above the Fed's 2% target. Price stability does not happen on its own, and inflation does not necessarily drift back to target by itself.
One Rate Increase Done, More Priced In
The Fed has already raised rates once under Warsh. CNBC reported that the September move was a unanimous quarter-point increase, the first since 2023. Warsh appears likely to support further hikes if inflation stays elevated, CNBC said.
Traders appear to agree. CNBC reported that the 2-year Treasury yield, a gauge of where investors expect short-term rates to go, traded nearly a full percentage point above the effective federal funds rate that week.
A gap that wide indicates traders expect more increases. The Fed's preferred inflation gauge is one of the readings policymakers watch.
Warsh has also changed how the Fed communicates, CNBC reported. He dropped traditional forward guidance and put more weight on broad financial conditions. His plan to shrink the Fed's balance sheet is moving more slowly.
Five task forces he appointed are due to report early next year.
Economist Claudia Sahm wrote that Warsh described the hike as removing a dose of accommodation while distancing himself from the concept that defines accommodation. She asked how he will decide whether to hike again. She also asked when he will stop.
Two Healthcare Stocks With Higher Yields
The Motley Fool argues that healthcare spending is harder for households to cut than discretionary purchases. The products address quality-of-life and sometimes life-or-death needs. It names Medtronic (NYSE is MDT) and Pfizer (NYSE: PFE) as examples.
A dividend yield is the annual dividend divided by the share price. The Motley Fool put Medtronic's yield at 3.2% and Pfizer's at 6%. Both are well above the market average. Medtronic shares traded at $86.44 on Oct. 1, up $0.15, for a market value of about $110 billion.
The Motley Fool said the yields are high because both companies face company-specific problems. It described that as the value opportunity for income-focused investors with long time horizons. The article does not detail those problems in the excerpt available.
What Readers Should Weigh
This article is investing commentary. It is not a recommendation from Net Worth. A high yield can reflect a share price that has fallen, and the Motley Fool itself says healthcare stocks are not immune to headwinds.
Rate increases are the Fed's main tool against inflation. The Motley Fool called that tool a blunt instrument.