The other day, I thought of one of my children's favorite bedtime storiesThe Napping House by Audrey Wood; and when you think about it, that’s a little like what we’re seeing in the markets, states Mike Larson, editor of Safe Money Report.

It’s about a snoring granny sharing the bed with a bunch of pets and her granddaughter. All is peaceful...until a flea bites a mouse, it sets off a whole chain reaction of events, and bedlam ensues!

Only the “flea” is the Federal Reserve. By raising interest rates, Jay Powell & Co. have put a whole sequence of market events into motionand investors like you are left dealing with the resulting chaos!

Think about it. When the Fed hikes interest rates...

Those interest rate hikes drive the dollar higher.

The rising dollar puts downward pressure on foreign markets, commodities, and precious metals.

That exacerbates losses that were already piling up on stocks and bonds.

Those losses hurt consumer sentiment and spending.

They help derail the red-hot real estate market.

They make it harder for companies to fund their businesses, with the pain particularly acute for firms in sectors like electric vehicles or tech that have been burning through cash like crazy.

And voila! A recession later in 2022 or early 2023 becomes extremely likely. All because of a “flea.”

Unlike the one in the children’s book, though, this flea isn’t going away. The Fed is meeting again one week from today...and the most likely outcome is another 75 basis point rate hike. There’s even an outside chance the Fed will hike by a full percentage point or 100 bps.

After that? Well, here’s a handy-dandy chart from the CME FedWatch website showing what the interest rate futures market was pointing toward as of Tuesday.

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                   Source: CME FedWatch, Data Date: July 19, 2022

Those light blue boxes? They show the most likely level for the federal funds rate (in basis points) as of the next several Fed meetings. You can see a majority of traders are now betting on a funds rate of 3.5% to 3.75% by December. Getting there would guessed it...even more hikes as the year goes on!

So, make sure you’re taking steps to protect yourselfor profitin a rising-rate environment like this one. I’ve talked about some of my favorite strategies and investment ideas right here in recent columns, and I hope that guidance helps.

Visit Safe Money Report here.