The expectations surrounding the Federal Reserve's monetary policy for 2018 have been a hot topic from the very beginning of the year, with many analysts predicting that there would be three rate hikes throughout the yearAs April approached, fueled by strong economic growth in the United States and rising domestic inflation, the dialogue shifted dramaticallyThe unprecedented extensive tax reforms introduced led to mounting speculation that the Federal Reserve would indeed raise interest rates four times instead of the initially anticipated threeHowever, such forecasts came with a cloud of controversy, especially when critiques of the Fed's hikes began to surface, citing potential adverse effects on economic developmentThis criticism notably weakened the narrative supporting four hikes for the year.

Nevertheless, the Federal Reserve remains an independent entity, governed by its own set of principles that transcend the influences of the sitting president, who nominates its leaders but ultimately does not dictate its policy decisions

The independence of the Federal Reserve is crucial; it serves as a check on political influence that could otherwise distort economic policyRecently, the clamor for four rate hikes in 2018 has gained renewed intensity, with the timeframe for the upcoming hikes being set for late September and December.

Observing the operational adeptness of the Federal Reserve highlights the importance of central bank independenceSchedule-wise, Chairman Jerome Powell is slated to hold a press conference on September 25-26. The market is keenly attentive to this meeting, wherein if the economic indicators for September remain robust – characterized by a tight job market, persistent inflation levels, and sustained economic growth – it’s highly plausible that the Fed will announce another rate hikeCurrent projections indicate a window for the fourth increase in DecemberTools like the CME FedWatch, an expert market rate prediction instrument, reflect a staggering 98.4% probability for a 25 basis points hike in September, pushing the rates to a range of 2% to 2.25%. Furthermore, there’s a 66.8% probability for a subsequent hike in December to a 2.25%-2.5% range, although this is a reduced likelihood in comparison to the September speculation; it still indicates a significant chance for a December adjustment.

Such discussions regarding multiple hikes are particularly significant for emerging markets, who are often the hardest hit by the Fed's decisions

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The tightening of monetary policy in the United States typically leads to a ripple effect that can devastate the currencies of emerging economiesSince the commencement of the monetary tightening, emerging market currencies have already faced various rounds of significant depreciationTurkey’s lira has suffered what can only be described as a currency crash, while Argentina is grappling with unparalleled economic turmoilEven the Hong Kong dollar is embroiled in fierce defensive maneuversOther currencies such as the Indonesian rupiah, Russian ruble, South African rand, Brazilian real, and, notably, the Chinese yuan are under substantial devaluation pressure.

Historically, the Federal Reserve has experienced five distinct rate hike cycles, occurring in 1983, 1988, 1994, 1999, and 2004. Each of these cycles has ushered significant crisis risks to global markets, particularly within emerging economies

The consequences of past hikes have included dire outcomes such as Japan's economic collapse, the Asian financial crisis, the market crash of 1987, and the bursting of emerging market bubbles, often culminating in years of economic recession.

This current cycle, which began in 2015, has already introduced substantial volatility in emerging markets, and the full extent of this risk has yet to be realizedThere is a tangible possibility that this risk may be exacerbated and triggered by external events such as trade disputesInvestors are keenly contemplating how to navigate these turbulent waters amidst the backdrop of Federal Reserve rate hikes.

So, what options do individual investors have during such a period of rate hikes? The fundamental rule is to strike a balance between safety, liquidity, and profitability when making investment decisionsPrioritizing safety must come first, with liquidity being a close second, and only then should potential profitability be considered

It is invaluable for investors to enhance their capacity to manage risks effectively.

Several key risk areas have emerged that current investors should strive to avoidInvestment in gold demands careful consideration; holding onto emerging market currencies is generally ill-advised, with a strong recommendation to minimize or even avoid such investments altogetherSimilarly, engaging with equities in emerging markets should be approached with extreme caution, and investing in bonds from emerging market nations is notably discouraged.

Instead, investors could contemplate retaining certain asset investmentsWhile stock markets in Europe, the United States, and Japan may have already seen significant growth, they still possess investment potentialHolding currencies that retain value, such as the Swiss franc, Japanese yen, and US dollar, can be prudentAdditionally, real estate may provide a solid investment avenue