1 Reason Why the Fed's Decision to Keep Interest Rates Steady Is No Match for Costco Stock

Kevin Warsh just had his first meeting as the new Federal Reserve chairman. In what was a highly anticipated decision, the world's most powerful central bank chose unanimously to keep the benchmark federal funds rate unchanged within a range of 3.5% to 3.75%.

Half of the meeting's participants also expect at least one rate hike in 2026. This is unwelcome news for investors who were hoping for a more accommodative interest rate policy. Blame it on elevated inflation levels.

But Costco Wholesale (NASDAQ: COST) shareholders aren't worried. Here is one clear reason why the Fed's moves are no match for this top retail stock.

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Consumers always want low prices

Costco is such an unbelievably resilient business that it really doesn't matter what stance central bankers are taking. Whether rates are rising or falling, the consumers who shop at the company's warehouses want low prices on high-quality goods. This will always be the case.

Just this decade, there have been multiple examples of this company continuing to perform at a high level regardless of the macro situation.

When the COVID-19 pandemic ravaged the global economy in 2020, most retailers were devastated. Costco, on the other hand, shone. In fiscal 2020 (ended Aug. 30, 2020), it reported same-store sales (SSS) growth of 7.7%. Households were able to rely on Costco's warehouses as one-stop shops to get all of their essentials.

In 2022 and 2023, the Federal Reserve embarked on an aggressive pace of raising interest rates to combat surging inflation. Costco was unfazed. SSS grew 14.4% and 3% in fiscal 2022 and fiscal 2023, respectively.

Even in today's climate, as May's Consumer Price Index reached a level not seen in three years due to the Middle East conflict, Costco keeps humming along. During the four-week period that ended May 31, the business posted an SSS gain of 12.5%. Even excluding changes in gas prices and foreign exchange, this key metric rose 8%.

Stability might be why shares are always expensive

If you're an investor who's concerned about the highly uncertain economic environment, then it's natural to wonder if you should buy Costco shares right now. Owning the stock can add some peace of mind. Even with shares trading 13% off their peak, though, I'm not sure adding the business to your portfolio is a smart move.

Costco's stable financial performance might be the main reason the stock is always expensive. The market is asking investors to pay a price-to-earnings ratio of 47.9. Despite the company's consistent SSS growth, that's a steep valuation that offers no margin of safety.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.