The Fed is going to raise rates

The Fed is on the Way to Avoid a Slowdown in the Rise of Inflation: A Brief Report on the Progress Against Rate Increases

Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.

How much pain today’s moves will ultimately cause remains unclear: So many countries are raising rates so quickly — and so in sync — that it is difficult to determine how intense any slowdown will be once it takes full effect. Monetary policy takes months or years to kick in completely.

But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.

It is a recipe for worldwide chaos and even the beginning of a recession. Despite that, the Fed is poised to continue raising interest rates. The Fed is mandated with keeping inflation low and employment high in the domestic economy. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.

The report shows progress in battling the increases, Mr. Biden said, noting that costs have gone up by less over the past three months than they had in the previous three months. He acknowledged that inflation remained high.

The hope is that the Fed can take a break from hiking rates and avoid a recession if inflation doesn’t keep going up.

Wall Street is Back: The Fed’s Progress in the Economic Landscape is Predicting Its Next-to-Leading Order

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Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. The Federal Reserve may be less aggressive with its rate hikes.

Despite the Federal Reserve’s efforts to slow downinflation, prices are still rising much quicker than before the Pandemic and even though there are signs that the steps taken may finally be working.

Investors will closely read the Fed’s economic outlook, the Summary of Economic Projections, which is also due out Wednesday. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.

“This is the path for a soft landing that I’m expecting,” says an economist at the Upjohn Institute for Employment Research. “Inflation has come down but there is not a recession.”

“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.

A Crypto Thaw: Why Cryptocurrencies Fail: The Realistic Case of Mortgage Rate Increases and Inflation and the Cost to Buy a Home

Crypto-advocates were hoping that rising interest and inflation rates would drive investors away from the dollar and into alternative assets like gold and Bitcoin. Paul R. La Monica reported that they were in for a rude awakening this year.

It is a shame that those assets were hit the same way as stocks and bonds because there really is no place to hide in a market where concerns about rate hikes and recession reign supreme.

A crypto thaw: Bitcoin soared through the Covid-era on the wings of near-zero interest rates, stimulus cash and a big influx of investors from large-scale institutions. It hit a new high of over $70,000 in November.

Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. The economy began to sour at the same time that those new investors were abandoning bitcoin in droves.

“Bitcoin and ethereum went straight up and down but they have still gained a lot from mid-2020. The chief investment officer at the firm specializing in digital assets said that while tech stocks are still performing well,digital assets are still beating them.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s regime of interest rate hikes. There have been four hikes of that size by the Fed this year, and last week it said it would raise interest rates by 75 basis points.

Because of this drastic change in the cost to finance a home, sales have dropped for eight months running, according to the National Association of Realtors. A survey from Fannie Mae showed that only 16% of people think this is a good time to buy a home, a record low.

Inflationary Predictions from Central Bank Rate Increases and the Latest Policy Committee Meeting of the U.S. Bank of Securities and Markets

Investors are now pricing in about a 70% chance of just a quarter-point rate increase at the Fed’s next meeting on February 1, according to Fed funds futures on the Chicago Mercantile Exchange.

In the past four meetings the Fed raised rates by a quarter of a percentage point. That followed two smaller rate hikes earlier this year. At the beginning of the year, the central bank had a key short term interest rate that was zero to 4%.

It may not be that simple, that is for sure. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. The rate was higher than expected, but it was slower than the 8% increase through October.

Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research, said inflation has probably peaked but may not come down as quickly as people would like.

Then there’s the anticipated central bank meeting. Sandwiched between CPI and retail sales on Wednesday is the Federal Reserve’s latest policy committee meeting.

Truist Advisory Services co-chief investment officer, Dr. Kevin Lerner said that a pivot or pause was not a cure-all for the market. It’s too late for rate cuts. The risks of a recession are still high.

Economists are actually forecasting a small dip of 0.1% in retail sales from October. It is important to put that number in context. Retail sales increased over the last 12 months.

Consumers may be getting a head start on holiday shopping. Retail sales have been impacted by the fact that people spend more money on stuff because of inflation.

Everyone has been talking about inflation. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.

What Does The Stock Market Say About Central Bank Rates and Other Financial Issues for An Investor’s Guide? A Report from Sam Bankman-Fried

What does that mean for investors? Cosserat said people should be looking for companies that can maintain profit margins and have pricing power. He said that the two stocks that his firm owned were high in luxury and cosmetics.

The earnings from Darden Restaurants, Winnebago and Acn were reported on Friday.

If that weren’t enough, there’s even more central bank drama for investors to focus on, as the Bank of England and European Central Bank both meet on Thursday to decide whether or not to raise rates again to fight inflation — and six other central banks also make their policy announcements this week.

In October and November, the stock market rallied due to the hope that the Fed would scale back on the size of its rate hikes. They are still down sharply for the year, though, and stocks have been more volatile so far in December.

The yield on the 10-year US treasury fell back down to roughly 3.5%, after hitting 4.3% in late October. Since 2008, that’s the highest it has been.

TomEssaye, editor of the Sevens Report newsletter, said on Monday that “the macroeconomic focus will shift from fears of Fed tightening to how badly growth slows and earnings fall before global central banks can hint at providing accommodation.”

Investors may get some answers this week when FTX founder Sam Bankman-Fried testifies in front of the House Financial Services Committee on Tuesday. The Senate Banking Committee will hold its own FTX hearing Wednesday, but Bankman-Fried is not currently on the list of witnesses set to appear.

The Fed’s hike in funds rates does not prevent a recession, but it does prevent it from easing the debts burden burden of the economy

Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. Although there is no guarantee of that.

The increase in the fed funds rate is still double the normal quarter point hike, and will cause economic pain for millions of Americans by pushing up the cost of borrowing for homes, cars and other loans.

The Fed’s anticipated action would increase the rate that banks charge each other for overnight borrowing to a range of between 4.25% and 4.5%, the highest since 2007.

“I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way,” Fed Chairman Jerome Powell said on Wednesday.

In an interview that aired on CBS on Sunday, Treasury Secretary Janet Yellen — Powell’s predecessor at the Fed — said there is “a risk of a recession. But it certainly isn’t, in my view, something that is necessary to bring inflation down.”

The economy is holding up well after the Fed hiked its rates. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Companies are beating revenue expectations and reporting positive earnings results.

The pound-for-pound moves of the European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States

The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. Borrowing costs for Norway, Mexico, Taiwan, Taiwan and the Philippines will go up this week.

The latest government reading shows that inflation has slowed to its slowest annual rate in nearly a year.

Daly said there is more work to be done in a speech at the university. With high inflation behind us, more policy tightening, maintained for a longer time, is likely to be necessary.

Many Americans, already contending with price increases in nearly every part of their lives, are feeling the effects as they pay more in interest on credit cards, mortgages and car loans. The average interest rate used car buyers have to pay is 9.16%, compared to 8.12%) last year, and they are making the largest monthly payments on record.

What causes the cost of living to rise? It can be the result of rising consumer demand. There are developments in the economy that are not related to economic conditions such as limited oil production and supply chain problems.

Inflation After A Four-Decade High: The Fed Fed’s Federal Reserve Interest Rates Decay Afternoon

The Fed’s announcement of another rate hike caused the stock market to fall as Wall Street accepted the fact that there will be more hikes. The major index was mostly flat by mid-afternoon.

After hitting a four-decade high of 9% in June, inflation is showing some signs of easing. Gasoline prices have fallen sharply, and so have the prices of certain goods such as used cars and televisions.

Rents continue to climb, but Fed officials believe the worst of shelter inflation may be behind us. Rents have increased since the spring.

The price of haircuts rose 6.8% in the last twelve months, while the price of dry cleaning jumped 7.9%. Services other than housing and energy account for nearly a quarter of all consumer spending.

Source: https://www.npr.org/2022/12/14/1142757646/fed-federal-reserve-interest-rates-december-inflation-benchmark

The Fed is Going to Make Sure It’s Not Going To Be That Way: Implications for the Cosmic Economy, Air Quality, and Travel

Powell said that they saw goods prices coming down. We know what will happen with housing services. The rest of it is the big story and not much has changed there. It’s going to take some time.

Powell has described the job market as out of balance, with more job openings than there are available workers to fill them. While the economy has replaced all of the jobs that were lost during the H1N1, the percentage of adults who are working or looking for work has not fully recovered.

Many older workers who retired in the last two years may not return to the job market. With the supply of workers constrained, the Fed is trying to restore balance by tamping down demand.

The central bank raised its rates for the seventh time in a row on Wednesday and made it clear it was going to do everything it could to bring inflation down.

Gasoline prices have dropped sharply and are now lower than they were before Russia’s invasion of Ukraine. The prices of other goods like used cars and televisions have fallen, as pandemic kinks in the supply chain come untangled. The prices for travel-related things have fallen as travelers become more price-conscious and demand that followed a series of lockdowns fades.

“I don’t think anyone knows whether we’re going to have a recession or not and if we do, whether it’s going to be a deep one or not,” he said on Wednesday.

Wall Street Expected Job Creation and Growth in the U.S. During World War II: The Last Inflationary Results from Wall Street

Changes in the weather or the war in Ukraine could cause big swings in prices at the gas station and the grocery store. In addition, the price of crude oil and other commodities could be affected by growth in the world’s economy.

What happens to wages is a factor affecting the price of services. That depends on how many jobs the country adds each month, how many workers are available to fill those positions, and how productive those workers are.

Wall Street will get the last jobs figures for 2022 on Friday morning. The US government is expected to report that 200,000 jobs were created in December according to forecasts by economists. There were 263,000 jobs added in November.

The Federal Reserve is likely to decrease the size of interest rate hikes if there is a further deceleration in jobs growth.

Still, traders have been glued to economic reports even more than usual as of late, and stocks have been incredibly choppy based on what the latest figures indicate about inflation.

More market volatility came about due to the weaker than expected manufacturing sector report and signs of strength in the jobs market given the solid report about labor turnover.

The weekly unemployment numbers and a report from payroll processing companyADP about the private sector job market will come out later Thursday, as well as the weekly jobless claims numbers. There could be more alarm bells about Fed rate hikes if there is more strength.

Wall Street will also need to dive even deeper into Friday’s jobs report to get a better sense of what’s happening in the economy. The unemployment rate is expected to remain at 3.7%, close to a half-century low.

The level of wage growth will also be under scrutiny. An increase in worker compensation historically tends to lead to more inflation. If consumers have more disposable income, they will be able to afford to pay higher prices for their products and services.

Investors cheered the fact that wage growth, measured by average hourly earnings, rose only 4.7% over the previous 12 months in October. Wage growth was up to 5.1% in the month of November. Wage increases are going to rise 5% annually in December according to economists.

“The persistent mismatch between labor supply and demand continues to put upward pressure on wages,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a report.

The inflation for services companies is likely to remain sticky because of worker shortages, according to a report from the BlackRock Investment Institute.

Wages will likely be the focus of Friday’s jobs report and not the number of jobs added. Wall Street could do the same thing.

Overall, the jobs market is still in good shape. But you wouldn’t know that from what’s going on in Silicon Valley. Software giant (and Dow component) Salesforce

            (CRM) announced Wednesday it was laying off 10% of its workforce.

The hope was that consumers and businesses would continue to spend heavily on tech products and services, a notion that seemed valid as the economy quickly rebounded from a brief recession in 2020.

Now, though, recession alarm bells are sounding once more as inflation and rate hikes take their toll…and tech companies realize that they may have not factored that in to their budgeting plans.

In a recent note to employees, Salesforce chair and co-CEO says they hired too many people because of the economic downturn.

“Companies that last a long time go through different phases. According to a memo shared with employees, Amazon is not in expansion mode every year.

The Fed’s Failure to Over-Correct the Core Inflationary Crisis and Implications for the Global Economy and Emerging Markets

The global economy is still going strong. Many, including the head of the International Monetary Fund, are still concerned about a looming downturn that could hit China and emerging markets particularly hard.

Anna Cooban reports that investors in Europe are starting to feel a little bit more positive about the pace of consumer price increases in France and Germany. A decline in energy prices is leading the reversal.

Food prices increased in December, according to a report by the British Retail Consortium. The number of items that consumers bought did not change over the four weeks ending in December, despite a 1% decline in purchases according to a report by the data analytics firm.

Wage gains have also eased in recent months, despite the tight job market. It’s good to allay fears that wage gains might cause prices to go up.

“We do not want to be head-faked like we were in 2021,” Fed governor Chris Waller said two weeks ago. “Back in 2021, we saw three consecutive months of relatively low readings of core inflation before it exploded in our face.”

“We’re pulling off something really nice right now,” says Sojourner, who served as a senior economist for the Council of Economic Advisers in both the Obama and Trump administrations. “If the we get to the place where the Fed over-corrects, then we start to see jobs destroyed. Hopefully we are able to avoid that.

The San Francisco Fed President said on Saturday that the Federal Reserve should raise interest rates and keep them there longer to fight inflation.

The Fed’s actions to bring inflation down have caused a lot of panic on Main Street and Wall Street. “The responses range from fearing these actions will tip the economy into a recession to fearing they won’t be enough to get the job done,” she said.

High inflation levels in goods, housing and other sectors along and strong economic data, she said, has led her to question the momentum of disinflation.

The Fed, Wall Street and Wall Street: Implications for Job Creation, the Economy, and the Social Security Clause, and in Support of Inflation

Atlanta Fed President Raphael Bostic also said Wednesday that he believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.

The Fed governor warned on Thursday that interest rates could go higher than expected, citing a number of stronger than expected economic data.

It is possible that it could be a Wile E. coyote moment for the economy of the US.

There was a flurry of strong economic data after that meeting, including blockbuster job gains and robust consumer spending.

The Senate Banking Committee was warned in testimony that the economy is running hotter than expected even after aggressive action by the Fed.

In a pointed exchange, Sen. Elizabeth Warren, D-Mass., challenged Powell about the potential job losses that could result from such aggressive rate hikes.

The unemployment rate will increase to 4.6% by the end of this year, according to the Fed’s December forecast. Warren said that would mean putting 2 million people out of work.

“You are gambling with people’s lives,” she said. You cling to an idea that the only way to solve the problem is to lay off millions of workers. We want a Fed that will protect families.

The Fed is taking only measures to bring inflation down, according to the chairman. Will people be better off if we just walk away from our jobs?

Republicans are demanding the government rein in spending as a condition to raise the debt ceiling. The Democrats accuse the GOP of putting the nation at risk of a federal default if the debt ceiling is not raised.

“Congress really needs to raise the debt ceiling. Powell said that was the only way out. “And if we fail to do so, I think that the consequences are hard to estimate, but they could be extraordinarily adverse, and could do longstanding harm.”

Last week, the European Central Bank decided to raise its rates by half a point, even though one of Europe’s largest banks was wiped out in the market turmoil.

Inflation: How Much is it? And How Much Does It Affect the Poor? What Does It Tell Us About Financial Assets?

How much is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

What does inflation do to the poor? Poor households spend more on necessities like gas and food than wealthier households, so inflation can be hard to handle.

Can inflation affect the stock market? Trouble for stocks is usually caused by rapid inflation. During inflation booms, financial assets have performed poorly and tangible assets have held their value better.

Source: https://www.nytimes.com/2023/03/20/business/economy/fed-inflation-bank-collapses.html

Fed Sensitivity to Stabilizing the Small-Scale Banking System: A Q&A with David Mericle at Goldman Sachs

“While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient,” David Mericle at Goldman Sachs wrote in a preview. The Fed officials will probably share our view that stress in the banking system is the most immediate concern for now.