There are five reasons to be cautiously optimistic about the future
Implications of Inflation for the Labor Market: The Key Player in Defying the Decline of the U.S. Economy
As the year comes to a close, it seems that the market’s focus on inflation rates are shifting to a new area of concern: Unemployment. The Federal Reserve has taken measures to fight inflation, but the full extent of the damage to the employment market is not yet known.
The headline figure is likely to show a lot of new jobs in the month of June. That would be the smallest monthly gain in nearly two years, and well below the average of more than 510,000 for the past 12 months.
“Recent data suggest that consumer spending isn’t slowing that much, that the labor market continues to run unsustainably hot, and that inflation is not coming down as fast as I thought,” he said.
Wages are a particular dilemma for the Fed. It wants us to shop just a little less – but not a lot less. Unfortunately, there’s no magic formula for how much wages need to go down to make a dent.
The labor market has caused inflation to become more entrenched due to rapid wage growth. The Consumer Price Index increased 8.3% year-over-year in August. That’s lower than the 40-year high of 9.1% in June, but still painfully high. To address it, the Federal Reserve is likely to drive the economy into a recession in 2023, crushing continued job growth.
The bottom line. If Friday’s headline number comes in over 250K, Wall Street will view that as a sign that the Fed is going to keep raising interest rates and that it will cause more strain in the financial markets.
The situation is very delicate and hard to overstate. In fact, just today the IMF’s managing director, Kristalina Georgieva, described the world as being in a period of “historic fragility” after a torrent of economic shocks over the last two-and-a-half years, from the pandemic to the war in Ukraine.
Summers told CNN’s Poppy Harlow in an interview that he expects the Fed will have to raise its benchmark interest rate higher than expected and that central bank’s “push and push” to combat inflation will soon trigger a downturn.
Nightcap jobs report: Musk and Twitter postpone the day after announcement of an extension of the Detroit automaker’s $14 billion acquisition agreement
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The company said the entry-level truck will be priced at $52,000, up from the $40,000 that it cost when it went into production this spring.
State media reported that Alexander Lukashenko banned consumer price increases across the economy. Any price increase is forbidden from today. Prohibited!” The president was quoted as saying that.
(CNN Business) Lawyers for Elon Musk and Twitter have agreed to postpone Musk’s deposition in the court fight over their $44 billion acquisition agreement, a source familiar with the negotiations told CNN. Earlier in the week, Musk changed his mind and offered to purchase the company in exchange for dropping the litigation, which had been scheduled for today. The two sides are still haggling over various conditions.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Why is Amazon so bad? (CNN Business) Amazon employees are furious after a fire and their first strike in a unionized warehouse
Boston Dynamics, the company behind those videos of its four-legged robots is promising to not weaponize their products and encouraging others in the industry to do the same. According to the letter, the company wants its customers to believe they aren’t building an army that will destroy humanity. They have now said they are not doing that. Oh no, this is all I can say!
(CNN Business) Peloton announced yet another round of layoffs — its fourth round of cuts this year — as its new CEO attempts to shore up the company’s bottom line. As the company spoke, it was on a “transformation journey” in which it is “optimizing efficiencies” to achieve break-even cash flow. I don’t know who wrote this bloodless business-speak, but I would love to stop it.
(CNN Business) Amazon suspended about 50 workers at the only unionized warehouse after they went on a strike, following a fire in the facility. Workers reported that parts of the building smelled of smoke after a fire broke out, and that it was hard to breathe. The workers walked off the job.
The Fed is getting behind the curve: A statistical analysis of employment growth in the early stage of the Covid-19 crisis and the return of skilled workers
Global warming has created new problems for forecasters according to meteorologists. It’s difficult to issues early warnings for towns in the path of hurricanes due to their intensifying speed. Notably, officials in Florida’s Lee County waited for definitive evidence that they would be hit hard by Hurricane Ian before ordering evacuations — and by then it was too late for many people.
Is something similar happening with economic policy? Recently I wrote about the growing buzz from economists and businesspeople to the effect that the Federal Reserve, which has been trying to slow the economy to fight inflation, is braking too hard. The buzz has gotten louder since then. Despite a disappointing inflation report and a robust job market, I still think that the Fed is getting behind the curve.
“I think this is good news for the Federal Reserve,” said Nela Richardson, chief economist at the payroll processing firm ADP. “You are seeing some softening in early-stage demand [for workers] but still continuation in hiring.”
It’s difficult to find a job this month and three, four months from now. “So people are being a lot more cautious,” said Tim Fiore, who surveys people about supply management.
In the latter part of 2020 and early 2021, job openings and resignations increased in tandem. But then the number of people quitting began to level off, even as openings kept rising. Americans are still changing jobs at a slower rate than they were before the Pandemic.
Manufacturing represents a small slice of the overall workforce, however. The ISM survey of service-sector businesses did not find a slowdown in hiring.
ADP, which handles payroll for more than 25 million workers across the country, reported solid job gains in restaurants, retail and professional services last month.
For the past two years, the labor market has been on a tear, recovering quickly from the massive drop-off of more than 20 million jobs at the onset of the Covid-19 pandemic. The US has added an average of 562,000 jobs per month in the past year, and 420,000 jobs per month this year.
“The more people who come back to the labor market, the more likely we’ll see some loosening in hiring conditions and a continuation of these steady gains,” said Richardson.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. The inflation watchdogs at the Fed will be watching to see if that trend continues in September.
The central bank raised interest rates eight times in the last year in a bid to reduce demand. But after appearing to cool off late last year, both consumer spending and hiring came roaring back in January, putting more upward pressure on prices.
Cook and her colleagues on the Fed’s governing board have made it clear that interest rates will remain elevated until there’s convincing evidence that prices are leveling off.
Cook said that inflation must come down, and that the central bank would keep at it until it was done.
G. A. Levanon, CEO, Labor Market Institute, 2001, Inc. Analyzing a 50-Year Low-Inflationary State in the United States
At Burning Glass Institute, Gad Levanon is the chief economist. He was the head of the Labor Market Institute at The Conference Board. The opinions expressed in this commentary are his own.
“If you look around the world, there are a lot of economies that are really suffering not only from high inflation but very weak economic performance, and the United States stands out. We have unemployment at a 50-year low. … We saw in this morning’s report – consumer spending and investment spending continued to grow. We have solid household finances, business finances, banks that are well capitalized,” she said.
Many industries are growing quickly because of their recovery from the Pandemic. Convention and trade show organizers, car rental companies, nursing homes and child day care services, among others, are all growing fast because they are still well below pre-pandemic employment levels.
It will look very different next year. Pre-pandemic employment levels will have been reached in many of the industries that are still recovering. Slower hiring may occur when demand is saturated. The alone is not likely to push job growth into negative territory. What will do that is monetary policy.
There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. It is hard to increase labor supply. Legislative action needed to increase immigration, increase investment in workforce training or drive people into the labor force is what it takes. This is likely to prove elusive in today’s polarized political environment.
The US labor market is one of the greatest sources of tension in the economy. Federal Reserve officials have long said that the rate of inflation will not fall until employment numbers and wage increases come down. The Fed will likely continue hiking until the job market calms down.
The Fed Reopens, and What Happens When Schools Close to the Reopening: Wall Street, Hospitality, Transportation, and the Labor Force
Pollak told CNN Business that the reopening of schools would have been a great moment for people who had left the labor force. Some people who left may not come back.
The number of people looking for work fell in September, which caused the unemployment rate to fall back to its half-century low of 3.5%.
The Federal Reserve is all but guaranteed to announce Wednesday that it will once again raise interest rates. But investors are hopeful it will be a smaller increase than the last four hikes.
As of Monday, markets are expecting the Fed to make another quarter-point raise: The CME FedWatch Tool is showing a 69.4% probability of such a hike; however, the perceived chances of a half-point increase (at 30.6%) have grown considerably during the past few weeks. The odds of a half-point increase were 3.3% one month ago.
However, that pace is unsustainable, said Dean Baker, senior economist at the Center for Economic and Policy Research. If monthly job gains edge down to 200,000 or around 150,000, that would likely sit better with the Fed, he said.
The swine flu forced restaurants to include online ordering, pick up and delivery on a larger scale in order to make customers more comfortable. Hotels haven’t bounced back fully, but neither has business travel, he said, adding that the rise of Zoom and competitors like Airbnb could continue to result in more muted demand for hotel stays.
Private sector employment is currently back to pre-pandemic levels, while public sector employment is still well below levels seen in February 2020.
The labor market is beginning to feel the impact of the Fed’s series of rate hikes, which Pollak said is making the recovery more complex.
While declines in these sectors are anticipated during a period of high interest rates, what could be a troubling sign are net job losses in crucial support industries such as local education, child care and trucking, said Russell Weaver, an economic geographer with Cornell University’s ILR School.
“Those and a few other sectors have large ripple effects,” Weaver said, noting ongoing supply chain concerns and the ability for people to have reliable education and child care services so that they can return to the workforce. “That can certainly impact [parents’] long-term and future economic and work prospects.”
“We’re not sensing that a recession is imminent,” said Dionne Nelson, Laurel Street’s chief executive officer and founder. “We’re still very busy. We are still looking for people. Our markets are still very active.”
Wall Street, Wall Street and Wall Street: After the S&P 500: Predictions for Stock Prices and Labor Markets in a Strong Labor Market
Fresh data about the health of the labor market paved the way for the Fed to increase the interest rate next month and weighed on stock prices on Friday.
Technology stocks were dragged down by the S&P 500 on Friday. The dollar strengthened and government bond yields went up.
A labor market that is continually strong is not good news for investors because it shows that the Fed needs to raise interest rates even more than they already have. Higher rates, in turn, raise costs for companies, and that affects stock prices.
CNN Business had a version of the story. Before the Bell newsletter. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter by clicking the same link.
The Rise and Fall of Wall Street: Implications for Inflationary Bubble Forecasts and Wall-Bought Bond Pricing in UK Stock Markets
Blinder said that markets overreact to inflation data by a factor of three to 10 times. “That’s what’s going on now,” he said.
Blinder hopes it’s not another year until markets become less volatile. Expect the whiplash to continue as long as “the Fed is raising interest rates or believed by the markets to be on the verge of raising interest rates.”
“We no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation,” Powell said. We now believe that some additional policy firm may be appropriate.
Blinder said that investor memory is very short. It was only a short time ago that policymakers were concerned about inflation being too low. “Inflation is young,” he said, and we’re a long way from inflation expectations becoming deeply entrenched into economic activity the way it was in the 1970s and 1980s. So while Wall Street may be shouting fire, there’s no reason yet for Main Street to worry about the economic meltdowns seen the last time inflation was this elevated.
Many CEOs, investors and consumers are worried about a recession in 2023. According to Moody’s Analytics, the more probable scenario is a slowcession, where growth grinds to a halt but a full economic downturn is narrowly avoided.
The Bank of England’s moves send more signals to investors that the central bank is prepared to do whatever it takes to restore more normal trading conditions to the bond market, which is necessary to keep down borrowing costs for UK households and businesses.
It confirmed that the bond-buying program would end Friday, but said it would extend extra support “beyond the end of this week” to banks still reeling from the fallout of a meltdown in some pension funds.
The Fed’s First Banks: How Banks Can Fail to Prevent Financial Complications: A Nobel Committee Report on the 2008 London Papers
See here: The UK government sold index-linked gilts due in 2051 at a yield of 1.55%. The highest yield since October 2008 is at the present time.
After the Bank of England announced initial action in September, the yields on long-dated government bonds fell sharply but have since risen again.
The market experienced historic selling after the budget plans were announced, forcing the central bank to act to prevent a self-reinforcing spiral.
The Bank of England stressed on Monday that funds have made “substantial progress” over the past week, but that it would continue to work with them to ensure the “industry operates on a more resilient basis in future.”
Bernanke, alongside two other academics, won the prize for research that showed how bank failures worsen financial meltdowns and how the system can be made safer.
Bernanke presided over the Fed during the 2008 financial crisis that led to the collapse of Lehman Brothers and took other “too big to fail” banks, including JPMorgan Chase
(JPM), Goldman Sachs
(GS), Bank of America
(BAC) and Morgan Stanley
(MS), to the brink of catastrophe. Those banks were partially saved by an emergency government bailout.
Major US banks underwent a stress test in 2009, in order to see if they can cope with a severe recession and turmoil in financial markets. The tests are used to determine whether banks can increase dividends or repurchase shares.
The research is especially relevant today as rapid interest rate hikes to combat inflation have sent markets into turmoil, drawing comparisons to 2008.
The research papers, said the Nobel Committee, “offer important insights into the beneficial role that banks play in the economy, but also into how their vulnerabilities can lead to devastating financial crises.”
What’s happening in Wall Street: The impact of Fed and Fed-sponsored banking on the US economy and large-scale infrastructure investments during the 2008-2009 financial crisis
▸ Third quarter earnings season begins. Expect reports from big banks like JPMorgan Chase
(JPM), Wells Fargo
(WFC), Citigroup
(C), Morgan Stanley
(MS), PNC
(PNC) and US Bancorp
(USB) and consumer staples like Pepsi
(PEP), Walgreens
(WBA) and Domino’s
(DMPZF).
The global economy is in a bad spot right now and the majority of the economists think it will be in a recession. But US markets don’t seem to mind. Stocks closed out their best week since mid-June last Friday and continued that rally into Monday.
So what’s going on? A decade of money flowing from the Fed to banks has created two economies, according to Nomi Prins, a former managing director at Goldman. Main Street suffered from decelerating wages and little support because of the years of low rates which benefited wealthy Americans and corporations. A permanent distortion is when market behavior and economic prosperity have no bearing on each other.
Sentiment on Wall Street can change on a dime, as was shown this week by the 1,100 point decline in theDow since the Fed’s policy update. Not helping stocks: It’s December. Many traders are on vacation, volume is low and tiny moves can get exacerbated.
The Federal Reserve is mandated to keep unemployment low, but it is also mandated to boost markets, according to Prins. “We’ve seen that over the last 14 years,” she added. The interest rates for overnight bank borrowing in the United States were set low, near zero, in 2008, and Fed officials used the money they made to purchase Treasury securities from the US Government. She said that this idea of the stock market going up no matter what had been created in finance.
The bulk of this stimulus flowed upwards into markets and not outward into the economy at large and created a world where investors became dependent on the Fed while the larger economy suffered, said Prins.
The central bank faces a difficult mission in fighting inflation because it has to balance high inflation with a tight labor market and the recent collapse of several banks.
Main Street is feeling the effects of increased mortgage and borrowing rates, as well as a slow jobs market, due to these interest rate hikes.
Rishi Sunak: A Prime Minister to shepherd the UK through a recession, and why the U.S. economy is buoyed
According to the survey, businesses can not operate with shortages of labor and raw materials. The share of respondents reporting shortages remained near record levels.
Rishi Sunak, Britain’s third prime minister in seven weeks, will face the huge challenge of projecting stability after a period of historic political and financial market chaos. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.
Sunak promised to help households tackle the cost of living during his campaign and many are pulling back their spending because of it. He said he would cut taxes, but only once price pressures eased.
The economic outlook has deteriorated significantly since then, not least because of the market turmoil unleashed by a now-abandoned plan to slash taxes as soon as possible.
October Consumer Confidence is a measurement of consumer confidence, it is to be released by the Conference Board at 10 a.m.
The treasury secretary said in an interview with CNN that she did not see a recession in the near term as the economy rebounded from six months of contraction.
During a CNN interview that aired Thursday, the head of the Fed said the GDP data from the third quarter underscored the strength of the US economy as policy makers desperately move to cool off pervasive and soaring inflation.
Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.
Bringing the US Economy Out of Crisis: The View of J. J. Yellen on Covid-19 and the Impact on Research and Development
The complex balancing act President Joe Biden has attempted this year, as he looks to highlight a rapid economic recovery and major legislative victories, as well as tackle soaring prices, was underscored by the view of Yellen.
It’s a reality that has undercut efforts by the administrationto take advantage of what officials view as a robust record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.
Yellen also acknowledged frustration inside the administration that the efforts to pull the US economy out of crisis haven’t received the credit officials believe is merited.
“There were several problems that we could have had, and difficulties many families American families could have faced,” Yellen said. “These are problems we don’t have, because of what the Biden administration has done. One doesn’t get credit for issues that don’t exist.
Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.
It’s a critical piece of an economic strategy designed to address many of the vulnerabilities and failings laid bare as Covid-19 ravaged the world, with significant federal investments in infrastructure and shoring up – or creating from scratch – key pieces of critical supply chains.
The twenty billion dollar Intel plant opened just a few hours drive away from Columbus, and was one of several major private sector investments listed by Janet Yellen as real tangible investments happening right now.
Not in every community but soon, repaired bridges will come online. Some communities are going to see improvements to their roads and bridges. We’re seeing money flow into research and development, which is really an important source of long term strength to the American economy. She said that America’s strength is going to increase as the economy becomes more competitive.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
What the Debt Ceiling Can Tell Us About Higher-Order Expansions and the Economic Inflationary P.S. Epidemic?
The battle lines that have been drawn this week over raising the debt ceiling, and which House Republicans have pledged to use for leverage should they gain the majority, was addressed by the chair of the Federal Reserve.
“Congress really needs to raise the debt ceiling. Powell said that was the only way out. If we fail to do that, the consequences could be extremely adverse, and could do longstanding harm, I think.
As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. The report that she had told the White House that she wanted to stay was an accurate read, she said.
We talked about a program and I’m very excited about it. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. And I want to be part of that.”
The logic behind Powell’s research on job openings is simple. Employers don’t try to hire when no one is buying their goods, so they are a direct measure of demand. They are connected to wage growth because when lots of companies are hiring, they have to pay more to compete for workers.
You’ve probably read about the great resignation, the surge in people leaving their jobs as the economy got back on its feet. The narrative missed a crucial aspect of the phenomenon, that many people were not quitting to sit on the couch. They were taking better-paying jobs.
The response rate to the Job Opens and Labor Turnover Survey, or JOLTS, has plummeted since the start of the P.S. epidemic, falling from 34% to just under 31%.
The risk of a recession could be lowered if this trend continues. But if inflation remains well above the Federal Reserve’s 2% target, that would be problematic.
Democrats try to hold on to power next week, and the pain of inflation seems to outweigh the positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
The Next Boomer Boom: More First-Time Buyers Are Compared to the Last Tens of Years: A Case Study in Urban Environment and Real Estate Policies
More bad news for young people buying their first home. The average age of a first time buyer is up from last year.
(It also didn’t hurt that dizzying stock surges meant Baby Boomer parents with large investment portfolios were happy to pass on some of those gains to their darling Millennial kids.)
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it was high as 50%.
“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. Home prices are rising while mortgage rates are going up.
Mortgage rates went up due to the Federal Reserve’s campaign of rate hikes to tame inflation. But mortgage rates dropped in November and December, following data that showed inflation may have finally reached its peak, reports my colleague Anna Bahney.
The policies that regulate land use and housing make it difficult to add more homes in desirable locations, according to Jenny Schuetz.
The housing supply has been expanded through subdivisions at the urban fringe, rather than rebuilding within existing neighborhoods. That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. If those who will benefit are better represented in elected office, that will happen. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
Wall Street is Preferentially Predictive of the Next Fed Rate-Higgs Decay, and Wall Street Is Preferable to a Very Long-Term Recession
The Bank of England increased its interest rate by the same amount as the Fed, the biggest hike it has had in 33 years. The European Central Bank did the same thing last week.
The Basis points are how central bankers talk about rate moves. A basis point is a tenth of a percentage point.
That excitement continued right up until Fed Chair Jerome Powell crashed Wall Street’s party Wednesday with some tough news: Economists at the Fed believe US gross domestic product, the broadest measure of America’s economy, will barely grow next year. 1.6 million Americans will be out of work by the end of 2023 if they are not hired by that time.
One of the biggest unknowns since the Federal Reserve started its historic rate-hiking campaign has been how many jobs could be lost from the central bank’s deliberate effort to slow down the US economy.
While investors, business leaders and some economic models continue to warn a recession is imminent, Wall Street’s most powerful investment bank remains cautiously optimistic.
“We still see a very plausible non-recessionary four-step path from the high-inflation economy of the present to a low-inflation economy of the future,” Goldman Sachs chief economist Jan Hatzius wrote in a report.
By contrast, a Bloomberg Economics model released in late October determined the risk of a recession over the next 12 months stands at a staggering 100%. A probability model run by Ned Davis Research similarly found a 98.1% chance of a global recession.
But Goldman Sachs pointed out the transition to more sustainable — but still positive — economic growth “has already occurred, and it looks durable.” The bank expects gross domestic product growth of about 1% over the next year.
There is less progress on the price side. The inflation metrics have mostly stopped getting worse, but they are still not any better.
The broad economy and employment reports have been stronger than expected this month, and the stock market has had a great month. Investors were hopeful that the Federal Reserve could slow its historic pace of rate hikes and inflation could right itself sometime next year without tipping the economy into a recession.
The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. CPI rose 7.7% year-over-year through October.
The End of Cryptocurrency: Digital Assets in a Bad Year for Investors in the Covid-Epoch of Growth and Deceleration
If investors get excited about a central bank pivot only to get a message from a Fed official that they are wrong, that is when the market will start to hate them.
It has been a bad year for cription. The dramatic collapse of FTX, a high-tech startup valued at $32 billion, is just the latest in a string of bad news for investors in digital currencies.
Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
A thaw in the digital currency. 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 reached a record high of nearly $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, and those new investors who still viewed bitcoins as risky pulled their money out in droves.
It was mid 2020 and they still gained a lot from the early part of that year. Digital assets are still outdoing tech stocks over the longer time horizon according to the chief investment officer at a firm that specializes in digital assets.
Inflationary pressures are easing: Why the Fed hasn’t ruled out a pivot in the past 12 months?
Freddie Mac chief economist Sam Khater said that mortgage application activity went to a quarter-century low this week as high mortgage rates continued to weaken the housing market. While mortgage market activity has shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in the future.
There are traders who think there will be a half-point increase. Federal funds futures on the Chicago Merc show a hike of 80%.
The hope is that inflation pressures are finally starting to abate enough that the Fed can pivot — Fed-speak for a series of smaller rate hikes -— to avoid crashing the economy into a recession.
But it may not be as easy as it seems. 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. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
Powell said that interest rates may have to climb higher in order to bring prices under control, as opposed to the 5 to 5.5% range policymakers had predicted in December. The Fed’s benchmark rate is currently 4.50 to 4.75%.
This situation explains why Fed officials had originally planned to continue raising their benchmark interest rate at today’s meeting — thereby slowing the economy by increasing the cost of homes, cars and other items that people buy with debt. Some Fed officials favored a quarter-point increase, which would be identical to the increase at the Fed’s meeting last month. The recent inflation data made others prefer a half-point increase.
Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar
(LEN) and Trip.com
(TCOM)
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. It’s too late for rate cuts. Recession risks are still relatively high.”
The US economy is not in a recession. Is American shoppers tapped out? We’ll get a better sense of that Thursday after the government reports retail sales figures for November.
So it’s possible consumers were simply getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.
“Everybody has been talking about inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.
What Does Cosserat Say About the Fed, the S&P 500, and the Nasdaq? The Dow Jones Indices & Energy Takes a Wrinkle Thursday
What does this mean for investors? Cosserat said that people should look for consumer companies with good pricing power that can maintain their profit margins. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal
(LRLCF).
The Friday edition of “Friday the 13th” features Eurozone Purchasing Tendinance; UK retail sales and earnings from a few businesses.
“Central banks will continue their aggressive tightening cycle into early 2023 before pausing as inflation falls and job losses mount,” said mutual fund giant Vanguard in a report Monday. Most central banks won’t cut rates in 2023 given the need to curb wage growth.
“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,” said Tom Essaye, founder and editor of the Sevens Report investing newsletter, on Monday.
Sam Bankman-Fried, founder of FTX, will testify 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.
Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. However, there is no guarantee of that.
The sell-off has been broad, only 12 companies in the S&P 500 are trading in the green. The real estate and energy sectors have been hit the hardest.
The worse-than- expected retail sales report on Thursday compounded the fears from the dour Fed forecasts. The Dow lost 765 points Thursday, or 2.3%, the index’s worst day in three months. The S&P 500 lost 2.5% and the Nasdaq tumbled 3.2%, their worst days in a month.
What is the probability that the Labor Market will remain Tight for a High Unemployment Recession: Adobe, Meta, and the Daily Show
The growth of real GDP this year has been lowered from earlier projections. The economy will grow by 1.2%, which is slower than the 1.6% they projected in December.
Adobe and Meta are the largest gainers in the market today. Adobe shares soared after the company reported better-than-expected quarterly earnings and guidance. Meta, a company which is down over 70% for the year, saw a tick after JPMorgan upgraded it to neutral from overweight.
Stocks plunged earlier this month after the closely watched November jobs report showed a resilient labor market. The weekly number of Americans filing for unemployment benefits fell, indicating that there is still a tight labor market.
What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.
He said that many commentators think the possibility of just a mild downturn is overstated and that it might be seen as too likely. “And once we start to see sentiment shift, either in the business sector or in the consumer sector, that can feed off of itself — that can lead to further weakness, which could lead to a stronger rise in the unemployment rate and weaker economic conditions.”
Powell believed that the labor market was tight enough to keep unemployment down and that a soft landing was still possible. The jobs numbers will be watched very closely by investors.
Super Saturday and Christmas Eve: Bankman-Fried’s alleged ‘House of Cards on a foundation of deception’
It remains unclear what time Bankman-Fried will appear in court. If he allows his return to the United States, it will be quickly. Once in the states, he will appear before a US judge for an arraignment and bail hearing.
Bankman-Fried was accused of eight counts of fraud and conspiracy by prosecutors in New York. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
The US market regulators are accusing Bankman-Fried of defrauding investors and customers, saying he built a house of cards on a foundation of deception.
The busiest shopping day prior to Christmas is known as Super Saturday. This year’s Super Saturday is on the 17th, as Christmas Day and Christmas Eve both fall on a Sunday. More than 158 million consumers are estimated to shop that day, according to the National Retail Federation.
Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than one week to go until Christmas Day, there is a lot more buying to be done.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Effects of the Clock on Retail Sales and Implications for Job Creation and Labor Laws in the U.S.: A Professor of Consumer Behavior
It costs retailers a lot to sit on oversupply of merchandise. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. If there is too much space, costs will add up and they will not be able to quickly clear out.
Over time, unsold products lose value. That’s especially true with fashion clothing as savvy shoppers won’t buy last year’s style if the trend has passed. Stores are forced to heavily discount.
In advance of the last full weekend before Christmas this year, stores were offering discounts of up to 60% off, and free shipping for online orders.
“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.
He said that retailers were very nervous. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”
Inflation indicators show that Consumer prices are cooling, and some of America’s best-known companies are pulling back on capital investment as the clock draws to a close.
Ross said the Fed could possibly be “continually holstering” at the start of the next decade.
However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.
As such, employers are hesitant to lay people off, and other areas of the economy are showing such strength that those who are unemployed are able to get rehired quickly, Mayfield said.
The soft landing is achieved by the consumer holding up over the past 18 months and not pulling the rug out from under them.
What the Fed Open Market Committee had to say about the 2008 Super-Yankees Wall-Cooper Puzzle and Why the U.S. Economy Can Fail
The Federal Open Market Committee, the central bank’s policymaking arm, holds eight regularly scheduled meetings per year. The group looks through economic data, assesses financial conditions, and evaluates monetary policy actions, which will be announced to the public after a press conference led by Chair Powell on the second day of the meeting.
There are at least two meetings in the works for 2023. If you’re looking for a way to tell the meeting apart, you can use the Summary of Economic Projections, also called the “dot plot”, a chart that shows where each Fed member expects interest rates to go in the future.
It was a horrible time for the stock market, with one-fifth of the value of the S&P500 vanishing and the Nasdaq dropping by more than 30%. All three major US markets suffered their worst years — by far — since 2008.
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. Unemployment claims have been low since the beginning of the year and almost exactly where they were a year ago.
“This is one reason to the be optimistic the economy could skirt a recession,” Moody’s Analytics chief economist Mark Zandi told CNN on Thursday. “Without mass layoffs, it’s unlikely consumers will stop spending and the economy suffer a downturn.”
The Fear of a Recession: Why the Fed is Failing to Overdo it, and When Will It Overcome Its Effect on the US Economy?
In June, gas prices went over $5 a gallon for the first time. The average for regular gasoline in the US recently fell to just over $3 a gallon, its lowest point in 18 months, while it crept higher in recent days.
The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.
The economic growth that comes to a near standstill but never falls into reverse is a phrase created by Moody’s colleague Cristian deRitis. Unemployment would rise, but not spike.
There is also a real risk of a self-fulfilling prophecy, where nervous business owners and consumers hunker down so much that they cause the very recession they fear.
“Shoppers are the firewall between an economy in recession and an economy that skirts a downturn,” Zandi wrote. “While the firewall is sure to come under pressure, particularly as financially hard-pressed low-income households struggle, it should continue to hold.”
Zandi also pointed to relatively strong fundamentals in the US economy, including profitable businesses, healthy consumer balance sheets and a banking system that is “on about as strong financial ground as it has ever been.”
Before prior recessions, the economy was plagued by issues such as over built real estate markets or massive asset bubbles, according to the Moody’s economist.
Traders are betting on a further deceleration in jobs growth because that could lead to a reduction in the size of interest rate hikes by the Federal Reserve.
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.
Wednesday’s weaker than expected report on the health of the manufacturing sector, coupled with more signs of strength in the jobs market given the solid report about labor turnover, led to more market volatility.
That’s why investors will also be poring over the weekly jobless claims numbers that come out Thursday morning as well as a report from payroll processing company ADP
(ADP) about the private sector job market. More alarm bells about Fed rate hikes could be set off by further strength.
Wage growth will also be looked at. Workers compensation tends to lead to more inflation. If a person has more disposable income, they can afford to pay higher prices for products and services.
The persistent mismatch between labor supply and demand is putting upward pressure on wages according to Lauren Gonzalez, economist and portfolio strategist at New York Life Investments.
A report by strategists at the BlackRock Investment Institute also noted that inflation for services companies (think retail, banking and tech, among others) is likely to remain “sticky due to worker shortages fueling wage growth.”
In other words, the Fed is likely to focus more on worker paychecks in Friday’s jobs report than the number of jobs added. Wall Street may do the same.
The American economy is not out of the woods: What are investors waiting for in the next few years? An insider’s analysis of Salesforce employee layoffs
As my colleague Catherine Thorbecke reported, Salesforce joins a growing list of major tech firms that have recently announced job cuts, including Amazon
(AMZN) and Facebook owner Meta Platforms. There were more than 18,000 employees that were laid off by Amazon.
As the economy quickly rebounded from a brief recession in 2020, the hope was that consumers and businesses would continue to spend heavily on tech products and services.
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 his employees, the chair and co-CEO of Dreamforce said they hired too many people ahead of the economic downturn.
Companies that last a long time go through different phases. According to a memo shared by employees, Andy Jassy stated that Amazon isn’t in heavy people expansion mode every year.
The global economy is clearly not out of the woods. 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.
But CNN’s Anna Cooban notes that investors in Europe appear to be growing more hopeful that the pace of consumer price increases is starting to slow in France and Germany. The price of energy is going down.
Source: https://www.cnn.com/2023/01/05/investing/premarket-stocks-trading/index.html
What do retailers and banks think about the US economy in the New Year? And what will we learn if wages continue to grow faster and faster than expected in 2022?
The British Retail Consortium said in a report Wednesday that food prices surged 13.3% in December. Meanwhile, data analytics firm Kantar noted in another report that UK grocery sales hit a record during the four weeks ending on December 25, even though the number of items that consumers bought fell 1% during the same period.
We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. There’s a certain clarity that comes during this time in January.
The word of the week was jobs since investors looked at a number of data which showed a strong labor market that is resistant to the Feds attempts to cool the economy.
Assuming no change in the labor force, going from the current unemployment rate of 3.6% to 4.5% would mean 1.5 million more people would be unemployed by the end of the year, according to the Fed’s projections.
In an interview with the Financial Times this week, Gita Gopinath, second in command at the International Monetary Fund, urged the Fed to continue with rate increases this year, citing the labor market’s resilience.
So will wages moderate this year? Analysts are predicting that they will. They believe that unemployment will grow and wage growth will slow from above 5% in 2022 to about 4% by the end of this year.
Bank of America CEO Brian Moynihan told CNN around the holidays that the continued strength of the US consumer is nearly single-handedly staving off recession.
US retail sales fell 0.6% in November, the weakest performance in nearly a year. Analysts say that retailers earnings will suffer if weak sales continue.
Disposable income fell from the spring of 2021 through the summer of 2022 as inflation outran wage growth and pandemic savings dried up. While American bank accounts are still fairly robust, consumers are borrowing more. In the third quarter of 2022, credit card balances jumped 15% year over year. The New York Fed began tracking the data in 2004.
This is the main question on every investor’s mind — and the answer will not only help determine what happens to markets this year, but also whether the economy will fall into recession.
The Fed Sensitive Action is On: The Impact of Rate Increases on Homebuying, Mortgage and Real Estate Efforts
They stressed the need for more evidence of progress to be made because inflation was still unacceptably high.
While the Fed might not make rate cuts this year, it may make more modest increases, or even no changes at all as the year progresses. That would be good for investor after four hikes of three-quarters of a point last year.
The 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the week before, according to Freddie Mac. The 30-year fixed rate was 3.31% a year ago.
The current market is driving away would-be buyers, partially because there’s little inventory as Americans are uninterested in selling and parting ways with their ultra-low mortgage rates.
The home goods chain said in the regulatory filing that there is a lack of confidence in its ability to continue.
According to the Wall Street Journal, Bed Bath & Beyond is poised to file for insolvency within a few weeks. Bed Bath & Beyond did not immediately respond to a request for comment from CNN.
The decision, at the conclusion of the Federal Open Market Committee’s first meeting of 2023, comes after months of jumbo-sized rate increases intended to cool the economy, and marks the return to a more traditional interest-rate policy.
In his post-meeting press conference, Fed Chair Jerome Powell signaled that while there’s still a long way to go in the fight against inflation, he believes the trend is moving in the right direction.
The central bank isn’t declaring victory just because of trends that might show a case for slowing rate increases after months of aggressive action. It takes time for monetary policy to take effect. Senior Fed officials, including Vice Chair Lael Brainard, have called on the people in charge to see at least 6 months of positive data before hiking rates.
Powell added that it was hard to manage the risk of doing too little, as well as the fact that they didn’t get the job done.
The Fed is Doomed: Forecasting the US Economy During the January 21st Job Addendum, as Revised by NABE
US markets rose after the press conference, indicating investors expect the Fed to be more dovish. The best January in four years saw the S&P 500 close higher on the first day of February.
“We didn’t expect it to be this strong,” Powell said of the January jobs report, which showed the US economy added 517,000 jobs. It shows us how long this process will take and why we believe it will be.
Powell said that the disinflationary process had begun, noting progress in goods prices. He noted that the service sector’s price gains remain high.
Powell expects housing inflation to come down by the middle of this year, but is keeping an eye on a metric within the report that looks at core services.
The major US stock indexes rallied during Powell’s discussion but then fell in early afternoon trading, with the Dow down by around 200 points or 0.6%, the S&P lower by 0.3% and the tech-heavy Nasdaq down by 0.2%.
The January job total was influenced by seasonal factors, and the Fed will probably be able to adjust it downward. The labor market has stood firm despite the Fed trying to lower inflation.
If we continue to get stronger labor market reports or higher inflation reports it could be the case that we need to raise rates even more.
In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque, reports CNN’s Alicia Wallace.
The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.
“Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy — ranging from recession to soft landing to robust growth,” Julia Coronado, NABE’s president, said in a statement.
According to Dana M. Bernstein, the chair of the Outlook Survey,Panelists are divided about how much the Federal Reserve might raise rates, how long rates would stay at peak rate, and what the central bank would do with all of this. People are highly concerned about the consequences of various matters that may affect the US economy, but are not sure about the impact on global inflation and the debt ceiling.
They believe that housing starts could see their largest decline since 2009; they expect home prices and new house construction to fall this year.
They don’t think the downturn will reach “bust” territory. A mere 2% of respondents said that a “housing market bust” was the greatest downside risk to the US economy in 2023.
Instead 51% of respondents said the biggest downside risk was too much monetary tightening. Trailing far behind in second was the broadening of war in Ukraine, with 12%.
The Decline in Response Rates of the Apollo Global Management Survey: Are Surveys Impacting the Economy? A Conversation with Julia Coronado
Julia Coronado, founder of MacroPolicy Perspectives and president of the National Association for Business Economics, said earlier this month that the decline in responses made the survey “basura,” the Spanish term for trash.
The chief economist at Apollo Global Management was talking to CNN about the declining rates. The interview was edited for clarity and length.
There is no easy way to address the problem of the decline in response rates because of the growth of junk mail and the decreasing number of telephones.
What extent do surveys have an impact on the data we use? There are gaps in our reading of the economy.
The incoming data is crucial to the markets and the Fed. The January data for employment and retail sales is strong, but is it a true depiction of what is going on? Is it related to seasonal adjustments or the economic surveys?
There is a higher tendency to put weight on anecdotal evidence when the data is unreliable, for example at the moment where the announced tech layoffs seem like a big deal, but they are basically irrelevant compared to the current employment report for January.
The leisure and hotel industry added 128,000 jobs in January, more than any other sector. Is this an account of what is going on or is it some measurement problem that is causing the discrepancy?
Source: https://www.cnn.com/2023/02/27/investing/premarket-stocks-trading/index.html
The Oracle of Omaha: Warren Buffett and the Stock Market, and the Second Investor Day of the “Oasis of Omaha”, Losing $22 billion in 2022
The company that has been run by Warren Buffet reported losses on Saturday. It lost over $22 billion in the year, and nearly $60 billion in speculative losses on its investments.
Still, Buffett pointed to the company’s operating earnings in his annual letter to investors — those are the profits that come from businesses and not stock holdings, and are Buffett’s preferred measure of profitability. Those earnings reached what Buffett called a “record” — $30.8 billion in 2022, topping the $27.5 billion in the prior year.
The 92-year-old “Oracle of Omaha” wrote that when he was told that all repurchases were harmful to shareholders or beneficial to CEOs, he was either an economic literate or a silver tongued demagogue.
The investor day will be held on Tuesday. This will be a big one for the company’s leaders as they hope to reset after a 2022 that saw the bank’s profits slump by nearly half.
The annual investor meeting is only the second in 154 years and comes just weeks after the company said its consumer lending arm has lost almost $3 billion since 2020. The bank has recently undergone a series of layoffs and CEO David Solomon has faced criticism, and a pay cut, from shareholders.
The United States has about 631,000 restaurants, according to data from a restaurant research firm. That’s roughly 72,000 fewer than in 2019, when there were 703,000 restaurants.
Chipotle, Starbucks, Chick-fil-A, McDonald’s and KFC-owner Yum Brands, meanwhile, have each donated $1 million to Save Local Restaurants, a coalition opposing a California law that could set the minimum wage at up to $22 an hour and codify working conditions for fast-food employees in the state.
Wall Street Pedestrians: Bringing Hell to the Block: Why Wall Street is Stuck in the Middle of the Hell Week?
Wall Street investors are gearing up for their version of Hell Week — a torrent of jobs data coming over the next few days could easily lead to volatile market swings.
What to expect: ADP’s private payroll report for February and the JOLTS job openings, hires and quits report for January are expected Wednesday. On Thursday, Challenger, Gray and Christmas will release their job cuts numbers for February and on Friday the Labor Department will release their monthly employment report.
“We’re stuck in the messy middle.” said Josh Hirt, senior US economist at Vanguard. The activity in the most interest rate sensitive sectors of the economy have weakened but are still showing resilience. The impact of rates has yet to work through the economy.
According to him, he thinks the unemployment rate will climb to 5% by the end of this year from around 4.5% at the moment.
Powell is expected to testify about the economic outlook and monetary policy before the Joint Economic Committee.
A preview of the report shows that the Fed chair plans to reiterate that more needs to be done to bring down annual inflation to the Fed’s target of 2%.
The president’s budget is typically used as a guideline for Congress to help shape spending priorities for the year ahead. Wall Street investors will likely pour over the document in order to understand what market-shifting debates may be coming down the pipeline.
Biden has said his budget will help offset increasing costs for Medicare, Social Security and health care by increasing taxes on the ultra-wealthy. The president also proposed a “billionaire” tax last year. Increased taxes on capital gains and on corporate stock raises have roiled Wall Street.
What Do We Expect to Learn from the Roadrunner? The Case for a Fed-Robust-E. Coyote Moment
And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said, referencing the cartoon canine’s relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.
But in the weeks following that meeting, there was a barrage of surprisingly strong economic data, showing blockbuster job gains, hearty consumer spending and unyielding inflation.
Summers said his best guess would be for the fed funds rate to grow from its current range (4.5% to 4.75%) to 5.5%, but noted he “wouldn’t be amazed” if it were to hit 6%, given the uncertainties in the economy.
The warning, in testimony before the Senate Banking Committee, comes after a series of economic indicators that indicate the economy is running hotter than expected despite aggressive action from 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.
She noted the Fed’s own December forecast showed the unemployment rate climbing to 4.6% by the end of this year. Warren said that would mean putting 2 million people out of work.
“You are gambling with people’s lives,” she said. You don’t believe in a single solution: Lay of millions of workers. We need a Fed that will fight for families.”
The Fed is On The Mend: Resolving the Banking Disaster and Implications for Inflation and the Economy, as Expected by the New York Fed
Republicans are demanding the government rein in spending as a condition to raise the debt ceiling. Democrats accuse the GOP of risking a costly federal default if the debt ceiling is not raised and the government finds itself unable to pay its bills.
These plans were thrown into disarray due to the recent banking troubles. Why? In addition to slowing the economy, higher interest rates depress the value of many financial assets (as these charts explain). Some bank executives did a poor job planning for these asset declines, and their balance sheets suffered. When customers became worried that the banks would no longer have enough money to return their deposits, a classic bank run ensued. It led to the collapse of Silicon Valley Bank and Signature Bank, and others remain in jeopardy.
Still, Federal Reserve Chairman Jerome Powell and policymakers entered their second policymaking meeting of the year surrounded by an unusual level of uncertainty as the landscape surrounding the financial system continues to shift.
In a statement released at the conclusion of the meeting, Fed officials acknowledged that recent financial market turmoil is weighing on inflation and the economy, though they expressed confidence in the overall system.
The Federal Reserve has been very, very tough and clear that they will backstop any further run against the banking system or banking institutions, he said. I think it is on the mend.
“The Fed’s in a bit of a bind,” former New York Fed President Bill Dudley told CNN. They should tighten because the labor market is too tight and inflation is too high. He said they wanted to make sure they didn’t do anything to increase the stress on the banking system. “There’s not really a right solution.”
The Federal funds rate is expected to increase to 4.3% from 4.1%, as indicated by officials.
Fed policymakers also forecast that unemployment would drop lower than previously expected by the end of the year, to 4.5%, from the projected 4.6% in December.
The Fed expects inflation to stay higher than expected this year with the preferred measure, PCE, forecast to tick up to 3.0% from its previous estimate of 3.1%.
Nightcap: Comedy Happens to Wall Street, Wall Street and Wall Street in the Light of Powell’s Supergravity and Signature Bank Coruptcies
Just three days later, the flood came. Silicon Valley Bank collapsed, followed by Signature Bank, stirring fears of a 2008-like financial calamity. US authorities had to take action to prevent panic from spreading.
The risk is that the banking crisis will do the Fed’s job, according to Powell.
When banks are financially strained, as many are now, they tend to take on less risk. Reducing the amount of loans to regular people and businesses slows economic growth and brings down inflation.
The stock market rose on the Fed’s hike. The mood on Wall Street turned sour after Powell spoke and after Janet Yellen spoke in front of Congress.
Meanwhile, Wall Street also appeared to react negatively to Yellen, who was across town telling lawmakers that officials were not considering expanding bank deposit guarantees beyond the FDIC’s current $250,000 limit.
Are you enjoying Nightcap? If you sign up, you can get all of this, and other funny stuff from our inbox every night. (OK, most nights — we believe in a four-day work week around here.)
How Well Did the Fed, Treasury and FDIC Respond to the Crisis? A Comment on Alemán’s Chief Economist with Raymond James
The actions taken by the Fed, the Federal Deposit Insurance Corporation and Treasury appear to have contained the crisis, said Eugenio Alemán, chief economist with Raymond James.
Daco stated that half of the banks already tightened their credit standards prior to the recent episode, and that he expects that number to grow to 75% to 80%.
“That is going to constrain business investment, that is going to constrain hiring, and that is going to constrain consumer spending. And so that will lead to weaker economic activity going forward.”
