The Fed isn’t Just That: The Inflation Puzzle is Getting Closer to a Threshold, and the Employment Cost Index is Undermining
For the Fed to reach its desired target of 2% inflation, jobs will have to take a hit, with unemployment rising to about 4.6% this year, according to the central bank’s projections released in December. The central bank will likely raise rates until it reaches a point where it’s too late to change the economy.
Forecasters expect the report to show a modest downshift in hiring from August, when employers added 315,000 jobs. The unemployment rate is expected to hold steady, at a low 3.7%.
“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.
Once again, and yes it sounds crummy, but the Fed and others would be happy to see wage growth slow down. Less money in our wallets leaves us with less spending power, and when we stop buying things, prices go down. In theory, anyway. That’s just one part of the large and complicated inflation puzzle.
The Bureau of Labor Statistics says the Employment Cost Index, a pay measure watched by the Fed, has dropped from 75% in 2012 to under 50% today. The response rate to the Current Employment Statistics survey, which reports on payroll and wages each month, has fallen from 60% in 2019 to under 45% at the end of 2022.
If it comes in well below 250K, you might see some renewed hope that the Fed’s policies are starting to have a positive effect on the economy.
Predictions for the Ford F-150 Lightning, the first electric pickup of Ford, and the threat of price hikes across the Belarus economy
It’s hard to overstate just how delicate the situation is. 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.
In an interview with CNN, he told them that he expects the Fed to raise its benchmark interest rate higher than it expected and that the central bank will soon start to cause a downturn.
The F-150 Lightning is Ford’s first electric pickup. According to the company’s website, the entry-level model will cost $52,000, which is significantly higher than the $40,000 it sold for in the spring.
(Reuters) Belarus’ President Alexander Lukashenko banned consumer price increases across the economy, according to state media. There is a ban on price increases from today. Prohibited!” the president is quoted as saying.
(CNN Business) Peloton: Nightcap Jobs Resummation after Musk’s Axios-Massachusetts Decay
According to a source familiar with the negotiations, lawyers for the two companies have decided to delay Musk’s deposition in the case. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are still haggling over various conditions.
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. According to a letter the company wrote, it is worried that customers don’t believe them when they say that they are not building an army that will destroy humanity. Thankfully though, they’ve now said they’re not doing that. Phew!
(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. According to the company statement, it is on a transformation journey ofoptimizing efficiency to achieve break-even cash flow. I know who writes the bloodless business-speak, but I would love to stop it.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
CNN Business’s First Mile in a Marathon: The Real World Economy of Two Years After the Covid-19 Outbreak and the Last of the Second World War
CNN Business is on CNN. Amazon suspended roughly 50 workers at its only unionized warehouses on Tuesday after they began a work boycott in response to the fire. Workers reported that parts of the building were still smelling of smoke after a fire broke out at JFK8 on Staten Island on Monday. The workers walked off the job.
Global Warming has created new problems for forecasters, according to scientists. It is difficult to issue early warnings for a storm because they are intensifying more rapidly than in the past. 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.
While Fed Chair Jerome Powell said earlier this month that the central bank still has “some ways to go” in its battle to tame inflation, sentiment is growing that the Fed may pivot and ease its current regime of historically high rate hikes to fight growing prices.
It’s not all bad news: The first mile in a marathon matters. The latest report bodes well for the economy and could mean that a soft or soft-ish landing, where inflation eases without recession, is still achievable. That is good for the markets.
“It’s really hard to hire somebody this month and three, four months from now let them go. So people are being a lot more cautious,” said Tim Fiore, who conducts the survey for the Institute for Supply Management.
“It’s not layoffs that’s happening most of the time,” he said. It’s not possible at the moment. And when people are quitting, they’re not being replaced as quickly. So that’s a clear change from where we’ve been over the last year-and-a-half, two years.”
Manufacturing is just a small part of the workforce. The survey of service-sector businesses did not find a slowdown in hiring.
Job gains in restaurants, retail and professional services were reported by the company that administers payroll for more than 25 million workers.
After the huge drop off in employment at the beginning of the Covid-19 outbreak, the labor markets has been on a tear for the past two years. The resurgence has come in leaps and bounds: US employers added an average of 562,000 jobs per month last year and 420,000 jobs per month this year.
Richardson said that the more people return to the labor market, the more likely we will see some easing in hiring conditions.
Over a half a million workers joined or returned to the labor force in August. Inflation watchdogs at the Fed will be on the lookout to see if that trend continued in September.
With shortages of workers and critical supplies, it has become difficult for businesses to keep up with demand. As a result, prices have soared. The Fed thought that would be able to ease them on their own. But despite some encouraging signs — like a drop in lumber and used car prices — inflation remains stubbornly high. Prices in August were up 8.3% from a year ago.
But Wall Street’s memory is short: Less than two weeks ago Fed Chair Jerome Powell unambiguously said rates would remain higher for longer. With sustained price pressures in housing, wages and energy, the central bank’s battle against inflation is far from over and investors may be in for another letdown.
Cook said in her first public speech as a central bank policymaker that she wanted inflation to come down, and that they would keep doing so until it is done.
The Recovery of the US Economy after a Great Recession: Its Been a Long Way from the Cold War to the New Normal
Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He’s the former head of The Conference Board’s Labor Market Institute. His thoughts are not reflected in this commentary.
Many economists and analysts think the US economy has been in a weird state this year. On the other side, GDP growth has slowed and some argue that it actually entered a recession. On the other hand, overall employment growth has been much stronger than normal.
It is just like the industries that are catching up are still growing because they adjust to a new normal of higher demand. Demand for data processing and hosting services is higher than it was before the Pandemic. And it’s likely that these represent structural changes to buying patterns that will keep demand high.
In terms of the labor market, which remains strong and tight, panelists’ median projections for monthly payroll growth this year was 102,000, a significant upward revision from projections in December for 76,000 jobs per month.
There are two ways to rein in the labor market. either increase the labor supply or reduce demand. But it’s hard to engineer a boost in labor supply. It takes legislative action to increase immigration, drive people into the labor force or invest in workforce training. This is likely to prove elusive in today’s polarized political environment.
While the Fed has — finally — eked out some small victories in slowing the economy, after seven bumper rate hikes, the robust and historically tight labor market has remained a thorn in the central bank’s side. Wages can go up when there are too many available jobs, which could lead to increased prices for a longer time.
The Fed Reopens and the Labor Market Hasn’t Reappealed Since the September 1913 Pandemic: Comment on CNN Business
“There was hope that the reopening of schools would have been a great moment for a restart” for many of the people who left the labor force during the pandemic, Pollak told CNN Business. “We may not see some of the people who left come back.”
The unemployment rate dropped to its half-century low of 3.5% in September, as the number of people looking for work fell.
Wednesday’s statement made clear policymakers expect more hikes will be necessary to temper inflation. “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” they wrote. The “extent” of these “future increases,” they said will depend on a number of economic and financial factors.
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.
The pace is unsustainable according to Dean Baker, senior economist at the Center for Economic and Policy Research. If the job gains fall to around 200,000 or so it would be better for the Fed.
The pandemic forced restaurants to incorporate online ordering, pick-up and delivery on a greater scale, and customers became more comfortable in using those services, he said. According to him, hotels haven’t recovered fully but neither has business travel, and that the rise of competitors likeZoom could mean less demand for hotel stays.
In addition, while private sector employment returned to pre-pandemic levels earlier this year, public sector employment remains nearly 600,000 jobs, or 2.6%, below levels seen in February 2020, BLS data shows.
The recovery remains uneven, and it’s growing more complex as the labor market starts to feel the influence of the Fed’s series of supersized rate hikes, Pollak said.
The Health of the Labor Market, Daycare, and Transportation: Implications for the Long-Term Economic and Work Prospects of Families and Families
According to BLS data, jobs in public education fell by 22,000, day care jobs fell by 2,000, and truck transportation jobs fell by 11,000. At a critical time, those declines are moving in the opposite direction.
The ability for people to have reliable education and child care services so that they can return to the workforce are among the large ripple effects of those and other sectors. “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.”
The data that showed the health of the labor market was enough to make the Federal Reserve increase interest rates again next month, and that spooked investors on Friday.
The S&P 500 fell on Friday as interest rate-sensitive sectors like technology stocks went down. Government bond yields rose and the dollar strengthened.
Do central banks expect a slow inflationary squeeze in 2023? An analysis from CNN Business and the Bell newsletter, by Alan Blinder, M.P. Blinder
Typically a sign of economic strength, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Higher rates make companies more expensive and that affects stock prices.
CNN Business published a version of the story. The Bell newsletter was before that. Not a subscriber? Right here, you can sign up. You can listen to an audio version of the newsletter by clicking the same link.
Alan Blinder, a former Fed vice chair and economist at Princeton University, said investors overreact to data when anticipating the Fed’s next interest rate decision.
Expect the swings to continue until the Fed declares “mission accomplished” in its fight to lower inflation and pivots away from its current regime, likely some time in 2023, he told me.
Even though many of these central banks are expected to follow the Fed’s lead and just boost rates by a half point, or 50 basis points, investors are concerned that policy makers around the globe may not be able to prevent an economic downturn in 2023.
“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.
Bank of America CEO Brian Moynihan recently told CNN’s Poppy Harlow that a “mild” recession is likely. Economists surveyed by Bloomberg see a 70% chance of a recession in 2023.
The central bank of England’s performance on UK bonds and bond prices in the 21st week of September: Implications for the Fed and the financial crisis
The central bank beefed up its efforts to make UK markets stable, according to my colleague Julia Horowitz. The bank said that it was ready to buy up to £10 billion ($11 billion) of government bonds each day this week, double the daily limit it set when it announced its emergency intervention on Sept. 28.
It confirmed that the program would end on Friday, but said there would be more support for banks beyond this week.
See here: The UK government sold index-linked gilts due in 2051 at a yield of 1.55%. That is the highest yield since October 2008.
The yields on long-dated government bonds, which move opposite prices, fell sharply after the Bank of England announced its initial action in late September, but they’ve been climbing again since.
The central bank has said that it was forced to act to prevent a “self-reinforcing spiral” after the market experienced historic selling in the wake of the budget plans revealed by Finance Minister Kwasi Kwarteng and Prime Minister Liz Truss.
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.”
The prize was given to Ben Bernanke for his work in altering how the world sees the relationship between big banks and financial crises.
The collapse of Lehman Brothers and other “too big to fail” banks was caused by the Fed’s management of the 2008 financial crisis. Those banks were partially saved by an emergency government bailout.
The Fed implemented a policy of’stress tests’ in 2009, which test banks’ ability to survive a severe recession and upheaval in financial markets. The tests are used to determine whether banks can increase dividends or repurchase shares.
The research is relevant because markets have gone into turmoil with interest rate hikes.
The research papers offer important insights into how banks play a role in the economy and how they can lead to financial crises, according to the committee.
Why Do Stock Markets Go Up? Nomi Prins: The Fed Created Two Worlds from a Single Market: What Have They Done Recently?
Visa, Microsoft and other companies report their third-quarter earnings after market close.
It is pretty obvious that the global economy is in a poor situation, and the vast majority of economists think that we are on the verge of a recession. But US markets don’t seem to mind. The stock market had its best week in nearly four months last Friday and Monday.
So what gives? A decade of free-flowing money from the Federal Reserve to banks has created two economies, argues Nomi Prins, a former managing director at Goldman Sachs and author of “Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever.” Wealthy Americans and corporations benefited from years of low rates which kept money flow into businesses and stock markets high while Main Street didn’t get much support. Prins says we are now dealing with a “permanent distortion,” where market behavior and economic prosperity have nothing to do with each other.
But markets, which have taken quite a beating this year, are at multi-month highs again. In an interview, Prins said that it is pointless to apply economic rationale to stock markets.
Another mandate: The Federal Reserve is mandated to keep unemployment and prices in check, but the third unofficial mandate of the Fed is to boost markets, said Prins. Over the last 14 years, we have seen that. Beginning in 2008, interest rates for overnight bank borrowing in the United States were set low, near zero, and Fed officials pursued an aggressive monetary easing policy, where they infused money into the financial system by purchasing Treasury securities from the US Government. She explained that the finance world believed the stock market would go up no matter what.
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 Rise and Fall of the UK Economy: An Inside Look at the Last Seven Months of Economic Progress by the Third Prime Minister of the United Kingdom
Rick Rieder, the chief investment officer of Global Fixed Income said that moving forward is important in the Federal Reserve’s effort to bring inflation down towards its 2% target.
Meanwhile, she says, it’s Main Street, not Wall Street, that’s feeling the brunt of these interest rate hikes, through increased mortgage and borrowing rates and a slowing jobs market.
The survey shows that the shortages of raw materials and labor continue to affect businesses. The share of respondents reporting shortages remained near record levels.
After a period of political and financial market chaos, the third prime minister of Britain will face a huge challenge in projecting stability. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.
Sunak made promises to help households tackle the rising cost of living when he was running for the job. He said he would cut taxes, but only if price pressures dropped.
Yet the economic outlook has deteriorated sharply since then — not least because of the market turmoil unleashed by Truss’ now-abandoned plan to slash taxes as soon as possible and boost government borrowing.
Plus: The Conference Board is expected to release October Consumer Confidence which measures the level of confidence consumers have in the economy at 10 a.m. ET.
Treasury Secretary Janet Yellen said Thursday in an exclusive interview with CNN that she did not see signs of a recession in the near term as the US economy rebounded from six months of contraction.
During a one-on-one interview in Ohio that aired on CNN’s “Erin Burnett OutFront,” Yellen said the third quarter GDP data released Thursday underscored the strength of the US economy as policy makers urgently move to cool off pervasive and soaring inflation that has had a sharp effect on American views of the economy – and endangered the Democratic majorities on Capitol Hill less than two weeks from the midterm elections.
The Bureau of Economic Analysis estimated Thursday that gross domestic product rose by 2.6% in the third quarter. In the first and second quarters of the year, there was a decline of 1.6% and 0.6%.
The Complex Balance that Joe Biden and his Economic Officials Have Attempted Over the Last Month or Two: Implications for the American Economy and the Covid-19 Breakdown
But Yellen’s view also underscored the complex balancing act President Joe Biden and his top economic officials have attempted over the course of this year, as they seek to highlight a rapid economic recovery and major legislative victories while also pledging to tackle soaring prices.
It is a reality that has prevented the administration from taking advantage of what officials think is a strong record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.
Yellen pledged that those efforts would be felt as they course through the economy in the months and years ahead. Asked if the administration’s general message to Americans was one of patience, Yellen said: “Yes.”
Many families could have faced difficulties because of the problems that we could have had. The problems we don’t have are a result of what the Biden administration has done. It is often that one does not get credit for problems that do not 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.
In listing off major private sector investments, including the $20 billion Intel plant opened a few hours drive out of Columbus, she said that they were “real tangible investments happening now” even though she acknowledged they would take some time to fully take effect.
Not every bridge will be online immediately, but it will be soon. Many communities are going to see roads improved, bridges repaired that have been falling apart. We’re seeing money flow into research and development, which is really an important source of long term strength to the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
The Debt Ceiling Matters: The Case for a Rejuvenated America in the Context of Job Openings and Labor Turnover
Yellen also addressed the battle lines that have been drawn this week over raising the debt ceiling, a now-perpetual Washington crisis of its own making that House Republicans have once again pledged to utilize for leverage should they take the majority.
The debt ceiling needs to be raised. 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.”
She made clear that she didn’t plan to be one of the officials who leave an administration when it transitions to a time period that is typically used as a reason to leave. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”
“I feel very excited by the program that we talked about,” Yellen said. I see that it helps strengthen economic growth and strengthens American households. And I want to be part of that.”
The logic behind Powell’s attention on job openings is simple. Employers don’t try to hire when no one is buying products, so they are a direct measure of demand. And they have a clear connection to wage growth — and therefore inflation — because when lots of companies are hiring, they have to pay more to compete for workers.
You’ve probably read about the surge in people leaving their jobs as the economy recovered from Covid-induced lockdowns. The narrative missed a crucial element: Most weren’t quitting to sit on the couch. The jobs they were taking were usually better-paying.
The response rate for the Job Openings and Labor Turnover Survey, or JOLTS, has fallen since the pandemic, and it is just under 31%.
The pathway for reining in inflation and avoiding recession has narrowed due to projected Fed officials and other economists.
Democrats trying to hold onto power next week seem to be in bad shape due to the pain of inflation. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
A decade ago the housing market narrative was that there wasn’t a lot of buying by young people. They were either too cheap, lazy, or itinerant to commit to something as weighty as a mortgage.
It didn’t hurt that Baby Boomer parents with big investment portfolios were happy to give in to the stock surge and give their kids some of the gains.
The Realistic Housing Market: How Many First-time Buyers Decide to Buy a House in the First Five Years of the Great Recession?
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. “And this year were facing increasing home prices while mortgage rates are also climbing.”
The Federal Reserve raised interest rates in an attempt to tame soaring 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 production make it extremely difficult to add more homes in desirable locations,” writes Jenny Schuetz, an urban economist at the Brookings Institution.
Rather than rebuilding within neighborhoods, the housing supply has expanded by single- family subdivisions at the fringe. That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
It’s a good time for governments to rethink their way of thinking about the American Dream. If those who benefit are better represented in office, that will happen. The upper-middle class Boomers in power are reluctant to modify the system that got them where they are.
Wall Street Is Going Through a Phase of Inflation: The Bank of England’s Fourth-Strong Rate Increase and the European Central Bank
Hot on the heels of the Fed’s fourth-straight 0.75 percentage point rate hike, the Bank of England followed suit Thursday, raising its own key interest rate by the same amount — its biggest hike in 33 years. Last week the Europeancentral Bank did the same thing.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One basis point is less than a percentage point.
It was found out that investors can’t beat the Fed. So expect more good-is-bad economic news, since a strong monthly jobs report will likely continue to correlate to a weak market.
“We are in a situation with inflation elevated and now a banking crisis on top of that,” Brusuelas told CNN. It will need something to give for the Fed to strike a delicate balance between price stability, employment and financial stability. And that something is going to be right around 1.5 million jobs, if the Fed’s forecast is prescient for the [4.5%] unemployment rate.”
While some economic models predict a recession, Wall Street’s most powerful investment bank remains cautiously optimistic.
Goldman Sachs chief economistJan Hatzius said that they still see a four-step path to a low-inflation economy of the future.
The risk of a recession over the next 12 months has been determined by a model released in late October. A model ran by Ned Davis Research found a 98.1% chance of a global recession.
Goldman Sachs noted that the transition to more sustainable, but still positive economic growth has already occurred. The bank expects gross domestic product growth of about 1% over the next year.
Goldman Sachs concedes that there has been “much less progress” on the price side. Inflation metrics have mostly stopped getting worse but they also haven’t really got any better either.
After a key inflation indicator came in less than expected, stocks surged on Thursday in their best day since 2020. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. That means the Federal Reserve could be less aggressive with its rate hikes.
What is happening? The Consumer Price Index rose 7.9% for the year ending in October, slower than the 8% growth the economists had predicted and the lowest inflation reading since January.
The Rise of Cryptocurrencies: Why the Fed and Central Banks Failed to Shut Down the Gold: The Case for a Successful Crypto Thaw
It’s not unusual for investors to get their hopes up about the central bank pivot only to be crushed by another data point or message from a Fed official.
It was hoped that rising interest and inflation rates would force investors away from the dollar and toward gold and other alternative assets. They’ve been in for a rude awakening this year, reports my colleague Paul R. La Monica.
While stocks and bonds have gotten hit, assets have too, proving there is no hiding spot in a market where worries 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 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 new investors who still believed in the risk of the asset exited in droves.
The summer of 2020 is when the price of the virtual currency started to go up. Even though it has been a bumpy ride, they are up more than 80%. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.
Mortgage Market Pressure, Mortgage Rates, and the End of the Fed’s Higgs Cycle: Freddie Mac Consumer Product Growth, the Job Market, and Consumer Prices
“Mortgage application activity sunk to a quarter-century low this week as high mortgage rates continue to weaken the housing market,” said Sam Khater, Freddie Mac’s chief economist. Mortgage market activity has shrunk, but inflationary pressures should lead to lower rates in the years to come.
The traders are hoping for a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
“The end of the rate hiking cycle is in sight,” said Jamie Cox, managing partner at Harris Financial Group. “The Fed is trying to navigate the very narrow path between defeating inflation and destroying the economy with blunt force rate hikes — even they now know the latter is a very real risk.”
It may be more of a challenge. The producer price index rose 7.4% in the past year, according to the government. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
Jones still thinks the Fed will raise rates by only half a point this week and may look to hike them just a quarter point in early 2023. But she conceded that the Fed is now sort of “making it up as they go along.”
The other problem: The Fed’s rate hikes this year have had limited impact on the economy so far. Yes, mortgage rates have spiked and that has severely hurt demand for housing, but the job market remains strong. Consumers are still spending, even though wages are growing. That won’t last forever.
So investors are going to need to pay attention not to just what the Fed says in its policy statement about rates and what Powell talks about in his press conference. The Fed also will release its latest projections for gross domestic product growth, the job market and consumer prices Wednesday.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. It may be too late forrate cuts to be made. Recession risks are still relatively high.”
The economists predict a small dip in retail sales from October. It’s important to put that number in context. Retail sales rose in September and over the past year.
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.
Everyone is talking about inflation this year. Cosserat said that disinflation will take place in 2023 or 2024.
What does Cosserat’s story tell us about the stock market, central bank interest rates and the stock price in the early 2023 cycle?
What does that mean for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. He owns two stocks in his firm that fit that bill, and they are both luxury goods makers.
Friday: Eurozone PMI; UK retail sales; earnings from Accenture
(ACN), Darden Restaurants
(DRI) and Winnebago
(WGO)
According to a report Monday, central banks willcontinue their aggressive tightening cycle into early 2023 before pausing as inflation falls and job losses mount. The need to cool wage growth will be the reason for most central banks not to cut rates.
Tom Essaye, founder and editor of the Sevens Report investing newsletter, spoke on Monday about how the macroeconomic focus will shift to how badly growth slows and earnings fall before central bank hints at providing accommodation.
FTX founder Sam Bankman-Fried is scheduled to 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 take a deep breath after the Fed announcement and press conference later that day. Although 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. Real estate and energy sectors have been hit the hardest the hardest, down more than 3.3% and 2.1%, respectively.
Compounding fears from those dour Fed forecasts was a worse-than-expected retail sales report Thursday that sent stocks plunging. The index was down 2.3% on Thursday, the worst day in three months. The S&P 500 lost 2.5% and the Nasdaq tumbled 3.2%, their worst days in a month.
Adobe and Meta Shares Sliding into a High-Cost Double-Anomaly Growth in the 2024-2019 Economy
Real GDP — a widely used measure of the economy — is forecast to grow by 0.4% this year, down from earlier projections of 0.5%. In 2024, officials project that the economy will grow by 1.2%, a cut from the 1.6% they projected in December.
Adobe and Facebook parent company Meta are the markets largest gainers today, up 3.6% and 3.4%, respectively. Adobe shares soared after the company reported better-than-expected quarterly earnings and guidance. The company’s shares saw a tick after it was upgraded to neutral from overweight.
The November jobs report showed a strong labor market, which caused the stock market to plunge. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.
Jon Stewart, the former host of The Daily Show, said after the meeting that the Federal Reserve was committed to this situation and it could put the US in a high unemployment recession.
He thinks the Fed will make a forecast for the unemployment rate to be above 5% in June or September. Two months ago, we were 3.4%. That’s non-trivial.”
Powell said that the labor market was tight enough to weather an increase in unemployment without the economy sliding into a recession. The jobs numbers will be watched very closely by investors.
How Did Bankman-Fried Get His New Citizen? An Attorney’s Report on the Abu Dhabi Stock Market and the Super Saturday Before Christmas
Bankman- Fried was arrested in the Bahamas last Monday night, and he is still there. The judge in the country denied his request for bail, saying that he posed a flight risk. It could take weeks for him to be extradited to the US.
Bankman- Fried was indicted by the federal prosecutors in the Southern District of 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 filed civil lawsuits against Bankman-Fried accusing him of deceiving investors while saying that his house of cards was one of the safest.
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. This year Super Saturday is on December 17th, when Christmas Day falls on a Sunday and Christmas Eve falls on a Saturday. 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 a week until Christmas Day and shipping deadlines approaching, people have more shopping to do.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
What Happened Last Christmas? The Effects of the Consumer’s Stress on the Decline of the First Low-Energy Jobs
It’s also costly for retailers to sit on an oversupply of merchandise for too long. Retailers who store their goods in their own distribution centers have limited space in which to work and some wiggle room for excess inventory, so they sometimes decide to keep their inventory at their own warehouses. If they need more space to accommodate a long wait, the costs add up.
Unsellable products lose value over time. It is wise to avoid last year’s style if you can because savvy shoppers will only buy bargains if the trend continues. Stores are forced to reduce prices.
Well ahead of the final full weekend before Christmas, stores this year were already offering discounts of 50% to 60% off, and tacking on 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.
“Retailers are very nervous,” he said. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”
As 2022 draws to a close, inflation metrics show some of that may have worked: Consumer prices are cooling, home sales have ground to a halt, and some of America’s best-known companies have made plans to slow their roll and pull back on capital investment.
That means the Fed, with its “laser focus on the job market,” could be “continually hawkish” at the start of 2023, said Ross Mayfield, investment strategy analyst at Baird.
Powell noted in December that there was a’structural labor shortage’ at the time, which he attributed to early retirements, 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.
He said that it was very impressive how well the consumer had held up over the course of 18 months and that not pulling the rug out from under them was a key to the soft landing.
Crash of the Fed Open Market Committee: Two Days to 2023, and Predictions for the S&P 500 and the Nasdaq
The Federal Open Market Committee, the central bank’s policymaking arm, holds eight regularly scheduled meetings per year. Over the course of two days, the 12-member group looks through economic data, assesses financial conditions and evaluates monetary policy actions that are announced to the public following the conclusion of its meeting on the second day, along with a press conference led by Chair Powell.
Below are the meetings tentatively scheduled for 2023. Thedot plot is a chart used to show where each Fed member expects interest rates to land.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. 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 are close to where they were a year ago before the recession fears began.
“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 Factors of Economic Growth and Jobs: Implications for Stock Markets and the Energy Market in a Slow and Strong Recession
After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The national average for regular gasoline has fallen to an 18-month low of $3.10 a gallon, though it is still higher than it was a week ago.
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.
Moody’s said in a slowcession — a phrase coined by Zandi’s colleague Cristian deRitis — economic growth “comes to a near standstill but never slips into reverse.” 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. The firewall is sure to come under some pressure, particularly as financially hard-pressed low-income households struggle, but it should 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.”
The Moody’s economist noted the economy is not plagued by troubling imbalances that were glaring before prior recessions, such as overbuilt real estate markets or massive asset bubbles.
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.
As of late, traders have been looking at economic reports more and more and stock markets have been choppy due to the latest inflation figures.
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.
When the weekly unemployment claims numbers are out on Thursday morning, investors will be interested in the report from the private sector job market. Further strength could set off more alarm bells about inflation and Fed rate hikes.
The level of wage growth will be watched closely. Workers compensation increases tend to lead to more inflation. If they have more disposable income, they can afford to pay a higher price for products and services.
Lauren Goodwin, an economist at New York Life Investments, said in the report that persistent mismatch between labor supply and demand puts upward pressure on wages.
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. It’s possible Wall Street will do the same.
The jobs market is in good shape. But you wouldn’t know that from what’s going on in Silicon Valley. Software giant with a component. The company said Wednesday that it was laying off 10% of its workforce.
The hope was that consumers and businesses would continue to spend on tech products and services because of the economy’s quick recovery from a brief recession in 2020.
Tech companies realized that they may have not factored in the effects of inflation when planning their budgets as recession alarm bells were sounding again.
According to a recent note to employees, the co-CEO ofSalesforce, said that they had hired too many people before the economic downturn.
A company that lasts a long time goes through different phases. In a memo shared with employees, Andy Jassy said that they are not in heavy people expansion mode every year.
The World Economy is Not Out Of The Woods: Consumer Prices, Food Prices, and Job Searches at a Fingertiptip in 2022
Global economy is not out of the woods. The head of the International Monetary Fund is still concerned that China and emerging markets could be particularly hard hit by a downturn.
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. A drop in energy prices is leading the pullback.
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.
It is a time of the New Year when many are motivated and refreshed to move forward with the year to come. There is a clarity during this time of the year.
Jobs has been the word of the week as investors eye a slew of data highlighting a strong labor market that is confoundingly resistant to the Fed’s attempts to cool the economy.
The US labor market is historically tight, with the unemployment rate, as of November, at just 3.7% and about 1.7 available jobs for every job seeker. If job numbers come in as expected on Friday, 2022 will be the second-best year on record for job growth.
The second in command at the International Monetary Fund, Gita Gopinath, urged the Fed to continue with rate increases this year because of the resilience of the labor market.
Will wages go up or down this year? The analysts at Goldman Sachs think they will do that. 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.
Premarket Stocks Trading, Fed Rates, and the Fed’s Unacceptably High Inflationary Rates: Why Do We Want to Fall into Recession?
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.
But weaker-than-expected retail sales in November pummeled market sentiment last month and raised the odds that the Fed’s punishing interest rate hikes would push the economy into recession.
Between the spring of 2020 and the summer of 2022, disposable income fell due to inflation and lack of growth in wage growth. While American bank accounts are still fairly robust, consumers are borrowing more. Credit card balances jumped in the third quarter. The New York Fed started tracking the data in 2004.
The answer to this question will help determine how markets perform this year, as well as whether the economy will fall into recession.
And while officials welcomed softer inflation reports in recent months, they stressed that “substantially more evidence of progress” was required and said that inflation was still “unacceptably high.”
So while rate cuts may be off the table this year, the Fed could opt for more modest increases, or even none at all as the year progresses. That would be welcome relief to investors after four hikes of three-quarters of a point last year.
Source: https://www.cnn.com/2023/01/06/investing/premarket-stocks-trading/index.html
The Fed Open Market Committee Decrees After A Year of Booming and Flavoring: What Do We Need to Know Before We Set Them Down?
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5th, up from 6.42% the week before. A year ago, the 30-year fixed rate was 3.22%.
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 stated in a regulatory filing that it was uncertain about its ability to continue.
The Wall Street Journal reported that Bed Bath & Beyond is preparing to file for bankruptcy within a few weeks. Bed Bath & Beyond did not immediately respond to a request for comment from CNN.
The decision was made at the conclusion of the Federal Open Market Committee’s first meeting, which was the first in a series of increases intended to cool the economy.
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.
While those trends could make the case for slowing rate hikes after months of unusually aggressive action, the central bank is far from declaring victory. It takes time for monetary policy to take effect and for supply and demand to rebalance. Vice Chair Lael Brainard has stressed the need for positive data before the Fed will stop hiking rates.
Powell said Wednesday that it was difficult to manage the risk of doing too little, and to find out after a year that we were close but did not get the job done.
The U.S. Economy is Back to Normal after the First Four-Year Earned Revenue Report in the General Recession and Labor Markets
The investors expected the Fed to be dovish after the press conference. The S&P 500 closed the first day of February 1.1% higher after notching its best January in four years.
“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 you why we think the process will take a long time.
Powell said that the disinflationary process has begun. The service sector’s prices remain high, he said.
Powell expects housing inflation to come down by the middle of the year, however he is keeping a close watch on core services for the same reason.
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 heavily influenced by seasonal factors and was too hot for the Fed to like. The robustness of the labor market has stood somewhat at odds with the Fed’s efforts to lower inflation.
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.
The economic data has delivered mixed messages or flat out busted expectations, but economists have begun to grow more opaque about the year ahead.
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.
“Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. “Respondents are also highly concerned but divided in their opinions regarding the consequences of other matters that might affect the US economy, including the impact of China’s reopening on global inflation and the looming debt ceiling.”
They project that new home construction and home prices will fall this year, and housing starts could fall for the first time since 2009.
But they don’t anticipate the downturn to swing into “bust” territory. 2% of respondents said that the greatest downside risk to the US economy was a housing market bust.
The biggest downside risk was too much monetary tightening, according to a majority of respondents. Trailing far behind in second was the broadening of war in Ukraine, with 12%.
Are macro trends impacting our reading of the economy? The question of declining response rates in the Spanish government, as reported by Laura 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 talked with CNN about the declining rates. The interview has been edited for length and clarity.
With the growth of spam and a decline in the number of telephone landlines there has been a structural decline in response rates and there is no easy solution to this problem, which is getting gradually worse and worse.
Is it possible that declining survey response rates are impacting the data we use? What are the big gaps in our reading of the economy?
The incoming data is very important to the Fed and markets. Is the job and retail sales data we saw in January just a description of what’s going on? Is it driven by seasonal adjustments or economic surveys that use employment and consumer spending?
When the macro data becomes unreliable there is a higher tendency to put weight on anecdotal evidence, which for example can be seen at the moment where the announced tech layoffs seem like a big deal — but they are basically irrelevant when compared with the recent data in the latest employment report for January, where the economy created 517,000 jobs.
The leisure and hospitality sector alone added 128,000 jobs in January, more than all tech layoff announcements combined. Does this mean that what we are seeing is true or is the source of some measurement problems with the data we are looking at?
Source: https://www.cnn.com/2023/02/27/investing/premarket-stocks-trading/index.html
The Oracle of Omaha, Buffett’s Conglomerate, and the Loss of its Consumer Banking Arm, will host an Investor Day on February 28
Berkshire Hathaway, Buffett’s conglomerate, reported big losses on Saturday. It lost approximately $22.8 billion in the year 2022, with over fifty billion dollars in realized 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.
When they are told that the stock market is harmful to shareholders or the country, you are listening to either a silver-tongued demagogue or an economic illiteracy, wrote the 92-year-oldOracle of Omaha.
Goldman will host its investor day on February 28. 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.
It’s only the second annual investor meeting 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.
There were 631,000 restaurants in the United States last year according to data from Technomic. That’s roughly 72,000 fewer than in 2019, when there were 703,000 restaurants.
Save Local Restaurants, a coalition opposing a California law which could set the minimum wage at up to $22 an hour and codify working conditions for fast-food employees, has each donated $1 million from Starbucks, Chipotle, and other fast-food companies.
Wall Street preparing for Hell Week: Expectations for Wall Street and Labor, JOLTS, JOLTs, JPMK and MongoDB
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.
The private payroll report for February and the JOLTS job openings, hires and quits report for January are expected on Wednesday. On Thursday, Challenger, Gray & Christmas are set to release their job cuts numbers for February, and Friday brings the main show — the Labor Department’s monthly employment report.
Josh has said that they are stuck in the messy middle. Core areas are showing resilience even though activity has weakened in the interest rate sensitive sectors. The economy is not functioning at full speed because the impact of rates has not been fully worked on.
Hirt said he expects the unemployment rate will likely climb from its current 54-year low, albeit slowly and modestly, to around 4.5% to 5% by the end of this year.
Wednesday: European Central Bank President Christine Lagarde is to speak, February ADP Nonfarm Employment Change, Federal Reserve Chair Jerome Powell is expected to testify on economic outlook and monetary policy before the Joint Economic Committee, February JOLTs Job Openings; earnings from Brown Forman, Campbell Soup and MongoDB.
The Fed chair will make a point in the report that more needs to be done to bring down annual inflation to 2%.
On Thursday, President Joe Biden is expected to present his annual budget to Congress. The plan comes at a time of deep fiscal unrest among lawmakers as arguments over the debt ceiling — the maximum amount the federal government is able to borrow — rage on. Republicans that control the House have said that they will not raise the limit until deep federal spending cuts are made. The White House has refused to negotiate.
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 tax on capital gains, and on corporate stock buybacks, are two of the Biden proposals that has roiled Wall Street.
On the Fed’s Tracking of the Roadrunner: A Warning to the American Economy and to the Prospects for a Realistic Future
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.
In the weeks after that meeting there was a flurry of surprisingly strong economic data, showing blockbuster job gains and strong consumer spending.
If the fed funds rate increases from its current range of 4% to 5.1%, then he believes it will be worth it; however he would not be excited if it went up to 6%.
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.
The quick escalation of a jobless rate to that level or even the Fed’s 4.5% has sparked concern and criticism, most notably from Senator Elizabeth Warren. Powell was asked about American jobs being sacrificed for the Fed’s goals by a Democratic congresswoman from Massachusetts.
The unemployment rate is expected to go to 4.6% by the end of the year, according to the Fed’s December forecast. Warren said that would mean putting 2 million people out of work.
She said that you’re gambling with people’s lives. There is only one solution, that is lay of millions of workers. We need a Fed that will fight for families.”
Fed Policymakers Revisit Financial Market Turbulence and the Fed’s Implications for Inflation and the Economy: Towards Reducing the Debt Ceiling
Republicans are demanding the government rein in spending as a condition to raise the debt ceiling. Democrats say that the GOP is endangering a costly federal default if they don’t raise the debt ceiling.
The banking troubles of the past two weeks scrambled these plans. Why? There are reasons why higher interest rates hurt the value of financial assets. Some bank executives did a poor job planning the asset declines and that has hurt their balance sheets. 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.
The landscape surrounding the financial system continues to shift as the Federal Reserve Chairman and policymakers enter their second policymaking meeting of the year.
In a statement released after the meeting, Fed officials acknowledged that recent financial market turmoil is affecting inflation and the economy, but they expressed confidence in the overall system.
It is important for the word “might” to be used because it will affect the economy in a serious way and it may avoid larger job losses than our research indicated. But we’ll have to see. Banking crises are profoundly non-linear events, and they’re going to impact the different industrial systems in uniquely different ways.”
Bill Dudley, former New York Fed President, told CNN that the Fed is in a tight spot. “On the one hand, they should keep tightening because inflation is still too high and the labor market is too tight. On the other hand, they want to make sure they don’t do anything to exacerbate the stress on the banking system,” he said. “There’s not really a right solution.”
Officials did indicate, however, that interest rates will likely remain higher for longer as they brought their projected Federal funds rate up to 4.3% from 4.1% in 2024.
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.
Fed officials project PCE inflation to go up to 3.3% this year from the 3.1% previously predicted, marking a higher inflation rate than expected.
Getting The News Tonight: The Banks, Wall Street, and Bubbles After the Silicon Valley and Signature Bank Bank Coruptcies Explosionss
Just three days later, the flood came. Silicon Valley Bank collapsed, followed by Signature Bank, stirring fears of a 2008-like financial calamity. The Fed and other US authorities had to intervene to prevent the panic from spreading.
The risk here is that the banking crisis — or “recent events in the banking system,” per Powell, who studiously avoided the c-word — will wind up doing the Fed’s job for it.
When banks are financially strained, as many are now, they tend to take on less risk. That means fewer loans to regular people, which in turn slows the economic growth and brings down inflation.
Stocks initially rose on the Fed’s quarter-point hike. The mood on Wall Street was sour after both Powell and Yellen spoke before Congress at the same time.
Wall Street reacted negatively to the fact that officials did not consider expanding bank deposit guarantees beyond the current $250,000 limit.
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Insights from the FINAL-FED-Treasury Correspondence on the Fed and the Fed-Central Banks Controlled The Crash
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.
Prior to this recent episode, about half of banks had already tightened credit standards for commercial and industrial loans, Daco said, adding he estimates that to grow to 75% to 80%.
That is going to affect business investment, hiring, and consumer spending. And so that will lead to weaker economic activity going forward.”