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Tag: Interest Rates

  • Ark’s Cathie Wood issues open letter to the Fed, saying it is risking an economic ‘bust’

    Ark’s Cathie Wood issues open letter to the Fed, saying it is risking an economic ‘bust’

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    Cathie Wood, Founder, CEO, and CIO of ARK Invest, speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, May 2, 2022.

    David Swanson | Reuters

    The Federal Reserve likely is making a mistake in its hard-line stance against inflation Ark Investment Management’s Cathie Wood said Monday in an open letter to the central bank.

    Instead of looking at employment and price indexes from previous months, Wood said the Fed should be taking lessons from commodity prices that indicate the biggest economic risk going forward is deflation, not inflation.

    “The Fed seems focused on two variables that, in our view, are lagging indicators –– downstream inflation and employment ––both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates,” Wood said in the letter posted on the firm’s website.

    Specifically, the consumer price and personal consumption expenditures price indexes both showed inflation running high. Headline CPI rose 0.1% in August and was up 8.3% year over year, while headline PCE accelerated 0.3% and 6.2% respectively. Both readings were even higher excluding food and energy, which saw large price drops over the summer.

    On employment, payroll growth has decelerated but remains strong, with job gains totaling 263,000 in September as the unemployment rate fell to 3.5%.

    But Wood, whose firm manages some $14.4 billion in client money across a family of active ETFs, said falling prices for items such as lumber, copper and housing are telling a different story.

    Worries over a ‘deflationary bust’

    The Fed has approved three consecutive interest rate increases of 0.75 percentage point, mostly by unanimous vote, and is expected to OK a fourth when it meets again Nov. 1-2.

    “Unanimous? Really?” Wood wrote. “Could it be that the unprecedented 13-fold increase in interest rates during the last six months––likely 16-fold come November 2––has shocked not just the US but the world and raised the risks of a deflationary bust?”

    Inflation is bad for the economy because it raises the cost of living and depresses consumer spending; deflation is a converse risk that reflects tumbling demand and is associated with steep economic downturns.

    To be sure, the Fed is hardly alone in raising rates.

    Nearly 40 central banks around the world approved increases during September, and the markets have largely expected all the Fed’s moves.

    However, criticism has emerged recently that the Fed could be going too far and is at risk of pulling the economy into an unnecessary recession.

    “Without question, food and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine,” Wood wrote.

    The Fed is expected to follow the November hike with a 0.5 percentage point rise in December, then a 0.25 percentage point move early in 2023.

    One area of the market known as overnight indexed swaps is pricing in two rate cuts by the end of 2023, according to Morgan Stanley.

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  • Stocks could fall ‘another easy 20%’ and next drop will be ‘much more painful than the first’, Jamie Dimon says

    Stocks could fall ‘another easy 20%’ and next drop will be ‘much more painful than the first’, Jamie Dimon says

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    JPMorgan Chase & Co.
    JPM,
    -0.93%

    CEO Jamie Dimon warned investors on Monday that he expects markets to remain volatile for the foreseeable future, and that the S&P 500 could easily fall another 20% as the Federal Reserve continues to raise interest rates.

    Asked by CNBC about where he expects stocks to bottom, Dimon said he couldn’t say for sure, but that it’s easy to imagine the S&P 500 falling by another 20% as volatile markets become even more “disorderly” as rates continue to climb.

    “It may have a ways to go. It really depends on that soft-landing, hard-landing thing and since I don’t know the answer to that it’s hard to answer…it could be another easy 20%,” Dimon said.

    “The next 20% could be much more painful than the first. Rates going up another 100 basis points will be a lot more painful than the first 100 because people aren’t used to it, and I think negative rates, when all is said and done, will have been a complete failure.”

    Europe is already in a recession, Dimon said, and he expects a recession in the U.S. will arrive within “six to nine months.”

    An eventual economic downturn in the U.S. could range from “very mild to quite hard.” Ultimately, it will depend on the outcome of the war in Ukraine, Dimon added.

    Since it’s impossible to “guess” exactly how bad things might get for both the economy and markets, investors and companies should “be prepared” for the worst-case scenario, Dimon said.

    Companies should start shoring up their balance sheets now, Dimon said, adding that “if you need money, go raise it.”

    He also warned that cracks are starting to appear in credit markets, and that a full-blown panic could emerge somewhere in the universe of global debt.

    “The likely place you might see more of a crack or a little bit more of a panic is in credit markets. And it might be ETFs, it might be a country, it might be something you don’t suspect. If you make a list of all the credit crises…you cannot predict where they came from, although I think you can predict that this time it will happen,” he said.

    After assuring the public that the Fed would do its best to minimize the fallout for the U.S. economy, Federal Reserve Chairman Jerome Powell has recently adjusted his rhetoric to suggest that Americans likely won’t be spared from another recession as the Fed’s hopes for a “soft landing” dim.

    In September, the central bank cut its projections for U.S. economic growth to just 0.2% for 2022 and 1.2% in 2023.

    JPMorgan is already becoming “very conservative” with its lending standards, Dimon added. The New York-based megabank is expected to report third-quarter earnings on Friday.

    Dimon’s comments helped to drive U.S. stocks to their lows of the session on Monday as the main indexes were on track for a fourth day of losses. In recent trade, the S&P 500
    SPX,
    -0.75%

    was down 0.3%, the Dow Jones Industrial Average
    DJIA,
    -0.32%

    flat, and the Nasdaq Composite
    COMP,
    -1.04%

    off 0.5% as major indexes bounced off session lows.

    The longtime bank chief warned earlier this year that he saw an “economic hurricane” headed for the U.S. In August, he warned that chances of a “harder recession” were on the rise.

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  • White-collar workers are feeling the brunt of the Fed’s rate hikes. Here’s why | CNN Business

    White-collar workers are feeling the brunt of the Fed’s rate hikes. Here’s why | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    September’s hotly anticipated jobs data ended up cooling markets on Friday. Stocks fell sharply as investors evaluated the report, which showed more jobs than expected were added to the US economy and indicated that more pain-inflicting interest rate hikes from the Federal Reserve lie ahead.

    But a breakdown of the numbers shows that the Fed’s plans to weaken the labor market to fight persistent inflation may already be working, just not for everybody.

    White-collar office workers appear to be feeling the brunt of the Fed’s actions: The financial and business sector saw a large decline in employment last month. Legal and advertising services also experienced drops. Service and construction workers, meanwhile, are still thriving.

    What’s happening: The US economy added 263,000 jobs in September, higher than analyst estimates of 250,000. The unemployment rate came in at 3.5%, down from 3.7% in August.

    Leading the gain in jobs was the leisure and hospitality industry, which added 83,000 jobs in September — and employment in food services and drinking places made up 60,000 of those jobs alone. Manufacturing and construction also came in hot, adding 22,000 and 19,000 jobs, respectively.

    The largest non-governmental losses in jobs came from the financial industry, which shed 8,000 between August and September. Large banks hire in cycles, extending offers to recent graduates in the early fall months. That makes this September’s drop particularly significant.

    Business support services — such as telemarketing, accounting and administrative and clerical jobs — are also bleeding jobs. The sector lost 12,000 in September. Meanwhile, legal services lost 5,000 jobs, and advertising services also dropped 5,000 jobs.

    What it means: The Federal Reserve’s hawkish policy appears to be cooling certain parts of the economy, but not others. Finance workers are likely beginning to worry as their industry depends on stock and lending markets which have been particularly hard hit by Fed actions.

    Friday’s numbers indicate that we’re beginning to see that impact in the employment data.

    What remains to be seen is whether the Fed can cool the economy just by loosening employment in white-collar industries or if these losses will trickle down to other industries, hurting lower-income workers.

    Coming up: Earnings season begins in earnest this week with big banks like JPMorgan, Citigroup

    (C)
    , Morgan Stanley

    (MS)
    and BlackRock

    (BLK)
    reporting. Investors will be watching closely for any guidance on hiring and layoff plans.

    Two key inflation indicators, PPI and CPI are also set to be released. Expect markets to react poorly if inflation comes in hot.

    A panel of top US economists just released its economic outlook for the next year, and it’s not great.

    The panel of 45 forecasters, led by the National Association for Business Economics (NABE), said they expected slower growth, higher inflation, higher interest rates, and weakening employment in both 2022 and 2023 than they previously expected.

    Most of the worries come down to the Federal Reserve’s interest rate policy.

    “More than three-quarters of respondents believe the odds are 50-50 or less that the economy will achieve a ‘soft landing’,” said NABE Vice President Julia Coronado. “More than half the panelists indicate that the greatest downside risk to the U.S. economic outlook is too much monetary tightness.”

    NABE panelists downgraded their median forecast for real GDP for the fourth quarter of 2022 to a 0.1% increase, compared to a 1.8% increase in the May 2022 survey. The vast majority of respondents placed more than a 25% probability of a recession occurring in 2023, with the most likely start date in the first quarter.

    The latest report comes as a growing number of economists are predicting that recession is imminent. Former US Treasury Secretary Larry Summers told CNN on Thursday that it’s “more likely than not” the US will enter a recession, calling it a consequence of the “excesses the economy has been through.”

    Friday’s jobs report showed that the share of workers telecommuting or working from home because of the pandemic ticked lower — falling to just 5.2% in September from 6.5% in August.

    Fully remote work in the United States, which many predicted would remain the norm long after the pandemic, appears to be edging away, especially as the job market loosens for white collar workers and employees have less leverage.

    Last week, a KPMG survey of US-based CEOs found that two-thirds believed in-office work would be the norm within the next three years.

    Still, it may not be enough to help an ailing commercial real estate market, where the outlook is dire. New York City office properties declined by nearly 45% in value in 2020 and are forecast to remain 39% below their pre-pandemic levels long-term as hybrid policies continue, according to a recent study from the National Bureau of Economic Research.

    Looking forward: The Bureau of Labor Statistics has noted that while hybrid work may still be popular, Covid-19 is no longer fueling work from home trends. The October report will rephrase its telework questions to remove references to the pandemic.

    Since May 2020, each jobs report has asked: “At any time in the last four weeks, did you telework or work at home for pay because of the Coronavirus pandemic?

    In May 2020, 35.4% answered yes.

    Starting next month, the question will be revised. “At any time in the last week did you telework or work at home for pay?” it will ask, limiting the timeline and eliminating any reference to the pandemic.

    The US bond market is closed for Columbus Day/Indigenous Peoples’ Day.

    Coming later this week:

    ▸ 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)
    , Walgreen

    (WBA)
    s and Domino’s

    (DMPZF)

    ▸ CPI and PPI, two closely watched measures of inflation in the US are also due to be released. 

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  • Could the Crash of the Pound Cause the Fed to Blink on Rates?

    Could the Crash of the Pound Cause the Fed to Blink on Rates?

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    On September 27, 2022, the British pound sterling fell (-3.5%) to $1.084 hitting 37-year lows against the U.S. dollar. The pound tumbled further to a low of $1.0350 after U.K. Chancellor of Exchequer commented two days later there would be “more to come” in regard to the misguided economic stimulus plan of the new U.K. government led by Prime Minister Liz Truss. Three weeks into her term, Truss made a misstep of massive proportions by arguing that the stimulus plan would kickstart the U.K. economy after a decade-long slump.


    MarketBeat.com – MarketBeat

    Egg in the Face

    The stimulus plan includes a multitude of tax cuts for higher income earnings and business incentives that spooked investors to dump the pound and buy the U.S. dollar. The proposed tax cuts would be the highest in nearly 50-years trimming the the top income tax and corporate tax rate. The U.K. government is expected to turn on the printing presses to finance the deficit causing the yield for the 10-year U.K. bonds to spike towards 12-year highs at 3.759%. This comes just days after the Bank of England raised interest rates by 50 basis points stating that the U.K. economy is very likely in a recession. Inflation rose to a near 40-year high in August hitting 9.9%. A series of expenses ranging from Brexit, the pandemic, rising energy costs have thinned out the nation’s finances.  

    Walking Back Tax Cuts

    The public backlash, crash of the British pound, FTSE index sell-off to March lows, rebuke from the IMF, and a sell-off in U.K. bonds forcing the Bank of England (BoE) to ‘blink’ and launch a temporary quantitative easing (QE) program prompted the new U.K. government to drop its previously announced income tax cuts on high earners. The finance minister Kwasi Kwarteng announced, “It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our economy. As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.” This caused the pound sterling to rebound and bond yields to fall and stabilize.

    Why Did the BoE Blink?

    The Bank of England was the first central bank to ‘blink’ and intervene in its bond market to combat spiking yields. However, the reasons for the intervention are not what most people think. British government bonds also known as gilts saw yields spiking as investors dumped the bonds. British pension funds hold nearly $1.7 trillion in assets. These funds often utilize derivatives to both hedge interest rate risk and optimize gains on certain trading strategies. Derivatives utilize massive leverage. The spike in gilt yields caused some massive derivative trades to collapse sparking margin calls on U.K. pension funds which could have triggered a U.K. version of a Lehman Brothers meltdown moment. The BoE intervened by buying up bonds to push down long-term yields by over 100 basis points and took down U.S. 10-year treasury yields as well. 

    Not Likely in the U.S.

    The Fed has taken a very hawkish stance implying they would not stop rate hikes until inflation fell under its stated target of 2% regardless of a U.S. recession. While it’s not clear if that means maintaining an aggressive rate cut strategy or pulling back the magnitude of the rate hikes back under 75-basis points. The latter would like to put in a floor for the equity markets. Many are speculating that the intervention by the BoE could set a precedent for the world’s central banks including the U.S. Federal Reserve to blink amid spiking bond yields. The BoE intervention temporarily stabilized the equity markets as the odds of a 50-basis point rate hike in the November FOMC meeting improved to 43.5%. This sparked debate whether our own Fed would blink if a similar scenario occurred. However, the 75-basis point rate hike odds rebound back to 81% by the end of the week as equity markets sold off towards yearly lows on the Oct. 7 jobs report came in stronger than expected at 288,000 versus 275,000 expectations. This still indicates a hot labor market as the unemployment rate stands at 3.5% down from 3.7%. This means the Fed will have to stay aggressive on inflation as the economy is still not slowing down fast enough.

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    Jea Yu

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  • Here’s why good jobs news is bad news for the Fed and the stock market

    Here’s why good jobs news is bad news for the Fed and the stock market

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    The good-news-is-bad-news theme was an overarching reason behind Friday's sharp sell-off in stocks and the sharp increase in bond yields.

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  • September job gains affirm that the Fed has a long way to go in inflation fight

    September job gains affirm that the Fed has a long way to go in inflation fight

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    The Go! Go! Curry restaurant has a sign in the window reading “We Are Hiring” in Cambridge, Massachusetts, July 8, 2022.

    Brian Snyder | Reuters

    September’s jobs report provided both assurance that the jobs market remains strong and that the Federal Reserve will have to do more to slow it down.

    The 263,000 gain in nonfarm payrolls was just below analyst expectations and the slowest monthly gain in nearly a year and a half.

    But a surprising drop in the unemployment rate and another boost in worker wages sent a clear message to markets that more giant interest rate hikes are on the way.

    “Low unemployment used to feel so good. Everybody who seems to want a job is getting a job,” said Ron Hetrick, senior economist at labor force data provider Lightcast. “But we’ve been getting into a situation where our low unemployment rate has absolutely been a significant driver of our inflation.”

    Indeed, average hourly earnings rose 5% on a year-over-year basis in September, down slightly from the 5.2% pace in August but still indicative of an economy where the cost of living is surging. Hourly earnings rose 0.3% on a monthly basis, the same as in August.

    No ‘green light’ for a Fed change

    Fed officials have pointed to a historically tight labor market as a byproduct of economic conditions that have pushed inflation readings to near the highest point since the early 1980s. A series of central bank rate increases has been aimed at reducing demand and thus loosening up a labor market where there are still 1.7 open jobs for every available worker.

    Friday’s nonfarm payrolls report only reinforced that the conditions behind inflation are persisting.

    To financial markets, that meant the near certainty that the Fed will approve a fourth consecutive 0.75 percentage point interest rate hike when it meets again in early November. This will be the last jobs report policymakers will see before the Nov. 1-2 Federal Open Market Committee meeting.

    “Anyone looking for a reprieve that might give the Fed the green light to start to telegraph a pivot didn’t get it from this report,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Maybe the light got a little greener that they can step back from” two more 0.75 percentage point increases and only one more, Sonders said.

    In a speech Thursday, Fed Governor Christopher Waller sent up a preemptive flare that Friday’s report would do little to dissuade his view on inflation.

    “In my view, we haven’t yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand,” Waller said.

    Markets do, however, expect that November probably will be the last three-quarter point rate hike.

    Futures pricing Friday pointed to an 82% chance of a 0.75-point move in November, then a 0.5-point increase in December followed by another 0.25-point move in February that would take the fed funds rate to a range of 4.5%4.75%, according to CME Group data.

    What concerns investors more than anything now is whether the Fed can do all that without dragging the economy into a deep, prolonged recession.

    Pessimism on the Street

    September’s payroll gains brought some hope that the labor market could be strong enough to withstand monetary tightening matched only when former Fed Chairman Paul Volcker slew inflation in the early 1980s with a fund rate that topped out just above 19% in early 1981.

    “It could add to the story of that soft landing that for a while seemed fairly elusive,” said Jeffrey Roach, chief economist at LPL Financial. “That soft landing could still be in the cards if the Fed doesn’t break anything.”

    Investors, though, were concerned enough over the prospects of a “break” that they sent the Dow Jones Industrial Average down more than 500 points by noon Friday.

    Commentary around Wall Street centered on the uncertainty of the road ahead:

    • From KPMG senior economist Ken Kim: “Typically, in most other economic cycles, we’d be very happy with such a solid report, especially coming from the labor market side. But this just speaks volumes about the upside-down world that we’re in, because the strength of the unemployment report keeps the pressure on the Fed to continue with their rate increases going forward.”
    • Rick Rieder, BlackRock’s chief investment officer of global fixed income, joked about the Fed banning resume software in an effort to cool job hunters: “The Fed should throw another 75-bps rate hike into this mix at its next meeting … consequently pressing financial conditions tighter along the way … We wonder whether it will actually take banning resume software as a last-ditch effort to hit the target, but while that won’t happen, we wonder whether, and when, significant unemployment increases will happen as well.”
    • David Donabedian, CIO at CIBC Private Wealth: “We expect the pressure on the Fed to remain high, with continued monetary tightening well into 2023. The Fed is not done tightening the screws on the economy, creating persistent headwinds for the equity market.”
    • Ron Temple, head of U.S. equity at Lazard Asset Management: “While job growth is slowing, the US economy remains far too hot for the Fed to achieve its inflation target. The path to a soft landing keeps getting more challenging. If there are any doves left on the FOMC, today’s report might have further thinned their ranks.”

    The employment data left the third-quarter economic picture looking stronger.

    The Atlanta Fed’s GDPNow tracker put growth for the quarter at 2.9%, a reprieve after the economy saw consecutive negative readings in the first two quarters of the year, meeting the technical definition of recession.

    However, the Atlanta Fed’s wage tracker shows worker pay growing at a 6.9% annual pace through August, even faster than the Bureau of Labor Statistics numbers. The Fed tracker uses Census rather than BLS data to inform its calculations and is generally more closely followed by central bank policymakers.

    It all makes the inflation fight look ongoing, even with a slowdown in payroll growth.

    “There is an interpretation of today’s data as supporting a soft landing – job openings are falling and the unemployment rate is staying low,” wrote Citigroup economist Andrew Hollenhorst, “but we continue to see the most likely outcome as persistently strong wage and price inflation that the Fed will drive the economy into at least a mild recession to bring down inflation.”

    Job openings data suggest the economy and labor market are still growing, says Goldman's Hatzius

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  • What New Entrepreneurs Should Know Amid Rising Inflation

    What New Entrepreneurs Should Know Amid Rising Inflation

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    Opinions expressed by Entrepreneur contributors are their own.

    Setting up a new enterprise can be both exciting and daunting. You’ll have a lot to think about, but one thing you may not have considered is the impact of inflation on your new enterprise. Open up any newspaper or watch any news report. The higher inflation rates are likely to be a talking point.

    How should new entrepreneurs navigate their new business amid rising interest rates? Here are eight things you need to know:

    1. Increased Prices

    The first way inflation can impact new entrepreneurs is the increased prices in the marketplace. If you are a producer, you may need to budget for the higher cost of raw materials. You need to consider what you need to buy to make your items and look at the price of each component. With higher inflation rates, you could be paying 5% to 8% more for your raw materials, which you will need to factor into your pricing and .

    Even if you are not producing a physical product and instead offer services, your enterprise is not immune to the increased prices. You’ll need to consider the additional cost of heating, lighting, gas, and all the other essentials for your workplace.

    Related: 3 Strategies To Protect Your Business From Inflation

    2. Labor costs

    Higher inflation will also impact wages. With the increasing, workers are more likely to demand higher wages to compensate for the disparity. If your enterprise employs a team or outsourcing any aspect of your business, you will need to look at your labor costs. If you cannot pay higher wages, you will need to anticipate staff attrition or pilfering, as found this study, which will impact your bottom line.

    Another aspect of labor costs is the risk of a drop in employee productivity. If you’ve already agreed on rates for your team or freelancers, there is a chance that they will feel less motivated if you cannot increase their wages. This means that even if you keep your labor costs to the same level as your original business plan, you could suffer efficiency issues and produce fewer products, reducing your income/expenditure balance.

    3. Currency fluctuations

    Even if your enterprise is not a massive importer or exporter, it could still be hit by currency fluctuations. If you purchase raw materials or goods overseas or have overseas freelancers paid in local currency, you will likely find that your dollars don’t stretch as far. While you may have agreed on a rate with a weaker currency, you’ll be paying more. You will need to account for these increases in your enterprise cost analysis.

    Related: Inflation Is a Different Beast for Entrepreneurs. Here’s How to Protect Yourself.

    4. Borrowing limitations

    Borrowing is also subject to the whims of inflation. Many lenders are aware of the increased risks within the market and will increase their rates. Additionally, the Federal Reserve uses interest rates to curb rising inflation. The Fed typically increases the base interest rate to address higher inflation rates and return them to optimal levels. Unfortunately, this rate increase is passed on to personal and business customers.

    If you need to borrow funds for your enterprise, you may find that loans are cost prohibitive. Additionally, lenders may be more hesitant to offer loans to new businesses, so you may struggle to qualify with a limited financial track record.

    If you already have a business loan for your enterprise and it is not on a fixed-rate deal, you will need to factor the higher interest costs into your expenses. Variable rate loans are subject to rate changes, so you are likely to have your lender contact you to let you know your new rate and when it will apply. This makes it very difficult to budget for your typical monthly expenses as your loan repayments could be higher from one month to the next.

    5. Tips to lessen the impact of inflation on your enterprise

    Fortunately, there are some things that you can do to lessen the impact of inflation on your new enterprise:

    6. Reallocate your business capital

    While having cash on hand is a good thing to address any issues that arise with your enterprise, when inflation rates are high, having lots of cash sitting around is not a good idea. The buying power of the dollar is reduced when inflation is high. Let’s say you had $10,000 last year that could buy X number of products. The following year, the same $10,000 would only cover the cost of fewer items.

    This means you’ll need to think carefully about what to do with your business cash. If you don’t want to tie up your funds, as you may need access to them, consider a high-yield savings account or short-term bond. While this may not be as inflation-proof as the stock market or real estate, you won’t sacrifice liquidity.

    7. Negotiate in the dollar

    If you are outsourcing to freelancers or workers outside of the U.S., make sure that you negotiate rates in the dollar. Regardless of currency fluctuations, you will still be paying the same amount. This will eliminate some of the uncertainty, and it will allow you to budget for your costs.

    8. Evaluate your expenses

    Finally, evaluating your enterprise expenses is one of the most effective strategies to lessen the impact of higher inflation. Have a serious look at all your costs and operating expenses. There may be areas where you can make savings, so you can create a buffer to compensate for any increased costs.

    It may be worth reassessing where and how you source raw materials. It may be able to find a better deal or set up a fixed-rate contract to protect against increased costs soon.

    Related: 6 Ways to Protect Your Small Business From Inflation Pressure

    While higher inflation is daunting, being prepared is the best possible defense against the potential rising costs. With a proactive approach, you can address the potential implications of higher inflation. This will allow you to continue your enterprise with minimal disruption and allow you to weather possible financial storms to succeed with your operation.

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    Baruch Mann (Silvermann)

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  • Mortgage rates take a breather after rising for several weeks in a row | CNN Business

    Mortgage rates take a breather after rising for several weeks in a row | CNN Business

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    After rising for six weeks in a row, mortgage rates retreated last week.

    The 30-year fixed-rate mortgage averaged 6.66% in the week ending October 5, down from 6.70% the week before, according to Freddie Mac.

    Mortgage rates have more than doubled since the start of this year as the Federal Reserve continues its unprecedented campaign of hiking interest rates in order to tame soaring inflation. But uncertainty about the possibility of a recession and the impact of rate hikes on the economy have made mortgage rates more volatile.

    “Mortgage rates decreased slightly this week due to ongoing economic uncertainty,” said Sam Khater, Freddie Mac’s chief economist. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”

    The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money upfront or have less than perfect credit will pay more.

    Investors and analysts have been scrutinizing each piece of economic data, searching for clues about the Fed’s next steps and the future of the US and global economies, said Danielle Hale, Realtor.com’s chief economist.

    The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise.

    Over the past month, yields on 10-year Treasuries soared from 3.25% to nearly 4% before falling back around 3.75% this week.

    Hale likened investors’ actions to a driver navigating a road in dense fog, prone to over-correcting at each turn.

    “Signs that we are closer to the end of the tightening cycle – such as a surprisingly steep decline in job openings – tend to cause rates to slip, while rates bounce higher on signals like robust activity in the services sector,” Hale said.

    Even though rates dipped slightly this week, the average interest rate for a 30-year, fixed-rate loan is still more than double what it was at this time last year.

    A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 2.99% had a monthly mortgage payment of $1,314, according to calculations from Freddie Mac.

    Today, a homeowner buying the same-priced house with an average rate of 6.66% would pay $2,005 a month in principal and interest. That’s $691 more each month.

    As rates have been rising over the last several weeks, fewer people have been applying for mortgages said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

    Ongoing economic uncertainty together with Hurricane Ian’s devastation in Florida resulted in a 14% decline in mortgage applications last week from the week before, he said.

    MBA also found that an increasing number of borrowers are applying for adjustable rate mortgages, or ARMs. Applications for ARMs climbed to nearly 12% of all applications last week.

    The average rate for the ARM tracked by Freddie Mac (a 5-year Treasury-indexed hybrid ARM) was 5.36%, more than a percentage point lower than the 30-year fixed rate.

    “While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” said Hale.

    With more prospective buyers sitting on the sidelines, those still looking to buy have a little more breathing room.

    Correction: “Today’s home shoppers have more choices, but for many, the increased cost of financing and higher home prices mean fewer affordable options,” Hale said. “As challenging as it may be to set and stick to a budget in this environment of rising prices and rates, it’s more important than ever to do so.”
    A previous version of this story misstated the number of weeks mortgage rates have been rising. Rates rose for six consecutive weeks before falling this week.

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  • The bond market is crumbling. That’s bad for Wall Street and Main Street | CNN Business

    The bond market is crumbling. That’s bad for Wall Street and Main Street | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    The global bond market is having a historically awful year.

    The yield on the 10-year US Treasury bond, a proxy for borrowing costs, briefly moved above 4% on Wednesday for the first time in 12 years. That’s a bad omen for Wall Street and Main Street.

    What’s happening: This hasn’t been a pretty year for US stocks. All three major indexes are in a bear market, down more than 20% from recent highs, and analysts predict more pain ahead. When things are this bad, investors seek safety in Treasury bonds, which have low returns but are also considered low-risk (As loans to the US government, Treasury notes are seen as a safe bet since there is little risk they won’t be paid back).

    But in 2022’s topsy-turvy economy, even that safe haven has become somewhat treacherous.

    Bond returns, or yields, rise as their prices fall. Under normal market conditions, a rising yield should mean that there’s less demand for bonds because investors would rather put their money into higher-risk (and higher-reward) stocks.

    Instead markets are plummeting, and investors are flocking out of risky stocks, but yields are going up. What gives?

    Blame the Fed. Persistent inflation has led the Federal Reserve to fight back by aggressively hiking interest rates, and as a result the yields on US Treasury bonds have soared.

    Economic turmoil in the United Kingdom and European Union has also caused the value of both the British pound and the euro to fall dramatically when compared to the US dollar. Dollar strength typically coincides with higher bond rates as well.

    So while we’d normally see a rising 10-year yield as a signal that US investors have a rosy economic outlook, that isn’t the case this time. Gloomy investors are predicting more interest rate hikes and a higher chance of recession.

    What it means: Portfolios are aching. Vanguard’s $514.5 billion Total Bond Market Index, the largest US bond fund, is down more than 15% so far this year. That puts it on track for its worst year since it was created in 1986. The iShares 20+ Year Treasury bond fund

    (TLT)
    (TLT) is down nearly 30% for the year.

    Stock investors are also nervously eyeing Treasuries. High yields make it more expensive for companies to borrow money, and that extra cost could lower earnings expectations. Companies with significant debt levels may not be able to afford higher financing costs at all.

    Main Street doesn’t get a break, either. An elevated 10-year Treasury return means more expensive loans on cars, credit cards and even student debt. It also means higher mortgage rates: The spike has already helped push the average rate for a 30-year mortgage above 6% for the first time since 2008.

    Going deeper: Still, investors are more nervous about the immediate future than the longer term. That’s spurred an inverted yield curve – when interest rates on short-term bonds move higher than those on long-term bonds. The inverted yield curve is a particularly ominous warning sign that has correctly predicted almost every recession over the past 60 years.

    The curve first inverted in April, and then again this summer. The two-year treasury yield has soared in the last week, and now hovers above 4.3%, deepening that gap.

    On Monday, a team at BNP Paribas predicted that the inverted gap between the two-year and 10-year Treasury yields could grow to its largest level since the early 1980s. Those years were marked by sticky inflation, interest rates near 20% and a very deep recession.

    What’s next: The bond market may face fresh volatility on Friday with the release of the Federal Reserve’s favored inflation measure, the Personal Consumption Expenditure Price Index for August. If the report comes in above expectations, expect bond yields to move even higher.

    The Bank of England held an emergency intervention to maintain economic stability in the UK on Wednesday. The central bank said it would buy long-dated UK government bonds “on whatever scale is necessary” to prevent a market crash.

    Investors around the globe have been dumping the British pound and UK bonds since the government on Friday unveiled a huge package of tax cuts, spending and increased borrowing aimed at getting the economy moving and protecting households and businesses from sky-high energy bills this winter, reports my colleague Mark Thompson.

    Markets fear the plan will drive up already persistent inflation, forcing the Bank of England to push interest rates as high as 6% next spring, from 2.25% at present. Mortgage markets have been in turmoil all week as lenders have struggled to price their loans. Hundreds of products have been withdrawn.

    “This repricing [of UK assets] has become more significant in the past day — and it is particularly affecting long-dated UK government debt,” the central bank said in its statement.

    “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”

    Many final salary, or defined-benefit, pension funds were particularly exposed to the dramatic sell-off in longer dated UK government bonds.

    “They would have been wiped out,” said Kerrin Rosenberg, UK chief executive of Cardano Investment.

    The central bank said it would buy long-dated UK government bonds until October 14.

    Steep drops in bond prices may be signaling doom and gloom for the economy, but some analysts say short-term bonds are still looking more attractive than equities right now.

    “Record low yields have kept fixed income in the shadow of equities for decades,” said analysts at BNY Mellon Wealth Management in a research note. “But the aggressive shift in Fed policy is beginning to change this.”

    Central banks around the globe have responded to elevated inflation by hiking interest rates– and bond yields have increased alongside them. The two-year US Treasury bond is currently yielding nearly 4%. That’s still a relatively low return, but better than the S&P 500’s dividend yield of around 1.7%.

    “For the first time in several years, bonds are attractive investment options. In addition to providing diversification versus equities…you now get paid for owning them,” wrote Barry Ritholtz of Ritholtz Wealth Management on Wednesday.

    Consider the alternative: the S&P is down more than 20% year to date.

    The US Bureau of Economic Analysis releases its third estimate for Q2 GDP and US weekly jobless claims.

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  • Global CEOs expect impending recession to be ‘short and sharp,’ poll shows

    Global CEOs expect impending recession to be ‘short and sharp,’ poll shows

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    In Singapore, nearly 90% of Singapore CEOs have embarked on or are planning a hiring freeze over the next six months, KPMG says.

    Roslan Rahman | Afp | Getty Images

    Global CEOs are anticipating a recession in the next 12 months, according to a new survey by professional services firm KPMG, which said more than half of the business leaders polled expect the slowdown to be “mild and short.”

    A majority of the 1,300 chief executives polled by KPMG between July and August warned, however, that increased disruptions — such as a recession — could make it difficult for their businesses to rebound from the pandemic. 

    That said, the CEOs expressed more optimistim compared to the start of the year, and said there would be growth prospects in the next three years.

    “CEOs worldwide are displaying greater confidence, grit and tenacity in riding out the short-term economic impacts to their businesses as seen in their rising confidence in the global economy and their optimism over a three-year horizon,” said KPMG Singapore managing partner, Ong Pang Thye. 

    “We are also seeing many positioning for long-term growth, such as in Singapore where about 80% of CEOs have indicated that their corporate purpose will have the greatest impact in building customer relationships over the next three years.”

    Globally, CEOs are also viewing mergers, acquisitions and innovation favorably, but many are concerned that dealmakers are “taking a much sharper pencil to the numbers and focus on value creation to unlock and track deal value,” the KPMG report said.

    Across the globe, aside from recessions and the economic impact of rising interest rates, CEOs are also worried about pandemic fatigue, KPMG said. 

    On top of immediate challenges such as a recession, business leaders say they remain under pressure to meet their broader social responsibilities in the face of public scrutiny on their corporate purpose and environmental, social and governance (ESG) accountabilities. 

    Asia business leaders’ outlook

    In Asia-Pacific, fewer CEOs are expecting a recession. Of those surveyed, 63% saw a recession happening in the next year compared with 86% globally. 

    But they are also less optimistic about growth in the next three years compared with their global peers. 

    Globally and in Asia-Pacific, about 20% say they will not expand hiring in the next three years and will keep their headcount or reduce it further. 

    UN projects 2.2% global GDP growth for 2023, pushing world economy into recession

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  • Dow rallies more than 1,000 points in two days as fear begins to fade | CNN Business

    Dow rallies more than 1,000 points in two days as fear begins to fade | CNN Business

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    New York
    CNN Business
     — 

    Is the worst really over on Wall Street? It’s too soon to say. But stocks rose sharply again Tuesday morning following Monday’s big rally.

    The Dow surged more than 700 points, or 2.4% shortly after the opening bell. The Dow has soared nearly 1,500 points in the past two days. It is now back above the key 30,000 milestone and is about 19% off its record high, meaning that is no longer in a bear market.

    The S&P 500 and Nasdaq gained 2.7% and 3.1% respectively. But both of those indexes remain in bear territory, at more than 20% off their all-time highs.

    It appears that the market bears may be going into hibernation, at least temporarily. Not even the news of North Korea firing a missile over Japan was enough to stop the bulls from celebrating.

    The market’s mood has improved due to renewed hopes that banking giant Credit Suisse

    (CS)
    will be able to avoid a financial meltdown similar to Wall Street firm Lehman Brothers 14 years ago.

    There have been growing fears that Credit Suisse is in serious trouble. But the bank’s stock price has rebounded in the past two days and the cost to insure Credit Suisse’s bonds fell too. That’s a sign that investor anxiety about the bank’s future has subsided somewhat.

    Major European stock exchanges have rallied in the past few days as well as jittery investors relax a bit. One fund manager noted that there are more companies that look attractive lately given the large pullback in global markets so far this year.

    “There are opportunities within Europe. There are some companies we have admired from afar that are getting interesting,” said Louis Florentin-Lee, a manager with the Lazard International Quality Growth Portfolio.

    A smaller than expected interest rate hike by the The Reserve Bank of Australia also is lifting spirits on Wall Street. Central banks around the world are boosting rates to fight inflation. But economic and market uncertainty could lead the Federal Reserve and other banks to slow the pace of rate increases.

    The worry is that overly aggressive rate hikes could lead to a significant recession. CEOs surveyed by KPMG US are predicting a downturn in the next 12 months and they are worried that it won’t be mild or short.

    But bond investors are now starting to price in the possibility that the Fed will pull back on its rate hiking spree. The benchmark 10-year US Treasury yield, which briefly spiked to 4% and hit its highest level since 2008 last week, has since tumbled and is now back around 3.6%.

    Investors no longer seem as nervous about the future as they did just a week ago either. The VIX

    (VIX)
    , a key indicator of volatility on Wall Street, fell about 5% Tuesday. The CNN Business Fear & Greed Index, which looks at the VIX

    (VIX)
    and six other measures of market sentiment, moved out of Extreme Fear territory as well. But it remains at Fear levels.

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  • Ray Dalio says he’s changed his mind and cash is no longer trash as an investment

    Ray Dalio says he’s changed his mind and cash is no longer trash as an investment

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  • Liz Truss has U-turned. Will it be enough?

    Liz Truss has U-turned. Will it be enough?

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    BIRMINGHAM, England — So in the end, Liz Truss was for turning. But the damage to her faltering administration may already have been done.

    On Monday, Truss’ Chancellor Kwasi Kwarteng bowed to pressure from Conservative Party colleagues and dumped his flagship cut to the top rate of tax from 45p to 40p — a central component of last month’s so-called mini-budget.

    “We get it, and we have listened,” Kwarteng said as he announced the dramatic U-turn on Twitter.

    Later it emerged he will also bring forward an announcement on how the tax cuts will be funded, having initially insisted the public — and the markets — must wait until November 23.

    A parliamentary insurrection, which was rapidly gaining pace as MPs met for their annual party conference in Birmingham on Sunday, appears to have been quelled, for now.

    Asked if he would now support the mini-budget in parliament following the abandonment of its most controversial measure, rebel ringleader Michael Gove said: “Yeah I think so, on the basis of everything that I know. There were lots of good things that they announced … The debate over the 45p tax increase obscured that.”

    The market reaction was also mildly positive, with the bond and currency markets rallying somewhat following the announcement.

    But most MPs and delegates in Birmingham believe it will take significantly more than a single U-turn to rebuild the political and fiscal credibility of the fledgling Truss administration, with some MPs fearful a revival is already out of reach.

    “She started very poorly, and in my experience, what you see is what you get. People aren’t mysteriously really shit, and then become really good,” one senior Tory MP said. 

    Pissed-off

    While a Tory rebellion appears to have been averted for now, few MPs believe it will be the last Truss faces in the difficult weeks and months ahead.

    Even before Kwarteng’s now-infamous ‘fiscal event,’ Truss had plenty of detractors on Conservative benches. Only around a third of her own MPs backed her in the leadership contest, and after taking office she almost exclusively chose loyalists for her ministerial ranks. Those who backed her opponent Rishi Sunak were left out in the cold. 

    “Her party management has pissed people off,” the senior Tory MP quoted above said, with many of what they described as talented MPs questioning whether it was even worth backing the government in the long-term. 

    But while the “lightning rod” of the 45p tax rate had now been “neutralized,” according to one minister, backbenchers could soon find another hot topic and “push on that next.”

    Chancellor Kwasi Kwarteng | Ian Forsyth/Getty Images

    Two potential major flashpoints will be the new government’s approach to welfare payments, and funding public services. Ministers are currently undecided over whether to uprate benefits in line with inflation — as pledged by Boris Johnson’s administration — while also dropping heavy hints that cuts to the state are on their way. 

    The opposition Labour Party, now surging ahead in the polls, see political capital too in Truss’ stated plans to lift the cap on bankers’ bonuses and abandon a hike to corporation tax.

    “They’ve still got a totally unfunded £17 billion [corporation] tax giveaway for the wealthiest businesses at a time when people and businesses are struggling with the cost of living.” one Labour official said, in a taste of the messaging Tory MPs will likely be up against at the next election.

    Few Tory MPs are optimistic Truss can turn things around.

    “Politics works as a pendulum. If it swings towards the middle it’s possible to pull it back. But if it swings too far it can become irreversible,” the minister quoted above said.

    Writing for POLITICO, Boris Johnson’s former No. 10 comms chief Lee Cain said it was “unlikely” Truss’ reputation would ever recover.

    “It didn’t need to be this way,” he wrote. “Many of the unforced errors could have been avoided if the PM had understood how to talk to the audience that matters most — the electorate.:

    Benefit of the doubt

    But voters may yet be more forgiving than some of Truss’ critics in the party, according to pollsters and focus group experts keeping a close eye on public opinion.

    “We consistently find voters don’t mind a U-turn on an unpopular policy,” said Luke Tryl, director of the More in Common consultancy, which regularly hosts focus groups across the country.

    “In fact one of the things we found during the leadership contest was that people quite liked the fact that Liz Truss changed her mind, because they felt that’s what normal people do,” he said.

    But he cautioned that while voters don’t mind U-turns as one-offs, “a series of them starts to look chaotic and will worry voters about whether the government knows what it is doing to see the country through the turmoil.”  

    Fiscal credibility

    Crucially, reversing just £2 billion of the proposed £45 billion of unfunded tax cuts seems insufficient, in isolation, to restore trust in the U.K. economy and bring down spiraling interest rates.

    “When market trust has been shattered, as we saw last week, the uphill task of restoring credibility is extremely hard and even harder when strategies shift,” Charles Hepworth, investment director at GAM, said.

    “The market currently has little faith that the prime minister and chancellor can restore credibility in the short term, and this puts further renewed pressure on U.K. risk assets.”

    Neil Birrell, chief investment officer at Premier Miton Investors, agreed the U-turn would not solve the turmoil in financial markets.

    “High inflation and high interest rates are not going away quickly, and economic growth is under severe threat,” he said.

    “Markets still need to hear how the package will be funded,” added Iain Anderson, executive chairman at H/Advisers Cicero, who said the next fiscal statement planned for November 23 must be brought forward as a matter of urgency. 

    The first senior Tory MP quoted above lamented that the market turmoil following the mini-budget meant the Tory party would now “own interest rate rises — a lot of which were going to happen anyway.” 

    “I cannot remember in my life when any politician has recovered from such a savage self-inflicted wound,” Giles Wilkes, a senior fellow at the Institute for Government and partner at Flint Global, said. 

    “Gordon Brown recovered somewhat from the multiple slip-ups of 2007-08 with his commanding response to the global financial crisis, but even that wasn’t enough.”

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    Annabelle Dickson, Esther Webber and Emilio Casalicchio

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  • Opinion: A piece of paradise lost | CNN

    Opinion: A piece of paradise lost | CNN

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    Editor’s Note: Sign up to get this weekly column as a newsletter. We’re looking back at the strongest, smartest opinion takes of the week from CNN and other outlets.



    CNN
     — 

    “Buy land,” the saying goes, “they’re not making it anymore.”

    Variously attributed to Mark Twain and Will Rogers, the advice fits well with the national fixation on real estate, home values and location, location, location. The scarcity of land that can be developed – and surging demand for desirable locations – drove US median home prices over $400,000 for the first time last quarter before interest rate hikes started cooling the market.

    In Florida, a warm climate, expansive coastline and low taxes helped fuel a long-term boom, making it the third most populous state. As Hurricane Ian carved an awful path of destruction through the center of the state last week, the damage to people and property was severe. At least 66 people died, homes and businesses were destroyed and for many people, power may be out for weeks.

    Florida tightened its building standards after the devastation wrought by Hurricane Andrew in 1992 but even with stronger structures, there’s little chance of avoiding catastrophic damage when 150 mph winds, torrential rain and steep storm surges hit a populated area.

    “The simple fact is that when more people are exposed to a natural hazard such as a hurricane,” wrote Stephen Strader, an associate professor of geography and the environment at Villanova University, “the odds for a major disaster to occur are greater. As our population and built environment grows and expands, we are more readily placing ourselves in harm’s way. The wetlands and mangroves that once acted as natural ‘buffers’ to the rising waters and waves that come with hurricanes are now shrinking or gone. They have been replaced by subdivisions.”

    Strader traces Florida’s boom back to the early 1910s, when “a man named Carl Fisher (best known as the automobile magnate responsible for building the Indianapolis Motor Speedway) decided to take a vacation on what is now known as Miami Beach.”

    “He quickly realized the moneymaking opportunity at hand, buying, clearing and filling in thousands of acres of swamps and mangroves to make way for new waterfront property where investors would line up for the foreseeable future to build homes and hotels for those seeking a piece of paradise,” wrote Strader.

    Clay Jones/CNN

    “There are very few things that test political leaders like natural disasters,” Julian Zelizer pointed out. “When mother nature wreaks havoc, presidents, governors, and legislators are forced to deploy resources to address the dire needs of those affected….”

    “At the federal level, President Joe Biden needs to demonstrate he has the leadership and rigorous governing skills that are necessary to help Florida out of this mess,” Zelizer added. “At the state level, Gov. Ron DeSantis, who is billed as a potential Republican presidential nominee for 2024, needs to show that he can achieve more than political stunts like the one he orchestrated earlier this month when he sent migrants from Texas to Martha’s Vineyard.”

    As Jack Shafer, writing for Politico, noted, DeSantis sounded a different tone this week, promising to work with the Biden administration to help his battered state recover. “In throttling back on the vitriol, DeSantis proves himself a wiser politician than (former President Donald) Trump, the man who reset politics in 2016 to establish senseless fight-picking and name-calling as part of the normal political arsenal and allowing somebody like DeSantis to rise. Trump, unlike DeSantis, never figured out how to turn off the meshugana theatrics, even when it could have benefited him. Imagine if, for example, Trump had approached the Covid crisis with the reassuring cool of Barack Obama instead of roasting the issue in a bonfire every time he called a presser. He might still be president today.”

    Puerto Rico is still recovering from Hurricane Fiona, which was cited as a factor in at least 25 deaths, according to the island’s health department.

    “Nearly five years to the day since Maria slammed our island, on September 18 of this year, Hurricane Fiona delivered yet another knockout punch,” wrote Brenda Rivera-García, senior director of Latin America and Caribbean programs for Americares.

    “With Maria, we thought we experienced a 100-year flood. But, after only a half-decade later, it seems another century of water has enveloped us: Maria dumped more than three dozen inches of rain in some parts of the island over two days and last week Hurricane Fiona drowned us with 31 inches in a 72-hour period. A week after the storm, nearly 20% of the island was still without potable water, and nearly 60% still had no power, according to Puerto Rico’s government data. Once again, our air is filled with a familiar lullaby — the hum of generators.”

    “More and more,” Rivera-Garcia added, “I hear from family, friends, neighbors and people on the street saying, ‘I’m tired. It’s one crisis after another. I can’t take it anymore.’ With multiple generations often living together, family members have always been each other’s rock. But what happens when that rock is shattered?

    05 opinion column 1001

    Drew Sheneman/Tribune Content Agency

    06 opinion column 1001

    Lisa Benson/GoComics.com

    After conducting a series of votes widely viewed as a sham, Russia is moving to annex regions of eastern Ukraine, and President Vladimir Putin is warning that attacks on these territories would be viewed as an assault on Russia itself. He’s raised the fearsome prospect that tactical nuclear weapons could be used to defend what he now claims is part of the homeland.

    That poses the huge question of how NATO should react. Hamish De Bretton-Gordon, former commander of the UK & NATO Chemical, Biological, Radiological and Nuclear (CBRN) Forces, said that “the West must make it absolutely clear to Putin that any use of nuclear, or chemical or biological weapons is a real redline issue. That said, I don’t think all-out nuclear war is at all likely.”

    “NATO must direct that it will take out Russia’s tactical nuclear weapons if they move out of their current locations to a position where they could threaten Ukraine, and must also make clear that any deliberate attacks on nuclear power stations will exact an equal and greater response from NATO.”

    This is the time to call Putin’s bluff. He’s hanging on by his fingertips, and we must give him no chances to regain his hold. Russia’s forces are now so degraded that they are no match for NATO and we should now negotiate, with this in mind, from this position of strength.”

    The UK’s new prime minister, Liz Truss, and the Chancellor of the Exchequer Kwasi Kwarteng played starring roles in a week of market turmoil around the globe.

    As Frida Ghitis observed, “In the midst of a wave of inflation that is battering the world and prompting central banks to raise interest rates in hopes of cooling inflationary pressures, Truss’ plan to slash taxes, especially for the wealthiest, amounted to opening a firehose filled with gasoline into that raging economic fire.” The pound tumbled, nearly reaching parity with the dollar, and the Bank of England had to announce it would buy bonds to restore confidence.

    “Economists and politicians left and right largely agreed that, if not the policy itself, the abrupt rollout and the timing could not have been worse…”

    They came at a moment when the world – and the West – stands on a knife’s edge, with Russian President Vladimir Putin annexing large pieces of Ukraine and hinting at using nuclear weapons as his invasion falters. With mysterious explosions causing leaks in the Nordstream pipeline applying further anxiety just ahead of a dreaded winter with gas supply shortages across Europe, all of this is happening when democracy finds itself under pressure the world over.”

    The prime minister’s policy is far from the only thing unsettling investors, as central banks around the world aim to tame inflation with rising interest rates, a strategy that risks choking off economic growth.

    02 opinion column 1001

    Bill Bramhall/Tribune Content Agency

    Bill Carter has a confession to make: he has not read all the books about Donald Trump.

    “I can’t even remember all the books about Donald Trump,” he wrote.

    “I know Bob Woodward has written three. So has Michael Wolff. Sean Spicer wrote one (or was it two?). “Mooch” – that is, Anthony Scaramucci, Trump’s White House communications director ever so briefly – wrote one. So did Omarosa, for heaven’s sake.”

    “This week marks the release of yet another: New York Times journalist Maggie Haberman’s ‘Confidence Man: The Making of Donald Trump and the Breaking of America.’” Carter cited a New York Times reference to an analysis by NPD BookScan, which found more than 1,200 titles about Trump were released over four years – not including the avalanche of books published since the 2020 election.

    “The robust sales for many of these books attest to the hunger among readers to hear every gobsmacking detail about a real-life character who is beyond the imagination of most fever-dreaming fiction writers.”

    But even ravenous levels of hunger can be sated – eventually. After seven or eight – or 12 – courses, a bit of bloat is likely to set in … Every book seems to contain a sufficient number of ‘bombshell revelations’ to drum up media coverage, along with some combination of amusing, enraging or revolting personal details (previously unreported, of course, and almost always disputed by the former president)…”

    But do they have an impact anymore? A “defining aspect of the collected works on Trump,” Carter concluded, “is that virtually nothing in any of them – none of the ‘bombshells’ or details about his character – seems to have substantially changed people’s minds about him. That may be because Trump acolytes don’t tend to read critical accounts about him – and his opponents aren’t likely to read the hagiographies.”

    SE Cupp noted a Vanity Fair report that lifted the curtain on the rivalry between DeSantis and Trump, which included this description of Trump attributed to the governor: “A TV personality and a moron, who has no business running for president.”

    “The love loss seems to go both ways. According to reporting by Maggie Haberman, Trump has called DeSantis ‘fat,’ ‘phony,’ and ‘whiny.’”

    “As is often the case,” Cupp observed, “the courage to criticize Trump – even among Republicans who might want to run against him – is almost always reserved for private conversations. When will DeSantis get the spine to attack Trump frontally?

    As the Supreme Court begins its new term Monday, the reverberations of its June decision on abortion are still playing out. As Fareed Zakaria wrote, “The Court has been growing more ideologically predictable – that is, politically partisan – in recent years. Judges appointed by Republicans now almost always rule in ways that Republicans want them to. Ditto for judges appointed by Democrats. It is all part of the hyper-polarization of American life.”

    “But it is also partly because of the strange way in which America’s highest court is structured,” observed Zakaria, who noted that “no other major democracy gives members of its highest court life tenure.”

    The court “has moved in a direction that has weakened its own legitimacy. It might be an occasion to begin a national conversation about what reforms could be put in place to make it less partisan, less divisive and more trusted by the vast majority of citizens. After all, that is the only way its rulings will be truly accepted in a diverse democracy of more than 330 million people.” (Watch Fareed Zakaria’s special report Sunday at 8 p.m. ET and PT: “Supreme Power: Inside the Highest Court in the Land.”)

    For more:

    Jill Filipovic: This Texas Republican in full sprint is a metaphor for the GOP’s stance on abortion

    Steve Vladeck: America’s most powerful court owes the public an explanation

    dusa eric adams

    One morning in 2016, Eric Adams, a former police officer turned politician – and now New York’s mayor – couldn’t see the numbers on his alarm clock.

    “I went to the doctor, who diagnosed me with Type 2 diabetes. He told me I might have my driver’s license revoked due to vision loss, and I might have permanent nerve damage in my fingers and toes.”

    After googling “reversing diabetes,” he connected with “Dr. Caldwell Esselstyn at the Cleveland Clinic, who told me I could treat my diabetes with lifestyle changes, including overhauling my diet and exercising.

    “I was skeptical at first. But reducing meat and dairy consumption in favor of fresh produce and grains made an immediate difference in my health … Within three months, I lost significant weight, lowered my cholesterol, restored my vision and reversed my diabetes.” But not everyone has the resources to get expert medical advice and turn their health around so dramatically.

    “The disproportionate effect of Covid-19 on Black and brown communities was tragically compounded by existing diet-driven health disparities. While higher-income neighborhoods have overwhelming options when it comes to fresh fruits and vegetables, low-income communities of color often live in nutritional deserts with fewer grocery stores and a higher concentration of processed foods, sugary drinks, and shelf-stable products…”

    “Now is the time for our country to make the shift from treatment to prevention, from feeding the illness to giving people the tools to build sustainable lifestyles and healthier, stronger communities.”

    04 opinion column 1001

    Dana Summers/Tribune Content Agency

    Michael Fanone: What my January 6 assailant deserves

    Ruth Ben Ghiat: Casting doubt on Brazil’s election, Bolsonaro follows Trump’s lead

    Matthew Bossons: My 5-year-old just confirmed our decision to leave China

    Peter Bergen: The British Empire – A legacy of violence?

    AND…

    01 opinion column 1001

    Bill Bramhall/Tribune Content Agency

    To fans of the New York Yankees, there’s an almost mystical connection uniting the team’s pantheon of heroes – including Babe Ruth, Lou Gehrig, Joe DiMaggio, Mickey Mantle, Roger Maris and Derek Jeter. And now by hitting 61 homers in a single season – tying Maris, who bested Ruth’s record of 60 home runs – Aaron Judge has arguably joined those ranks.

    As Billy Crystal’s 2001 movie, “61*” made clear, though, those ties have long been frayed – Mantle and DiMaggio had a frosty relationship and there were tensions between Mantle and Maris. But if you widen the lens beyond the Yankees and look at the entire history of Major League Baseball, as Jeff Pearlman wrote, the picture surrounding Judge’s achievement is even more clouded.

    “By allowing rampant steroid and human growth hormone usage throughout the 1990s and early 2000s,” Pearlman observed, “Major League Baseball ruined and disgraced its own record book, and Judge’s shot merely (yawn) tied the American League home run mark.”

    “When, in 2001, San Francisco’s Barry Bonds broke (Mark) McGwire’s record with 73 homers, we all knew it was nonsense. Not some of us – all of us. Here was a man, at age 36, with muscles growing atop muscles and a skull size that – as I reported in my Bonds biography, “Love Me Hate Me” – had actually increased in recent years (this is physically impossible without the help of HGH). I was in San Francisco the night Bonds passed McGwire, and it was…stupid. Just so damn stupid. The local fans stood and cheered, but it felt flat and meaningless and a bit embarrassing. Like spotting a magician’s fake thumb.”

    “All the while, Major League Baseball and the Major League Baseball Players Association did … nothing. Home runs were great business, so team owners shrugged off PED suspicions while the union made clear it would refuse to have its players be tested in any sort of methodical, impactful manner. The result was temporary long ball excitement, followed by the quiet-yet-crushing realization (by most involved in the game) that the record book had been rendered meaningless.” Eventually, baseball woke up and instituted testing for performance enhancing drugs.

    As for Aaron Judge, according to Pearlman, “the 30-year-old slugger has had a season for the ages – he’s all but locked up the AL MVP award, and at this moment is in line to become the Yankees’ first triple crown winner since Mickey Mantle in 1956.

    “This should be an historic time for baseball.

    “This should be an historic time for Aaron Judge.

    “Instead, greed destroyed baseball – and took its history with it.”

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  • UK PM Liz Truss admits mistakes on controversial tax cuts plan, but doubles down on it anyway | CNN

    UK PM Liz Truss admits mistakes on controversial tax cuts plan, but doubles down on it anyway | CNN

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    London
    CNN
     — 

    British Prime Minister Liz Truss admitted mistakes had been made with her government’s controversial “mini-budget” announced last week – which sent the pound to historic lows and sparked market chaos – but stood by her policies.

    Speaking to the BBC’s Laura Kuenssberg on Sunday morning Truss said: “I do accept we should have laid the ground better and I’ve learned from that, and I’ll make sure I’ll do a better job of laying the ground in the future.”

    She said that she wanted “to tell people I understand their worries about what happened this week and I stand by the package we announced and I stand by the fact we announced it quickly.”

    Last week, Truss’ government announced that they would cut taxes by £45 billion ($48 billion) in a bid to get the UK economy moving again, with a package that includes scrapping the highest rate of income tax for top earners from 45% to 40% and a big increase in government borrowing to slash energy prices for millions of households and businesses this winter.

    Many leading economists described the unorthodox measures as a reckless gamble, noting that the measures came a day after the Bank of England warned that the country was already likely in a recession.

    Truss said the reforms were not agreed by her cabinet, but were a decision made by Chancellor Kwasi Kwarteng. “It was a decision the chancellor made,” she told the BBC.

    She doubled down on that decision however, saying that her government made the “right decision to borrow more this winter to face the extraordinary consequences we face,” referring to the energy crisis caused by the war in Ukraine. She claimed that the alternative would be for people to pay up to £6,000 in energy bills, and that inflation would be 5% higher.

    “We’re not living in a perfect world, we are living in a very difficult world, where governments around the world are taking tough decisions,” Truss said.

    Regarding the rising cost of living in the UK, namely the rise of mortgage rates, Truss said that is mostly driven by interest rates and is “a matter for the independent Bank of England.”

    The Bank of England said Wednesday it would buy UK government debt “on whatever scale is necessary” in an emergency intervention to halt a bond market crash that it warned could threaten financial stability.

    Meanwhile, Credit Suisse said that UK house prices could “easily” fall between 10% and 15% over the next 18 months if the Bank of England aggressively hikes interest rates to keep inflation in check.

    The fallout could make it harder for people to get approved for mortgages, and encourage prospective buyers to delay their purchases. A drop in demand would lead to falling prices.

    Truss defended her government’s policies to the BBC as the Conservative party’s annual conference kicked off in in Birmingham.

    The party is bitterly divided, with its poll ratings sinking lower than they were even under the disgraced leadership of Boris Johnson.

    On Sunday, that chill was evident, as Nadine Dorries, the former culture secretary who backed Truss to be prime minister, accused Truss of throwing Chancellor Kwasi Kwarteng “under a bus” in her BBC interview, when she said the tax cut decision were made by him and not the Cabinet.

    “One of @BorisJohnson faults was that he could sometimes be too loyal and he got that. However, there is a balance and throwing your Chancellor under a bus on the first day of conference really isn’t it. [Hope] things improve and settle down from now,” Dorries said on Twitter.

    Conservative members of parliament fear the combination of tax cuts along with huge public spending to help people cope with energy bills, rising inflation, rising interest rates and a falling pound are going to make winning the next general election impossible.

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  • Weekend reads: What to expect now for home prices, stocks and bonds

    Weekend reads: What to expect now for home prices, stocks and bonds

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    This week Freddie Mac said the average interest rate on a 30-year mortgage loan in the U.S. had climbed to 6.70% from 6.29% the week before and 6.02% two weeks ago. The average rate a year ago was 3.01%.

    Would-be sellers who have low-rate mortgage loans are reluctant if it means they need to take out a new loan to fund their next home. Would-be buyers are forced out of the market, as the monthly principal and interest payment for a new 30-year loan, based on Freddie Mac’s figures, has increased 53% from a year ago.

    Home-sale contracts are being canceled at a record pace in some areas.

    But these factors could lead to a buyer’s market in 2023 if prices plunge. Here are the areas economists expect to see the largest home price declines.

    The strong dollar and the stock market

    Khaled Desouki/Agence France-Presse/Getty Images

    The dollar has strengthened as the Federal Reserve has taken the lead among central banks in raising interest rates. This is reverberating across the world, making it more costly for countries to make interest payments on dollar-denominated debt and increasing the cost of any commodity traded in dollars.

    The rising dollar lowers prices on imported goods for Americans and can also lower their international travel costs. But Michael Wilson, Morgan Stanley’s chief equity strategist, warns that earnings for the S&P 500
    SPX,
    -1.51%

    would decline as a direct result of the strong dollar and called the current foreign-exchange backdrop an “untenable situation” for the stock market.

    On the other hand: Companies are trying to blame weak earnings on the strong U.S. dollar, but that’s a lame excuse

    This is what happens when bearish sentiment runs high

    Michael Brush interviews David Baron, co-manager of the Baron Focused Growth Fund
    BFGFX,
    -0.76%
    ,
    who describes opportunities cropping up as institutional investors dump stocks. He also explains his winning long-term strategy, which has included a very long-term investment in Tesla Inc.
    TSLA,
    -1.10%
    .

    A a positive sign for the stock market: These 12 stocks have seen strong insider buying

    Time to buy bonds?

    When interest rates rise, bond prices fall. But it also means that if you have money to put to work, bond yields have become much more attractive.

    Khuram Chaudhry, a European equity quantitative strategist at JPMorgan in London, makes the case for buying bonds now.

    What about preferred stocks?

    Getty Images/iStockphoto

    Preferred stocks feature stated dividend yields and prices that move the same way bond prices do. That means prices for many issues are now heavily discounted to face value and that current yields are much higher than they were at the end of 2021. Here’s an in-depth guide on how to research preferred stocks and make your own selections.

    Related: 22 dividend stocks screened for quality and safety

    The problem with macro market projections

    Stanley Druckenmiller predicted a “hard landing” in 2023 for the U.S. economy while speaking at CNBC’s Delivering Alpha Investor Summit on Sept. 28.


    Bloomberg

    Stanley Druckenmiller predicted a U.S. recession in 2023 as a result of monetary policy tightening by the Federal Reserve. That may not be much of a stretch, considering that the U.S. economy contracted during the first half of 2022, according to revised GDP figures from the Bureau of Economic Analysis.

    But investors should be careful — macro forecasts often turn out to be incorrect, Mark Hulbert warns.

    More on stocks: It’s the worst September for stocks since 2008. What that means for October.

    Recessions and your retirement plans

    Getty Images

    Alessandra Malito has advice on how retirees and people planning for retirement can prepare for tough economic times.

    Also: Reset your retirement calculator now for today’s bleaker stock markets and make sure you’re still on track

    Investors tremble and a central bank scrambles

    The Bank of England’s headquarters.


    Agence France-Presse/Getty Images

    After the new U.K. government of Prime Minister Liz Truss announced a massive tax cut along with a new spending program to help counter rising fuel costs and new borrowing, the pound hit a new low against the dollar on Sept. 26 as investors and money managers panicked and sold-off U.K. government bonds. Steve Goldstein explains how and why the Bank of England came tot the rescue.

    A closer look at reverse mortgages

    Getty Images/iStockphoto

    Beth Pinsker digs deeply to explain how to use a reverse mortgage as a financial planning tool.

    Poking a little fun at Elon Musk

    Getty Images

    After Tesla CEO Elon Musk said the upcoming Cybertruck would be sufficiently waterproof to “serve briefly as a boat,” the San Francisco Bay Ferry offered this advice to patrons.

    Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

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  • Citi’s top stock strategist expects a market risk-on rally in the fourth quarter

    Citi’s top stock strategist expects a market risk-on rally in the fourth quarter

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  • The UK is gripped by an economic crisis of its own making | CNN Business

    The UK is gripped by an economic crisis of its own making | CNN Business

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    London
    CNN Business
     — 

    A week ago, the Bank of England took a stab in the dark. It raised interest rates by a relatively modest half a percentage point to tackle inflation. It couldn’t know the scale of the storm that was about to break.

    Less than 24 hours later, the government of new UK Prime Minister Liz Truss unveiled its plan for the biggest tax cuts in 50 years, going all out for economic growth but blowing a huge hole in the nation’s finances and its credibility with investors.

    The pound crashed to a record low against the US dollar on Monday after UK finance minister Kwasi Kwarteng doubled-down on his bet by hinting at more tax cuts to come without explaining how to pay for them. Bond prices collapsed, sending borrowing costs soaring, sparking mayhem in the mortgage market and pushing pension funds to the brink of insolvency.

    Financial markets were already in a febrile state because of the rising risk of a global recession and the gyrations caused by three outsized rate increases from a US central bank on the warpath against inflation. Into that “pressure cooker” stumbled the new UK government.

    “You need to have strong, credible policies, and any policy missteps are punished,” said Chris Turner, global head of markets at ING.

    After verbal assurances by the UK Treasury and Bank of England failed to calm the panic — and the International Monetary Fund delivered a rare rebuke — the UK central bank pulled out its bazooka, saying Wednesday it would print £65 billion ($70 billion) to buy government bonds between now and October 14 — essentially protecting the economy from the fallout of the Truss’ growth plan.

    “While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position,” said Paul Dales, chief UK economist at Capital Economics, commenting on the bank’s intervention.

    The emergency first aid stopped the bleeding. Bond prices recovered sharply and the pound steadied Wednesday against the dollar. But the wound hasn’t healed.

    The pound tumbled 1%, falling back below $1.08 early Thursday. UK government bonds were under pressure again, with the yield on 10-year debt climbing to 4.16%. UK stocks fell 2%.

    “It wouldn’t be a huge surprise if another problem in the financial markets popped up before long,” Dales added.

    The next few weeks will be critical. Mohamed El-Erian, who once helped run the world’s biggest bond fund and now advises Allianz

    (ALIZF)
    , said that the central bank had bought some time but would need to act again quickly to restore stability.

    “The Band-Aid may stop the bleeding, but the infection and the bleeding will get worse if they do not do more,” he told CNN’s Julia Chatterley.

    The Bank of England should announce an emergency rate hike of a full percentage point before its next scheduled meeting on November 3. The UK government should also postpone its tax cuts, El-Erian said.

    “It is doable, the window is there, but if they wait too long, that window is going to close,” he added.

    The UK government has previewed rolling announcements in the coming weeks about how it plans to change immigration policy and make it easier to build big infrastructure and energy projects to boost growth, culminating in a budget on November 23 at which it has promised to publish a detailed plan for reducing debt over the medium term.

    But it shows no sign of backing away from the fundamental policy choice of borrowing heavily to fund tax cuts that will mainly benefit the rich at a time of high inflation. And the UK Treasury says it won’t bring forward the November announcement.

    Truss, speaking publicly for the first time since the crisis erupted, blamed global market turmoil and the energy price shock from Russia’s invasion of Ukraine for this week’s chaos.

    “This is the right plan that we’ve set out,” she told local radio on Thursday.

    One big problem identified by investors, former central bankers and many leading economists is that her government only set out half a plan at best. It went ahead without an independent assessment from the country’s budget watchdog of the assumptions underlying the £45 billion ($48 billion) annual tax cuts, and their longer term impact on the economy. It fired the top Treasury civil servant earlier this month.

    Charlie Bean, former deputy governor at the Bank of England, told CNN Business that the government was guilty of “really stupid” decisions. His former boss at the bank, Mark Carney, accused the government of “undercutting” UK economic institutions, saying that had contributed to the “big knock” suffered by the country’s financial system this week.

    “This is an economic crisis. It is a crisis… that can be addressed by policymakers if they choose to address it,” he told the BBC.

    British newspapers have started to speculate that Truss will have to fire Kwarteng, her close friend and political soulmate, if she wants to regain the political initiative and prevent her government’s dire poll ratings from plunging even further.

    “Every single problem we have now is self-inflicted. We look like reckless gamblers who only care about the people who can afford to lose the gamble,” one former Conservative minister told CNN.

    But for now she’s trying to tough it out, and cling onto the Reaganite experiment.

    “Raising, postponing, or abandoning tax cuts will be avoided by Truss at all costs as such a reversal would be humiliating and could leave her looking like a lame duck prime minister,” wrote Mujtaba Rahman and Jens Larson at political risk consultancy Eurasia Group.

    The only alternative left to balance the books would be to slash government spending, and that would prove equally politically difficult as the country enters a recession with its public services under enormous strain and a restive workforce that has shown it’s ready to strike in large numbers over pay.

    “Truss and Kwarteng are now facing a severe economic crisis as the world’s financial markets wait for them to make policy changes that they and the Conservative party will find unpalatable,” the Eurasia analysts wrote.

    The foreign investors who keep the British economy solvent are left scratching their heads for another eight weeks, leaving plenty of time for doubts to surface again about the UK government’s commitment to responsible fiscal policymaking.

    “The message of financial markets is that there is a limit to unfunded spending and unfunded tax cuts in this environment and the price of those is much higher borrowing costs,” Carney said.

    That leaves the Bank of England in a tight spot. A week ago it was pressing the brakes on the economy to take the heat out of price increases, even as the government tried to juice growth. The task got even harder this week when it was forced to dust off its crisis playbook and bail out the government.

    It may not be long before it has to intervene again, this time with an emergency rate hike.

    “[Wednesday’s] intervention is designed to stabilize UK government bond prices, keep the bond market liquid and prevent financial instability but that won’t necessarily stop sterling falling further, with its attendant inflationary consequences,” Bean, the former central banker, told CNN Business.

    “I think there is still a good chance they will need to act ahead of the November meeting,” he added.

    — Julia Horowitz, Luke McGee, Anna Cooban, Rob North, Livvy Doherty and Morgan Povey contributed to this article.

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  • 5 ways a debt default could affect you | CNN Politics

    5 ways a debt default could affect you | CNN Politics

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    CNN
     — 

    President Joe Biden and House Republicans may have as little as a month to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.

    Treasury Secretary Janet Yellen warned Monday that the government may not be able to pay all of its bills in full and on time as soon as June 1. However, the forecast was uncertain, and the default date might come several weeks later, she said. The US hit its $31.4 trillion debt ceiling in January, and Treasury has been using cash and “extraordinary measures” to satisfy obligations since then.

    Just what would happen if the nation defaults on its debt is unknown since it’s never actually happened before. A close call in 2011 roiled the financial markets and prompted Standard & Poor’s to downgrade the US’ credit rating to AA+ from AAA.

    Yellen gave a sense of the turmoil it would cause in her letter to House Speaker Kevin McCarthy on Monday.

    “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” she wrote.

    To be clear, a debt default doesn’t mean all payments would stop and people would permanently lose out on money they are owed. Treasury would have the funds to satisfy some obligations, but it’s not certain how the agency would handle the disbursements. Much would also depend on how long it takes Congress to address the borrowing cap.

    “Tens of millions of people across the country who expect payments from the federal government may not get them on time,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

    Here are five ways that Americans could be affected by debt default:

    About 66 million retirees, disabled workers and others receive monthly Social Security benefits. The average payment for retired workers is $1,827 a month in 2023.

    Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.

    These payments could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, Akabas said.

    The benefits are disbursed four times a month, on the third day of the month and on three Wednesdays. Roughly $25 billion a week is sent out, according to the Congressional Budget Office.

    “Even a short delay in the payment of Social Security benefits would be a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities,” Max Richtman, the committee’s CEO, said in a statement.

    Many other government payments could also be affected, including funding for food stamps; federal grants to states and municipalities for Medicaid, highways, education and other programs; and Medicare payments to hospitals, doctors and health insurance plans.

    More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.

    Also, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected.

    “Such calamity would place further stress on our servicemembers, retirees, and veterans, as well as their families, caregivers, and survivors,” Rene Campos, senior director of government relations for the Military Officers Association of America, said in a blog post. “Though life in uniform is not always predictable, those who serve or have served their country expect their country to honor their commitment to service.”

    About $25 billion in pay or benefits for active-duty members of the military, civil service and military retirees, veterans and recipients of Supplemental Security Income is sent out on the first day of the month, according to the CBO.

    Americans’ investments would take a direct hit. Case in point: Markets had what was then their worst week since the financial crisis during the 2011 debt ceiling standoff after the Standard & Poor’s downgrade.

    Even if the debt ceiling impasse is resolved soon after a default, stocks could shed as much as a third of their value. That would wipe out around $12 trillion in household wealth, according to Moody’s Analytics.

    If a default occurs, yields on US Treasuries will inevitably rise to compensate for the increased risk that bondholders won’t receive the money they’re owed from the government.

    Since interest rates on loans, credit cards and mortgages are often based on Treasury yields, the cost of borrowing money and paying off debt would rise. That’s on top of the increased costs Americans are already facing from the Federal Reserve rate hikes.

    Families and businesses would also have a tougher time getting approved for lines of credit since banks would have to be more selective about to whom they loan money. That’s because their costs of borrowing money will also rise, which limits the amount of money they can lend out.

    A debt default could trigger an economic downturn, which would prompt a spike in unemployment. It would come at a particularly fragile time – when the nation is already dealing with rising interest rates and stubbornly high inflation.

    How much damage would be done would depend on how long the crisis continues. If the default lasts for about a week, then close to 1 million jobs would be lost, including in the financial sector, which would be hard hit by the stock market declines. Also, the unemployment rate would jump to about 5% and the economy would contract by nearly half a percent, according to Moody’s.

    But if the impasse dragged on for six weeks, then more than 7 million jobs would be lost, the unemployment rate would soar above 8% and the economy would decline by more than 4%, according to Moody’s. The effects would still be felt a decade from now.

    “It would be a body blow to the economy, and it would be a manufactured crisis,” said Bernard Yaros, an economist at Moody’s.

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