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Tag: Jerome Powell

  • Hedge fund manager Dan Niles explains why he’s so bearish — and when he sees markets falling

    Hedge fund manager Dan Niles explains why he’s so bearish — and when he sees markets falling

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  • Bitcoin briefly rises above $24,000, extending its new year rally amid a broader gain in tech stocks

    Bitcoin briefly rises above $24,000, extending its new year rally amid a broader gain in tech stocks

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    Bankruptcy filings from Celsius and Voyager have raised questions about what happens to investors’ crypto when a platform fails.

    Rafael Henrique | Sopa Images | Lightrocket | Getty Images

    Bitcoin briefly touched the $24,000 level on Thursday, reaching a key technical level and building on its January rally.

    The up move came a day after the Federal Reserve raised its benchmark interest rate by a quarter percentage point. But Fed Chairman Jerome Powell noted that a disinflationary process has started, soothing investors that are betting on inflation to fall and causing them to take on more risk.

    Bitcoin was last trading about 1% higher at $23,819.26, according to Coin Metrics. The cryptocurrency rose to $24,069.00 earlier in the afternoon, after rising as high as $24,249.70 Wednesday night, its highest level since Aug. 17.

    “The market took the latest FOMC as dovish, but bitcoin’s rally remains precarious,” said Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank. “The price did rise on Wednesday, but failed to close above $24k and its momentum seems to be on the decline.”

    Hasegawa echoed the Fed’s warning that although inflation appears to be decelerating, it “remains elevated” and the central bank will need “substantially more evidence to confidently say that inflation is coming closer to their 2% target.”

    The jump also coincided with a broader rally in stocks led by the Nasdaq as well as a drop in U.S. Treasury yields and the U.S. Dollar Currency Index (DXY), which tend to move inversely to crypto.

    Bitcoin has rallied more than 40% since the start of the year, quickly paring losses from its disastrous 2022. Many investors and analysts are wary, however, that despite the current bullish trend, crypto isn’t ready for a rocket ship rally yet, and prices could pull back at least once more before it is.

    January was bitcoin’s best month since October 2021 and its best January since 2013.

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  • Federal Reserve hikes interest rates 0.25 percentage point

    Federal Reserve hikes interest rates 0.25 percentage point

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    The Federal Reserve is raising its benchmark interest rate a quarter of a percentage point, officials with the central bank said on Wednesday, its eighth consecutive hike as policy makers try to subdue inflation.

    The latest increase in the federal funds rate — what banks charge each other for short-term loans — is smaller than the Fed’s 0.5 percentage point increase in December as well as a string of three-quarter point moves over the course of 2022.

    With the latest increase, the Fed’s target interest rate is set in a range between 4.50% and 4.75% — its highest level since late 2007.

    “Ongoing hikes”

    The Fed said its campaign to curb prices is working, while indicating it plans to keep rates high for some time.

    “Over the past year we have taken forceful actions to tighten the stance of monetary policy,” Fed Chair Jerome Powell said in a press conference Wednesday.”Even so, we have more work to do. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” he said.

    “We expect ongoing hikes will be appropriate,” Powell added.

    The move to ease the pace of monetary tightening, which economists and investors had widely expected, comes amid signs the U.S. economy is cooling off and concerns about a possible recession later this year.

    The Fed has been rapidly hiking rates since March of 2022 in a bid to snuff out persistent inflation. High interest rates slow the economy by making it more expensive for consumers and businesses to borrow money. However, policy makers worry that raising rates too high could tip the economy into a recession.

    Although Powell has underlined his commitment to curbing inflation, the battle may be entering a different phase aimed at bringing the economy in for a gentle landing. The Fed alluded to the “extent” of any future rate hikes, in contrast to wording in its December statement about the “pace” of tightening. 

    The shift in language, while nuanced, suggests the Fed will now employ smaller rate hikes to tame inflation, according to analysts with Morgan Stanley.

    Inflation across the U.S. has fallen from a yearly rate of 9.1% this summer — its highest level in four decades — to a more modest 6.5% in December. The Fed has signaled it wants inflation to fall closer to its 2% target before easing the pace of monetary tightening.

    Job market “out of balance”

    Despite cooling inflation and slowing economic growth, Powell said the job market remains too strong to bring prices and wages down to what the Fed considers healthy.

    “The labor market remains extremely tight with the unemployment rate at a 50-year low, job agency very high and wage growth elevated,” he said, adding that “the labor market continues to be out of balance.”

    The central bank fears that, if workers are able to change jobs too easily and command higher pay, it could lead corporations to further hike prices, entrenching inflation.

    “Reducing inflation is likely to require a period of below-trend growth and softening of labor market conditions,” he added.

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  • Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

    Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

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    The Federal Reserve raised the target federal funds rate for the eighth time in a row on Wednesday, in its continued effort to tame persistent inflation.

    At its latest meeting, the central bank approved a more modest 0.25 percentage point increase after recent signs that inflationary pressures have started to cool.

    “The easing of inflation pressures is evident, but this doesn’t mean the Federal Reserve’s job is done,” said Greg McBride, chief financial analyst at Bankrate.com. “There is still a long way to go to get to 2% inflation.”

    What the federal funds rate means to you

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves do affect the borrowing and saving rates consumers see every day.

    This rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing — putting more pressure on households already under financial strain.

    “Inflation has shredded household budgets and, in many cases, households have had to lean against credit cards to bridge the gap,” McBride said.

    On the flip side, “with rates still rising and inflation now declining, it is the best of both worlds for savers,” he added.

    How higher interest rates can affect your money

    1. Your credit card rate will rise

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and your credit card rate follows suit within one or two billing cycles.

    “Credit card interest rates are already as high as they’ve been in decades,” said Matt Schulz, chief credit analyst at LendingTree. “While the Fed is taking its foot off the gas a bit when it comes to raising rates, credit card APRs almost certainly will keep climbing for at least the next few months, so it is important that cardholders continue to focus on knocking down their debt.”

    Credit card annual percentage rates are now near 20%, on average, up from 16.3% a year ago, according to Bankrate. At the same time, more cardholders carry debt from month to month while paying sky-high interest charges — “that’s a bad combination,” McBride said.

    At more than 19%, if you made minimum payments toward the average credit card balance — which is $5,474, according to TransUnion — it would take you almost 17 years to pay off the debt and cost you more than $7,528 in interest, Bankrate calculated.

    Altogether, this rate hike will cost credit card users at least an additional $1.6 billion in interest charges in 2023, according to a separate analysis by WalletHub.

    “A 0% balance transfer credit card remains one of the best weapons Americans have in the battle against credit card debt,” Schulz advised.

    Otherwise, consumers should consolidate and pay off high-interest credit cards with a lower-interest personal loan, he said. “The rates on new personal loan offers have climbed recently as well, but if you have good credit, you may be able to find options that feature lower rates that what you currently have on your credit card.”

    2. Mortgage rates will stay higher

    Rates on 15-year and 30-year mortgages are fixed and tied to Treasury yields and the economy. As economic growth has slowed, these rates have started to come down but are still at a 10-year high, according to Jacob Channel, senior economist at LendingTree.

    The average interest rate for a 30-year fixed-rate mortgage is now around 6.4% — up almost 3 full percentage points from 3.55% a year ago.

    “Relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” Channel said.

    This rate hike has increased the cost of new mortgages by around 10 basis points, which translates to roughly $9,360 over the lifetime of a 30-year loan, assuming the average home loan of $401,300, WalletHub found. A basis point is equal to 0.01 of a percentage point.

    “We’re still a ways away from the housing market being truly affordable, even if it has recently become a bit less expensive,” Channel said.

    Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.65% from 4.11% a year ago.

    More from Personal Finance:
    64% of Americans are living paycheck to paycheck
    What is a ‘rolling recession’ and how does it impact you?
    Almost half of Americans think we’re already in a recession

    3. Auto loans will get more expensive

    Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.

    The average interest rate on a five-year new car loan is currently 6.18%, up from 3.96% last year.

    The Fed’s latest move could push up the average interest rate even higher, although consumers with higher credit scores may be able to secure better loan terms or look to some used car models for better deals.

    Paying an annual percentage rate of 6% instead of 4% would cost consumers $2,672 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

    “The ever-increasing costs of financing remain a challenge,” said Ivan Drury, Edmunds’ director of insights.

    4. Some student loans will get pricier

    Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and any loans disbursed after July 1 will likely be even higher.

    If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the central bank raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

    Currently, average private student loan fixed rates can range from just under 4% to almost 15%, according to Bankrate. As with auto loans, they also vary widely based on your credit score.

    For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

    What savers should know about higher interest rates

    The good news is that interest rates on savings accounts are finally higher after the recent run of rate hikes.

    While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.33%, on average.

    Also, thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4.35%, much higher than the average rate from a traditional, brick-and-mortar bank.

    Rates on one-year certificates of deposit at online banks are even higher, now around 4.75%, according to DepositAccounts.com.

    As the Fed continues its rate-hiking cycle, these yields will continue to rise, as well. However, you have to shop around to take advantage of them, according to Yiming Ma, an assistant finance professor at Columbia University Business School.

    “If you haven’t already, it’s really important to benefit from the high interest environment by getting a higher return,” she said.

    Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

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  • No Policy Pivot In Sight: “Higher For Longer” Rates On The Horizon

    No Policy Pivot In Sight: “Higher For Longer” Rates On The Horizon

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    The below is an excerpt from a recent edition of Bitcoin Magazine PRO, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

    The next FOMC meeting is on February 1, where the Federal Reserve will determine their next policy decision regarding interest rates. This article covers how the market expects the Fed to respond, what readers should watch for regarding changes in the expected path and the potential second-order effects of said changes.

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    Dylan LeClair

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  • I see this year’s budding stock rally signaling a different kind of bull market, one that’s not so reliant on just a few stocks

    I see this year’s budding stock rally signaling a different kind of bull market, one that’s not so reliant on just a few stocks

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    Jim Cramer at NYSE with bull. June 30, 2022.

    Virginia Sherwood | CNBC

    This nascent bull market started with the peak in interest rates and the dollar back in the fall and then broadened to include bank and semiconductor stocks in 2023. Is it fragile? Is it alchemy? Is it real? We’ll know after we see the quarterly earnings this week from the likes of Club holdings Apple (AAPL), Meta Platforms (META) Alphabet (GOOGL) and Amazon (AMZN), as well as what the Federal Reserve decides at its two-day meeting ending Wednesday and what the monthly nonfarm payroll numbers show Friday.

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  • What is a ‘rolling recession’ and how does it affect consumers? Economic experts explain

    What is a ‘rolling recession’ and how does it affect consumers? Economic experts explain

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    By most measures, the U.S. economy is in solid shape.

    Although the first half of 2022 started off with negative growth, a strong labor market and resilient consumer helped turn things around and give hope for the year ahead.

    related investing news

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    Gross domestic product, which tracks the overall health of the economy, rose more than expected in the fourth quarter, and the Federal Reserve is widely expected to announce a more modest rate hike at next week’s policy meeting as inflation starts to ease.

    More from Personal Finance:
    Almost half of Americans think we’re already in a recession
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    If you want higher pay, your chances may be better now

    Still, some portions of the economy, such as housing, manufacturing and corporate profits, have shown signs of a slowdown, and a wave of recent layoffs fueled fears that a recession still looms. 

    “There’s no scarcity of economists with strong opinions,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers. “There’s a lot of scarcity of economists with the right opinion.”

    A ‘rolling recession’ may already be underway

    Rather than an abrupt contraction Americans need to brace for, a “rolling recession” is already in progress, according to Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics. “This means some parts of the economy take turns suffering rather than simultaneously.”

    In fact, the worst may even be over, he said.

    A large portion of the reaction to the Fed’s moves has worked its way through the economy and the financial markets. Businesses trimmed inventories and cut jobs in some areas, and consumers refinanced their homes ahead of rising rates.

    “It is time to think about an exit strategy,” Sohn said.

    This cycle has proven so many of our traditional theories wrong.

    Yiming Ma

    assistant finance professor at Columbia University Business School

    “Expectations about a recession have been pretty inaccurate,” added Yiming Ma, an assistant finance professor at Columbia University Business School.

    “This cycle has proven so many of our traditional theories wrong,” Ma said.

    In fact, this could be the soft landing Fed officials have been aiming for after aggressively raising interest rates to tame inflation, she added.

    What this means for consumers

    But regardless of the country’s economic standing, many Americans are struggling in the face of sky-high prices for everyday items, such as eggs, and most have exhausted their savings and are now leaning on credit cards to make ends meet.

    Several reports show financial well-being is deteriorating overall.

    “For consumers, there’s a lot of uncertainty,” Philipson said. For now, the focus should be on sustaining income and avoiding high-interest debt, he added.

    “Don’t plan any major future expenses,” he said. “No one knows where this economy is going.”

    How to prepare your finances for a rolling recession

    While the impact of inflation is being felt across the board, every household will experience a rolling recession to a different degree, depending on their industry, income, savings and job security.  

    Still, there are a few ways to prepare that are universal, according to Larry Harris, the Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business and a former chief economist of the Securities and Exchange Commission.

    Here’s his advice:

    • Streamline your spending. “If they expect they will be forced to cut back, the sooner they do it, the better off they’ll be,” Harris said. That may mean cutting a few expenses now that you just want and really don’t need, such as the subscription services that you signed up for during the Covid pandemic. If you don’t use it, lose it.
    • Avoid variable-rate debts. Most credit cards have a variable annual percentage rate, which means there’s a direct connection to the Fed’s benchmark, so anyone who carries a balance has seen their interest charges jump with each move by the Fed. Homeowners with adjustable-rate mortgages or home equity lines of credit, which are pegged to the prime rate, have also been affected.
    • Stash extra cash in Series I bonds. These inflation-protected assets, backed by the federal government, are nearly risk-free and are currently paying 6.89% annual interest on new purchases through this April, down from the 9.62% yearly rate offered from May through October last year.
      Although there are purchase limits and you can’t tap the money for at least one year, you’ll score a much better return than a savings account or a one-year certificate of deposit. Rates on online savings accounts, money market accounts and CDs have all gone up, but those returns still don’t compete with inflation.

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  • Treasury takes

    Treasury takes

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    Treasury takes “extraordinary measures” as U.S. hits debt ceiling – CBS News


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    The U.S. officially reached the debt limit on Thursday, and the Treasury Department says it has begun taking “extraordinary measures” to maintain the full faith and credit of the United States. It sets up a showdown that could put the entire U.S. economy at risk. Scott MacFarlane has more.

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  • Federal Reserve Chair Jerome Powell tests positive for COVID-19

    Federal Reserve Chair Jerome Powell tests positive for COVID-19

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    Federal Reserve Chair Jerome Powell has tested positive for COVID-19, the central bank announced Wednesday.

    Powell, 69, “is experiencing mild symptoms,” the Fed said in a statement. “Following Centers for Disease Control and Prevention guidance, he is working remotely while isolating at home.”

    The Fed noted that Powell was up to date with vaccines and boosters.

    The Fed’s rate-setting body is scheduled to meet on January 31 and February 1, where policymakers are expected to further raise interest rates.

    Nearly 1.1 million Americans have died of COVID-19 since the disease erupted in the U.S. in 2020, according to the Centers for Disease Control and Prevention. More than 101,000 people are currently infected, with nearly 22,000 hospitalized. As of early January the XBB.1.5 COVID variant accounted for roughly 28% new cases, according to the agency.

    This is a developing story.


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  • Fed can’t do much to fight climate change, Jerome Powell says

    Fed can’t do much to fight climate change, Jerome Powell says

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    The Federal Reserve has only a limited role to play in combating climate change, Chair Jerome Powell said Tuesday, a stance that puts him at odds with environmental activists who have pushed central banks worldwide to take steps to restrict lending to energy companies.

    Maintaining the Fed’s independence, Powell said, includes steering clear of issues that are more properly overseen by elected officials.

    “Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell said during a panel discussion in Stockholm on the subject of central bank independence.

    “We are not, and will not be, a ‘climate policymaker.’ “

    In his remarks, Powell suggested that the Fed’s independence from social and political influences was particularly important when it must carry out unpopular policies, such as when it raises interest rates, as it’s doing now to fight high inflation. Last year, the Fed raised its benchmark rate seven times, a series of hikes that have led to higher rates for mortgages and auto loans and made other business and consumer borrowing more expensive.

    “Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” the Fed chair said. “The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”

    Climate activists have pushed central banks, including the Fed, to use their supervisory powers over commercial banks to push for greater consideration of environmental risks in lending. They note that natural disasters, made more common by climate change, could impose significant financial losses on banks, which would require more capital held in reserve. Activist groups also argue that lending to oil and gas companies should be seen as risky. 


    Keystone pipeline leak spills thousands of barrels of oil in Kansas

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    Powell did acknowledge the Fed has “narrow, but important responsibilities” to use its oversight of banks to ensure that they manage the risks to their finances created by climate change. And the Fed has taken modest steps to consider climate change, including joining the Network for Greening the Financial System, an international group of central banks and regulators.

    That move and other speeches about climate change by Fed officials had come under sharp criticism from congressional Republicans.

    Powell’s comments reflected the overall focus of the symposium: How to ensure that central banks make decisions on interest rate policies — their key responsibility — free of political considerations.

    Powell: Let’s “Stick to our knitting”

    “We should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,’” he said.

    At the same time, Powell’s stance on climate change is more cautious than those of many of his counterparts overseas. The European Central Bank and Bank of England, for example, have been more outspoken about climate change risks.


    Climate change could displace 200 million in 20 years, disaster relief organization warns

    00:50

    Unlike the Fed, the ECB can cite the fight against climate change as part of its official mandate to support European Union economic policies — so long as it doesn’t intrude on its primary task of controlling inflation. One top ECB official, Isabel Schnabel, said at the symposium that the Frankfurt, Germany-based ECB would not moderate its series of interest rate hikes, which are intended to curb record inflation, in order to support investment in renewable energy.

    “There is concern that higher interest rates may discourage efforts to decarbonize our economies,” Schnabel said. “So does this imply that we should raise our interest rates less forcefully? My answer is no. The green transition can only thrive with price stability.”

    Schnabel, who serves on the six-member executive board that runs the bank, suggested that the main impediment to a green-energy transition was not rising borrowing costs. Rather, she said, the primary obstacle is a lack of progress by governments in implementing their commitments to reduce carbon dioxide emissions. These commitments include expanding support schemes, removing bureaucratic hurdles and introducing comprehensive carbon pricing.

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  • Powell reiterates Fed is not going to become a ‘climate policymaker’

    Powell reiterates Fed is not going to become a ‘climate policymaker’

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    Chair of the Board of Governors of the Federal Reserve System Jerome H. Powell participates in a panel during a Central Bank Symposium at the Grand Hotel in Stockholm, Sweden, January 10, 2023.

    Claudio Bresciani | TT | via Reuters

    Federal Reserve Chairman Jerome Powell on Tuesday said the central bank will not get involved in issues like climate change that are beyond its congressionally established mandate, and vowed the institution will not become a “climate policymaker.”

    Powell’s remarks, delivered at a conference hosted by Sweden’s central bank, follow calls from some Democrats for the Fed to play a more active role in addressing climate change and ensuring the country’s financial system is prepared for climate-related risks.

    Powell has reinterred that climate change is not a main consideration for the Fed when developing monetary policy, noting that climate-related issues are more for the federal government than for his institution.

    “Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” Powell said on Tuesday.

    “Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell said. “We are not, and will not be, a ‘climate policymaker.’”

    In recent years, the Fed has tiptoed into addressing climate change, including creating of two internal committees focusing on the issue. It’s also joined the Network for Greening the Financial System, a group of global central banks aimed at addressing the systemic risk climate change poses to the financial sector.

    But Powell on Tuesday said the Fed’s regulatory powers give it a “narrow” role to ensure financial institutions “appropriately manage” climate-related risks. He added the Fed should “not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”

    And while the Fed has requested big banks to examine their financial readiness in the event of climate-related disasters, Powell said this is as involved as the institution should be in addressing climate-related issues.

    “The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change,” Powell said.

    The Fed is set to launch a pilot program this year for six of the country’s largest banks to take part in a climate scenario analysis exercise that would examine the firms’ ability to manage major climate events.

    — CNBC’s Jeff Cox contributed reporting

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  • Fed Chair Powell: Bringing down inflation requires ‘measures that are not popular’ | CNN Business

    Fed Chair Powell: Bringing down inflation requires ‘measures that are not popular’ | CNN Business

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    New York
    CNN
     — 

    Investors shifted their focus Tuesday from the stock market to Stockholm as Federal Reserve Chairman Jerome Powell made his first public appearance of the year.

    Powell participated in a panel discussion on central bank independence at an event hosted by Sweden’s central bank, the Sveriges Riksbank.

    The painful rate hikes the Fed is implementing to try to bring down inflation don’t make officials particularly popular, Powell admitted.

    “Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” he said, before adding that it’s important not to succumb to the need to liked.

    “We should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,” Powell said.

    He highlighted climate change as a prime example of this.

    “Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates,” he said. “in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”

    US inflation rates (as measured by the Labor Department’s Consumer Price Index) have been steadily falling for the past five months. That has enabled the Fed to start easing back on the size of its historically high rate hikes meant to cool the economy and fight rising prices.

    Inflation in the Eurozone, meanwhile, remains at an eye-popping 9.2% — though it eased between November and December. ECB president Christine Lagarde said last month she expects interest rate hikes to rise “significantly further, because inflation remains far too high and is projected to stay above our target for too long.”

    “If you compare with the Fed, we have more ground to cover. We have longer to go,” she added.

    The Bank of England, meanwhile, has also warned that inflation, still at its highest level since the 1980s, isn’t going anywhere. The BoE’s chief economist Huw Pill said this week that inflation could persist for longer than expected despite recent falls in wholesale energy prices and an economy on the brink of recession.

    These three central banks are fighting in different conditions, but they share a similar battle strategy: Keep tightening.

    The central bankers defended the importance of independence and credibility for their institutions, which has come under fire as policymakers are accused of having let surging inflation go unchecked for too long.

    December meeting minutes from the Fed, released last week, noted that the policymaking committee would “continue to make decisions meeting by meeting,” leaving options open for the size of rate hikes at the next monetary policy decision on February 1. No policymakers have forecast that it would be appropriate to reduce the bank’s benchmark borrowing rate this year. And while officials welcomed the recent softening in inflation, they stressed that “substantially more evidence” was required for a Fed “pivot.”

    Last week’s jobs report further muddied the picture, showing that employment remained strong while wage growth eased.

    Thursday’s CPI for December — which will be the new year’s first check on inflation — will also provide helpful clues to investors about whether US price hikes are sufficiently cooling.

    Encouraging data could bolster consensus estimates that call for a quarter-percentage point interest rate hike in February, a shift lower from December’s half-point hike and the four prior three-quarter-point hikes.

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  • How the Fed affects the stock market

    How the Fed affects the stock market

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    When members of the Federal Reserve make public statements, investors tend to listen. Over the past two decades, central bankers have consistently shared key information about the future trajectory of important inputs like interest rates. The Fed’s forward guidance on interest rates amid historic inflation has taken stock markets for a ride in 2022. As investors wait for a pivot, a panel of experts explains why many in the market choose not to fight the Fed.

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  • How the Federal Reserve affected 2022’s stock market

    How the Federal Reserve affected 2022’s stock market

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    The Federal Reserve, over its more than centurylong existence, has emerged as a leading force in the stock market.

    This stature was bolstered by the central bank’s adoption of two unconventional policy tools in the 2000s – large-scale asset purchases and forward guidance.

    Large-scale asset purchases refer to the Fed’s emergency buying of government debt and mortgage-backed securities. Forward guidance refers to the central bank’s public communications about the future trajectory of monetary policies. The guidance often hints at the expected path of the federal funds interest rate target in advance of a policy change.

    Central bankers in 2022 repeatedly told the public to expect tighter economic conditions as it battles inflation. Economists believe this has contributed to months of declining prices across the S&P500.

    “I think they know they gambled and lost and that they have to do something serious in order to get inflation back under control” said Jeffrey Campbell, an economics professor at Notre Dame University and former Federal Reserve economist. “I fear that they took a gamble that inflation wasn’t too real at the beginning of 2021.”

    The Fed has reacted to hotter-than-expected inflation with seven interest rate hikes in 2022. These higher rates can weigh on publicly traded companies, particularly growth stocks in tech.

    Meanwhile, the Fed’s asset portfolio has decreased more than $336 billion since April 2022.  Experts tell CNBC that the full combined effects of this economic tightening are unknown.

    That has many people on Wall Street waiting for the central bank to pivot, and bring interest rates back down. At the same time, many financial advisors are calling for caution.

    “If you have somebody that has a thumb on the scale or has a decided advantage about what’s going to happen, whether we think good things or bad things are going to happen, it’s best not to fight that policy.” said Victoria Greene, founding partner and chief investment officer at G Squared Wealth Management.

    Nonetheless, many experts believe that central bank policy is only one piece of the puzzle. Both black swan events and investor sentiment play a massive role in shaping the trajectory of markets, too. “Sure don’t fight the Fed but … don’t believe too much that the Fed is all powerful,” said John Weinberg, policy advisor emeritus in the research department at the Federal Reserve Bank of Richmond.

    Watch the video above to learn how the Fed shaped 2022’s stock market.

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  • Bond king Gundlach says the Fed should not do more rate hikes after the latest increase

    Bond king Gundlach says the Fed should not do more rate hikes after the latest increase

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  • Fed raises interest rates half a point to highest level in 15 years

    Fed raises interest rates half a point to highest level in 15 years

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    The Federal Reserve on Wednesday raised its benchmark interest rate to the highest level in 15 years, indicating the fight against inflation is not over despite some promising signs lately.

    Keeping with expectations, the rate-setting Federal Open Market Committee voted to boost the overnight borrowing rate half a percentage point, taking it to a targeted range between 4.25% and 4.5%. The increase broke a string of four straight three-quarter point hikes, the most aggressive policy moves since the early 1980s.

    Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024. The expected “terminal rate,” or point where officials expect to end the rate hikes, was put at 5.1%, according to the FOMC’s “dot plot” of individual members’ expectations.

    The U.S. economy has slowed significantly from last year's rapid pace: Fed Chair Jerome Powell

    Investors initially reacted negatively to the expectation that rates may stay higher for longer, and stocks gave up earlier gains. During a news conference, Chairman Jerome Powell said it was important to keep up the fight against inflation so that the expectation of higher prices does not become entrenched.

    “Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” the chair said at his post-meeting news conference. “But it will take substantially more evidence to have confidence that inflation is on a sustained downward” path.

    The new level marks the highest the fed funds rate has been since December 2007, just ahead of the global financial crisis and as the Fed was loosening policy aggressively to combat what would turn into the worst economic downturn since the Great Depression.

    This time around, the Fed is raising rates into what is expected to be a moribund economy in 2023.

    Members penciled in increases for the funds rate until it hits a median level of 5.1% next year, equivalent to a target range of 5%-5.25. At that point, officials are likely to pause to allow the impact of monetary policy tightening to make its way through the economy.

    The consensus then pointed to a full percentage point worth of rate cuts in 2024, taking the funds rate to 4.1% by the end of that year. That is followed by another percentage point of cuts in 2025 to a rate of 3.1%, before the benchmark settles into a longer-run neutral level of 2.5%.

    However, there was a fairly wide dispersion in the outlook for future years, indicating that members are uncertain about what is ahead for an economy dealing with the worst inflation it has seen since the early 1980s.

    The newest dot plot featured multiple members seeing rates heading considerably higher than the median point for 2023 and 2024. For 2023, seven of the 19 committee members – voters and nonvoters included – saw rates rising above 5.25%. Similarly, there were seven members who saw rates higher than the median 4.1% in 2024.

    The FOMC policy statement, approved unanimously, was virtually unchanged from November’s meeting. Some observers had expected the Fed to alter language that it sees “ongoing increases” ahead to something less committal, but that phrase remained in the statement.

    Fed officials believe raising rates helps take money out the economy, reducing demand and ultimately pulling prices lower after inflation spiked to its highest level in more than 40 years.

    The FOMC lowered its growth targets for 2023, putting expected GDP gains at just 0.5%, barely above what would be considered a recession. The GDP outlook for this year also was put at 0.5%. In the September projections, the committee expected 0.2% growth this year and 1.2% next.

    The committee also raised its median estimate for its favored core inflation measure to 4.8% for 2022, up 0.3 percentage point from the September outlook. Members slightly lowered their unemployment rate outlook for this year and bumped it a bit higher for the ensuing years.

    The rate hike follows consecutive reports showing progress in the inflation fight.

    The Labor Department reported Tuesday that the consumer price index rose just 0.1% in November, a smaller increase than expected as the 12-month rate dropped to 7.1%. Excluding food and energy, the core CPI rate was at 6%. Both measures were the lowest since December 2021. A level the Fed puts more weight on, the core personal consumption expenditures price index, fell to a 5% annual rate in October.

    However, all of those readings remain well above the Fed’s 2% target. Officials have stressed the need to see consistent declines in inflation and have warned against relying too much on trends over just a few months.

    Powell said the recent news was welcome but he still sees services inflation as too high.

    “There’s an expectation really that the services inflation will not move down so quickly, so we’ll have to stay at it,” he said. “We may have to raise rates higher to get where we want to go.”

    Central bankers still feel they have leeway to raise rates, as hiring remains strong and consumers, who drive about two-thirds of all U.S. economic activity, are continuing to spend.

    Nonfarm payrolls grew by a faster-than-expected 263,000 in November, while the Atlanta Fed is tracking GDP growth of 3.2% for the fourth quarter. Retail sales grew 1.3% in October and were up 8.3% on an annual basis, indicating that consumers so far are weathering the inflation storm.

    Inflation came about from a convergence of at least three factors: Outsized demand for goods during the pandemic that created severe supply chain issues, Russia’s invasion of Ukraine that coincided with a spike in energy prices, and trillions in monetary and fiscal stimulus that created a glut of dollars looking for a place to go.

    After spending much of 2021 dismissing the price increases as “transitory,” the Fed started raising interest rates in March of this year, first tentatively and then more aggressively, with the previous four increases in 0.75 percentage point increments. Prior to this year, the Fed had not raised rates more than a quarter point at a time in 22 years.

    The Fed also has been engaged in “quantitative tightening,” a process in which it is allowing proceeds from maturing bonds to roll off its balance sheet each month rather than reinvesting them.

    A capped total of $95 billion is being allowed to run off each month, resulting in a $332 billion decline in the balance sheet since early June. The balance sheet now stands at $8.63 trillion.

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  • Here’s what the Federal Reserve’s half-point rate hike means for you

    Here’s what the Federal Reserve’s half-point rate hike means for you

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    The Federal Reserve raised its target federal funds rate by 0.5 percentage points at the end of its two-day meeting Wednesday in a continued effort to cool inflation.

    Although this marks a more typical hike compared to the super-size 0.75 percentage point moves at each of the last four meetings, the central bank is far from finished, according to Greg McBride, chief financial analyst at Bankrate.com.

    “The months ahead will see the Fed raising interest rates at a more customary pace,” McBride said.

    More from Invest in You:
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    Inflation boosts U.S. household spending by $433 a month

    The latest move is only one part of a rate-hiking cycle, which aims to bring down inflation without tipping the economy into a recession, as some feared would have happened already.

    “I thought we would be in the midst of a recession at this point, and we’re not,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School.

    “Every single time since World War II the Federal Reserve has acted to reduce inflation, unemployment has shot up, and we are not seeing that this time, and that’s what stands out,” she said. “I couldn’t really imagine a better scenario.”

    Still, the combination of higher rates and inflation has hit household budgets particularly hard.

    What the federal funds rate means for you

    The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Whether directly or indirectly, higher Fed rates influence borrowing costs for consumers and, to a lesser extent, the rates they earn on savings accounts.

    For now, this leaves many Americans in a bind as inflation and higher prices cause more people to lean on credit just when interest rates rise at the fastest pace in decades.

    With more economic uncertainty ahead, consumers should be taking specific steps to stabilize their finances — including paying down debt, especially costly credit card and other variable rate debt, and increasing savings, McBride advised.

    Pay down high-rate debt

    Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark, so short-term borrowing rates are already heading higher.

    Credit card annual percentage rates are now over 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

    The cost of existing credit card debt has already increased by at least $22.9 billion due to the Fed’s rate hikes, and it will rise by an additional $3.2 billion with this latest increase, according to a recent analysis by WalletHub.

    If you’re carrying a balance, “grab one of the zero-percent or low-rate balance transfer offers,” McBride advised. Cards offering 15, 18 and even 21 months with no interest on transferred balances are still widely available, he said.

    “This gives you a tailwind to get the debt paid off and shields you from the effect of additional rate hikes still to come.”

    Otherwise, try consolidating and paying off high-interest credit cards with a lower interest home equity loan or personal loan.

    Consumers with an adjustable-rate mortgage or home equity lines of credit may also want to switch to a fixed rate. 

    How to know if we are in a recession

    Because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, those homeowners won’t be immediately impacted by a rate hike.

    However, the average interest rate for a 30-year fixed-rate mortgage is around 6.33% this week — up more than 3 full percentage points from 3.11% a year ago.

    “These relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” said Jacob Channel, senior economic analyst at LendingTree.

    The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 32% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $204,500 today.”

    Anyone planning to finance a new car will also shell out more in the months ahead. Even though auto loans are fixed, payments are similarly getting bigger because interest rates are rising.

    The average monthly payment jumped above $700 in November compared to $657 earlier in the year, despite the average amount financed and average loan term lengths staying more or less the same, according to data from Edmunds.

    “Just as the industry is starting to see inventory levels get to a better place so that shoppers can actually find the vehicles they’re looking for, interest rates have risen to the point where more consumers are facing monthly payments that they likely cannot afford,” said Ivan Drury, Edmunds’ director of insights. 

    Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates — which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

    That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense.

    Shop for higher savings rates

    While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

    Thanks, in part, to lower overhead expenses, the average online savings account rate is closer to 4%, much higher than the average rate from a traditional, brick-and-mortar bank.

    “The good news is savers are seeing the best returns in 14 years, if they are shopping around,” McBride said.

    Top-yielding certificates of deposit, which pay between 4% and 5%, are even better than a high-yield savings account.

    And yet, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

    What’s coming next for interest rates

    Consumers should prepare for even higher interest rates in the coming months.

    Even though the Fed has already raised rates seven times this year, more hikes are on the horizon as the central bank slowly reins in inflation.

    Recent data show that these moves are starting to take affect, including a better-than-expected consumer prices report for November. However, inflation remains well above the Fed’s 2% target.

    “They will still be raising interest rates now and into 2023,” McBride said. “The ultimate stopping point is unknown, as is how long rates will stay at that eventual destination.”

    Subscribe to CNBC on YouTube.

    Correction: A previous version of this story misstated the extent of previous rate hikes.

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  • What to expect from this week’s Fed meeting | CNN Business

    What to expect from this week’s Fed meeting | CNN Business

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    New York
    CNN
     — 

    The Federal Reserve is expected to raise interest rates by half a point at the conclusion of its two-day policy meeting on Wednesday, an indication that the central bank is pulling back on its aggressive stance as signs begin to emerge that inflation may be easing.

    Although that increase would be smaller than the three-quarter-point hikes announced at the past four Fed meetings, it’s nothing to scoff at.

    It’s still double the Fed’s customary quarter-point hike, and a sizable increase that will likely cause economic pain for millions of American businesses and households by pushing up the cost of borrowing for homes, cars and other loans.

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

    Federal Reserve Chairman Jerome Powell confirmed last month that smaller rate hikes could be expected, saying: “The time for moderating the pace of rate increases may come as soon as the December meeting.”

    But while inflation is unlikely to slow dramatically any time soon, partly due to continued pressure on wages amid a shortage of workers, Wall Street appears to believe the Fed will eventually be forced to pivot away from, or even reverse its regimen of rate hikes. Traders are largely pricing in rate cuts in the second half of 2023.

    The Fed will conclude its rate hike regimen by the second quarter of next year, predicted JPMorgan analysts in a recent note. “With inflation continuing to fade and fiscal policy likely on hold, the Fed is likely to end its tightening cycle early in the new year and inflation could begin to ease before the end of 2023,” they wrote. The analysts expect two quarter-point hikes in the first half of 2023.

    But the average period between peak interest rates and the first reductions by the Fed is 11 months, which could mean that even if the central bank stops actively hiking rates, they could remain elevated into 2024.

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

    ​”We expect Fed Chair Powell will insist on the need to hold policy at a restrictive level for some time to bring inflation down toward the 2% target,” wrote Gregory Daco, chief economist at EY-Parthenon, in a note to clients Monday. “This will serve to push back against current market pricing … Powell will stress that history cautions strongly against prematurely loosening policy.”

    The Fed has increased its benchmark lending rate six times this year in an attempt to discourage borrowing, cool the economy and bring down historically high inflation that peaked at 9.1% over the summer.

    Even if interest rate hikes do ease off, they will remain high, and economists are largely expecting that the US economy will endure a recession next year. Powell said in November that there is still a chance the economy avoids recession but the odds are slim, noting: “To the extent we need to keep rates higher longer, that’s going to narrow the path to a soft landing.”

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

    And the economy has so far withstood the Fed’s aggressive rate hikes. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.

    The Fed isn’t acting alone, it’s just one of nine central banks expected to make a rate announcement this week. Landing softly on the ever-narrowing path between high inflation and recession is a global concern as central banks across the world contend with similar economic problems.

    The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. Norway, Mexico, Taiwan, Colombia and the Philippines will also likely increase their borrowing costs this week.

    The Federal Reserve announces its rate hike decision Wednesday at 2 p.m., followed by a press conference with Chair Powell at 2:30 p.m.

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  • Three pharmaceutical stocks were last week’s top performers — and analysts gave one 40% upside

    Three pharmaceutical stocks were last week’s top performers — and analysts gave one 40% upside

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  • Strong job numbers report could signal additional rate hikes from Federal Reserve

    Strong job numbers report could signal additional rate hikes from Federal Reserve

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    Strong job numbers report could signal additional rate hikes from Federal Reserve – CBS News


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    With the Labor Department on Friday reporting stronger November job numbers than expected, the Federal Reserve could react with yet another interest rate hike in an effort to curb inflation. Skyler Henry has the details.

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