Tag: Jerome Powell

Bond Traders Surrender to Higher-for-Longer Reality From the Fed
[ad_1]
(Bloomberg) — Bond investors who were once convinced that the Federal Reserve would start cutting interest rates this week are painfully surrendering to a higher-for-longer reality and a murky path forward for the market.

Most Read from Bloomberg

Treasury yields spiked in recent days and are on the cusp of setting new highs for the year as data continues to point to persistent inflation, which is causing traders to push back their timetable for US monetary easing.

Interest-rate swaps now reflect market expectations for fewer than three quarter-point rate cuts this year. That’s less than the Fed’s median projection in December and a shade of the six reductions that were priced in at the end of 2023. And the first move lower? Investors are no longer confident that it’ll even happen in the first half of the year.

The shift underscores mounting worries that US central bankers led by Fed Chair Jerome Powell may signal an even shallower easing cycle at this week’s two-day gathering, which begins on Tuesday. Already, economists at Nomura Holdings Inc. scaled back their estimate for Fed rate reductions this year to two cuts from three. And recent trading flows in options markets show investors are seeking protection against the risk of higher long-term yields and fewer rate cuts — even if their longer-term view is for rates to eventually come down.

“The Fed wants to ease but the data isn’t allowing them,” said Earl Davis, head of fixed income and money markets at BMO Global Asset Management. “They want to maintain optionality to ease in summer. But they will start to change, if the labor market is tight and inflation remains high.”

US 10-year yields jumped 24 basis points last week, the most since October, to 4.31% — nearing their year-to-date high of 4.35%. Davis sees 10-year yields rising toward 4.5% a move that would eventually offer an entry point for him to buy bonds. The benchmark rose above 5% last year for the first time since 2007.

Both two- and five-year US yields surged more than 20 basis points, for their biggest rise since May. The selloff extended Treasuries’ losses for the year to 1.84%.

As recently as December, bond traders were all but certain the Fed would start to ease at this week’s meeting. But after a raft of surprisingly strong data on growth and inflation, they see zero chance of action this week, slim odds of a move in May and only a 60% possibility of a cut in June. For the year, traders have penciled in expectations for a total reduction of 71 basis points, meaning a three full-quarter-point cut is no longer seen as guaranteed.

For its part, Nomura now sees the Fed easing in July and December, instead of in June, September and December. “With little urgency to ease, we expect the Fed will wait to see whether inflation is slowing before beginning a rate-cut cycle,” economists including Aichi Amemiya wrote in a note.

The margin to shift the Fed’s median rate projections on its so-called dot-plot is thin. It would take only two policymakers switching to two cuts this year from three for the central bank’s median forecast to move higher.

Read more: Bond Traders Prep for Dot Plot, With Three Cuts in Question

“It’s not going to take a lot” for the median dots to move higher, said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment. “What I am nervous about is the front end of the curve. It’s super-sensitive to the near-term policy path.”

Even if 2024 median rate projections remain intact, the dots in 2025 and 2026 as well as the long-term “neutral” rate — the level seen as neither stoking growth or holding it back — may move higher, a scenario will prompt traders to price in less rate reductions, according to Tim Duy, chief US economist at SGH Macro Advisors LLC.

“We don’t think market participants need to wait for the Fed’s permission” to price in less cuts, wrote Duy. If the two-cut scenario doesn’t materialize this week, it may come by the June meeting, “or at least that market participants will price it as coming by June,” he added. “The risks at this moment are decidedly asymmetric.”

What Bloomberg Intelligence Says …

“Changes are likely to be incremental, though the knee-jerk reaction to a move higher in the 2024 dot may be quickly discounted if the 2025 dots are largely unchanged. …the market is sensitive to the end of next year dots, meaning rate markets may focus on 2025.”

— Ira Jersey, chief US interest-rate strategist

Instead of sweating over two or three reductions, investors shouldn’t lose the big picture that the Fed’s next move is a cut, not a hike, said Baylor Lancaster-Samuel, chief investment officer at Amerant Investments Inc. That means it’s time to buy bonds and take the interest-rate, or “duration” risk, in Wall Street parlance.

“You can debate the timing, but in our opinion, the Fed is still likely to cut sometime this year,” said Lancaster-Samuel. “In that environment, we think the level of rates does not have too much risk of ratcheting higher from here. So we believe the opportunity cost of not taking duration is higher than the risk of taking it.”

Options traders are less sanguine. On the heels of last week’s stronger-than-expected data on producer prices, traders rushed to buy hawkish protection for this year and next in options linked to the Secured Overnight Financing Rate, a measure which closely tracks the central bank policy rate.

“Higher inflation readings, coupled with outsize deficits, the potential for the Fed to remain on hold longer, lends itself to another move toward the 2023 yield highs,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities.

What to Watch
- Economic data:
  
  March 18: New York Fed services business activity; NFIB housing market index
  
  March 19: Building permits; housing starts; TIC flows
  
  March 20: MBA mortgage applications; FOMC meeting
  
  March 21: Current account balance
  
  March 21: Philadelphia Fed business outlook; initial jobless claims; S&P Global US manufacturing PMI; leading index; existing home sales
- Fed calendar:
  
  March 21: Vice Chair for Supervision Michael Barr
  
  March 22: Chair Jerome Powell, Vice Chair Philip Jefferson and Governor Michelle Bowman at Fed Listens event; Barr; Atlanta Fed President Raphael Bostic
- Auction calendar:
  
  March 18: 13-, 26-week bills
  
  March 19: 52-week bills; 42-day cash management bills; 20-year note re-opening
  
  March 20: 17-week bills
  
  March 21: 4-, 8-week bills; 10-year TIPS re-opening
—With assistance from Edward Bolingbroke.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.
[ad_2]

Source link
March 17, 2024
CNBC Daily Open: Sticky inflation muddies water for Fed

[ad_1]

A man shops for fruit at a grocery store on February 01, 2023 in New York City.

Leonardo Munoz | Corbis News | Getty Images

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Stocks rally
Wall Street closed higher on Tuesday with the S&P 500 hitting a fresh record, up 1.1%. The blue-chip Dow gained over 200 points, while the Nasdaq added 1.5% as U.S. inflation data came in mildly higher than expected in February.

Record shareholder payouts
Shareholder payouts hit a record $1.7 trillion last year, according to a new report by British asset manager Janus Henderson. Nearly half of the world’s total dividend growth came from the banking sector, which delivered record payouts as rising borrowing costs lifted lenders’ margins, the report found.

Boeing crisis hurt airlines
CEOs from several airlines say Boeing’s delivery delays have forced the carriers to change their growth plans. Boeing’s crisis has deepened since a door plug blew out midflight from an Alaska Airlines Max 9 in January. Southwest Airlines, Alaska Airlines and United, are some of the top buyers of Boeing’s aircraft that have been impacted by its problems.

Citadel on rate cuts
Inflation tailwinds remain and the Fed shouldn’t cut rates too quickly, says Citadel founder and CEO Ken Griffin. “If I’m them, I don’t want to cut too quickly,” he noted, adding that it will be “more devastating” if they have to change direction after initially cutting rates. “I think they are going to be a bit slower than what people were expecting two months ago in cutting rates.”

[PRO] Buy or sell Nivida?
Nvidia’s stock has surged over 200% in 2023 alone, powered by the global AI frenzy. Is it time to take profit or should investors stay the course? Experts who currently hold the chip giant’s stock share their insights.

The bottom line

Once again, inflation came in hot for a second straight month.

February’s consumer prices data was a touch better than January’s troubling inflation print.

Still, core inflation — which excludes food and energy — was stronger than expected, up 0.4% last month, which reflects lingering stickiness in price pressures.

Investors don’t expect that latest data to move the needle on the Fed cutting rates in June. That could be why markets have had a more muted reaction to the news.

“We have the numbers we have and this wasn’t great news for the Fed but markets don’t see it as a big threat to rate cuts later in the year,” Kathy Jones, chief fixed income strategist at Charles Schwab, said on X.

Yet, the hot print poses a problem for the Fed and muddies the water for its deliberations on the coming rate cuts.

“The long-term disinflation trajectory probably has not changed, but the path to the Federal Reserve’s 2% target will be choppy,” noted LPL Financial chief economist Jeffrey Roach. “Expect to see markets struggle with what this means for Fed policy.”

There is a lot riding for Wall Street when the central bank meets next week. Investors’ main focus will be on whether the Fed will continue to pencil in three rates for this year or will officials decide to change course.

[ad_2]

Source link

March 12, 2024
The Fed’s 2% inflation target is a source of growing liberal discontent

[ad_1]

The Federal Reserve’s goal is to get the inflation rate at least near 2% before it begins cutting interest rates.

That’s a formal target backed by written policy, but it’s also the source of growing liberal discontent serving as another form of political pressure on Fed Chair Jerome Powell as he tries to navigate a white-hot election year.

Some on the left want that number to be higher. Some would prefer the Fed add a second target focused on the labor market. And several Democrats used public hearings this past week with Powell to question the target’s origins and why it has so much importance inside the central bank.

“It seems to come from Auckland and from the 1980s” a somewhat disbelieving Rep. Brad Sherman said Wednesday when it was his turn to question Powell.

The liberal stalwart from California was right. The path to 2% began with an off-the-cuff comment in New Zealand in 1988.

The Fed publicly adopted the standard 24 years later, in 2012, in a process that was met with discomfort from the left side of the political spectrum largely because of the lack of a parallel labor market target.

Senator Sherrod Brown, chairman of the Senate Banking Committee, underlined this dynamic Thursday when he suggested Powell move quickly to cut rates “to prevent workers from losing their jobs” and added that “this town too often seems to forget that maximum employment is part of the Fed’s dual mandate.”

The Fed doesn’t have a numeric labor target even though its dual mandate requires it to aim for both stable prices and maximum employment.

Its inflation target is key because of how rate cuts are decided. Powell and other Fed officials have made it clear they won’t start lowering the benchmark rate from its 22-year high until they are confident inflation is moving down “sustainably” to 2%.

And Powell strongly signaled this week that the 2% inflation target isn’t going anywhere. He mentioned it seven different times within the span of his five-minute-long opening remarks before lawmakers on both Wednesday and Thursday.

He also acknowledged its Kiwi origins in response to Sherman’s questioning but added that “2% has become the global standard, it’s a pretty durable standard.” He reinforced his belief that it wouldn’t be a problem for the US to achieve the 2% level in the months ahead.

“People are always talking about this,” said Preston Mui, who is with a labor market-focused group called Employ America. Changing the target by moving it even higher to 3% “is probably not something that’s politically in the cards for the Fed at all right now.”

But talking about the number has nonetheless “caused a lot of headaches for Powell over the last two to three years,” Mui added.

How the Fed got here

The path to the Fed’s 2% inflation target was a winding one that began with an interview that is now infamous in central banking circles.

Don Brash, who was governor of New Zealand’s Reserve Bank, offered an off-the-cuff comment in 1988 that he wanted an inflation rate between 0 and 1%. That set off a policy-making process and led his nation to adopt a formal 2% target soon thereafter.

Other central banks followed and the moves were criticized from some quarters as being too inflation-focused.

Perhaps the most colorful takedown came from Mervyn King, a British economist who served as governor of the Bank of England. He said in 1997 that he worried a hyper-focus on price targets would lead to central bankers becoming “inflation nutters.”

Don Brash, then the governor of the Reserve Bank Of New Zealand, during a press conference. (Robert Patterson/Getty Images) (Robert Patterson via Getty Images)

The Federal Reserve, under Alan Greenspan at the time, was resistant to a public embrace of the idea but debated it throughout the 1990s and early 2000s.

“If you read FOMC transcripts around inflation targeting it’s a concern,” said Federal Reserve historian Sarah Binder of political considerations in a recent interview.

There was resistance to implementing it during a 2008 downturn, with Ben Bernanke in charge. There was concern among Fed governors that “we’ve got to be worried about pushback from Democrats,” Binder said.

But by 2012, with a recession in the rearview mirror and Bernanke in his second term as chair, the Fed pivoted and a 2% target was publicly adopted.

Bernanke argued in his memoir that a 2% target increases business and consumer confidence and therefore gives the bank more flexibility to address both sides of its dual mandate.

It’s an argument that is still used today, with an explainer on the Fed’s website saying the 2% target “is most consistent with the Federal Reserve’s mandate for maximum employment and price stability.”

But many on the left were never fully on board. Bernanke acknowledged in his memoir that a main liberal voice of that era — Rep. Barney Frank of Massachusetts — brought up the lack of parallel labor market target and “wasn’t completely comfortable” with the policy even if he went along with it in the end.

It’s a critique that has persisted for years.

“I think it should be higher than that,” Rep. Maxine Waters said of the 2% target in an interview with Yahoo Finance’s Jennifer Schonberger this week, saying an increase would help support working families.

Rakeen Mabud, the chief economist at the left-leaning group Groundwork Collaborative, put a finer point on it, saying the target “codifies the fact that inflation is just more important to the Fed than unemployment is.”

The ongoing critique is further contextualized by a 2020 move at the Fed to adopt a flexible average inflation targeting framework. In effect, the change made 2% into a less rigid target by allowing the Fed to look at 2% as an average and allows inflation to run slightly hotter for stretches.

Republicans appear inclined to return to the harder pre-2020 target, with some quarters of the GOP eager to remove employment from the Fed’s dual mandate entirely.

The policy will be under review, Powell said this week, beginning later this year and through the end of 2025.

Why it won’t be so easy to change

The 2% target could grow as an issue in the months ahead, with many Democrats continuing to call for rate cuts even as forecasts have dropped throughout the early months of 2024. Some in the financial world are even predicting zero cuts all year.

“Interest rates are too damn high,” Congresswoman Ayanna Pressley of Massachusetts told Powell.

Another issue for the left is that simply adding a corollary target focused on the unemployment rate — which ticked up to 3.9% in the February jobs report — is not necessarily as easy as it might sound.

Mui, the senior economist at Employ America, said his group is focused on more nuanced measures like the prime age employment rate — the number of younger people working against their overall population — or wage growth or quit rates or overall labor force participation.

“I think if there was this rigid commitment to defining an unemployment target, there’s actually a risk [in some scenarios] that it actually doesn’t pay enough attention to that side of their mandate,” he says.

Ben Werschkul is Washington correspondent for Yahoo Finance.

Click here for politics news related to business and money

Read the latest financial and business news from Yahoo Finance

[ad_2]

Source link

March 10, 2024
CNBC Daily Open: Wall Street rattled over Fed worries

[ad_1]

A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 31, 2024.

Brendan McDermid | Reuters

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Wall Street retreats
U.S. stocks lost ground on Monday and Treasury yields rose amid lingering concerns that the Federal Reserve may not cut rates as much as expected. The blue-chip Dow fell over 200 points. The S&P 500 also slumped after hitting a record high last week. The Nasdaq Composite also dropped 0.2%.

Oil’s supply crunch
The oil market faces a supply crunch by the end of 2025 as the world is not replacing crude reserves fast enough, according to Occidental CEO Vicki Hollub. About 97% of the oil produced today was discovered in the 20th century, she told CNBC.

Palantir surges
Shares of Palantir spiked 19% in extended trading after the company reported revenue that topped analysts’ estimates. In a letter to shareholders, Palantir CEO Alex Karp said demand for large language models in the U.S. “continues to be unrelenting.”

Red Sea tensions
Higher shipping costs due to tensions in the Red Sea could hinder the global fight against inflation, said the Organisation for Economic Co-operation and Development. Clare Lombardelli, chief economist at the OECD, told CNBC that shipping-driven inflation pressures remain a risk rather than its base case.

[PRO] Banking allure
The banking sector offers attractive opportunities despite an increase in volatility, according to fund manager Cole Smead. “It’s the banks that made bad decisions that are making [other] banks look attractive in pricing,” Smead told CNBC, who picked two bank stocks that are in play.

The bottom line

Investors are once again getting ahead of themselves on the Fed’s next move.

Markets were rattled after Federal Reserve Chair Jerome Powell reiterated the central bank is unlikely to rush to lower interest rates.

Wall Street has been parsing his hawkish comments, yet in essence what Powell said over the weekend was no different than what he shared at Wednesday’s press conference: that he wants to see more evidence that inflation is coming down to a sustainable level.

Still, the debate over the timing of rate cuts unsettled Fed watchers.

This sparked a sell-off spurred by higher bond yields. The yield on the 10-year Treasury spiked for a second day, trading around 4.163%. Typically, higher yields tend to indicate investors think the Fed will take longer to cut rates.

Fresh data out Monday also didn’t help. A new survey showed the U.S. services sector expand at a faster-than-expected clip in January.

This on top of the booming jobs report released Friday, fueled investor worries that rates may stay elevated for much longer.

Wall Street will now look ahead to the swath of Fed speakers this week. Perhaps they will shed more light on the path for rate cuts.

[ad_2]

Source link

February 5, 2024
After Jamie Dimon warns of market ‘rebellion’ against $34 trillion national debt, Jerome Powell says it’s past time for an ‘adult conversation’ about unsustainable fiscal policy

[ad_1]

With the United States’ national debt closing in on $34.2 trillion, some of the biggest figures in the world of finance have been speaking out. But few expected Federal Reserve Chairman Jerome Powell to address the issue—at least until this weekend, when Powell spoke out about the debt on CBS’ 60 Minutes Sunday. “In the long run, the U.S. is on an unsustainable fiscal path,” Powell warned.

Even as the U.S. economy avoided a widely forecast recession in 2023, record government spending and lower tax receipts led the national debt to surge to an all-time high. And that trend has continued into this year. The U.S.’s government debt to GDP ratio, a measure of total public debt to economic growth, has surged from just over 100% in 2019 to over 120%. That’s down from the COVID-era peak of 133%, but as Powell put it, the government’s debt is still “growing faster than the economy.”

This means it’s now “past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path,” Powell argued Sunday.

‘Borrowing from future generations’

It’s rare to see a Fed official discuss politics. The U.S. central bank is supposed to be a non-partisan, independent institution, after all. Powell reiterated as much in his 60 Minutes interview over the weekend, saying “we mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job, when actually they have oversight over us.”

But almost immediately after that statement, Powell criticized lawmakers for “effectively borrowing from future generations” with their “unsustainable” policies. “It’s time for us to get back to putting a priority on fiscal sustainability,” he added.

Fed Chair Powell joins a number of critics of fiscal policy and the surging national debt, including JPMorgan Chase CEO Jamie Dimon. Dimon, warned last month that the U.S. economy is headed for a “cliff” if something isn’t done to address the federal government’s excessive debt burden.

“We see the cliff. It’s about 10 years out, we’re going 60 miles an hour [toward it],” he said at a Bipartisan Policy Center panel. Dimon argued that U.S. lawmakers will need to alter the current path of spending and control the national debt or there could be “rebellion” among foreign owners of U.S. government bonds.

Other Wall Street heavyweights have been criticizing rising federal deficits for years. Mark Spitznagel, founder and chief investment officer of the private hedge fund Universa Investments, told Fortune last year that we are living “the greatest credit bubble in human history.”

“And that’s not my opinion, that’s just numbers,” he said. “There is no question about the fact that we are living in an age of leverage, an age of credit, and it will have its consequences.”

Ray Dalio, founder of the hedge fund giant Bridgewater Associates, has also been warning of brewing issues. In December, he argued that the U.S. government is reaching an “inflection point” with its debt problem. Eventually, the government will have to borrow just to make its annual debt servicing payments, and that’s a recipe for a debt crisis, Dalio warned.

Some good news?

The good news? As Powell described Sunday, the U.S. still has a “dynamic, innovative, flexible, adaptable economy, more so than other countries.” Powell argued that this is the “big reason” why the U.S. economy has outperformed its peers over the past few years—but there are a few others, as Fortune detailed last week. America’s dynamic economy means the debt situation isn’t too far gone to rectify just yet. But as Powell said: “sooner is better than later.”

Despite the criticism, Treasury Secretary Janet Yellen has brushed off concerns about the rising national debt. The key metric Yellen looks at is net interest payments as a share of GDP, and that is still “at a very reasonable level,” she argued in a CNBCinterview last September.

Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up for free.

[ad_2]

Will Daniel

Source link

February 5, 2024
2/4/2024: Chairman Powell; A Hole in the System; The Mismatch

[ad_1]

2/4/2024: Chairman Powell; A Hole in the System; The Mismatch – CBS News

Watch CBS News

First, Fed Chair Jerome Powell: The 2024 60 Minutes Interview. Then, a report on the growing number of Chinese migrants crossing into the U.S. at the southern border. And, a look at how a sports betting boom is fueling concerns over problem gambling.

Be the first to know

Get browser notifications for breaking news, live events, and exclusive reporting.

[ad_2]

Source link

February 5, 2024
Fed Chair Jerome Powell: The 2024 60 Minutes Interview

[ad_1]

Fed Chair Jerome Powell: The 2024 60 Minutes Interview – CBS News

Watch CBS News

Federal Reserve Chair Jerome Powell gives his thoughts on inflation risks, the economy, the timeline for cutting rates, the health of the country’s banks and more. Scott Pelley reports.

Be the first to know

Get browser notifications for breaking news, live events, and exclusive reporting.

[ad_2]

Source link

February 4, 2024
Fed Chair Jerome Powell shares why central bank hasn’t yet cut interest rates, even as inflation falls

[ad_1]

Jerome Powell, the chair of the Federal Reserve, may have just rescued the economy from inflation without throwing millions out of work. When Americans were suffering through the highest inflation in 40 years, Powell’s Fed raised interest rates 11 times to cool the economy. Economists expected a recession but now inflation is tumbling while employment is near a 50-year high. Thursday, we met Powell for a rare interview to talk about interest rates, remaining dangers and the one question that’s on everyone’s mind.

Scott Pelley: Is inflation dead?

Jerome Powell: I wouldn’t go quite so far as that. What I can say is that inflation has come down really over the past year, and fairly sharply over the past six months. We’re making good progress. The job is not done. And we’re very much committed to making sure that we fully restore price stability for the benefit of the public.

Scott Pelley: But inflation has been falling steadily for 11 months. You’ve avoided a recession. Why not cut the rates now?

Jerome Powell: Well we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully. And we, you know, want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.

Inflation has fallen from just over 9% to about 3% —near the Fed’s ultimate goal of 2%.

Scott Pelley: Why is your target rate 2%?

Jerome Powell: Interest rates always include an estimate of future inflation. If that estimate is 2%, that means you’ll have 2% more that you can cut in your interest rates. The central bank will have more ammunition, more power to fight a downturn if rates are a little bit higher.

Scott Pelley: Are you committed to getting all the way to 2.0 before you cut the rates?

Federal Reserve Chair Jerome Powell speaking with Scott Pelley

60 Minutes

Jerome Powell: No, no. That’s not what we say at all, no. We’re committed to returning inflation to 2% over time. I’ve said that we wouldn’t wait to get to 2% to cut rates.

We met Powell in the Federal Reserve boardroom where this committee meets every six weeks or so to set the so- called federal funds interest rate– which influences most loans. Last week, Powell announced the rate would stay at its 23-year high, about five-and-a-half percent—unchanged for six months.

Scott Pelley: You disappointed a lot of people on Wednesday.

Jerome Powell: I can’t overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don’t have to think about it in their daily lives. That’s where we were for 20 years. We want to get back to that.

Scott Pelley: Moving too soon would set off inflation again.

Jerome Powell: You could. Or you could just halt the progress. I think more likely if you move too soon, you’d see inflation settling out somewhere well above our 2% target.

Scott Pelley: And what is the danger of moving too late?

Jerome Powell: If you move too late, then you might– you might– policy would be too tight. And that could easily weigh on economic activity and on the labor market.

Scott Pelley: Maybe a recession.

Jerome Powell: Right. And we have to balance those two risks. There is no, you know, easy, simple, obvious path.

Scott Pelley: Was the Fed too slow to recognize inflation in 2021?

Jerome Powell: So in hindsight, it would’ve been better to have tightened policy earlier.

We thought that the economy was so dynamic that it would fix itself fairly quickly and we thought that inflation would go away fairly quickly without an intervention by us. And so in the fourth quarter of ’21, it became clear that inflation was not transitory in the sense that I mentioned. And we pivoted and started tightening. And as I said, it’s essential that we did that. It was critical that we did that. And that’s part of the story why inflation’s coming down now.

We wondered about an interest rate cut in the next committee meeting in March.

Jerome Powell: I think it’s not likely that this committee will reach that level of confidence in time for the March meeting, which is in seven weeks.

The next committee vote, then, would be in May.

Scott Pelley: How would you characterize the consensus around this table for rate cuts? Is everyone onboard?

Jerome Powell: Almost all. Almost all of the 19 participants who sit around this table believe that it will be appropriate in their most likely case for us to cut the federal funds rate this year.

Federal Reserve Chair Jerome Powell

60 Minutes

Cuts in the federal funds rate would likely be a quarter, maybe half a percentage point at a time as long as inflation data remain good.

Jerome Powell: We just want to see more good data along those lines. It doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good. And so, we do expect to see that.

Back in 2021, little seemed good. Inflation ignited after pandemic disruptions and when the federal government spent $5 trillion to keep the economy afloat. Many in Congress questioned Powell’s rapid rate increases and predicted disaster.

Sen. Elizabeth Warren (during June 22, 2022 hearing):And I hope you’ll reconsider that before you drive this economy off a cliff. Thank you, Mr. Chairman.

But strangely, when rates went up, the economy added more than 5 million jobs. Powell told us that’s because of the odd dynamics of the pandemic. Car sales, for example.

Jerome Powell: There was a semiconductor shortage because so many people were buying goods that involve a lot of semiconductors. So, while demand for cars was spiking because people didn’t want to ride public transportation, for example, and they’re moving to the suburbs, while that’s happening you can’t get semiconductors, you can’t make cars. So, there’s a shortage. So, what happened is inflation just spiked. And– but as the semiconductor supply came back, prices– the inflation has moderated a great deal. So it really, these unique features of the pandemic did reverse in a way that brought inflation down.

Jerome Powell turns 71, today. After a career in investment banking, he was appointed to the Fed by Barack Obama, made chairman by Donald Trump and retained by Joe Biden. Powell often travels to listen to the country. And we met him at Spelman College in Atlanta where the talk was of higher prices.

Scott Pelley: Inflation is one thing. Prices are another. And I wonder if there’s any reason to believe that people will see the prices of things decline?

Jerome Powell: So the prices of some things will decline. Others will go up. But we don’t expect to see a decline in the overall price level. That doesn’t tend to happen in economies, except in very negative circumstances. If you think about the basic necessities, things like, you know, bread and milk and eggs prices are substantially higher than they were before the pandemic. And so that’s– we think that’s a big reason why people are– have been relatively dissatisfied with what is otherwise a pretty good economy.

Scott Pelley: But those prices will not soften short of something like a recession.

Jerome Powell: Things that are affected by commodity prices, like, for example, gasoline prices have come way down. Some food prices that– that incorporate the price of commodities, grains and things like that, those can come down. But the overall price level doesn’t come down.

The Federal Reserve was empowered in the Great Depression to regulate the economy by controlling the supply of money and setting interest rates. It also regulates commercial banks for safety –something still challenged by the effects of the pandemic.

Scott Pelley: The value of commercial office buildings all across the country is dropping as people work from home. Those buildings support the balance sheets of banks all across the country. What is the likelihood of another real estate-led banking crisis?

Jerome Powell: I don’t think… I don’t think that’s likely. We’ve looked at the larger banks’ balance sheets, and it appears to be a manageable problem. There’re some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we’re working with them.

60 Minutes

Scott Pelley: You believe it’s a manageable problem? (Powell: I think it appears to be) We’re not gonna see bank failures across the country as we did in 2008?

Jerome Powell: I don’t think there’s much risk of a repeat of 2008. Certainly, there will be some banks that have to be closed or merged out of existence because of this. That’ll be smaller banks, I suspect, for the most part.

Just last year there was a panic at the 16th largest bank. A Federal Reserve report blamed bank mismanagement but also inadequate supervision by the Fed itself.

Scott Pelley: You seem confident in the banks, and yet the Silicon Valley Bank, second largest failure in U.S. history. Did the Fed miss that?

Jerome Powell: So, yes, we did. and we forthrightly– saw that we needed to do better. So, we’ve spent a lot of time working on ways to make supervision more effective and also to adapt regulation to a more– to a modern context in which a bank run can happen so much faster than it could have even 20 years ago.

Another economic hangover after the pandemic is a sharp increase in the national debt. Thirty years from now, it is projected to be $144 trillion or $1 million per household.

Scott Pelley: How do you assess the national debt?

Jerome Powell: We mostly try very hard not to comment on fiscal policy and, you know, instruct Congress on how to do their job when actually they have oversight over us.

Scott Pelley: But is the national debt a danger to the economy in your view?

Jerome Powell: In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government’s on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy.

Scott Pelley: I have the sense this worries you very much.

Jerome Powell: Over the long run, of course it does. You know, we’re– effectively we’re borrowing from future generations. It’s time for us to get back to putting a priority on fiscal sustainability. And sooner’s better than later.

Scott Pelley: What would you say is the single most important factor for the future of American prosperity?

Jerome Powell: With your permission, I’ll name two things. One is I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy. More so than other countries. And this is the big reason why our economy has come through so well. The other thing I’ll point to, for the United States, is really, since World War II, the United States has been the indispensable nation supporting and defending democracy, security arrangements, economic arrangements. We’ve been the leading voice on that. And it is clear that the world wants that. And I would want the United States to know, people in the United States to know that this has benefited our country enormously. It’s– benefits our economy– so much to have this role. And I just– I hope we– I hope that continues.

Jerome Powell has about two years in his current term as chairman. He suggested to us the likely time for the first interest rate cut would be the middle of the year– a few months before the election.

Scott Pelley: Your decisions inevitably are going to have a bearing on this year’s election. And I wonder, to what degree does politics determine your timing?

Jerome Powell: We do not consider politics in our decisions. We never do. And we never will. it’s not easy to get the economics of this right in the first place. These are complicated, you know, risk-balancing decisions. If we tried to incorporate a whole ‘nother set of factors in politics into those decisions, it could only lead to worse economic outcomes. So, we simply don’t do that, and we’re not going to do it. We haven’t done it in the past, and we’re not going to do it now.

Scott Pelley: There are people watching this interview who are skeptical about that.

Jerome Powell: You know, I would just say this. Integrity is priceless. And at the end, that’s all you have. And we plan on keeping ours.

Produced by Henry Schuster. Associate producer, Sarah Turcotte. Broadcast associate, Michelle Karim. Edited by Warren Lustig.

More from CBS News

Scott Pelley

Correspondent, “60 Minutes”

[ad_2]

Source link

February 4, 2024
Bitcoin Set For Weekend Rally Amid New Banking Crisis: Hayes

[ad_1]

Arthur Hayes, the founder of BitMEX, has offered an in-depth analysis of the current financial landscape and its potential impact on Bitcoin, especially in light of the recent challenges faced by New York Community Bancorp (NYCB) and the broader banking sector.

Hayes’s analysis draws on the complex interplay between macroeconomic policies, banking sector health, and the cryptocurrency market. His comments are particularly insightful given the recent developments with NYCB. The bank’s stock plummeted by 46% due to an unexpected loss and a substantial dividend cut, which was primarily attributed to a tenfold increase in loan loss reserves, far exceeding estimates.

This incident raised red flags about the stability and exposure of US regional banks, particularly in the real estate sector, which is known to be cyclically sensitive and vulnerable to economic downturns. The stock market reacted negatively to these developments, with regional US bank stocks also declining due to NYCB’s performance.

Weekend Rally Ahead For Bitcoin?

Hayes explicitly stated, “Jaypow [Jerome Powell] and Bad Burl Yellen [Janet Yellen] will be printing money very soon. NYCB annc a ‘surprise’ loss driven by loan loss reserves rising 10x vs. estimates. Guess the banks ain’t fixed.” This comment underscores the persisting fragility of the banking sector, still reeling from the shocks of the 2023 banking crisis. He added, “10-yr and 2-yr yields plunged, signaling the market expects some sort of renewed bankster bailout to fix the rot.”

Furthermore, Hayes highlighted the impending conclusion of the Federal Reserve’s Bank Term Funding Program (BTFP), which was introduced in response to the 2023 banking crisis. The BTFP was a critical instrument in providing liquidity to banks, allowing them to use a wider range of collateral for borrowing.

Hayes anticipates market turbulence leading to the Fed possibly reinstating the BTFP or introducing similar measures. In a recent statement, he noted, “If my forecast is correct, the market will bankrupt a few banks within that period, forcing the Fed into cutting rates and announcing the resumption of the BTFP.” This scenario, he argues, would create a liquidity injection that could buoy cryptocurrencies like Bitcoin.

In his latest post on X, Hayes drew parallels to the cryptocurrency’s performance during the March 2023 banking crisis. He predicts a similar trajectory, suggesting a brief dip followed by a significant rally:

Expect BTC to swoon a bit, but if NYCB and a few others dump into the weekend, expect a new bailout right quick. Then BTC off to the races just like March ’23 price action. […] I think it might be time to get back on the train fam. Maybe after a few US banks bite the dust this weekend.

During the March crisis, Bitcoin’s value jumped over 40%, a reaction attributed to its perceived role as a digital gold or a safe-haven asset amid financial instability. On a longer time horizon and with the Great Financial Crisis from 2008 in mind, he further argued, “What did the Fed and Treasury do last time US property prices plunged and bankrupted banks globally? Money Printer Go Brrrr. BTC = $1 million. Yachtzee.”

At press time, BTC traded at $42,232.

BTC price got rejected at the 0.236 Fib, 1-day chart | Source: BTCUSD on TradingView.com

Featured image created with DALL·E, chart from TradingView.com

Disclaimer: The article is provided for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

[ad_2]

Jake Simmons

Source link

February 1, 2024
The markets are starting to realize just how hawkish the Fed is–and reckoning with higher-for-longer interest rates

[ad_1]

The first Federal Open Market Committee (FOMC) meeting of 2024 is behind us and the markets no longer seem convinced that we will see an interest rate cut the next time the 12 committee members meet in March. Some 34% of the market expect a rate cut at the next meeting, down from 73% just one month ago. Indeed, I do not expect the Federal Reserve to start cutting rates until the end of the second quarter–at the earliest.

The economic data suggests there is currently very little justification for a rate cut come March. Inflation came in higher than expected in December, the labor market remains as tight as a drum, and retail sales rose more than projected last month. Granted, much of this was driven by the festive season, and the annual January blues will almost certainly drive inflation and spending lower. However, this will likely be a short hiatus before a rebound later in the quarter. Overall, the economy is still running hot, and it is economic data that drives the FOMC’s monetary policy decisions.

Sticky core inflation will keep the Fed on its toes

Inflation in December surprised the market with a rise from 3.1% to 3.4%, while core inflation–the Fed’s preferred measure–rose 0.3% month-over-month (MoM) and 3.9% year-over-year (YoY). Our data reveals that over recent months, inflationary pressures have come primarily from the services sector, though December also saw an uptick in luxury goods purchases.

In turn, services inflation has been exacerbated by the tight labor market. Despite some talk of a softening of labor conditions, December’s unemployment rate remained ultra-low at 3.7%. Initial jobless claims have averaged just under 210,000 in recent weeks–well below historical averages. Indeed, we have not seen a single monthly decline in jobs since 2020.

At the same time, wage growth has sped up again, hitting a rate of 6.5% YoY in November, up from 5.7% in October, driven in part by pressure from unions. Higher wages, combined with spending on credit and stronger consumer sentiment, have fuelled consumer spending. U.S. retail sales beat analysts’ expectations in December with a rise of 0.6% MoM and 5.6% YoY.

A more hawkish FOMC

Against this economic backdrop, the market seems to have misinterpreted the signals from Fed Chairman Jerome Powell. Though the Chairman said a discussion of rate cuts is coming “into view”, he has also been consistently clear that his primary objective remains the 2% inflation target–even at the expense of an economic slowdown. There is nothing in today’s meeting that would suggest he has had a change of heart.

Indeed, Powell’s rhetoric throughout most of 2023 was more hawkish than the market gave him credit for, though we have seen his position soften over the last two months. Yet with core inflation at nearly double the Central Bank’s target, there is little reason to believe we will see a cut this quarter.

If anything, this year’s changing of the guard at the FOMC may lead to an even more hawkish stance. Only one of the four incoming members (San Francisco Fed president Mary Daly) has publicly called for a discussion on rate cuts. Richmond Fed president Tom Barkin wants to see further falls in inflation, Atlanta’s Raphael Bostic predicts cuts in the second half of the year, and Cleveland’s Loretta Mester says the market’s expectations have got “a little bit ahead” of the Fed–a diplomatic understatement if ever we’ve heard one.

It will also be interesting to see whether the committee can maintain the same level of cohesion in its decisions in 2024. After all, this year’s monetary policy calls are likely to be more contentious than what we saw in 2023. A more divided FOMC could also delay any interest rate cuts.

A delicate balance

After a tough 2023, a victory in the Fed’s battle against inflation is now within reach. However, with the economy running hot and an uncertain macroeconomic climate, it is more difficult to predict the course of inflation than it was last year. Several factors, including growing geopolitical unrest, could push inflation higher. However, the effects of monetary tightening also take time to come through, so we may soon begin to see an economic slowdown. As such, balancing its dual mandate will be no easy feat for the Fed this year.

While the economy remains strong and the threat of sticky inflation lingers, the Fed will likely continue to take a cautious stance on interest rates until the murky backdrop becomes clearer. Even when core inflation finally recedes towards the 2% target, we do not foresee the aggressive cutting cycle that many pundits were forecasting. Higher-for-longer rates are here to stay–and it’s time for the market to accept this new paradigm.

Oliver Rust is the head of product at independent data aggregator Truflation.

More must-read commentary published by Fortune:

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

Subscribe to the new Fortune CEO Weekly Europe newsletter to get corner office insights on the biggest business stories in Europe. Sign up for free.

[ad_2]

Oliver Rust

Source link

January 31, 2024
Fed sparking irrational market optimism over potential rate cuts, former FDIC Chair Sheila Bair warns

[ad_1]

Market optimism over the potential for interest rate cuts next year is dangerously overdone, according to former FDIC Chair Sheila Bair.

Bair, who ran the FDIC during the 2008 financial crisis, suggests Federal Reserve Chair Jerome Powell was irresponsibly dovish at last week’s policy meeting by creating “irrational exuberance” among investors.

“The focus still needs to be on inflation,” Bair told CNBC’s “Fast Money” on Thursday. “There’s a long way to go on this fight. I do worry they’re [the Fed] blinking a bit and now trying to pivot and worry about recession, when I don’t see any of that risk in the data so far.”

After holding rates steady Wednesday for the third time in a row, the Fed set an expectation for at least three rate cuts next year totaling 75 basis points. And the markets ran with it.

The Dow hit all-time highs in the final three days of last week. The blue-chip index is on its longest weekly win streak since 2019 while the S&P 500 is on its longest weekly win streak since 2017. It’s now 115% above its Covid-19 pandemic low.

Bair believes the market’s bullish reaction to the Fed is on borrowed time.

“This is a mistake. I think they need to keep their eye on the inflation ball and tame the market, not reinforce it with this … dovish dot plot,” Bair said. “My concern is the prospect of the significant lowering of rates in 2024.”

Bair still sees prices for services and rental housing as serious sticky spots. Plus, she worries that deficit spending, trade restrictions and an aging population will also create meaningful inflation pressures.

“[Rates] should stay put. We’ve got good trend lines. We need to be patient and watch and see how this plays out,” Bair said.

Disclaimer

[ad_2]

Source link

December 18, 2023
Dow surges after Federal Reserve keeps interest rates unchanged

[ad_1]

Dow surges after Federal Reserve keeps interest rates unchanged – CBS News

Watch CBS News

The Dow soared more than 500 points on Wednesday, closing over 37,000 for the first time. The surge came after the Federal Reserve said it is keeping interest rates unchanged for the third time in a row. Gregory Daco, chief economist at Ernst and Young, joins CBS News to unpack the Fed’s decision.

Be the first to know

Get browser notifications for breaking news, live events, and exclusive reporting.

[ad_2]

Source link

December 13, 2023
Dow hits record high as investors cheer Fed outlook on interest rates

[ad_1]

The Dow Jones Industrial Average surged to close at more than 37,000 points for the first time as investors applauded a statement from the Federal Reserve on Wednesday that it could cut its benchmark interest rate next year.

The blue-chip index jumped 512 points, or 1.4%, to end the day at 37,090, topping its prior peak of 36,799 in early 2023. The broader S&P 500 rose 1.4% and is within 1.9% of its own record. The tech-heavy Nasdaq composite added 1.4%.

Fed officials also left their short-term rate unchanged for a third straight meeting amid signs that their aggressive push to subdue inflation is working. With the price spikes that slammed Americans during the pandemic now receding in earnest, Fed Chair Jerome Powell said in a news conference that the federal funds rate is projected to fall to 4.6% by the end of next year, from its current range of 5.25% to 5.5%.

“The Fed decision was more dovish than anticipated on a variety of fronts, including the acknowledgement that growth and inflation have both cooled, the strong signals that rate hikes are finished, and Powell’s admission during the press conference that ‘rates are at or near their peak,’” analyst Adam Crisafulli of Vital Knowledge said in a report.

Lower interest rates curb borrowing costs for consumers and businesses, boosting spending and broader economic growth. Interest rate cuts also tend to buoy riskier assets, including stocks. Markets have steadily pushed higher since October as Wall Street bet that the Fed, which hiked rates 11 times during the latest tightening cycle to their highest level in 22 years — will pivot to cuts in 2024.

While noting that the Fed is not ready to declare victory over inflation, Powell also said Fed officials don’t want to wait too long before cutting the federal funds rate.

“We’re aware of the risk that we would hang on too long” before cutting rates, he said. “We know that’s a risk, and we’re very focused on not making that mistake.”

Inflation holds steady in latest consumer price index report

03:16

Headline inflation around the U.S. edged down November as gas prices fell. The Consumer Price Index edged 0.1% higher last month, leaving it 3.1% higher than a year ago, the Labor Department reported on Tuesday. The so-called core CPI, which excludes volatile food and energy costs, climbed 0.3% after a 0.2% increase in October and is up 4% from a year ago. The Fed targets annual inflation of 2%.

Following the release of the Fed’s rate projections, traders on Wall Street upped their bets for cuts in 2024. Most of those bets now expect the federal funds rate to end next year at a range of 3.75% to 4%, according to data from CME Group.

“We see modest upside for U.S. stocks from current levels,” David Lefkowitz, CIO head of equities at UBS, told investors in a research note. “Both sentiment and positioning have improved, posing greater downside risks if there are any negative economic or earnings surprises.”

—The Associated Press contributed to this report.

Trending News

Alain Sherter

Alain Sherter covers business and economic affairs for CBSNews.com.

[ad_2]

Source link

December 13, 2023
A crunch week for central banks will put rate-cut expectations to the test

[ad_1]

Fed Chairman Jerome Powell prepares to deliver remarks to the The Federal Reserve’s Division of Research and Statistics Centennial Conference on November 08, 2023 in Washington, DC.

Chip Somodevilla | Getty Images

A flurry of major central banks are set to make their final rate decisions of the year in a crunch week that will test market bets for rate cuts in early 2024.

The U.S. Federal Reserve on Wednesday will kick off what is poised to be a pivotal week, followed by a “Super Thursday” when the European Central Bank, Bank of England, Swiss National Bank and Norway’s Norges Bank will all meet.

Policymakers at the central banks are broadly expected to hold interest rates steady, except for Norway’s central bank which warned it would likely raise the cost of borrowing in December.

Investors will be searching for clues in the banks’ statements on when rate cutting could start next year as inflation continues to fall away from its highest level in decades.

“The biggest risk to ‘risk-on’ is the fact that the Fed does not do what the market is telling it that it is going to do, which is slash interest rates over the course of 2024,” David Neuhauser, chief investment officer of Livermore Partners hedge fund, told CNBC’s “Squawk Box Europe” on Monday.

“The market is telling you one thing, so what the market is doing essentially is calling out the Fed’s credibility … and we’ll see who’s right here.”

Rate cuts ahead?

Market participants overwhelmingly expect the Fed to hold rates at 5.25%-5.50%, although traders are pricing in a 25 basis point cut as early as March next year, according to the CME FedWatch Tool.

The Fed has sought to push back on market expectations for aggressive rate reductions next year, however.

Fed Chairman Jerome Powell warned earlier this month that it would be “premature” to speculate when policy might ease and suggested the central bank would be “prepared to tighten policy if it becomes appropriate to do so.”

Livermore Partners’ Neuhauser said the high market expectations for rate cuts contrast with Powell’s recent commentary.

“There’s two different dynamics at play: what the market is telling you, and what Federal Reserve Chairman Powell is telling you, let’s see who has the credibility this time,” Neuhauser said.

Powell has also noted that policy is currently “well into restrictive territory” and said the balance of risks between doing too much or too little were close to balanced.

“When we think about the Fed moving into next year, we think it makes sense that they are on the lookout for when and how much to reduce rates,” Sam Zief, head of global FX strategy at J.P. Morgan Private Bank, told CNBC’s “Street Signs Europe” on Monday.

“As their policy rate is so restrictive, as the unemployment rate gets closer to neutral, as inflation gets closer to neutral, their policy rate should do the same. The real question is: what is the pace of that?”

The Marriner S. Eccles Federal Reserve building during a renovation in Washington, DC, US, on Tuesday, Oct. 24, 2023.

Valerie Plesch| Bloomberg | Getty Images

Ahead of the Fed’s meeting Wednesday, Zief said market participants should be prepared to be slightly disappointed by a lack of clarity over the pace and scale of further interest rate changes.

“Our base case is actually that the Fed isn’t going to say all of that much. The dots probably don’t move all that much. The statement probably doesn’t change all that much,” he added.

The Fed’s approaching rate decision comes shortly after U.S. job creation showed little sign of abating in November. Nonfarm payrolls grew by a seasonally adjusted 199,000 for the month, beating expectations of 190,000, while the unemployment rate dipped to 3.7%, compared with the forecast for 3.9%.

Economists said at the time that the economic data appeared to reflect a job market that continues to be resilient even after a year of dodging recession fears.

What about the ECB?

Major banks elsewhere are set to follow in the Fed’s footsteps with their final respective policy statements on Thursday.

Investors will be closely monitoring the ECB’s meeting for any sign the central bank is poised to impose swift rate cuts in 2024. Euro zone inflation, which exceeded 10% last year, came in at 2.4% in November, reflecting its lowest level in more than two years.

Price rises have dropped quickly toward the ECB’s target levels of 2% in recent months, fueling investor bets for rate cuts early next year.

Christine Lagarde, president of the European Central Bank (ECB), at a rates decision news conference in Frankfurt, Germany, on Thursday, Sept. 14, 2023. The ECB raised interest rates again, acting for the 10th consecutive time to choke inflation out of the euro zone’s increasingly feeble economy.

Bloomberg | Bloomberg | Getty Images

Policymakers have cautioned investors, however, that the “last mile” of tackling disinflation could be the hardest — and it may take twice as long as the battle to get inflation back under 3%.

Economists at Deutsche Bank said in a research note published earlier this month that it was once again bringing forward the timing of the first ECB rate cut to April, citing the latest inflation data and the tone of official commentary. It added that there is also a “significant risk” of a rate cut as soon as March.

“We fear we were too timid,” economists at Deutsche Bank said on Dec. 6. “The risk is now earlier and larger cuts, and an ECB more capable of decoupling from the Fed.”

Economists at Pantheon Macroeconomics have said that while the consensus now expects the first ECB rate cut in June next year, “we still believe March is a good bet.”

[ad_2]

Source link

December 11, 2023
Big bank executives will assure lawmakers the industry's crisis is over, KBW CEO Thomas Michaud predicts

[ad_1]

[ad_2]

Source link

December 5, 2023
Fed needs to cut rates at least five times next year, portfolio manager says

[ad_1]

The Federal Reserve needs to cut interest rates at least five times next year to avoid tipping the U.S. economy into a recession, according to portfolio manager Paul Gambles.

Gambles, co-founder and managing partner at MBMG Group, told CNBC’s “Squawk Box Asia” the Fed was behind the curve on cutting rates, and in order to avoid an extreme and protracted monetary tightening cycle it will have to deliver at least five cuts in 2024 alone.

“I think Fed policy is now so disconnected from economic factors and from reality that you can’t make any assumptions about when the Fed is going to wake up and and start smelling the amount of damage that they’re actually causing to the economy,” Gambles warned.

The current U.S. policy rate stands at 5.25%-5.50%, the highest in 22 years. Traders are now pricing in a 25-basis-point cut as early as March 2024, according to the CME FedWatch Tool.

Federal Reserve Chairman Jerome Powell said on Friday that it was too early to declare victory over inflation, watering down market expectations for interest rate cuts next year.

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks.

Recent data from the U.S. has signaled easing price pressures, but Powell emphasized that policymakers plan on “keeping policy restrictive” until they are convinced that inflation is heading solidly back to the central bank’s target of 2%.

Financial markets, however, perceived his comments as dovish, sending Wall Street’s main indexes to new highs and Treasury yields sharply lower on Friday. The perception now being that the U.S. central bank is effectively done raising interest rates.

Is the inflation battle over?

U.S. consumer prices were unchanged in October from the previous month, lifting hopes that the Fed’s aggressive rate-hiking cycle was starting to bring down inflation.

The Labor Department’s consumer price index, which measures a broad basket of commonly used goods and services, climbed 3.2% in October from a year earlier but remained flat compared with the previous month.

Veteran investor David Roche told CNBC’s “Squawk Box Asia” that unless there were big external shocks to U.S. inflation in the form of energy or food, it was “almost certain” that the Fed was done raising rates, which also means the next rate move will be down.

“I will stick to 3%, which I think is already reflected in many asset prices. I don’t think we’re going to push inflation down to 2% anymore. It’s too embedded in the economy by all sorts of things,” said Roche, president and global strategist at Independent Strategy.

“Central banks don’t have to fight as fiercely as they did before. And therefore, the embedded rate of inflation will be higher than before it will be 3% instead of 2%,” said Roche, who correctly predicted the Asian crisis in 1997 and the 2008 global financial crisis.

It is now left to be seen what the Fed’s interest-rate plans are at its next and final meeting of the year on Dec. 13. Most market players expect the central bank to leave rates unchanged.

[ad_2]

Source link

December 4, 2023
Bitcoin tops $40,000 to hit a 19-month high on ETF hopes, bets on Fed cuts

[ad_1]

Bitcoin, the world’s largest cryptocurrency, has been stealthily rising in 2023.

Chris Ratcliffe | Bloomberg | Getty Images

Bitcoin crossed the $40,000 mark for the first time this year on Monday in Asia, bolstered by anticipation of a bitcoin exchange-traded fund approval and bets on U.S. interest rate cuts.

The world’s largest cryptocurrency surged more than 4% on Monday in Asia to a 19-month high, and traded as high as $41,520 as of 12.30am ET, based on Coin Metrics data. This is the first time since May 2022 that bitcoin has breached the $40,000 level, according to LSEG. Bitcoin is now up more than 145% from the start of the year.

This comes after scandals rocked the market including the collapse of crypto exchange FTX in November last year. Last month, FTX founder Bankman-Fried was found guilty of all seven criminal charges brought against him related to the collapse of his crypto empire.

“Now that $40,000 has been revisited for the first time in almost 19 months, $48,000 and $52,000 look to be the next significant lines in the sand,” said Antoni Trenchev, co-founder of digital asset company Nexo.

CNBC reported last week that U.S. Securities and Exchange Commission officials met with representatives from Grayscale, BlackRock and the Nasdaq. In a memo, the SEC said it met with Grayscale on Thursday about the potential conversion of the Grayscale Bitcoin Trust into an ETF. The SEC had previously blocked this move, but Grayscale challenged that decision in court and won.

This boosted confidence in the market that a bitcoin ETF may eventually be approved, pushing up the price of the world’s largest cryptocurrency.

“How swiftly Bitcoin marches towards $50,000 might well depend on when a spot-Bitcoin ETF is approved and even then, there’s no guarantee the much anticipated nod from the SEC will put a rocket booster under the price,” said Trenchev.

During a fireside chat on Dec. 1, Federal Reserve Chairman Jerome Powell said it’s too early to talk about cutting interest rates right now, and the central bank will be “keeping policy restrictive” until policymakers are sure that inflation is returning solidly to 2%.

“Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand,” he said, according to a transcript.

His comments gave rise to expectations the Fed is probably done raising interest rates for now, as the series of rate hikes since March 2022 have cut into economic activity.

Yet at the same time, Powell said it is “premature to conclude with confidence that we have achieved a sufficiently restrictive stance” and that more hikes could follow.

– CNBC’s Jesse Pound and Jeff Cox contributed to this report.

[ad_2]

Source link

December 3, 2023
Gold soars past $2,100 to new record — and analysts don't expect it to stop there

[ad_1]

Traffic_analyzer | Istock | Getty Images

Gold prices notched a new record on Monday for a second day in a row — with spot prices touching $2,100 as the global rush for bullion appears set to continue.

Gold prices are on course to hit fresh highs next year and could remain above $2,000 levels, analysts said, citing geopolitical uncertainty, a likely weaker U.S. dollar and possible interest rate cuts.

Prices of the yellow metal have risen for two consecutive months with the Israel-Palestinian conflict boosting demand for the safe-haven asset, while expectations of interest rate cuts have provided further support. Gold tends to perform well during periods of economic and geopolitical uncertainty due to its status as a reliable store of value.

“The anticipated retreat in both the USD and interest rates across 2024 are key positive drivers for gold,” UOB’s Head of Markets Strategy, Global Economics and Markets Research, Heng Koon How, told CNBC via email. He estimated that gold prices could reach up to $2,200 by the end of 2024.

Similarly, another analyst is bullish on bullion’s outlook.

“There is simply less leverage this time around vs 2011 in gold … taking prices through $2,100 and putting $2,200/oz in view,” said Nicky Shiels, head of metals strategy at precious metals firm MKS PAMP.

All that glitters is gold

Spot gold prices rose to a new record high of $2,110.8 per ounce Monday before giving up some gains. It is currently trading at $2,084.59.

On Friday, gold touched $2,075.09 to surpass a precious intraday record high of $2,072.5 on Aug. 7, 2020, according to LSEG data.

Bart Melek, head of commodity strategies at TD Securities, expects gold prices to average $2,100 in the second quarter of 2024, with strong central bank purchases acting as a key catalyst in boosting prices.

According to a recent survey by the World Gold Council, 24% of all central banks intend to increase their gold reserves in the next 12 months, as they increasingly grow pessimistic about the U.S. dollar as a reserve asset.

“This means potentially higher demand from the official sector in the years to come,” Melek said.

A possible policy pivot by the Fed in 2024 could also be on the cards, he added. Lower interest rates tend to weaken the dollar and a softer dollar makes gold cheaper for international buyers thus driving up demand.

Gold prices in the past six months

On Friday, while Fed Chairman Jerome Powell pushed back on expectations for aggressive interest rate cuts ahead, his remarks indicated the Fed may at least be done hiking for now.

“We believe the main factors buoying gold in 2024 will be interest rate cuts by the U.S. Fed, a weaker U.S. dollar and high levels of geopolitical tension,” BMI, a Fitch Solutions research unit, said in a recent note.

[ad_2]

Source link

December 3, 2023
CNBC Daily Open: 'Premature' to talk about cutting rates?

[ad_1]

U.S. Federal Reserve Board Chairman Jerome Powell participates in a panel discussion at the 24th Jacques Polak Annual Research Conference on November 8, 2023 in Washington, DC.

Alex Wong | Getty Images News | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Fed Chair Powell says too ‘premature’ to cut rates
Federal Reserve Chairman Jerome Powell said Friday it was too early to declare victory over inflation and beat back on market views for interest rate cuts next year. “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks. Markets perceived his comments as dovish, sending stocks higher and Treasury yields sharply lower.

S&P 500 soars to 2023 high
The S&P 500 rose 0.59% Friday and closed at a new high for 2023, extending a strong rally from November. The Nasdaq Composite ended 0.55% higher, while the Dow Jones Industrial Average added 0.82%. The benchmark index closed at its highest level since March 2022 as investors were hopeful that that the Fed might be done with raising interest rates. Europe’s Stoxx 600 closed 1% higher Friday after finishing its best month since January.

A $1.9 billion regional airlines deal
Alaska Airlines has agreed to buy rival Hawaiian Airlines in a $1.9 billion deal as the carriers make a push to expand along the West Coast. Alaska would pay $18 a share for Hawaiian and would take on $900 million of its debt, the companies said Sunday. The deal could also draw another potential regulatory battle in the second proposed airline merger in less than two years.

Uber gets a spot in the S&P 500
Uber will be added to the S&P 500 Index, replacing Sealed Air Corp. The change will take place prior to the open of trading on Dec. 18. The ride-hailing company made its delivery business profitable faster than expected, while growth in advertising revenue has also contributed to Uber’s profitability.

[PRO] China’s version of Spotify is ‘underappreciated,’ Morgan Stanley says

Tencent Music Entertainment “music value [is] still underappreciated,” Morgan Stanley says even as the company is convincing more people in China to pay for music. The company’s online music subscribers topped 100 million in the July-to-September period, for the first time since it listed in the U.S. in late 2018.

The bottom line

Wall Street is off to a solid start this December, with the major averages recording their fifth straight week of gains on Friday.

This comes on the back of November's spectacular rally which saw markets snapping a three-month losing streak, driven by bets that the Fed may just be done with raising rates and could even start cutting them as soon as the first half of next year.

There was, however, pushback from Fed Chair Jerome Powell, calling the talks of cuts "premature". But stock markets took heart from what traders perceived as a clearly dovish message from the central bank chief.

"There's a trifecta of drivers here. The first is the inflation. Second is the Fed seeming like it may be stepping to the sidelines, and the third is this cooling in the economy that is starting to unfold, but at a very gradual pace," said Mona Mahajan, senior investment strategist at Edward Jones.

"It's almost like a Goldilocks cooling. It's not too hot. It's not too cold. And that's exactly what markets are embracing."

Powell's remarks cemented views that the Fed is at least done raising rates. Powell also noted that inflation was "moving in the right direction."

Fed's meeting on Dec. 13 will help clear the air on its interest-rate plans.

[ad_2]
Source link

December 3, 2023
Wells Fargo unveils 2024 target, warns of ‘really, really sloppy’ first half for stocks

[ad_1]

Wells Fargo Securities is officially out with its 2024 stock market forecast.

Chris Harvey, the firm’s head of equity strategy, sees a volatile path to his S&P 500 to 4,625 year-end target.

“It’s really hard to get excited. If we have better [economic] growth, then the Fed doesn’t do anything,” he told CNBC’s “Fast Money” on Monday. “If we have worse growth, then numbers are going to come down and then the Fed will eventually cut. The second half will be better, but the first half is going to be really, really sloppy.”

Harvey’s target is just 75 points above Monday’s S&P 500’s close.

“Can we go higher from here? Sure, we can go a little bit higher. But I just don’t think you can go a ton higher,” he said. “People have talked about 5,000. I don’t see how you get to that level.”

In his official 2024 outlook note, Harvey told clients to brace for a “trader’s market” instead of a “buy-and-hold situation.” His early year strategy: Start with a risk-averse stance.

“The VIX [CBOE Volatility Index] is up 13. Every time we’ve gone into a new year with the VIX at 13, we’ve seen spikes. We’ve seen the equity market pull back, and it’s just not a great setup into 2024,” Harvey added.

He warns the higher cost of capital is an additional market problem because it prevents multiples from going higher.

“As long as the cost of capital stays higher, it’s really hard for me to get to a much higher price target,” Harvey said.

Yet, he still sees opportunities for investors.

“What we want to do is we want to go to the places that are oversold. We just upgraded utilities today. We upgraded health care,” Harvey noted. “Those are areas that have good valuations, decent fundamentals and most people really aren’t there at this point.”

‘I hate to say that as being head of equity strategy’

Harvey also sees Treasurys as an option.

“If you look at the alternatives, there are things that are pretty attractive. And, I hate to say that as being head of equity strategy, but you can park money at the front of the curve and make a pretty good rate of return and not put on a whole lot of risk,” said Harvey.

His 2023 S&P target is 4,420 — which implies a three percent drop from Monday’s close.

Disclaimer

[ad_2]

Source link

November 27, 2023