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Tag: Jerome Powell

  • The Federal Reserve leaves rates unchanged. Here’s how it impacts your money

    The Federal Reserve leaves rates unchanged. Here’s how it impacts your money

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    The Federal Reserve left its target federal funds rate unchanged Wednesday, but did not signal an end to its aggressive rate hike campaign.

    For households, that offers little relief from sky-high borrowing costs.

    Altogether, Fed officials have raised rates 11 times in a year and a half, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years. 

    “I’m worried for the consumer,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers. “People are hit on both fronts — lower real wages and higher rates.”

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    Since wage growth for many Americans hasn’t been able to keep pace with higher prices, those households are getting squeezed and are going into debt just when borrowing rates are spiking, Philipson said.

    Real average hourly earnings fell 0.5% in August, while borrowers are paying more on credit cards, student loans and other types of debt.

    “Borrowing is very expensive, period,” Philipson said.

    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. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    Here’s a breakdown of how the central bank’s increases so far have affected consumers:

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did as well, and credit card rates followed suit.

    Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.

    For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.

    “Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon,” he said.

    In the meantime, knocking down that debt “should absolutely be the goal,” he said.

    Home loans

    Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist.

    “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated,” he said.

    Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC rate adjusts right away. Already, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate.

    “That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” said Greg McBride, chief financial analyst at Bankrate.com.

    Auto loans

    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.

    The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.

    Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree. 

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

    For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.

    Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    Savings accounts

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. 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 0.43%, on average, according to the Federal Deposit Insurance Corp.

    Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.

    Because the top online savings accounts are currently beating inflation, “money in a savings account is no longer a drag on your portfolio,” McBride said. And yet, only 22% of savers are earning 3% or more on their accounts, according to another Bankrate report.

    “Boosting emergency savings is rewarded with returns exceeding 5%, if you’re putting the money in the right place,” McBride said.

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  • Global growth is set to slow — but there are ‘pockets of resilience,’ Moody’s says

    Global growth is set to slow — but there are ‘pockets of resilience,’ Moody’s says

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    An aerial view shows the Central Bank of India building, in Mumbai, India, 28 September, 2022. (Photo by Niharika Kulkarni/NurPhoto via Getty Images)

    Nurphoto | Nurphoto | Getty Images

    The global economy is set to slow down as inflation remains stickier than expected — but there may be some “pockets of resilience,” according to Moody’s Investors Service.

    “We’re expecting globally a slowdown in growth, and that will have an impact on [emerging markets] Asia through trade conditions as well as access to financing in the region,” Marie Diron, managing director for global sovereign and sub-sovereign risk at Moody’s Investors Service, told CNBC Thursday.

    Diron said the slowdown can be attributed to three factors: higher interest rates that persist, China’s slowing growth, as well as financial system stresses.

    While central banks have managed to steer the global economy and “create a disinflationary trend” by raising interest rates, inflation risks are still a sticking point, she said.

    “There are still risks out there that inflation could prove stickier … than currently expected, and that would lead to higher risks for longer and slower growth,” explained the managing director.

    The Federal Reserve started its steady stream of rate hikes in March 2022, as inflation climbed to its highest in 40 years.

    In the last year and a half, the U.S. central bank has raised the benchmark fed funds rate to between 5.25% to 5.5%. Fed Chair Jerome Powell last Friday warned that additional interest rate increases could be on the table.

    A second risk is financial system stress, Diron said.

    “We’ve seen banks absorbing that period of higher rates, which has had some positive impacts on margins for some, but also needed an adjustment in businesses, an adjustment to continue to attract deposits,” she explained.

    “It could be that there are pockets of stress that currently have not quite emerged that materialize maybe later this year on to next year.”

    Finally, China is a third source of vulnerability.

    Moody’s is not expecting a quick turnaround in the world’s second largest economy and sees “relatively slow growth in China with implications across the region,” Diron said.

    “It is an outlook really clouded by downside risks. And that may have an implication for default rates.”

    China has been battered by a slew of disappointing economic figures, with the latest economic data broadly missing expectations.

    ‘Pockets of resilience’

    While Moody’s expects a coming slowdown, there may be some “pockets of resilience,” Diron said.

    She acknowledged that “we do see a slowdown from this year onto next year,” but added: “We see relatively robust growth and favorable conditions in markets like India and Indonesia.”

    Inflation will always be 'very well contained' in China, analyst says

    Indonesia in particular has the potential to materialize the country’s “vast natural resources” and develop the downstream sectors, through processing of minerals through the value chain, Diron noted.

    The Southeast Asian nation carries large natural deposits including tin, nickel, cobalt and bauxite — some of which are important raw materials for electric vehicle production.

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  • Fed’s hawkish tone sparks interest rate futures shift: November-December hike likely

    Fed’s hawkish tone sparks interest rate futures shift: November-December hike likely

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    NEW YORK Interest rate futures tied to the Federal Reserve’s policy rate on Friday priced in a more than even chance of tightening at either the November or December policy meetings after Chair Jerome Powell struck what market participants perceived to be a moderately hawkish tone.

    The Fed though is widely expected to hold rates steady at a range of 5.25% to 5.50% at the Sept. 19-20 meeting.

    Powell said on Friday Fed policymakers would “proceed carefully as we decide whether to tighten further,” but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.

    He delivered the remarks at the annual economic symposium hosted by the Kansas City Fed held in Jackson Hole, Wyoming.

    “It was clear from the outset that the chair was not going to offer the doves any seeds of hope,” said Ellis Phifer, managing director, fixed income capital markets at Raymond James in Memphis, Tennessee.

    “The economy is running faster than the Fed expected it would, along with the labour market, but inflation is cooling and is expected to do so. The Fed’s stance that higher for longer remains intact.”

    In choppy trading, Refinitiv’s FedWatch on Friday showed a roughly 53% chance of an interest rate increase at the Oct. 31-Nov. 1 meeting. For the Dec. 12-13 meeting, the odds were about 52%.

    At the CME, its own FedWatch tool showed a slightly higher probability of a hike than Refinitiv’s: roughly 57% for the November meeting and 55% in December. A week ago, the rate increase chances were at 36.1% and 31.7%, respectively.

    Interest rate futures tied to the Fed policy rate have shifted notably over the last few weeks.

    A recent backup in Treasury yields may help buttress the Fed’s efforts to weaken demand and slow the momentum of an economy that has so far mostly shaken off the most aggressive monetary tightening in more than a generation.

    The Fed has jacked up its policy rate from near zero in March 2022 to the current range of 5.25% to 5.50%, but the unemployment rate remains at a historically low 3.5% and overall economic growth has defied expectations that it would falter.

    Alongside the rise in bond yields, rate futures have notably repriced as well. While expectations remain firmly in place for the Fed to stand pat next month, the shift in rate futures now puts an increase at either of the final two meetings of the year squarely in play.

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  • Federal Reserve Chair Jerome Powell hints at more bad news for borrowers | CNN Business

    Federal Reserve Chair Jerome Powell hints at more bad news for borrowers | CNN Business

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    Washington, DC
    CNN
     — 

    Additional interest rate hikes are still on the table and rates could remain elevated for longer than expected, Federal Reserve Chair Jerome Powell said Friday.

    Delivering a highly anticipated speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, Powell again stressed that the Fed will pay close attention to economic growth and the state of the labor market when making policy decisions.

    “Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

    The Fed chief’s annual presentation at the symposium, which has become a major event in the world of central banking, typically hints at what to expect from monetary policy in the coming months.

    Powell’s speech wasn’t a full-throated call for more rate hikes, but rather a balanced assessment of inflation’s evolution over the past year and the possible risks to the progress the Fed wants to see. He made it clear the central bank is retaining the option of more hikes, if necessary, and that what Fed officials ultimately decide will depend on data.

    US stocks opened higher before Powell’s speech, tumbled in late morning trading and then rose again.

    The Fed raised its benchmark lending rate by a quarter point in July to a range of 5.25-5.5%, the highest level in 22 years, following a pause in June. Minutes from the Fed’s July meeting showed that officials were concerned about the economy’s surprising strength keeping upward pressure on prices, suggesting more rate hikes if necessary. Some officials have said in recent speeches that the Fed can afford to keep rates steady, underscoring the intense debate among officials on what the Fed should do next.

    Financial markets still see an overwhelming chance the the Fed will decide to hold rates steady at its September meeting, according to the CME FedWatch tool, given that inflationary pressures have continued to wane.

    Here are some key takeaways from Powell’s speech.

    Chair Powell said there is still a risk that inflation won’t come down to the Fed’s 2% target as the central bank faces the proverbial last mile in its battle with higher prices.

    “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said.

    Concerns over the economy running too hot for the Fed’s comfort only recently emerged.

    Economic growth in the second quarter picked up from the prior three-month period and the Atlanta Fed is currently estimating growth will accelerate even more in the third quarter.

    That could be a problem for the Fed, since the central bank’s primary mechanism for fighting inflation is by cooling the economy through tweaking the benchmark lending rate.

    Generally, if demand is red hot, employers will want to hire to meet that demand. But many firms continue to have difficulty hiring, according to business surveys from groups such as the National Federation of Independent Business. In theory, that could prompt wage increases in order to secure talent — and those higher costs could then be passed on to consumers.

    “if you’re a policymaker, you’re looking at the level of output relative to your estimate of what’s sustainable for maximum employment and 2% inflation,” William English, finance professor at Yale University who worked at the Fed’s Board of Governors from 2010 to 2015, told CNN. “So what does that mean for monetary policy? That may mean that they need rates to be higher for longer than they thought to get the economy on to that desirable trajectory, but there are a lot of questions around that force, and a lot of uncertainty.”

    Cleveland Fed President Loretta Mester is one of the Fed officials backing a more aggressive stance on fighting inflation.

    “We’ve come come a long way, but we don’t want to be satisfied, because inflation remains too high — and we need to see more evidence to be assured that it’s coming down in a sustainable way and in a timely way,” Mester said in an interview with CNBC after Powell’s remarks.

    Meanwhile, some other officials think there will eventually be enough restraint on the economy and that more hikes could cause unnecessary economic damage. The lagged effects of rate hikes on the broader economy are a key uncertainty for officials, since it’s not clear when exactly those effects will fully take hold. Research suggests it takes at least a year.

    “We are in a restrictive stance in my view, and we’re putting pressure on the economy to slow inflation,” Philadelphia Fed President Patrick Harker told Bloomberg in an interview Friday after Powell’s speech. “What I’m hearing — and I’ve been around my district all summer talking to people — is ‘you’ve done a lot very quickly.’”

    Powell pointed to the steady progress on inflation in the past year: The Fed’s preferred inflation gauge — the Personal Consumption Expenditures price index — rose 3% in June from a year earlier, down from the 3.8% rise in May. The Commerce Department officially releases July PCE figures next week, though Powell already previewed that report in his speech. He said the Fed’s favorite inflation measure rose 3.3% in the 12 months ended in July.

    The Consumer Price Index, another closely watched inflation measure, rose 3.2% in July, a faster pace than the 3% in June, though underlying price pressures continued to decelerate that month.

    In his speech Friday, Powell stood firmly by the Fed’s current 2% inflation target, which was formalized in 2012 — at least for now. The Fed is set to review its policy framework around 2025, which could be an opportunity to establish a new inflation target.

    Harvard economist Jason Furman said in an op-ed published in The Wall Street Journal this week that the central bank should aim for a different inflation goal, which could be something slightly higher than 2% or even a range of between 2% and 3%.

    For now, Powell has made it clear he is sticking with the stated inflation target.

    Still, inflation’s progress has hyped up not only American consumers and businesses, but also some Fed officials.

    Chicago Fed President Austan Goolsbee reiterated to CNBC Friday that he still sees “a path to a soft landing,” a scenario in which inflation falls down to target without a spike in unemployment or a recession.

    Powell also weighed in on an ongoing debate among economists about whether the “neutral rate of interest,” also known as r*, is higher since the economy is still on strong footing despite the Fed’s aggressive pace of rate hikes.

    In theory, the neutral rate is when real interest rates neither restrict nor stimulate growth. The Fed chair said higher interest rates are likely pulling on the economy’s reins, implying that r* might not be structurally higher, though he said it’s an unobservable concept.

    “We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint,” Powell said.

    Either way, while the Fed chief hinted that more rate hikes might be coming down the pike, there’s no guarantee either way.

    The Fed paused its historic inflation fight for the first time in June, mostly based on uncertainty over how the spring’s bank stresses would affect lending. The central bank could decide to pause again in September over uncertainty as it waits for more data.

    “We think that the Fed is more likely to take a wait-and-see approach with the data and try to understand a little bit more about why the labor market is remaining so strong, even despite the inflationary experience that we’ve had and the higher interest rates in the economy,” Sinead Colton Grant, head of investor solutions at BNY Mellon Wealth Management, told CNN in an interview.

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  • Video: Fed Will ‘Proceed Carefully’ on More Rate Increases, Powell Says

    Video: Fed Will ‘Proceed Carefully’ on More Rate Increases, Powell Says

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    new video loaded: Fed Will ‘Proceed Carefully’ on More Rate Increases, Powell Says

    transcript

    transcript

    Fed Will ‘Proceed Carefully’ on More Rate Increases, Powell Says

    Jerome H. Powell kept the door open to future interest rate increases during his speech at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming.

    It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak, a welcome development, it remains too high. We are prepared to raise rates further, if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or instead to hold the policy rate constant and await further data. Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all. And we will keep at it until the job is done.

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  • Powell’s pivotal speech Friday could see a marked shift from what he’s done in the past

    Powell’s pivotal speech Friday could see a marked shift from what he’s done in the past

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    Federal Reserve Chairman Jerome Powell testifies before the House Committee on Financial Services June 21, 2023 in Washington, DC. Powell testified on the Federal Reserve’s Semi-Annual Monetary Policy Report during the hearing. 

    Win Mcnamee | Getty Images News | Getty Images

    Since he took over the chair’s position at the Federal Reserve in 2018, Jerome Powell has used his annual addresses at the Jackson Hole retreat to push policy agendas that have run from one end of the policy playing field to the other.

    In this year’s iteration, many expect the central bank leader to change his stance so that he hits the ball pretty much down the middle.

    With inflation decelerating and the economy still on solid ground, Powell may feel less of a need to guide the public and financial markets and instead go for more of a call-’em-as-we-see-’em posture toward monetary policy.

    “I just think he’s going to play it about as down the middle as possible,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. “That just gives him more optionality. He doesn’t want to get himself boxed into a corner one way or another.”

    If Powell does take a noncommittal strategy, that will put the speech in the middle of, for instance, 2022’s surprisingly aggressive — and terse — remarks warning of higher rates and economic “pain” ahead, and 2020’s announcing of a new framework in which the Fed would hold off on rate hikes until it had achieved “full and inclusive” employment.

    The speech will start Friday about 10:05 a.m. ET.

    Nervous markets

    Despite the anticipation for a circumspect Powell, markets Thursday braced for an unpleasant surprise, with stocks selling off and Treasury yields climbing. Last year’s speech also featured downbeat anticipation and a sour reception, with the S&P 500 off 2% in the five trading days before the speech and down 5.5% in the five after, according to DataTrek Research.

    A day’s wavering on Wall Street, though, is unlikely to sway Powell from delivering his intended message.

    “I don’t know how hawkish he needs to be given the fact that the funds rate is clearly in restrictive territory by their definition, and the fact the market has finally bought into the Fed’s own forecast of rate cuts not happening until around the middle or second half of next year,” said LaVorgna, who was chief economist for the National Economic Council under former President Donald Trump.

    “So it’s not as if the Fed has to push back against a market narrative that’s looking for imminent easing, which had been the case from essentially most of the past 12 months,” he added.

    Indeed, the markets seem finally to have accepted the idea that the Fed has dug in its heels against inflation and won’t start backing off until it sees more convincing evidence that the recent spate of positive news on prices has legs.

    Yet Powell will have a needle to thread — assuring the market that the Fed won’t repeat its past mistakes on inflation while not pressing the case too hard and tipping the economy into what looks now like an avoidable recession.

    “He’s got to strike that chord that the Fed is going to finish the job. The fact is, it’s about their credibility. It’s about his legacy,” said Quincy Krosby, chief global strategist at LPL Financial. “He’s going to want to be a little more hawkish than neutral. But he’s not going to deliver what he delivered last year. The market has gotten the memo.”

    Inflation’s not dead yet

    That could be easier said than done. Inflation has drifted down into the 3%-4% range, but there are some signs that slowdown could be reversed.

    Energy prices have risen through the summer, and some factors that helped bring down inflation figures, such as a statistical adjustment for health-care insurance costs, are fading. A Cleveland Fed inflation tracker anticipates August’s figures will show a noticeable jump. Bond yields have been surging lately, a response that at least partly could indicate an anticipated jump in inflation.

    At the same time, consumers increasingly are feeling pain. Total credit card debt has surpassed $1 trillion for the first time, and the San Francisco Fed recently asserted that the excess savings consumers accumulated from government transfer payments will run out in a few months.

    Even with worker wages rising in real terms, inflation is still a burden.

    “When all is said and done, if we don’t quell inflation, how far are those wages going to go? With their credit cards, with food, with energy,” Krosby said. “That’s the dilemma for him. He has been put into a political trap.”

    Powell presides over a Fed that is mostly leaning toward keeping rates elevated, though with cuts possible next year.

    Still no ‘mission accomplished’

    Philadelphia Fed President Patrick Harker is among those who think the Fed has done enough for now.

    “What I heard loud and clear through my summer travels is, ‘Please, you’ve gone up very rapidly. We need to absorb that. We need to take some time to figure things out,’” Harker told CNBC’s Steve Liesman during an interview Thursday from Jackson Hole. “And you hear this from community banks loud and clear. But then we’re hearing it even from business leaders. Just let us absorb what you’ve already done before you do more.”

    Philadelphia Fed President Patrick Harker: We should keep restrictive stance for a while

    While the temptation for the Fed now might be to signal it has largely won the inflation war, many market participants think that would be unwise.

    “You’d be nuts to you know, to put out the mission accomplished banner at this point, and he won’t, but I don’t see any need for him to surprise hawkish either,” said Krishna Guha, head of global policy and central bank strategy for Evercore ISI.

    Some on Wall Street think Powell could address where he sees rates headed not over the next several months but in the longer run. Specifically, they are looking for guidance on the natural level of rates that are neither restrictive nor stimulative, the “r-star (r*)” value of which he spoke during his first Jackson Hole presentation in 2018.

    However, the chances that Powell addresses r-star don’t seem strong.

    “There was a sort of general concern that Powell might surprise hawkish. The anxiety was much more about what he might say around r-star and embracing, high new normal rates than it was about how he would characterize the near-term playbook,” Guha said. “There’s just no obvious upside for him in embracing the idea of a higher r-star at this point. I think he wants to avoid making a strong call on that.”

    In fact, Powell is mostly expected to avoid making any major calls on anything.

    At a time when the chair should “take a victory lap” at Jackson Hole, he instead is likely to be more somber in his assessment, said Michael Arone, chief investment strategist at State Street’s US SPDR Business.

    “The Fed likely isn’t convinced inflation has been beaten,” Arone said in a note. “As a result, there won’t be any curtain calls at Jackson Hole. Instead, investors should expect more tough talk from Chairman Powell that the Fed is more committed than ever to defeating inflation.”

    Jim Cramer talks what to expect out of Jackson Hole

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  • CNBC Daily Open: Jackson Hole fears overshadow Nvidia

    CNBC Daily Open: Jackson Hole fears overshadow Nvidia

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    Jerome Powell, chairman of the U.S. Federal Reserve, right, walks the grounds at the Jackson Hole economic symposium in Moran, Wyoming, US, on Thursday, Aug. 24, 2023.

    David Paul Morris | Bloomberg | 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

    Rally fizzles out
    U.S. stocks closed lower Thursday as an earlier Nvidia-sparked rally fizzled out, while Treasury yields climbed higher. The pan-European Stoxx 600 tumbled 0.4%, ending three consecutive days of gains. Separately, Turkey hiked interest rates from 17.5% to 25%, more than the expected 20%. The lira jumped on the news.

    Muted response to Nvidia
    Nvidia shares inched up just 0.1% Thursday, paring earlier gains of as much as 8% when it touched a record high of $502. That’s despite the company reporting an astounding earnings beat after the bell Wednesday. Nvidia’s results scared investors away from competitors as well: Shares of AMD slumped 7%, while that of Intel sank 4.1%.

    Dog days of August
    August is living up to its reputation as a horrid month for stocks. The S&P 500 is down more than 3% so far, on pace to snap a five-month winning streak, while the Nasdaq Composite is headed for its biggest one-month loss since December. Low trading volumes, economic weakness in China and high Treasury yields are all contributing to the August sell-off, writes CNBC’s Fred Imbert.

    Building BRICS
    The BRICS coalition — which comprises Brazil, Russia, India, China and South Africa — extended invitations to six nations. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates will join BRICS on Jan. 1, 2024. A total of 23 countries, including the six set to join the coalition, have formally applied for membership.

    [PRO] A single-stock ETF play
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    The bottom line

    Even Nvidia’s blockbuster earnings couldn’t quell investor anxiety over Jackson Hole.

    Nvidia shares rose just 0.1% despite reporting a 422% year-over-year surge in net income. Perhaps investors, bursting with enthusiasm over the chipmaker, had already priced in the record revenue. Perhaps investors wanted to cash out early after Nvidia’s shares hit a record high earlier in the day — investors have been bracing for a bad August, and an even worse September, which is historically the worst month for stocks. Or perhaps investors were worried about Federal Reserve Chair Jerome Powell’s speech at Jackson Hole.

    (To be clear, analysts still think Nvidia’s shares will pop in the long run. Rosenblatt increased its price target from $800 to $1,100, a new high among Wall Street analysts and an implied 133% upside from Thursday’s close. Big Wall Street banks like Goldman Sachs, Citi and Bank of America were more conservative than that, but still hiked their targets for Nvidia.)

    Last year, the S&P 500 lost 2% in the five trading days before Powell’s Jackson Hole speech, and stumbled 5.5% in the five after, according to DataTrek Research. This time, investors are “worried about what [Powell] might say around r-star and embracing, high new normal rates,” said Krishna Guha, head of global policy and central bank strategy for Evercore ISI. R-star is the value at which interest rates neither stimulate nor restrict the economy. In other words, investors are concerned the Fed might not cut interest rates that much even after inflation subsides.

    History, then, repeated itself. One day before Powell’s speech, stocks fell sharply. The S&P retreated 1.5% and the Nasdaq shed 1.87%, the biggest one-day loss since Aug. 2 for both indexes. The Dow Jones Industrial Average slipped 1.08%, its worst day since March. Technology stocks, because of their sensitivity to interest rates, were the biggest losers of the day: Amazon lost 2.7% and Apple dropped 2.6%. With just one week left before August draws to a close, it seems market sentiment isn’t likely to change soon, even with earth-shattering reports like Nvidia’s.

    — CNBC’s Jeff Cox contributed to this report

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  • The Fed’s focus on ‘real’ rates is what investors should be watching

    The Fed’s focus on ‘real’ rates is what investors should be watching

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  • Fed Reserve officials continue to see

    Fed Reserve officials continue to see

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    As recently as three weeks ago, most Federal Reserve officials said they still viewed high inflation as an ongoing threat that could merit additional interest rate increases. 

    That’s according to the U.S. central bank’s July 25-26 meeting minutes, which were released Wednesday.

    At the same time, the officials saw “a number of tentative signs that inflation pressures could be abating.” It was a mixed view that echoed Chair Jerome Powell’s noncommittal stance about future rate hikes at a news conference after the meeting.

    According to the minutes, “[M]ost participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

    The Fed’s policymakers also felt that despite signs of progress on inflation, it remained well above their 2% target. They “would need to see more data … to be confident that inflation pressures were abating” and on track to return to their target.

    Even so, some analysts on Wall Street are forecasting the Fed might pause on further rate hikes this year and start cutting rates in 2024, pointing to the ongoing trend of lower inflation throughout the year. But the Fed has long signaled that it wants inflation to return to the 2% range before easing up on its campaign of rate increases.

    “The primary takeaway from the recently released minutes from the July FOMC meeting was that central bankers did not rule out additional rate hikes if inflationary pressures rise,” said Sam Millette, fixed income strategist for Commonwealth Financial Network, in an email.


    Recession fears dampened by strong consumer spending

    03:36

    Will the Fed raise rates in September?

    At the July meeting, the Fed decided to raise its benchmark rate for the 11th time in 17 months in its ongoing drive to curb inflation. But in a statement after the meeting, it provided little guidance about when — or whether — it might raise rates again.

    Earlier this week, economists at Goldman Sachs projected that the Fed will skip a rate hike in September and actually start to cut rates by the middle of next year.

    Since last month’s Fed meeting, more data has pointed in the direction of a “soft landing,” in which the economy would slow enough to reduce inflation toward the central bank’s 2% target without falling into a deep recession. The Fed has raised its key rate to a 22-year high of about 5.4%.

    Inflation has cooled further, according to the latest readings of “core” prices, a closely watched category that excludes volatile food and energy costs. Core prices rose 4.7% in July a year earlier, the smallest such increase since October 2021. Fed officials track core prices, which they believe provide a better read on underlying inflation.


    Jobs report shows solid labor market: “Steady path toward soft landing”

    03:34

    Overall consumer prices rose 3.2% in July compared with a year earlier, above the previous month’s year-over-year pace pace because of higher gas and food costs. Still, that is far below the peak inflation rate of 9.1% in June 2022.

    Yet that progress has been made without the sharp increase in unemployment that many economists had expected would follow the Fed’s sharp series of interest rate hikes, the fastest in four decades.

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  • As recession fears fade, we may be experiencing a ‘richcession’ instead — here’s what that means for you

    As recession fears fade, we may be experiencing a ‘richcession’ instead — here’s what that means for you

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    A ‘richcession’ may be underway

    “In most recessions, unemployment rises more for lower-income groups,” 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.

    “Although we are not in an overall recession yet, the demand for and wages of lower-income groups are outpacing higher-income groups.”

    Maskot | Digitalvision | Getty Images

    The start of the year was plagued by waves of layoffs: Employers announced plans to cut 481,906 jobs in the first seven months, up 203% from the 159,021 cuts for the year-earlier period, according to Challenger, Gray & Christmas, a global outplacement and business and executive coaching firm.

    Some sectors, such as banking and tech, have been particularly hard hit, and a series of Wall Street layoffs earlier this summer fueled fears that a recession still looms driven by those professional job losses.

    But there still aren’t enough workers to fill open positions in the service industry and the unemployment rate remains near a 50-year low at just 3.5%. 

    What a ‘richcession’ means for consumers

    “Recession is a loaded term,” said Jacob Channel, senior economist at LendingTree. “White-collar jobs might not be as plentiful as they were last year, but they’re still around.”

    And “at the end of the day, even if white-collar hiring does appear to be on the decline, that doesn’t mean that the entire economy as a whole is struggling,” Channel said.

    “On the contrary, most current data indicates that despite numerous headwinds, the broader economy is doing remarkably well, all things considered,” he added.

    But regardless of the country’s economic standing, many Americans are feeling the pain of higher prices 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. Rather than a “richcession,” this more closely resembles a so-called K-shaped recovery, said Greg McBride, Bankrate.com’s chief financial analyst.

    Wealthy Americans aren’t exactly suffering, but credit card debt is at an all-time high and 61% of adults are living paycheck to paycheck. “Those are signs of financial strain,” he said.

    However this economic period is ultimately defined, it will only be in hindsight, McBride said. “Typically, by the time a recession is declared, the recovery is underway.”

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  • JPMorgan backs off recession call even with ‘very elevated’ risks

    JPMorgan backs off recession call even with ‘very elevated’ risks

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    JPMorgan Chase economists on Friday bailed on their recession call, joining a growing Wall Street chorus that now thinks a contraction is no longer inevitable.

    While noting that risks are still high and growth ahead is likely to be slow, the bank’s forecasters think the data flow indicates a soft landing is possible. That comes despite a series of interest rate hikes enacted with the express intent of slowing the economy, and several other substantial headwinds.

    related investing news

    Inflation takes center stage in the week ahead as Wall Street looks for more clues on Fed rate hikes

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    Michael Feroli, chief economist at the nation’s largest bank, told clients that recent metrics are indicating growth of about 2.5% in the third quarter, compared to JPMorgan’s previous forecast for just a 0.5% expansion.

    “Given this growth, we doubt the economy will quickly lose enough momentum to slip into a mild contraction as early as next quarter, as we had previously projected,” Feroli wrote.

    Along with positive data, he pointed to the resolution of the debt ceiling impasse in Congress as well as the containment of a banking crisis in March as potential headwinds that have since been removed.

    Also, he noted productivity gains, due in part to the broader implementation of artificial intelligence, and improved labor supply even as hiring has softened in recent months.

    Rate risk

    However, he said risk is not completely off the table. Specifically, Feroli cited the danger of Fed policy that has seen 11 interest rate hikes implemented since March 2022. Those increases have totaled 5.25 percentage points, yet inflation is still holding well above the central bank’s 2% target.

    “While a recession is no longer our modal scenario, risk of a downturn is still very elevated. One way this risk could materialize is if the Fed is not done hiking rates,” Feroli said. “Another way in which recession risks could materialize is if the normal lagged effects of the tightening already delivered kick in.”

    Feroli said he doesn’t expect the Fed to start cutting rates until the third quarter of 2024. Current market pricing is indicating the first cut could come as soon as March 2024, according to CME Group data.

    Market pricing also points strongly toward a recession.

    A New York Fed indicator that tracks the difference between 3-month and 10-year Treasury yields is pointing to a 66% chance of a contraction in the next 12 months, according to an update Friday. The so-called inverted yield curve has been a reliable recession predictor in data going all the way back to 1959.

    Changing mood

    However, the mood on Wall Street has changed about the economy.

    Earlier this week, Bank of America also threw in the towel on its recession call, telling clients that “recent incoming data has made us reassess” the forecast. The firm now sees growth this year of 2%, followed by 0.7% in 2024 and 1.8% in 2025.

    Goldman Sachs also recently lowered its probability for a recession to 20%, down from 25%.

    Federal Reserve GDP projections in June pointed to respective annual growth levels ahead of 1%, 1.1% and 1.8%. Chairman Jerome Powell said last week that the Fed’s economists no longer think a credit contraction will lead to a mild recession this year.

    —CNBC’s Michael Bloom contributed.

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  • Banks say conditions for loans to businesses and consumers will keep getting tougher

    Banks say conditions for loans to businesses and consumers will keep getting tougher

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    The U.S. Federal Reserve Building in Washington, D.C.

    Win Mcnamee | Reuters

    Lending conditions at U.S. banks are tight and likely to get tighter, according to a Federal Reserve survey released Monday.

    The Fed’s closely watched Senior Loan Officer Opinion Survey showed that while credit conditions got more strict, demand declined as well.

    Those results are important as economists who expect a recession believe that the most likely source will be from the banking system — which has had to respond to a series of 11 interest rate hikes as well as a momentary crisis in March when three mid-size institutions failed.

    “Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed stated in a survey summary. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”

    On the issue of consumer lending, banks “reported having tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans.”

    Banks also said they are raising the minimum level for credit scores when giving personal loans and are lowering credit limits in the $1.9 trillion consumer loan space.

    In the critical $2.76 trillion commercial and industrial lending segment, the survey noted that a “major” share of banks said they have seen lower demand for loans amid tightening standards across all business sizes.

    Commercial real estate also saw a large share of banks saying they have put more restrictions on standards along with weaker demand.

    Fed officials say they are aware of conditions in the banking sector, though they continue to raise interest rates to try to bring down inflation.

    At his-post meeting news conference last week, Fed Chairman Jerome Powell said he expected the loan survey to be “consistent with what you would expect.”

    “You’ve got lending conditions tight and getting a little tighter, you’ve got weak demand, and you know, it gives a picture of a pretty tight credit conditions in the economy,” Powell said.

    The Fed hiked its key interest rate another quarter percentage point at the meeting, taking it to a target range of 5.25%-5.5%, the highest in more than 22 years.

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  • CNBC Daily Open: The Dow faltered but the U.S. economy charged ahead

    CNBC Daily Open: The Dow faltered but the U.S. economy charged ahead

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    People shop in a Manhattan store on July 27, 2023 in New York City.

    Spencer Platt | 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

    Streak shattered
    The Dow Jones Industrial Average finally ran out of steam and closed the day in the red, ending its 13-day winning streak. Other major U.S. indexes had a     losing day as well. Asia-Pacific markets traded mixed Friday. China’s Shanghai Composite advanced 1.38%. Meanwhile, Japan’s Nikkei 225 briefly fell 2% after the Bank of Japan’s meeting, but recovered in afternoon trading.

    ‘Greater flexibility’ for the BoJ
    The Bank of Japan pledged to “conduct yield curve control with greater flexibility,” even as the bank said it would keep 10-year Japan government bonds within a range of “plus and minus 0.5 percentage points.” The BOJ also kept its short-term interest rate target at -0.1%. The Japanese yen rose to around 138.68 to the U.S. dollar, while yields for the 10-year JGB hit their highest level since September 2014.

    What recession?
    The U.S. economy’s showing no signs of stopping. Gross domestic product grew at an annualized 2.4% rate in the second quarter, according to the Commerce Department. That’s higher than the 2% estimate from Dow Jones and the first quarter’s 2% growth. In other good news, the personal consumption price index rose 2.6% in the second quarter, down from 4.1% in the first.

    Intel’s unexpected profit
    Intel returned to profit in the second quarter after two straight quarters of losses, even as revenue fell year-on-year around 15% to $12.9 billion. That’s because its gross margin was nearly 40% on an adjusted basis. Intel’s forecast for its third-quarter earnings was higher than analyst expectations. In sum, investors appeared pleased, pushing shares up more than 7% in extended trading.

    [PRO] Better than tech stocks
    Tech stocks may have driven most of the gains in the stock market, but there are funds that have performed better than them. CNBC Pro’s Weizhen Tan combed Morningstar data and found 11 funds with five-year annualized returns higher than that of the S&P 500 Equal Weight Information Technology index.

    The bottom line

    Alas! It was exciting while it lasted, but the Dow Jones Industrial Average fell 0.67%, snapping its 13-day winning streak. We’ll have to wait longer — maybe for another century! — to see if it can tie the 14-day record it hit 126 years ago in 1897. (And perhaps in time to come market analysts will bemoan Honeywell, which sank 5.7% on worse-than-expected revenue and was the worst performer in the Dow.)

    Other major indexes on Wall Street didn’t fare so well, either. The S&P 500 slipped 0.64% and the Nasdaq Composite lost 0.55% — even Meta’s 4.4% jump couldn’t offset a broader decline in the tech-heavy index.

    One thing that isn’t losing momentum, however, is the U.S. economy. Second-quarter GDP growth handily beat analysts’ expectations, and it has consumers to thank. Consumer spending increased 1.6%. That doesn’t sound much, but when you consider how it makes up 68% of all economic activity during the second quarter, a small bump can have an outsized effect.

    The U.S. economy hasn’t contracted since the second quarter of 2022. Other positive economic data released yesterday: Durable goods orders rose 4.7%, more than three times the estimate, and weekly jobless claims fell 7,000 to bring it below estimates. All those statistics make predictions of an imminent recession seem increasingly doubtful.

    Of course, the strength of the economy makes it likelier that the Federal Reserve might hike rates again at its September meeting. This sentiment was reflected in the 2-year Treasury yield — typically the most sensitive to short-term interest rates — which jumped more than 10 basis points to 4.931% after the release of GDP data.

    Still, DoubleLine Capital CEO Jeffrey Gundlach told CNBC that “the Fed should really be happy” with the current inflation rate, suggesting rates are as high as they should go. The personal consumer expenditures price index, the Fed’s favorite inflation gauge, comes out later today, and will give a sense if we’re indeed at the end of the hiking cycle — giving the Dow another shot at making history.

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  • CNBC Daily Open: The Dow lost steam but the U.S. economy didn’t

    CNBC Daily Open: The Dow lost steam but the U.S. economy didn’t

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    People shop in a Manhattan store on July 27, 2023 in New York City.

    Spencer Platt | 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

    Streak shattered
    The Dow Jones Industrial Average finally ran out of steam and closed the day in the red, ending its 13-day winning streak. Other major U.S. indexes had a     losing day as well. Europe’s Stoxx 600 index advanced 1.35%, juiced by a 4.2% jump in media stocks and a 4.1% rise in the technology sector.

    What recession?
    The U.S. economy’s showing no signs of stopping. Gross domestic product grew at an annualized 2.4% rate in the second quarter, according to the Commerce Department. That’s higher than the 2% estimate from Dow Jones and the first quarter’s 2% growth. In other good news, the personal consumption price index rose 2.6% in the second quarter, down from 4.1% in the first.

    Intel’s unexpected profit
    Intel returned to profit in the second quarter after two straight quarters of losses, even as revenue fell year-on-year around 15% to $12.9 billion. That’s because its gross margin was nearly 40% on an adjusted basis. Intel’s forecast for its third-quarter earnings was higher than analyst expectations. In sum, investors appeared pleased, pushing shares up more than 7% in extended trading.

    New bank rules
    Banks with more than $100 billion in assets may need to set aside more money against possible losses by July 2028. U.S. regulators announced a set of proposed changes to regulations for the banking industry Thursday. And in response to Silicon Valley Bank’s failure, regulators want more banks to include unrealized losses in their capital ratios under the new rules.

    Another much-anticipated hike
    The European Central Bank on Thursday raised interest rates by 25 basis points, bringing its main rate to 3.75%. The move was widely anticipated, but market watchers aren’t sure if the ECB will pause or continue hiking at its September meeting. Like Federal Reserve Chair Jerome Powell yesterday, ECB President Christine Lagarde left the ECB’s upcoming decision open.

    [PRO] Reasonably priced stocks
    Stock markets have undeniably been rallying, but most of the growth has been driven by Big Tech shares that are trading at expensive valuations, that is, at multiple times their projected earnings. In light of this, Goldman Sachs looked for stocks at a “reasonable” price that are still projected to experience healthy growth.

    The bottom line

    Alas! It was exciting while it lasted, but the Dow Jones Industrial Average fell 0.67%, snapping its 13-day winning streak. We’ll have to wait longer — maybe for another century! — to see if it can tie the 14-day record it hit 126 years ago in 1897. (And perhaps in time to come market analysts will bemoan Honeywell, which sank 5.7% on worse-than-expected revenue and was the worst performer in the Dow.)

    Other major indexes on Wall Street didn’t fare so well, either. The S&P 500 slipped 0.64% and the Nasdaq Composite lost 0.55% — even Meta’s 4.4% jump couldn’t offset a broader decline in the tech-heavy index.

    One thing that isn’t losing momentum, however, is the U.S. economy. Second-quarter GDP growth handily beat analysts’ expectations, and it has consumers to thank. Consumer spending increased 1.6%. That doesn’t sound much, but when you consider how it makes up 68% of all economic activity during the second quarter, a small bump can have an outsized effect.

    The U.S. economy hasn’t contracted since the second quarter of 2022. Other positive economic data released yesterday: Durable goods orders rose 4.7%, more than three times the estimate, and weekly jobless claims fell 7,000 to bring it below estimates. All those statistics make predictions of an imminent recession seem increasingly doubtful.

    Of course, the strength of the economy makes it likelier that the Federal Reserve might hike rates again at its September meeting. This sentiment was reflected in the 2-year Treasury yield — typically the most sensitive to short-term interest rates — which jumped more than 10 basis points to 4.931% after the release of GDP data.

    Still, DoubleLine Capital CEO Jeffrey Gundlach told CNBC that “the Fed should really be happy” with the current inflation rate, suggesting rates are as high as they should go. The personal consumer expenditures price index, the Fed’s favorite inflation gauge, comes out later today, and will give a sense if we’re indeed at the end of the hiking cycle — giving the Dow another shot at making history.

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  • ‘Things are going to break’: Kevin O’Leary predicts Fed hikes will lead to more U.S. regional bank failures

    ‘Things are going to break’: Kevin O’Leary predicts Fed hikes will lead to more U.S. regional bank failures

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    “Shark Tank” investor Kevin O’Leary predicts the ongoing cycle of U.S. Federal Reserve rate hikes could lead to more regional U.S. bank failures.

    Fed Chair Jerome Powell said the central bank is not yet fully confident that inflation is defeated even though recent headline reads show that price increases have cooled significantly.

    The consumer price index rose 3% from a year ago in June — the lowest level since March 2021. But Powell said the Fed would need to “hold policy at a restrictive level for some time” and be prepared to raise rates further, given that core inflation is still above 3% — higher than its 2% annual target.

    “You keep squeezing the toothpaste tube, you keep rolling it up, you keep raising rates, and you know things are going to break, you just don’t know when and where,” O’Leary, who runs his own early stage venture capital firm, O’Leary Ventures, told CNBC’s “Street Signs Asia” early Thursday after the Fed’s latest rate hike announcement.

    “I am just predicting — and I am very cautious on this — it will break down in the regional banks, which supports 60% of the economy,” he said, adding that the rapid rise in the cost of capital is “killing them on their real estate loans.”

    “You keep squeezing the toothpaste tube, you keep rolling it up, you keep raising rates, and you know things are going to break, you just don’t know when and where,” Kevin O’Leary said.

    Alex Wong | Getty Images News | Getty Images

    Traders react as Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen, on the floor of the New York Stock Exchange (NYSE) in New York City, March 22, 2023.

    15 years of low interest rates reshaped the U.S. economy. Here’s what’s changing as rates stay higher for longer

    “Terminal rate, where the Fed stops, could be 6.25, could be 6.50,” O’Leary said. “So you’ve really got to think about this if you think about the long term and the short-term effect.”

    That’s higher than the Fed’s median end-2023 forecast for its funds rate, which stands at 5.6% as of the June meeting. It is also higher than the most hawkish prediction of 6.1%, according to the Fed’s latest summary of economic projections issued in June.

    “We’ve started to see the cracks, the Titanic has not [sunk],” O’Leary said.

    Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank.”

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  • Federal Reserve hikes key interest rate to highest level in 22 years

    Federal Reserve hikes key interest rate to highest level in 22 years

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    After briefly pausing its war on inflation last month, the Federal Reserve is resuming the battle by hiking its benchmark interest rate to the highest level in 22 years.

    The central bank concluded a two-day policy meeting on Wednesday by announcing that it is raising the federal funds rate by a quarter of a percentage point, lifting the Fed’s target rate to between 5.25% and 5.5%. 

    The Fed left the door open to further rate hikes this year, with Chair Jerome Powell telling reporters in a news conference that additional tightening is possible unless inflation continues to cool rapidly.

    “What our eyes are telling us is policy has not been restrictive enough for long enough to have its full desired effects. So we intend to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that is appropriate,” he said. “The process still probably has a long way to go.”

    The Fed’s current rate-hiking cycle, its most aggressive push to tighten monetary policy since the 1980s, has proved effective in dousing the hottest bout of inflation in four decades by raising borrowing costs for consumers and businesses. 

    Since the central bank began tightening in March 2022, mortgage rates have more than doubled while the costs of car loans and credit cards have surged. The hikes have also squeezed technology companies and banks that were reliant on low interest rates, putting some out of business and forcing others to cut tens of thousands of workers. 

    Inflation around the U.S. is now just half its level from a year ago, with prices rising at a roughly 3% annual rate — lower than the pace of workers’ pay increases. Still, the Fed has expressed concern that core inflation, which leaves out food and fuel prices, remains well above the bank’s 2% target. Core inflation was at 4.8% last month.

    Although prices have fallen, the country continues to enjoy solid job growth and consumer spending, which could raise concerns the economy is still running hot enough to cause inflation to rebound. On the other hand, some economists and business leaders say that raising rates too high may increase the risk that the U.S. could plunge into a recession.

    “It remains uncertain whether the Fed is going to raise rates again this year, but if they do there is a real risk that they will overshoot, weakening the labor market and sending the economy into recession,” Lisa Sturtevant, chief economist at Bright MLS, said in an email.

    The stock market remained generally flat in Wednesday afternoon trading, with most investors having expected the latest rate hike. 

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  • Fed approves hike that takes interest rates to highest level in more than 22 years

    Fed approves hike that takes interest rates to highest level in more than 22 years

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    WASHINGTON – The Federal Reserve on Wednesday approved a much-anticipated interest rate hike that takes benchmark borrowing costs to their highest level in more than 22 years.

    In a move that financial markets had completely priced in, the central bank’s Federal Open Market Committee raised its funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.

    related investing news

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    Markets were watching for signs that the hike could be the last before Fed officials take a break to watch how the previous increases are impacting economic conditions. While policymakers indicated at the June meeting that two rate rises are coming this year, markets have been pricing in a better-than-even chance that there won’t be any more moves this year.

    During a news conference, Chairman Jerome Powell said inflation has moderated somewhat since the middle of last year, but hitting the Fed’s 2% target “has a long way to go.” Still, he seemed to leave room to potentially hold rates steady at the Fed’s next meeting in September.

    “I would say it’s certainly possible that we will raise funds again at the September meeting if the data warranted,” said Powell. “And I would also say it’s possible that we would choose to hold steady and we’re going to be making careful assessments, as I said, meeting by meeting.”

    Powell said the FOMC will be assessing “the totality of the incoming data” as well as the implications for economic activity and inflation.

    Markets initially bounced following the meeting but ended mixed. The Dow Jones Industrial Average continued its streak of higher closings, rising by 82 points, but the S&P 500 and Nasdaq Composite were little changed. Treasury yields moved lower.

    “It is time for the Fed to give the economy time to absorb the impact of past rate hikes,” said Joe Brusuelas, U.S. chief economist at RSM. “With the Fed’s latest rate increase of 25 basis points now in the books, we think that improvement in the underlying pace of inflation, cooler job creation and modest growth are creating the conditions where the Fed can effectively end its rate hike campaign.”

    The post-meeting statement, though, offered only a vague reference to what will guide the FOMC’s future moves.

    “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said in a line that was tweaked from the previous months’ communication. That echoes a data-dependent approach – as opposed to a set schedule – that virtually all central bank officials have embraced in recent public statements.

     The hike received unanimous approval from voting committee members.

     The only other change of note in the statement was an upgrade of economic growth to “moderate” from “modest” at the June meeting despite expectations for at least a mild recession ahead. The statement again described inflation as “elevated” and job gains as “robust.”

    The increase is the 11th time the FOMC has raised rates in a tightening process that began in March 2022. The committee decided to skip the June meeting as it assessed the impact that the hikes have had.

    Since then, Powell has said he still thinks inflation is too high, and in late June said he expected more “restriction” on monetary policy, a term that implies more rate increases.

    The fed funds rate sets what banks charge each other for overnight lending. But it feeds through to many forms of consumer debt such as mortgages, credit cards, and auto and personal loans.

    The Fed has not been this aggressive with rate hikes since the early 1980s, when it also was battling extraordinarily high inflation and a sputtering economy.

    News lately on the inflation front has been encouraging. The consumer price index rose 3% on a 12-month basis in June, after running at a 9.1% rate a year ago. Consumers also are getting more optimistic about where prices are headed, with the latest University of Michigan sentiment survey pointing to an outlook for a 3.4% pace in the coming year.

    However, CPI is running at a 4.8% rate when excluding food and energy. Moreover, the Cleveland Fed’s CPI tracker is indicating a 3.4% annual headline rate and 4.9% core rate in July. The Fed’s preferred measure, the personal consumption expenditures price index, rose 3.8% on headline and 4.6% on core for May.

    All of those figures, while well below the worst levels of the current cycle, are running above the Fed’s 2% target.

    Economic growth has been surprisingly resilient despite the rate hikes.

    Second-quarter GDP growth is tracking at a 2.4% annualized rate, according to the Atlanta Fed. Many economists are still expecting a recession over the next 12 months, but those predictions so far have proved at least premature. GDP rose 2% in the first quarter following a large upward revision to initial estimates.

    Employment also has held up remarkably well. Nonfarm payrolls have expanded by nearly 1.7 million in 2023, and the unemployment rate in June was a relatively benign 3.6% – the same level as a year ago.

    “It has been my view consistently, that … we will be able to achieve inflation moving back down to our target without the kind of really significant downturn that results in high levels of job losses,” Powell said.

    Along with the rate hike, the committee indicated it will continue to cut the bond holdings on its balance sheet, which peaked at $9 trillion before the Fed began its quantitative tightening efforts. The balance sheet is now at $8.32 trillion as the Fed has allowed up to $95 billion a month in maturing bond proceeds to roll off.

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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 by a quarter of a point Wednesday, in its continued effort to tame inflation.

    In a move that financial markets had completely priced in, the central bank’s Federal Open Market Committee raised the funds rate to a target range of 5.25% to 5.5%. The midpoint of that target range would be the highest level for the benchmark rate since early 2001.

    After holding rates steady at the last meeting, the central bank indicated that the fight to bring down price increases is not over despite recent signs that inflationary pressures are cooling.

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    Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

    For now, inflation remains above the Fed’s 2% target; however, “it’s entirely possible that this could be the last hike in the cycle,” said Columbia Business School economics professor Brett House.

    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 affect the borrowing and saving rates consumers see every day.

    This hike — now the 11th interest rate increase since March 2022 — 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 in hopes of sidestepping a possible recession.

    “The pain that the rate hike has caused for a lot of people isn’t gratuitous,” House said. “Ultimately, this is a trade off in choices between pain now and greater pain later if inflation isn’t brought under control.”

    How higher interest rates can affect your money

    1. Credit card rates are at record highs

    Srdjanpav | E+ | Getty Images

    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 credit card rates follow suit within one or two billing cycles.

    The average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry credit card debt from month to month, according to a Bankrate report.

    Altogether, this rate hike will cost credit card users at least an additional $1.72 billion in interest charges over the next 12 months, according to an analysis by WalletHub.

    “It’s still a tremendous opportunity to grab a zero percent balance transfer card,” said Greg McBride, Bankrate’s chief financial analyst. “Those offers are still out there and if you have credit card debt, that is your first step to give yourself a tailwind on a path to debt repayment.”

    2. Mortgage rates will stay high

    Because 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, homeowners won’t be affected immediately by a rate hike. However, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage currently sits near 7%, according to Freddie Mac.

    Since the coming rate hike is largely baked into mortgage rates, homebuyers are going to pay roughly $11,160 more over the life of the loan, assuming a 30-year fixed rate, according to WalletHub’s analysis.

    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 8.58%, the highest in 22 years, according to Bankrate.

    3. Car loans are getting 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 rate on a five-year new car loan is already at 7.2%, the highest in 15 years, according to Edmunds.

    The double whammy of relentlessly high vehicle pricing and daunting borrowing costs is presenting significant challenges for shoppers.

    Ivan Drury

    director of insights at Edmunds

    Paying an annual percentage rate of 7.2% instead of last year’s 5.2% could cost consumers $2,278 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

    “The double whammy of relentlessly high vehicle pricing and daunting borrowing costs is presenting significant challenges for shoppers in today’s car market,” said Ivan Drury, Edmunds’ director of insights.

    4. Some student loans are pricier

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will pay an interest rate of 5.50%, up from 4.99% in the 2022-23 academic year.

    For now, anyone with existing federal education debt will benefit from rates at 0% until student loan payments restart in October.

    Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers will also pay more in interest. But how much more will vary with the benchmark.

    What savers should know about higher rates

    PM Images | Iconica | Getty Images

    The good news is that interest rates on savings accounts are also higher.

    While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate. 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 0.42%, on average.

    Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now at more than 5%, the highest since 2008′s financial crisis, with some short-term certificates of deposit even higher, according to Bankrate.

    However, if this is the Fed’s last increase for a while, “you could see yields start to slip,” McBride said. “Now’s a good time to be locking that in.”

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  • Expect more rate hikes from the Fed after the latest jobs report | CNN Business

    Expect more rate hikes from the Fed after the latest jobs report | CNN Business

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    Washington, DC
    CNN
     — 

    An interest rate hike later this month was already in the cards for the Federal Reserve. But after the June jobs report, the timing of a second hike remains unclear.

    Job gains remain robust, wage growth is still going strong, and unemployment continues to hover near historic lows. That means the job market is still fueling demand in the economy, which the Fed has been trying to slow through rate hikes. And Fed officials have made it clear they think the central bank still has more work to do to bring down inflation, which is still running well above the 2% goal.

    Federal Reserve Bank of Chicago President Austan Goolsbee, a voting member of the Fed committee that decides interest rates, said in an interview Friday that he sees “a decent chance of further tightening down the pipeline” and that inflation “needs to come down more.”

    Other Fed officials have struck a similarly hawkish tone on inflation, hinting strongly at a hike in July.

    “I remain very concerned about whether inflation will return to target in a sustainable and timely way,” said Federal Reserve Bank of Dallas President Lorie Logan on Thursday during a meeting hosted by the Central Bank Research Association. “I think more restrictive monetary policy will be needed to achieve the Federal Open Market Committee’s goals of stable prices and maximum employment.”

    Fed officials voted last month to hold the key federal funds rate steady at a range of 5-5.25% to reassess the economy after a string of 10 consecutive rate hikes and to monitor the effects of bank stresses in the spring, according to minutes from that meeting released Wednesday.

    “We can take some time and assess and collect more information and then be able to act, knowing that we also communicated through our projections that we don’t think we’re done, based on what we know,” said New York Fed President John Williams Wednesday during a moderated discussion in New York. “And obviously we’re absolutely committed to achieving our 2% inflation goal.”

    And Fed Chair Jerome Powell himself has doubled down on the need for more rate increases in recent speeches, not ruling out back-to-back hikes, despite economic indicators showing slight progress on inflation.

    Financial markets are pricing in a more than a 90% chance of a rate hike later this month, according to the CME FedWatch Tool.

    The Fed wants to see the labor market slow down broadly, bringing it into “better balance,” as Powell has frequently described it. That means wage growth would need to cool consistently, monthly payroll growth would need to be close to a range of 70,000 and 100,000 — the smallest job gain needed to keep up with population growth — and unemployment would need to rise, according to economists. Job market conditions don’t resemble that just yet.

    “This is clearly a very tight labor market, so I expect the Fed to look at this data and say there is justification here for continued small rate increases because the labor market is not cooling enough,” Dave Gilbertson, labor economist at payroll software company UKG, told CNN.

    Labor costs are higher because of a persistent difficulty in hiring, weighing on labor-intensive service providers such as hospitals and restaurants, which has put upward pressure on consumer prices since businesses typically raise wages to address hiring challenges.

    Powell homed in on that dynamic in recent remarks, and research from top economists argues the Fed will have to slow the economy further to fully address the labor market’s stubborn impact on inflation. Whether that means a full-blown recession or a so-called soft landing remains to be seen, but some Fed officials are optimistic.

    “I feel like we are on a golden path of avoiding recession,” Goolsbee told CNBC Friday.

    And there has been some progress on bringing the job market back into better balance while inflation has come down. Job openings fell to 9.82 million in May, down from a peak of 12 million in March 2022, though they still greatly exceed the number of unemployed people seeking work. And June’s jobs total of 209,000 is still robust by historical standards.

    But Gilbertson said labor shortages have been largely driven by demographic shifts, which might keep the job market tight for the foreseeable future.

    Beyond the expected hike in July, the Fed is going to remain laser-focused on wage growth to inform its decision-making later in the year. Central bank officials will pay particular attention to the Employment Cost Index, which recently showed that pay gains picked up in the first three months of the year. The index for the second quarter will be released in late July — after the Fed meets.

    “The focus is on the path of wage inflation because of its pass-through to services inflation,” said Sonia Meskin, head of US Macro at BNY Mellon IM.

    The June jobs report showed that average hourly earnings growth was unchanged at 0.4% from the month before and also unchanged at 4.4% year-over-year — not a welcome development.

    Core inflation hasn’t decelerated as fast as the headline measure because of the tightness in the labor market. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose 3.8% in May from a year earlier, down from April’s 4.3% rise; while the core measure edged lower to 4.6% from 4.7% during the same period.

    Within the core measure, services inflation also remains sticky and Powell said in last month’s post-meeting news conference that “we see only the earliest signs of disinflation there” and that the services sector’s “largest cost would be wage cost.”

    The Fed’s strategy to address services inflation is simply by curbing demand through more rate hikes. So, in addition to the labor market, the Fed is highly attentive to consumer spending, which has cooled in the past several months, according to figures from the Commerce Department.

    Other headwinds are expected to weigh on consumers in the months ahead, such as the resumption of student loan payments and the Supreme Court blocking President Joe Biden’s student loan forgiveness program. Americans are also running down their savings accounts while racking up debt, so US consumers may need to start cutting back soon.

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  • How stocks reacted to Fed chief’s comments and why Nvidia trimmed most of its losses

    How stocks reacted to Fed chief’s comments and why Nvidia trimmed most of its losses

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