Federal Reserve – Page 11 – Digital Finance Analytics (DFA) Blog

Crunch Time Cometh…

The Dow jumped Wednesday, led by growth stocks including tech as Treasury yields slipped after the Federal Reserve delivered its biggest rate since 1994.

The Federal Reserve raised interest rates by 75 basis points — the biggest increase since 1994 — and Chair Jerome Powell signaled another big move next month, intensifying a fight to contain rampant inflation.
Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond, Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5% to 1.75%. He admitted that the recent upside inflation had forced the central bank’s hand into tightening monetary policy by more than expected.

In the press conference that followed, Powell said there was a need to “front load” rate hikes, signaling the aggressive hikes now may not be followed up in the future with similarly aggressive hikes.

Federal Reserve Chair Jerome Powell says either a 50 basis-point or 75 basis-point rate hike seems most likely at the next meeting of the central bank’s Federal Open Market Committee. He speaks at a news conference following the Fed’s decision to raise rates by 75 basis points, the biggest increase since 1994.

He said another 75 basis-point hike, or a 50 basis-point move, was likely at the next meeting of policy makers. They forecast interest rates would rise even further this year, to 3.4% by December and 3.8% by the end of 2023.

That was a big upgrade from the 1.9% and 2.8% that they penciled in for their March projections.

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Markets Grab The Relief Rally Bone As The Fed Hikes!

We look at the Fed’s rate move, how the market reacted, and what it means ahead.

Overnight the The U.S. Federal Reserve delivered the biggest hike in interest rates since 2000 to a range of 0.75% to 1% from 0.25% to 0.5% previously. Ahead of the meeting, Fed Chairman Jerome Powell had hinted last month that a 50 basis points increase in the Fed funds rate was on the table. But considering the recent market falls, and the range of tightening measures already in play, the market’s expectation of a 75 basis point hike was always unlikely.

But Chair Jerome Powell did again say “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,”

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Policy Missteps Have Real World Consequences!

Wall Street’s ended lower on Thursday, with the NASDAQ dropping more than 2%, as investors reacted to Federal Reserve officials including Chair Jerome Powell offering further signposting of aggressive interest rate hikes this year.

He outlined his most aggressive approach to taming inflation to date, potentially endorsing two or more half percentage-point interest-rate increases while describing the labor market as overheated.

“I would say that 50 basis points will be on the table for the May meeting,” Powell said at an IMF-hosted panel on Thursday in Washington that he shared with European Central Bank President Christine Lagarde and other officials. He said demand for workers is “too hot — you know, it is unsustainably hot.”

Australian shares dropped 1.4 per cent, or 108.5 points, to 7484.3, in early trade, tracking Wall Street and pulling away from a near record high on Thursday.

Ten out of the index’s 11 categories fell with materials the biggest laggard down 3.5 per cent. Industrials stocks were unchanged.

The major banks and mining giants were also under pressure. The AUD was down a little to 73.64. This continues a decoupling if the AUD and commodities, which is worth a more detailed separate post.

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Fed Minutes Stoke The Dollar, Shares Slide Some More (But Don’t Mention The Ruble!)

Stock indexes fell on Wednesday and the U.S dollar surged to a nearly two-year peak, after the Federal Reserve released minutes from its last meeting that reinforced views the central bank may tighten aggressively to curb inflation.

According to minutes of the March 15-16 policy meeting, Fed officials “generally agreed” to cut up to $95 billion a month from the central bank’s asset holdings as another tool in the fight against surging inflation, even as the war in Ukraine tempered the first U.S. interest rate increase.

In March, the Fed raised rates for the first time since 2018 and pivoted away from an easy monetary policy during the coronavirus pandemic. The FOMC is expected to approve the balance-sheet reduction at its next gathering May 3-4.

The United States imposed more sanctions on Russia on Wednesday, as Russian forces bombarded cities in Ukraine. But the Ruble fights back, thanks to the elevated price of oil driving bigger receipts for Russia. So how effective will sanctions be?

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The Inflation Problem…

Stocks finished with sharp losses in the US on Thursday, dropping after the January consumer-price index showed a much hotter-than-expected 7.5% year over year jump. And Equities took another leg lower in afternoon trade after St. Louis Federal Reserve Bank President James Bullard told Bloomberg that he would like to see the central bank deliver 100 basis points, or 1 percentage point, worth of rate increases over its next three meetings.

The Dow Jones Industrial Average dropped 1.47%, to close near 35,242, while the S&P 500 fell 1.81%, to close near 4,504. The NASDAQ Composite tumble 2.1%, ending near 14,186.

The Treasury Yield shot higher, with the 10 year up 5.67% to 2.036 – cross the 2% level for the first time since 2019. The two year was up 18.62% to 1.599. The markets thinks rates are going higher faster.

US inflation hit a 40-year-high in January after food, electricity, and shelter drove a bigger than expected rise in the consumer price index and pushed financial markets to price in a higher chance the Federal Reserve will hike rates by 0.50 percentage points in just over a fortnight.

Excluding the volatile food and energy components, so-called core prices increased 6% from a year ago, the most since 1982, and 0.6% from a month earlier.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The FED’s Balance Sheet BS

The markets and analysts are all focussing on the potential for the FED to lift interest rates this year, perhaps 3 times, or significantly more. But actually, we think the FED’s balance sheet is where much of the action, and market attention should be. It indicated it may be ready to start raising interest rates, dial back on its bond-buying program, and engage in high-level discussions about reducing holdings of Treasuries and mortgage-backed securities. The process of reversing the trillions of dollars of pandemic bond purchases, or quantitative easing, is technical, wonky, and somewhat opaque.

“Interest rate hikes are yesterday’s news,” Morgan Stanley Managing Director Jim Caron told Yahoo Finance on Tuesday. Caron said the “main thrust” of Fed policy will come from how it undoes the stimulus coming from its balance sheet.

Because of the massive amount of buying in response to the pandemic, the Fed owns about a third of both the Treasury and mortgage markets. If the idea for higher rates is to curb inflation, long-term rates won’t really rise until the Fed’s huge footprint diminishes, rendering rate increases on their own ineffective if bond markets aren’t speaking for themselves.

The latest weekly FED Total Assets (Less Eliminations) was released on Wednesday as reported by The St Louis Fed. Total Assets were $8.788 trillion, up by 0.26% this week, yes in the week when Powell underscored inflation was the battle now to be won (over against full employment), and that balance sheet reduction was on the cards.

“We’re mindful that the balance sheet is $9 trillion. It’s far above where it needs to be,” Powell told Congress in testimony on Tuesday. The question: How should the Fed time interest rate hikes with any balance sheet unwind? Does it matter?

he latest edition of our finance and property news digest with a distinctively Australian flavour.

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Powell’s Tightrope Walk…

Yesterday I warned about higher market volatility given all the moving parts in play at the moment. Well, we saw that in action again on Tuesday as FED Chair Powell gave evidence at the Senate Banking Committee.

Back in December Powell said “One of the two big threats to getting back to maximum employment is actually high inflation.” He stressed that getting back to pre-Covid levels of labor-force participation would require a long expansion, which couldn’t happen with runaway price growth.

This marked a shift in how he discussed the trade-off between wanting to see greater improvement in the labor market and tolerating persistently elevated consumer price growth. So the new line is that increasing interest rates and tightening monetary policy is a benevolent move on the Fed’s part.
And this was in evidence on Tuesday when he said “In a way, high inflation is a severe threat to the achievement of maximum employment,” he said. “We think wages moving up is generally a good thing, but if you look back through history, there are times when wages have moved up in a way that has fostered persistent inflation, and that hurts everyone.”

This is a deft move on the part of Powell, who earned respect among both Democrats and Republicans for the Fed’s response to the onset of the Covid-19 pandemic.

The Markets ‘Running Off A Cliff’ Moment?

The archetypal cartoon picture of a character running off a cliff, legs cycling, and hanging in mid-air, until the truth dawns, and then falls, came to mind today as U.S. stocks fell sharply on Wednesday, with the NASDAQ plunging more than 3% in its biggest one-day percentage drop since February and it also represents the steepest slide to begin the first three days of a year in 13 years, when the financial crisis gripped the globe. So much for the hopeful note at the start of the New Year.

The S&P 500 fell more than 1%, its biggest daily percentage decline since Nov. 26, the first day of trading after news of the Omicron variant of the coronavirus. The Russell 2000 index also suffered its biggest one-day drop since Nov. 26, while the S&P 500 financials index fell 1.3%, a day after it registered an all-time closing high.

The reason, the release of the U.S. Federal Reserve meeting minutes which signaled the central bank may raise interest rates sooner than markets had expected. I have said before that the markets continue to believe the FED will save them, but, what if rates do rise harder and faster?

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The FED’s Mega Pivot (And What It Means)

The Federal Reserve has flagged one of the most hawkish policy pivots in years, saying it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned.

“Economic developments and changes in the outlook warrant this evolution of monetary policy,” Fed Chair Jerome Powell told reporters during a post-meeting press conference. “The economy has been making rapid progress toward maximum employment.”

This marks the next turn as they intensify their battle against the hottest inflation in a generation. And not only will they end their asset-buying program earlier but they are also signaling interest rate rises in 2022 – a faster pace than expected.

It seems the run of ultra-easy policy since the beginning of the Covid pandemic is coming to a close.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

Words Matter In A Fractious Overvalued Market!

The Fed has to balance full employment and stable prices. Today we got the signal that the latter rather than the former is now set to take centre stage. This is significant, to say the least when market values are bloated thanks to money printing, and inflation fears are rife – despite the unknowable impact of Omicron. This is significant for the US and global markets, as well as our own.

Federal Reserve Chair Jerome Powell comments on Tuesday before the Senate Banking Committee, where both Democrats and Republicans expressed concerns about high prices, were taken as a hawkish pivot by financial markets that could deliver sooner-than-expected increases in interest rates next year.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.