Tag: Federal Reserve

The FED Does Nothing (Again…!)

The Federal Open Market Committee decided to leave the cash rate unchanged yesterday, and it’s weird that the biggest financial news from Wednesday is that they did nothing at all, and did not committing to doing anything in future, despite the call from some to cut rates in a pre-emptive intervention to head off a recession.

As always traders parsed every nook and cranny of the FOMC statement, while billions of dollars changed hands.

Powell said decisions on monetary policy are a “very difficult judgment call,” and he laid out scenarios for everything from cutting several times this year to no cuts at all. If inflation moves down in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, a rate cut could be on the table in September, he says.

Eyes now turn to the Bank of England, who may or may not cut rates in the UK today. With inflation close to 2% and an expectation of an ECB like rise in inflation ahead, it’s a line ball call.

http://www.martinnorth.com/

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

US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

http://www.martinnorth.com/

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

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

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
US Markets Swing Towards Rate Cuts As Inflation Eases...
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US Markets Swing Towards Rate Cuts As Inflation Eases…

Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.

Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.

Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.

The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.

http://www.martinnorth.com/

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

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

The Fed’s “High For Longer” Ripple Effect

Wednesday was it turned out, a game in two halves, with a slightly better than expected CPI read in the morning, before the Fed’s no change decision later, but impacted by a more hawkish stance in the subsequent press conference. Risk-on assets had rallied after the CPI report showed the US core consumer price index fell to the lowest in more than three years. But later, the Federal Reserve penciled in just one quarter point interest-rate cut this year, down from three seen in March.

The CPI core goods inflation was in negative territory, but the news was not all as good. Remember that to account for the ongoing questions over measuring shelter prices, Chair Jerome Powell and his colleagues chose to focus on the so-called supercore of services excluding housing, a measure particularly influenced by wages. The good news is that both indexes fell last month — a bit. The bad news is that they’re still far too high for comfort and continue to make it hard to cut rates.

And The FED decided to hold rates, but played the data dependent, higher for longer card, again.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
The Fed’s “High For Longer” Ripple Effect
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The Fed’s “High For Longer” Ripple Effect

Wednesday was it turned out, a game in two halves, with a slightly better than expected CPI read in the morning, before the Fed’s no change decision later, but impacted by a more hawkish stance in the subsequent press conference. Risk-on assets had rallied after the CPI report showed the US core consumer price index fell to the lowest in more than three years. But later, the Federal Reserve penciled in just one quarter point interest-rate cut this year, down from three seen in March.

The CPI core goods inflation was in negative territory, but the news was not all as good. Remember that to account for the ongoing questions over measuring shelter prices, Chair Jerome Powell and his colleagues chose to focus on the so-called supercore of services excluding housing, a measure particularly influenced by wages. The good news is that both indexes fell last month — a bit. The bad news is that they’re still far too high for comfort and continue to make it hard to cut rates.

And The FED decided to hold rates, but played the data dependent, higher for longer card, again.

http://www.martinnorth.com/

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

Macro Versus Company Returns; What’s Driving The Chaotic Markets?

This is our regular weekly market update.

The roller coaster ride continued again this week on the markets, as traders were dazzled by strong corporate results from NVIDA underscoring the power of the AI super cycle on one hand, and by really mixed data signals on the other thanks to a raft of better-than-expected purchasing managers’ index (PMI) data from across the northern hemisphere, while rates higher for longer came back into focus, with hope of rate cuts being squeezed further.

The economic data points to a strong economy and inflation that won’t go away. Couple yesterday’s PMI data with a slew of Fed speakers this week and the Fed minutes, which suggested the central bank could keep rates high for longer than expected, as well as a string of warnings on inflation from Federal Reserve officials, investors have realized that either the Fed has no idea what it is doing when it comes to inflation and the path of monetary policy or investors are starting to sense that the Fed rate hiking cycle may not be over. Financial markets now fully price just one quarter-point interest rate cut from the Federal Reserve this year – compared to the six built into futures prices at the start of 2024.

European equities have traded lower at the end of the week, tracking weakness in Asia and also Wall Street as increasing anxiety over sticky U.S. inflation and high interest rates battered sentiment towards risk-driven assets.

China was hit with a wave of negative sentiment this week as a trade war with the U.S. appeared to have escalated.

A Wall Street sell-off rattled Australian capital markets on Friday as bond yields rose and investors trimmed rate cut bets, sending technology, retail and banking sector shares sharply lower.

So standing back, signs of the consensus belief in a soft landing, interest rate cuts and resilient growth in earnings are everywhere. There’s the grind higher in share market indices despite rich valuations and non-existent risk premiums (the difference between earnings yields and bond yields).

It’s worth remembering the words of an eternal bull in the late, great Charlie Munger, who urged investors to “invert, always invert”. “Turn a situation or problem upside down. Look at it backwards. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there?”

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Macro Versus Company Returns; What’s Driving The Chaotic Markets?
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What The FED? Higher For Longer As They Wait For More Data…Still…

On Wednesday we got the FOMC decision, and Federal Reserve Chair Jerome Powell’s roughly 50 minutes press conference, but it was hardly worth the watch as he said price growth will likely resume cooling this year, but avoided offering a timeline for rate cuts. It seems, the burst of inflation seen in the first quarter has reduced policymakers’ confidence that price pressures are ebbing.

The central bank’s preferred gauge, the personal consumption expenditures index, rose 2.7% in March from a year earlier. That compared to a 2.5% advance in January. Policymakers explicitly acknowledged that data by adding a line to their post-meeting policy statement noting the “lack of further progress” toward their inflation goal in recent months.

Powell’s remarks reflected a broader shift in thinking at the Fed toward holding borrowing costs at a two-decade high for longer.

Three points to make on all this.

First Central Bankers are still not admitting they caused the inflation breakout due to their dramatic rate cuts, and QE programmes, done in tandem with Governments providing massive financial support through COVID. This is the root cause of the problem, yet of course the US Treasury continues to run a larger deficit, which is costing more because of the higher rates.

Second Powel was explicit of not be influenced by the political context, US election and all, arguing the FED was independent. We know some politicians have a different perspective on this issue.

Third, being totally reactive to data means the FED is looking back not forward. This may well mean events will catch them out. They have yet to acknowledge that the so called R star or neutral rate is significantly higher than they think it is, so the road is wide open to potential policy failure.
Meantime, many Americans have run down their savings, are putting more or credit, and housing affordability continues to deteriorate for many.

Which sort of begs the question: who is the FED really working for? Is it all Americans as he suggests?

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
What The FED? Higher For Longer As They Wait For More Data…Still…
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What The FED? Higher For Longer As They Wait For More Data…Still…

On Wednesday we got the FOMC decision, and Federal Reserve Chair Jerome Powell’s roughly 50 minutes press conference, but it was hardly worth the watch as he said price growth will likely resume cooling this year, but avoided offering a timeline for rate cuts. It seems, the burst of inflation seen in the first quarter has reduced policymakers’ confidence that price pressures are ebbing.

The central bank’s preferred gauge, the personal consumption expenditures index, rose 2.7% in March from a year earlier. That compared to a 2.5% advance in January. Policymakers explicitly acknowledged that data by adding a line to their post-meeting policy statement noting the “lack of further progress” toward their inflation goal in recent months.

Powell’s remarks reflected a broader shift in thinking at the Fed toward holding borrowing costs at a two-decade high for longer.

Three points to make on all this.

First Central Bankers are still not admitting they caused the inflation breakout due to their dramatic rate cuts, and QE programmes, done in tandem with Governments providing massive financial support through COVID. This is the root cause of the problem, yet of course the US Treasury continues to run a larger deficit, which is costing more because of the higher rates.

Second Powel was explicit of not be influenced by the political context, US election and all, arguing the FED was independent. We know some politicians have a different perspective on this issue.

Third, being totally reactive to data means the FED is looking back not forward. This may well mean events will catch them out. They have yet to acknowledge that the so called R star or neutral rate is significantly higher than they think it is, so the road is wide open to potential policy failure.
Meantime, many Americans have run down their savings, are putting more or credit, and housing affordability continues to deteriorate for many.

Which sort of begs the question: who is the FED really working for? Is it all Americans as he suggests?

http://www.martinnorth.com/

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

Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!

This is our weekly market update.

Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.

The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.

The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.

As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.

For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.

The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.

And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!
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Grab A Seat Belt As Market Volatility Shakes Confidence And Prices!

This is our weekly market update.

Another crazy week on markets, as geo-political worries collided with the stronger “higher for longer to fight sticky inflation” mantra, and big-tech looking over-valued. The brief latest flare-up in Middle East tensions seemed contained with a flight to bonds, gold and the US dollar waning. Oil fell.

The Dow Jones Index rose 0.6 per cent after Tehran downplayed reports of an Israeli strike on Iran. US Treasury 10-year yields dropped to 4.62 per cent. The US dollar was little changed.

The regional escalation also briefly sent the price of gold back near its record high above $US2400 an ounce and Brent crude rose above $US90 a barrel. Both commodities pared gains after the International Atomic Energy Agency confirmed there was no damage to Iran’s nuclear sites.

As I discussed yesterday, the drumbeat of downbeat comments from the US Federal Reserve and a flare-up in inflation worries have weighed heavily on sentiment, with investors trimming their bets on the keenly anticipated central bank pivot. Federal Reserve officials have said they will need to see more data to become confident enough that inflation is headed to the 2 per cent target before starting to cut interest rates. Atlanta Federal Reserve Bank President Raphael Bostic on Thursday said that if inflation does not continue to move toward the U.S. central bank’s 2% goal, central bankers would need to consider an interest-rate hike.

For some economists, the wont-get-fooled-again mindset is now in high gear. Bank of America economists, for instance, advise that there’s a “real risk” that rate cuts will be delayed until March 2025 “at the earliest,”.

The PCE price data for March US inflation is coming next week. Consensus forecasts are expecting a mixed bag for the one-year change: a slightly higher rise headline PCE to 2.5% and a tick down for core PCE to 2.7%. We will see.

And a sell-off in the so-called “magnificent seven” technology stocks dragged the Nasdaq down 2.05 per cent on Friday and traders remained cautious on riskier assets ahead of the weekend amid geopolitical uncertainties.

http://www.martinnorth.com/

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