Federal Reserve – Page 9 – Digital Finance Analytics (DFA) Blog

Crunch Time Approaches… [Podcast]

We are coming to the pointy end of the action now, with the Nasdaq closing lower on Monday after a choppy session for U.S. equities ahead of a big week of technology earnings reports while oil prices rose and treasury yields edged higher as investors braced for a Federal Reserve interest rate hike.

The S&P 500 see-sawed on Monday and ended close to unchanged.

Meanwhile in Australia the head of APRA, the entity responsible for banking supervision is going, while the local bond market is in pieces.

In currencies, the dollar index, which touched a 20-year high this month, was down slightly and gold also slipped, as did bitcoin.

Concern that rising interest rates will drive the economy into a recession has been escalating as the Fed tightens monetary policy aggressively to bring down the steepest inflation in four decades. Fed Chair Jerome Powell has said that failing to restore price stability would be a “bigger mistake” than pushing the US into a recession, which he has continued to maintain the nation can avoid.

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Digital Finance Analytics (DFA) Blog

Crunch Time Approaches... [Podcast]

00:00 / 00:17:18

The Inflation Monster Runs Free…. [Podcast]

Stocks wobbled but ultimately ended lower on Wednesday, as the fastest pace of inflation in decades stoked bets that the Federal Reserve will be forced to deliver a much larger than expected 1% rate hike later this year.
The S&P 500 closed down 0.5%, the Dow Jones Industrial Average fell 0.7%, or 208 points, the Nasdaq fell 0.1%.

U.S. inflation rose 9.1% in June to hit a fresh four-decade high, topping economists’ forecast for a 9% rise, driven by an 11.2% leap in gas prices and a 1.0% increase in food prices.

This report will make for very uncomfortable reading at the Fed,” it added.
US inflation roared again to a fresh four-decade high last month, likely strengthening the Federal Reserve’s resolve to aggressively raise interest rates that risks upending the economic expansion.

The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs. The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, above forecasts.

The red-hot inflation figures reaffirm that price pressures are rampant and widespread throughout the economy and taking a bigger toll on real wages, which are down the most ever in data back to 2007. The inflation data will keep Fed officials on an aggressive policy course to rein in demand, and adds pressure to President Joe Biden and congressional Democrats whose support has slumped ahead of midterm elections.

“Rather than cooling down, inflation is heating up,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “While a pullback in gasoline costs in July and reported retail discounting will help tamp down the flames, the broad pressure in the core rate, led by plenty of inertia in rents, suggests inflation may not peak for a while, and might remain stubbornly high for longer than anticipated.”

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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.

Digital Finance Analytics (DFA) Blog

The Inflation Monster Runs Free.... [Podcast]

00:00 / 00:22:12

After Central Banks – What? [Podcast]

There was an outstanding piece from John Authers this week arguing that the Age of Credibility for Central Banks Is over as Inflation blunders have destroyed the trust that’s anchored the global financial system since the end of the gold standard.

Certainly, in Australia, the RBA has been on shaky ground for many years, including over forecasting wages growth, taking interest rates too low, and relying on household wealth to be artificially inflated by poor policy for years. But the shocking reversal from last November’s no rate rises til 2024, to todays 1.35% target cash rate, with more to come, shows just how far from credible they are – despite politicians still talking about mountains of respect. Over in New Zealand they are further up the curve, but the issues are the same. Central Bank credibility is shot.

It appears that the most likely anchor to replace central bank credibility is confidence in governments. But that is not a comforting thought.

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Digital Finance Analytics (DFA) Blog

After Central Banks - What? [Podcast]

00:00 / 00:09:48

The Disappearing Money Trick – Or Why The Recession Is Already Here!

While the technical definition of a recession traditionally is two quarters of contraction or negative growth, I think that definition is frankly irrelevant given where we are today.

You simply have to look at the trends in consumer confidence, which are ultra-low in many western countries, from Australia, New Zealand, the UK and the US. And what is driving this is the concern about inflation – which is why central banks are jaw-boning their ability to get inflation under control. Quite simply, people’s money is disappearing fast, and they’re worried it could get a lot worse.

By the way, pause for a moment to ask why a 2-3% inflation target is used – it have become a convention, but there is little to explain why that number is correct. The truth is, that number was grabbed from thin air years ago, and has taken on a life of its own.

Note that Goldman Sachs Group Inc. economists put the risk of such a slump in the US in the next year at 30%. Others put the probability considerably higher, with the risks building beyond that time frame.
But for many it already feels like it’s here.

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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.

Stormy Weather Kills The Wealth Effect!

This week, The U.S. Federal Reserve announced an interest rate hike of 75 basis points, its largest increase since 1994, the Swiss National Bank unexpectedly lifted rates by 50 basis points on Thursday, while the Bank of England on the same day raised its interest rates by 25 basis points, hiking for its fifth consecutive meeting. The main outlier is the Bank of Japan, which stuck with its strategy of pinning 10-year yields near zero at its policy meeting earlier Friday. However, this has done little to ease worries that inflation and rate hikes are going to curb economic growth for years to come.

And It was one of the most dramatic weeks in the short history of the cryptocurrency market, bookended by the type of announcements investors fear the most from a counterparty: We’re sorry, but we just can’t return your money right now. It all started late Sunday, when a sort of crypto shadow bank called Celsius Network suspended withdrawals from depositors who had been enticed by sky-high interest rates that, in retrospect, were likely too good to be true. By the end of the week, on the other side of the world in Hong Kong, the digital-asset lender Babel Finance also froze withdrawals.

Just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, the “cockroach theory” springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more hiding behind the fridge or under the sink. Wealth destruction is now a thing.

[Content]

0.00 Start
0.15 Introduction
2:10 Federal Reserve Inflation Battle
3:30 GDP Forecast Down
7:25 US Markets
10:00 European Markets
11:20 Asia Pacific Markets
11:40 Japan Bond Crisis
13:05 Australian Markets
18:00 Crypto Winter
23:30 Crypto Traders Turn On Each Other
29:05 Conclusion and Close

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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.

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.

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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