Monetary Policy – Page 82 – Digital Finance Analytics (DFA) Blog

Imminent Crisis Approaching by the Hour

In the past 3 days since our last IOTP episode, events in the market are moving extremely quite rapidly. Especially in the bond market, bond yields have been increasing 0.3% to 0.5% per day which was threatening the global debt bubble.

In the past few days, we saw liquidity risks events manifesting and rising credit risks which has spooked many investors. This occurred in both the developed and developing world – such as Turkey which was this week credit default swap rates reach a 19 year high. Much of these moves were in anticipation of the US Federal Reserve’s FOMC which happened in the past 8 hours. In response to rising inflation and inflation expectations data, the FOMC increased interest rates by 0.75% the largest one meeting increase since 1994.

The FOMC has also foreshadowed that interest rates will rise by another 0.5% to 0.75% in July 2022 and that its QT program will continue as previously announced. Today’s actions of the US Federal Reserve and their expected actions going forward are likely to continue to raise credit and liquidity risks both within the USA as well as globally.

If continued unabated – the liquidity or credit crisis will eventuate very quickly.

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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.

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The RBA Says Rates Are Going To Rise Further…

Reserve Bank of Australia governor Philip Lowe appeared on the ABC’s 7.30 television program last night. I cannot recall the last time an RBA Governor did this – which to me signifies the importance of the event at this critical and uncertain time.

Overnight again the US markets mostly slid, ahead of the Federal Reserve rate decision tomorrow. Views that a 75 basis point hike was on the table have been growing after Friday’s higher-than-expected consumer price index (CPI) data for May.

Governor Lowe said inflation will peak at a “very high” 7 per cent later this year, and ease back next year. Dr Lowe said it was “reasonable” to expect the cash rate to eventually reach 2.5 per cent, in line with the midpoint of the inflation target, but he admitted it was “unclear” how high rates would go and how quickly.

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.

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The Bears Have It!

As expected, U.S. equities tumbled on Monday, with the S&P 500 confirming it is in a bear market, thanks to expected aggressive interest rate hikes by the Federal Reserve that would push the economy into a recession. Markets have been under pressure this year as climbing prices, including a jump in oil prices due in part to the war in Ukraine, have put the Fed on track to take strong actions to tighten its monetary policy, such as interest rate hikes. The Fed is scheduled to make its next policy announcement on Wednesday and investors will be highly focused on any clues for how aggressive the central bank intends to be in raising rates.

The latest pickups in consumer prices and inflation expectations will probably spur Federal Reserve officials to consider the biggest interest rate increase since 1994 when they meet this week, after chairman Jerome Powell previously signalled a smaller move was the likely outcome.

In fact The benchmark S&P index has fallen for four straight days, with the index now down more than 20% from its most recent record closing high to confirm a bear market began on Jan. 3, if you use the standard definition.

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.

Expect More Shock And Awe From Central Banks…

My latest market update as inflation grinds higher forcing more Central Bank rate hikes. The collateral damage will be significant, but they are now set on this “shock and awe” strategy, designed to unwind many years of too lose policy. How long they stay that course is an open question, but we must expect markets to slide further, and correct into this new higher rate environment.

[Content]

0:00 Start
0:15 Introduction
1:15 US Inflation Higher Than Expected
5:35 Interest Rates Hiked Higher
6:50 Sentiment Drops
8:22 US Market Summary
10:35 Oil
12:45 Gold
14:10 Europe Summary
16:55 Asia Pacific Summary
18:23 Australian Summary
20:27 Crypto and Bitcoin
22:19 Summary and Close

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Welcome To The Danger Zone: With Tarric Brooker [Podcast]

My latest Friday chat with journalist Tarric Brooker @AvidCommentator on Twitter. We look at the latest economic and financial news, and consider the consequences.

Tarric’s slides are available at: https://avidcom.substack.com/p/charts-that-matter-10th-june-2022

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Digital Finance Analytics (DFA) Blog

Welcome To The Danger Zone: With Tarric Brooker [Podcast]

00:00 / 01:06:06

And Now The Pain Begins…

We look at the latest data as interest rate rises are passed through to borrowers, the changes in housing affordability, and the horrendous mess the RBA has made. Which begs the question where to from here?

[Content]

0:00 Start
0:15 Introduction
1:00 Marginal Buyers Under The Bus
5:37 Banks Pass The Rate Hikes On
14:20 Home Prices To Fall
16:43 Housing Affordability Dies
19:59 RBA Major Fail – What Now?
24:41 Conclusion

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.

Message From The Bears: Markets Are Non-Linear

US equities started the month lower after a strong set of data suggested the Federal Reserve has not yet slowed growth enough to tamp down inflation, while JPMorgan Chase & Co.’s Jamie Dimon warned restrictive policies threaten to tip the economy into recession.

After doubling in size through asset purchases in the first two years of the pandemic, the FED’s balance sheet will be reduced at a pace that’s almost twice as fast as after the last financial crisis. While the process officially commences on Wednesday, the first US Treasury securities won’t run off until $15 billion mature on June 15.

Minutes of the Fed’s most recent policy meeting, on May 3-4, said that, “Regarding risks related to the balance-sheet reduction, several participants noted the potential for unanticipated effects on financial market conditions.” The next meeting is scheduled for June 14-15.

And Americans are putting more on their credit cards and taking out fewer mortgages, as they need to increasingly borrow to cover the higher cost of everyday essentials and respond to rising interest rates. US consumer borrowing soared in March by the most on record as credit-card balances ballooned and non-revolving credit jumped, underscoring the combined impact of solid spending and rising prices.

The S&P 500 fell 0.8% as data showed an unexpected advance in US manufacturing activity as well as exceptionally high job openings, fueling concern the Fed will need to get more restrictive to slow runaway price gains. Financial firms in the index slid 1.7% after Dimon said private borrowers may be stranded as conditions tighten.

Jamie Dimon warned investors to prepare for an economic “hurricane” as the economy struggles against an unprecedented combination of challenges, including tightening monetary policy and Russia’s invasion of Ukraine.

“That hurricane is right out there down the road coming our way,” the JPMorgan Chase & Co. chief executive officer said at a conference sponsored by AllianceBernstein Holdings Wednesday. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”

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