Tag: Federal Reserve

Federal Reserve hikes rates again

Mary Pat Campbell

Link: https://www.thecentersquare.com/national/federal-reserve-hikes-rates-again/article_da8ec844-7be2-11ed-9977-17d7d24d73fb.html

Excerpt:

The U.S. Federal Reserve announced a new rate increase of half a percentage point Wednesday in its ongoing effort to curb inflation.

The Fed raised the rate by 50 basis points, as expected, the seventh rate hike this year. This increase is smaller than the four previous 75 basis point increases but is still a notable increase, putting the range at 4.25%-4.5%.

“Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low,” the Fed said. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”

The Fed blamed the Russian war in Ukraine for the price hikes. That war delayed the supply chain and increased costs, but the price increases began long before that war, due in part to trillions of dollars in federal debt spending since the pandemic began.

Author(s): Casey Harper

Publication Date: 14 Dec 2022

Publication Site: The Center Square

Why Bond Liquidity May Be Headed for Trouble

Mary Pat Campbell

Link: https://www.ai-cio.com/news/why-bond-liquidity-may-be-headed-for-trouble/

Excerpt:

Reduced liquidity for bonds is getting to be a problem, according to Treasury Secretary Janet Yellen.

At a speech before the Securities Industry and Financial Markets Association annual meeting Tuesday, she reiterated an earlier observation that diminished ability to sell bonds is worrisome. Still, at SIFMA, she sought to temper her concern by adding that traders aren’t facing snags executing orders, with the biggest negative impact of lessened liquidity confined to higher transaction costs.

…..

The gauge for bond volatility, the Merrill Lynch Option Volatility Estimate, aka MOVE index, has jumped some 40% since mid-August. Other than a spike in March 2020 at the onset of the pandemic, the index (it launched in 2019) has been fairly placid—until 2022 and the beginning of big rate hikes. This all is reminiscent of the stock market’s fast-paced volatility lately.

Another related difficulty for bonds:  the imbroglio resulting from the Federal Reserve’s interest rate increases and the resulting strong dollar risk worldwide. That has promoted a rush by other central banks to match the Fed and jack up rates. To Richard Farr, chief market strategist at Merion Capital, one risk of this trend is that Treasury bonds will end up hurt.

Author(s): Larry Light

Publication Date: 26 Oct 2022

Publication Site: ai-CIO

The 3-Month T-Bill Yield Inverts With the 30-Year Long Bond

Mary Pat Campbell

Link: https://mishtalk.com/economics/the-3-month-t-bill-yield-inverts-with-the-30-year-long-bond

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Excerpt:

The 3-Month T-Bill yield hit 4.22% early this morning. At that time the 3-Month to 30-Year inversion was about 9 basis points. 

The chart above still shows the inversion, just a bit less. 

So much for the idea the Fed would steepen the curve. 

Author(s): Mike Shedlock

Publication Date: 1 Nov 2022

Publication Site: Mish Talk

The ‘Experts’ Were Never Going To Fix Inflation

Mary Pat Campbell

Link: https://reason.com/2022/10/27/the-experts-were-never-going-to-fix-inflation/

Excerpt:

Debate now rages about whether the Federal Reserve should continue to raise interest rates to tame inflation or slow down these hikes and see what happens. This is not the first debate we’ve had recently about inflation and Fed actions. The lesson we should learn, and I fear we won’t, is that government officials and those advising them from inside or outside the government don’t know as much as they claim to about the interventions they design to control the economy.

As a reminder, in 2021, the dominant voices including Fed Chairman Jerome Powell asserted that the emerging inflation would be “transitory” and disappear when pandemic-induced supply constraints dissolve. That was wrong. When this fact became obvious, the messaging shifted: Fed officials could and would fight inflation in a timely manner by raising rates to the exact level needed to avoid recession and higher unemployment. Never mind that the whole point of raising interest rates is precisely to soak money out of the economy by slowing demand, which often causes unemployment to rise.

…..

Over at Discourse magazine, my colleague Thomas Hoenig—a former president of the Fed’s Kansas City branch—explains how Fed officials faced similar pressures during the late 1960s and 1970s. Unfortunately, he writes, “Bowing to congressional and White House pressure, [Fed officials] held interest rates at an artificially low level….What followed was a persistent period of steadily higher inflation, from 4.5% in 1971 to 14% by 1980. Only then did the [Federal Reserve Open Market Committee], under the leadership of Paul Volcker, fully address inflation.”

Often overlooked is Volcker’s accomplishment: the willingness to stay the course despite a painful recession. Indeed, it took about three years from when he pushed interest rates up to about 20 percent in 1979 for the rate of inflation to fall to a manageable level. As such, Hoenig urges the Fed to stay strong today. He writes, “Interest rates must rise; the economy must slow, and unemployment must increase to regain control of inflation and return it to the Fed’s 2% target.” There is a cost in doing this; a soft landing was never in the cards.

Author(s): VERONIQUE DE RUGY

Publication Date: 27 Oct 2022

Publication Site: Reason

What the 1970s Can Teach Us About Today’s Inflationary Politics

Mary Pat Campbell

Link: https://reason.com/2022/10/13/inflation-remixed/

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Excerpt:

American politicians had tried to control inflation before. The presidents and power brokers of the 1970s had tried price controls, public campaigns, pressure programs, blame games, and attempts to redefine basic economic terminology. The parties differed on the specifics, but both seemed to agree that the voting public and the private sector were to blame, not the bureaucrats and politicians in charge.

Inflation, in short, was a political problem, in the sense that it caused problems for politicians. But it wasn’t one America’s politicians knew how to solve.

On the contrary, America’s political class had spent the ’70s failing to fix inflation, or actively making it worse, often with policies designed to address other political and economic problems. That decade’s price hikes were prolonged and exacerbated by political decisions born of short-term thinking, outright cowardice, and technocratic hubris about policy makers’ ability to enact sweeping changes and manage the macroeconomy.

Author(s): Peter Suderman

Publication Date: November 2022

Publication Site: Reason

Interest Rate Hikes vs. Inflation Rate, by Country

Mary Pat Campbell

Link: https://www.visualcapitalist.com/interest-rate-hikes-vs-inflation-rate-by-country/

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Excerpt:

To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.

In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.

Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.

Author(s): Jenna Ross, Nick Routley

Publication Date: 24 June 2022

Publication Site: Visual Capitalist

Cathie Wood’s Open Letter to Fed Draws Snark

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/10/11/cathie-woods-open-letter-to-fed-draws-snark/

Link to letter: https://ark-invest.com/articles/market-commentary/open-letter-to-the-fed/?utm_content=224025663&utm_medium=social&utm_source=twitter&hss_channel=tw-2398137084

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Excerpt:

Ark Invest founder and CEO Cathie Wood is drawing snarky comments on and off Twitter after posting an open letter to the Federal Reserve challenging the central bank’s aggressive interest-rate hikes.

Wood published the letter on her firm’s website Monday as her ARK Innovation ETF (ARKK) sustained more blows in a year that has seen its returns slide more than 60%. Bloomberg reported Tuesday that the fund, which has fallen more than double the S&P 500′s decline, was down about 11% over three days.

Wood voiced concern the Fed is making a policy error that will lead to deflation and said it seemed to be basing its decisions on two lagging indicators: employment and headline inflation from official reports such as the Consumer Price Index. These variables “have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates,” she wrote.

Author(s): Dinah Wisenberg Brin

Publication Date: 11 Oct 2022

Publication Site: Think Advisor

Wharton professor Jeremy Siegel says Jerome Powell is making one of the biggest policy mistakes in the Fed’s 110-year history, and it could lead to a major recession

Mary Pat Campbell

Link: https://finance.yahoo.com/news/wharton-professor-jeremy-siegel-says-191800487.html

Excerpt:

The Wharton professor Jeremy Siegel has a big issue with the Federal Reserve’s aggressive interest-rate hikes in its bid to tame inflation, and he’s worried that the central bank is making the biggest mistake in its history and may provoke a steep recession.

Siegel said inflation is starting to come down significantly, but the Fed is still moving forward with its rate hikes.

He said it could be “one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming.”

…..

“I think the Fed is just way too tight. They’re making exactly the same mistake on the other side that they made a year ago,” Siegel added.

To Siegel’s point, the Fed has had a lousy record of accurately forecasting where it expects interest rates to be just a few months into the future.

….

“I am very upset. It’s like a pendulum. They were way too easy through 2020 and 2021, and now ‘we’re going to be real tough guys until we crush the economy,'” Siegel said of the Fed.

Siegel expects the Fed to “eventually see the light” as none of their recent predictions are likely to come true.

“I think they’re going to be forced to lower the rates much more rapidly than they think,” Siegel said, a move that could set up stocks for a potential recovery from their ongoing decline.

Author(s): Matthew Fox

Publication Date: 25 Sept 2022

Publication Site: Yahoo Finance

Dot Plot Show Fed Anticipates More Hikes in 2023 to 4.50 Percent

Mary Pat Campbell

Link: https://mishtalk.com/economics/dot-plot-show-fed-anticipates-more-hikes-in-2023-to-4-50-percent

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Excerpt:

Hikes Come Hell or High Water? 

  • The Fed participants have a median expectation of 4.25 to 4.50 percent for the end of 2022
  • That’s another 1.25 percentage points more this year.
  • The Fed then anticipates one more hike in 2023 to 4.50 to 4.75 percent.

I have to admit that a year ago I did not foresee this. But here we are. 

The key question is not where we’ve been but where we are headed. I Highly doubt the Fed hikes another 1.25 percentage points this year or gets anywhere close to 4.50 to 4.75 percent in 2023.

Author(s): Mike Shedlock

Publication Date: 21 Sept 2022

Publication Site: Mish Talk

Two-Year Treasury Yield Highest Since 2007, Everything Inverted Over 1 Year

Mary Pat Campbell

Link: https://mishtalk.com/economics/two-year-treasury-yield-highest-since-2007-everything-inverted-over-1-year

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Excerpt:

The curve has been inverted in places for over a year. This is a recession signal and I believe the economy went into recession in May. 

The Fed is merrily hiking away and is likely to keep doing so until it breaks something big time. The Fed will hike 75 basis points tomorrow and the market thinks another 75 basis points is coming in November. 

If so, it is doubtful the markets will like it much. 

Author(s): Mike Shedlock

Publication Date: 20 Sept 2022

Publication Site: Mish Talk

The biggest Fed rate hike in 40 years? It could be coming next week.

Mary Pat Campbell

Link: https://www.marketwatch.com/story/the-biggest-fed-rate-hike-in-40-years-it-might-be-coming-11663097227

Excerpt:

After another dismal U.S. inflation report, economists at the brokerage Nomura Securities on Tuesday became the first on Wall Street DJIA, 0.12% to predict a full-percentage-point increase in the Fed’s benchmark short-term rate.

“We continue to believe markets underappreciate just how entrenched U.S. inflation has become and the magnitude of response that will likely be required from the Fed to dislodge it,” the economists at Nomura wrote in a report to clients.

The last time the Fed made such a drastic move was in the early 1980s — another period marked by sky-high inflation.

At each of the last two meetings, the monetary-policy-setting Federal Open Market Committee raised the targeted rate by 0.75 point.

Author(s): Jeffry Bartash

Publication Date: 13 Sept 2022

Publication Site: MarketWatch