Posts with tag rate-hikes

THE TORTOISE VS. THE HARE - Is the Fed Still Relevant?

Guest Writer, January 12 2022

The Fed is playing catchup, thanks to the ever-changing economy and pandemic.

That they’re in the role of the proverbial tortoise, in an existential race versus hare-raising inflation and stubbornly persistent unemployment, is a no-brainer. 

The only question is, will the world’s largest and most advanced central bank recover to overtake events of great consequence — or will those economic trials and tribulations force a reckoning, namely: 

Is the Federal Reserve still relevant?

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Fed Keeps Its Promise; Hikes Interest Rates - Oil and War Big Factors in Where Things Go from Here

Guest Writer, March 19 2022

Tightening by the mightily bloated Federal Reserve is off and running. 

The Fed’s Open Market Committee kept its word the other day, with the first of what’s expected to be 6 or 7 quarter-of-a-percentage point interest rate increases by the end of the year to put inflation in its place.

Today, Fed Governor Christopher Waller warned that the Fed may need to enact one or more 50 basis point hikes in 2021.

Though he voted this week for just 25 basis point because of economic uncertainty over Russia’s invasion of Ukraine, Waller said he thinks the Fed may need to be more aggressive soon.

“I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year.” 

“The way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”

In addition to the rate hikes, Waller said he thinks the Fed needs to start reducing its holdings of Treasuries and mortgage-backed securities sooner than later.

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FED IS FULL SPEED AHEAD Gold & Silver Off to a Good Start

Guest Writer, March 23 2022

The economy doesn’t want for problems—there are plenty of them, both at home and stemming from rising geopolitical volatility in eastern Europe.

But as Neil Irwin writes, wherever the movers and shakers of the Federal Reserve look right now, “they're seeing flashing green lights that the world wants them to get moving on raising interest rates.”

Yes, the Fed acts independently based on its best analysis of economic data—in theory anyway. 

But other factors shape the tone and outcomes of internal debates, too—like discussions by outside economic thinkers and financial market reactions to potential and actual Fed moves.

Right now, Irwin believes those reactions are almost uniformly pointing toward more aggressive action to try to rein in high inflation.

In fact, Fed future traders say another rate hike by the Fed’s May meeting is a done deal—38.4% see a hike of 50-75 basis points (0.5%-0.75%), while 61.6% see a hike of 75-100 basis points (0.75%-1.0%)

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DESPITE FED RATE HIKES, Inflation Expectations at Record Highs

Guest Writer, March 30 2022

Even though the Fed has started hiking interest rates to rein in inflation running at a 4-decade high, consumers and investors think price rises will be tough to slow.

A new reading of consumer sentiment on Friday from the University of Michigan confirms that Americans’ inflation expectations remain at their highest level since 1981—and continue to grow.

The survey’s chief economist Richard Curtin observed that inflation is the chief culprit in consumers’ rising pessimism, with expectations of a 5.4% rise for the year ahead.

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Guest Writer, April 6 2022

Neil Irwin asks: “When does a report showing a booming job market cause recession alarm bells to start clanging?”

His answer: “When exceptional jobs growth leads bond investors to bet that the Fed will raise rates so aggressively to quash inflation that it will be forced to reverse course later.” That's what happened on Friday.

When the bond yield curve inverts, as it did Friday, it usually means a recession isn’t too far behind. 

And although that's being a tad presumptuous at this point, it's clear the Fed is walking a narrowing tightrope.

The Labor Department’s March employment data was strong again, with 431,000 jobs added, positive revisions to January and February numbers and a slightly falling unemployment rate. 

More Americans are rejoining the labor market, and wages are showing steady growth. 

Just two weeks earlier, Fed chair Jerome Powell said that he sees a "very, very tight labor market, tight to an unhealthy level." 

The new numbers, however, suggest it’s becoming even more so, especially around the government’s headline unemployment rate.

That means the jobs numbers amount to full speed ahead for more aggressive Fed tightening, including what looks likely to be the first half-percentage point rate hike in 22 years at the early May policy meeting.

That's why the jobs numbers caused an 8% jump in 2-year Treasury yields, to 2.46% from 2.28% heading into last weekend. Longer-term yields rose by less, with the 10-year ending the day at 2.38%.

When long-term rates are lower than their short-term counterparts, that's called an inversion or an inverted yield curve, to be more precise. 

It’s like bond investors are betting that the Fed will end up reversing those near-term rate hikes down the road (i.e., lowering them…again), presumably because of a weakening economy.

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Has Everything Changed?

Bob Rinear, March 11 2023

If there was ever a case to just sit back and watch, this is it. Let me explain…

Fed head Powell made it very clear on Tuesday and Wednesday that he was going to hike rates “faster, and higher, and longer” than Wall Street wanted. When the bell rang Wednesday afternoon to close the market show, I was convinced he was going to give us a 50 basis point rate hike in less than two weeks.

But then Thursday we started hearing about some big trouble at the Silicon Valley bank, and the stock was getting slaughtered. Like falling 50% and then some. The problem seemed to be that they were sort of experiencing a run on their bank, after there was some questions about their liquidity situation.

Friday morning we got hit with two things. First the jobs report hit and it was sort of mixed, giving a couple different signals. Now first off realize that NONE of the official numbers are real. None. There’s so many hands in the cookie jar, and so many adjustments, no one knows how much fudging the other guy has done. So all we can do is go by the official baloney. Well they say 311,000 jobs were created.

In a normal world, more jobs would be great. But in a Wall Street driven, fed fearing world, more jobs than expected is bad. Yes the supposed unemployment rate moved up a bit, but then so did Labor participation, so it was sort of a wash. The bottom line was that the jobs number did nothing to convince me that Powell wouldn’t be doing a 50 basis point hike on the 22nd. 

But then more and more word came hitting the wires concerning Silicon Valley Bank, and the big questions started. Did Powell’s rapid rate hikes “break” the debt/bond market? Were other banks in trouble? Were past hikes finally catching up and crashing things?

Then the news hit that the bank had been shut down by the California banking regulators and the FDIC was going to be in control of things. That sent panic waves across the market and the stock indexes were whipping around like a loose water hose.  For instance at one point the DOW was green by 50 points, and not long after it was red by 400.

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6 posts with tag rate-hikes online