Sunday Review Business
Investors have been looking for clues to help them figure out what the Federal Reserve will decide at its December policy meeting. this week. But those hints about the future of monetary policy point to an outcome they won’t be very happy about.
What’s happening: Federal Reserve officials A series of speeches was made this week indicating that aggressive interest rate hikes to fight inflation would continue, souring investors’ hopes for a future central bank policy change. On Thursday, St. Louis Federal Reserve President James Bullard said the central bank still has a lot of work to do before it brings inflation under control, sending the S&P 500 down more than 1% in early trading. Later, the losses were reduced.
Bullard, who is a voting member of the Federal Open Market Committee (FOMC) that sets rates, stated that the moves were the Fed has made so far to fight inflation haven’t been sufficient. “To attain a sufficiently restrictive level, the policy rate will need to be increased further,” He said.
These comments are one day after Kansas City Fed President Esther George, who is a voting member, stated that The Wall Street Journal that she’s “looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.”
San Francisco Fed President Mary Daly said Wednesday that a pause was needed in rate hikes “off the table.”
A numbers game: Fed officials Bullard stated Thursday that the government should raise interest rates to somewhere between 5 and 7 percent to curb inflation. Investors were shocked by these numbers, because they would require a series a significant and economically painful increases which will increase the likelihood of a hard landing.
Current interest rates are between 3.75% to 4%, and the median FOMC participant predicted a peak funds rate between 4.5 and4.75% in September. These numbers will remain stable if they are maintained. Fed Members would raise rates only by three-quarters of an additional percentage point.
But Fed At the November meeting, Powell stated that projections were likely to rise in December. If Bullard is correct then investors can expect an additional one to three percentage point in rate increases.
A pivotal vision: October’s softer-than-expected CPI and producer price reading bolstered investors’ hopes You can find the Fed Markets could see a decrease in aggressive rate increases and markets may soar to their highest level since 2020. week.
However, messaging from Fed officials this week Wall Street is now back on its feet.
That’s because market rallies help to expand the economy, said Liz Ann Sonders, Managing Director and Chief Investment Strategist at Charles Schwab, which is the opposite of what the Fed is trying to accomplish with its tightening policy. Fed officials You could be trying to do some “jawboning” She said that she was hawkish in her speeches to bring down the markets.
Let’s get to the bottom of it: Investors listen closely to Bullard’s comments because he’s known for having looser lips than other Fed officialsIn a Thursday note, Peter Boockvar (chief investment officer at Bleakley Financial Group) wrote that. However, his hawkish forecasts may have been accurate. “overboard,” especially since he won’t be a voting member of the FOMC next year.
Wall Street analysts still pay attention. Goldman Sachs has raised its peak fed funds rates forecast for Thursday to 5-5.25% from 4.75-5.
Big Tech has been rattled by a series of high-profile layoffs this month.
Amazon confirmed that the company had started to layoff employees. This was just days after several outlets reported that the e-commerce giant would be cutting around 10,000 jobs. Facebook-parent Meta recently announced 11,000 job cuts, the largest in the company’s history. Twitter announced widespread job losses after Elon Musk purchased the company for $44billion.
A series of announcements about layoffs made in high-profile fashion raised concerns that the labor marketplace was declining. The recession could be coming.
Those fears aren’t unwarranted: The Federal Reserve is actively working to slow economic growth and tighten financial conditions to rebalance the white-hot labor market. Additional layoffs in tech and other sectors are likely to occur as the Fed continues to tighten its financial policies. Fed Interest rates continue to rise
But this wave of layoffs isn’t as significant as headlines might lead Americans to believe. Thursday’s weekly jobless claims actually fell by 4,000 to 222,000 in spite of the surge in tech job cuts.
Goldman Sachs analysts have outlined three reasons why layoffs in the US may not indicate a coming recession.
The tech industry is only a small part of the total employment in the US. While information technology companies account for 26% of the S&P 500 market cap, it accounts for less than 0.3% of total employment.
Second, the tech job market is at an all-time high, so those with tech skills should be able to find new work.
According to Goldman analysts, layoffs of tech workers have been known to spike in the past, without a corresponding increase overall. These layoffs are not historically a sign of greater labor market weakness.
“The main problem in the labor market is still that labor demand is too strong, not too weak,” They concluded.
Mortgage rates dropped sharply last week Anna Bahney, my colleague, reports on a series of economic reports that suggested inflation might finally be easing.
In the 30-year-old fixed-rate mortgage market, average 6.6% was week Ending November 17: 7.08% down week Before, according to Freddie Mac. The largest weekly drop depuis 1981.
But that’s still significantly higher than a year ago when the 30-year fixed rate stood at 3.10%.
“While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”
For many home buyers, financing a home is a difficult task. The rest of the year will see mortgage rates remain volatile. Prices are still high in many areas, particularly where there is very little inventory.
Many potential buyers face tighter budgets due to rising inflation and higher interest rates.