Displaying items by tag: fed

(Washington)

Yesterday was a big moment for Fed and the markets. Trump has come down hard on the Fed for its relentless hikes, and the market is in the midst of a very rough period. Additionally, labor figures and inflation data have started to slip. All of that meant the Fed had the option of backing off the pedal on hikes. They didn’t, raising rates another quarter point. The central bank did make the small concession of saying they only planned to hike twice next year instead of the four increases they made this year.

FINSUM: The housing market is bad, the stock market is terrible, credit markets are weak, and inflation is falling. Why is the Fed still hiking?

(New York)

There is a lot of doom and gloom out there right now. The stock market is in major pullback mode over a wide range of fears. One of the main ones is the threat of a recession coming next year. A lot of signs, like the inverted yield curve, are pointing towards an economic reversal. However, according to Barron’s, the reality is that a recession is unlikely. Rather, we will likely just return to the post-Crisis norm of slower, steadier growth (think 2.0-2.5%). A couple of factors will weigh on growth, including higher rates and a fading influence of the most recent tax cuts.

FINSUM: A return to normal growth seems about equally likely to us as a recession. No one really knows. A lot of it may come down to how hawkish the Fed is, as the central bank could easily steer the economy into a recession.

(New York)

There has been a large segment of money managers and investors that have taken a bullish stance against Treasuries. With rates rising and the economy performing well, it stood to reason that yields would keep on rising. However, after a couple of months of brutal stock volatility and worries over a trade war and growth, investors are finally shedding those bearish short positions. The stance was one of the most popular of the year, but the volume of bearish positions has shrunk by two-thirds since from the record it reached in late September.

FINSUM: The ten-year yield now looks more likely to fall than rise given the longer-term economic outlook and trouble in stocks.

(Washington)

Earlier this week it seemed that the market might finally have a reason to believe the Fed might pause its inexorable march higher in rates. That reason was that inflation had dipped below the Fed’s target. Being just a single occurrence, it was a weak-footed hope. Now, new data shows the American consumer is doing well, as retail sales jumped 0.9% in November. The explanation for the jump is that a drop in gasoline prices helped fuel more retail spending.

FINSUM: Consumers are obviously still feeling comfortable, which will give the Fed a bit of comfort about the stage of the cycle.

(Washington)

The moment many investors have been waiting for (or not, depending on how you look at it) has arrived. Rate hikes finally have a chance to slow after their steady rise over the last couple of years. New inflation data has come in showing weakness. Inflation has now fallen below the Fed’s 2% rate, which means the central bank has cause to pause its rate hikes as the economy looks to be on more fragile footing.

FINSUM: There are two ways to look at this. The first is that it takes some momentum away from the current yield inversion. But on the other hand, it could be an indicator that the economy is headed towards recession.