Housing Markets Certainly Face Further Drop of 10%

Why US home prices will fall another 10 percent, according to Harvard economist Kenneth Rogoff 

Pain across the US housing market that began last year is likely just getting started if interest rates remain high, star economist Ken Rogoff warned on Tuesday. Rogoff, a professor at Harvard University and former top economist at the International Monetary Fund, said home prices in both the US market aboard will fall “certainly another 10%” over the “couple of years.”

The economist cited the restrictive policy stances taken by the Federal Reserve and other central banks, which have caused a spike in mortgage rates and cooled demand among buyers.

“If, as I think, interest rates are going to stay high for some time to come, I think there’s still a lot of downward adjustments in the housing markets globally, not just in the United States,” Rogoff told Bloomberg Television during an appearance at the World Economic Forum in Davos, Switzerland.

The Federal Reserve is expected to implement more interest rate hikes early this year after a string of seven straight supercharged interests in 2022. Fed Chair Jerome Powell has signaled that rates will rise and then hover in restrictive territory until policymakers have clear evidence that inflation has cooled.

https://nypost.com/

Federal Reserve raises interest rate by 0.50 percentage point to curb inflation

FED predicts a higher peak

The Fed raised its key short-term interest rate by half a percentage point Wednesday, dialing back from recent outsize hikes as it draws up an end game in its aggressive campaign to tame soaring inflation.

But the central bank forecast another three-quarter point in rate increases next year, more than it previously estimated. Fed officials are thus signaling they believe inflation is still too high and aren’t backing off their hard-nosed battle to subdue it despite growing recession risks.

In a statement after a two-day meeting, the Fed reiterated that “ongoing (rate) increases…will be appropriate” to bring down yearly inflation to the Fed’s 2% goal. Some economists reckoned the Fed instead would say “additional increases” would be needed, signaling the Fed is close to winding down the hiking cycle.

https://eu.usatoday.com/

Oil falls over 3%

Data raises Fed interest rate worries 

Oil prices fell over 3% on Monday, following U.S. stock markets lower, after U.S. service sector data raised worries that the Federal Reserve could continue its aggressive policy tightening path.

Brent crude futures settled down $2.89, or 3.4%%, at $82.68 a barrel. West Texas Intermediate crude (WTI) fell $3.05, or 3.8%, to $76.93 a barrel. Both benchmarks had earlier risen more than $2, before reversing direction.

During the session, WTI’s front-month contract began trading lower than prices in half a year , a market structure called contango, which implies oversupply. U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.The news caused oil and stock markets to pare gains.

https://www.reuters.com/

Inflation Dips Below 8% Annual Rate in October

The drop will not deter the Federal Reserve from its campaign of higher interest rates

Inflation rose at a 7.7% annual rate in October, better than expected but still well above the Federal Reserve’s desired level, the Bureau of Labor Statistics reported on Thursday.

Economists had forecast an annual rate of 7.9%. The monthly increase was 0.4%, the same as in September. The core consumer price index, leaving out often volatile food and energy prices, came in at 6.3% annually, compared to 6.6% in October, and 0.3% following last month’s 0.6% rise. Overall, inflation has trended down since it hit 9.1% in June, when energy prices were spiking in the wake of Russia’s February invasion of Ukraine and disruptions in global supply chains.

June’s number sparked a more aggressive move from the Fed to tame inflation, with four consecutive increases of 75 basis points in the federal funds rate, a trigger for many other interest rates that have driven borrowing costs to their highest levels in years. The average rate on a 30-year fixed rate mortgage, for example, is now above 7% compared to the 3% range a year ago.

https://www.usnews.com/

US Core Inflation Seen Returning to 40-Year High as Rents Rise

Fed on path to big November rate hike

A key US inflation measure due Thursday is set to return to a four-decade high, underscoring broad and elevated price pressures that are pushing the Federal Reserve toward yet another large interest-rate hike next month.

The so-called core consumer price index that excludes food and energy is projected to rise 0.4% in September from the prior month and 6.5% from a year earlier, matching the rate seen in March that was the highest since 1982. But about a third of economists in a Bloomberg survey expect a print of 6.6% or more.  The overall CPI, however, is expected to decelerate to a still-rapid 8.1% annual pace, restrained by a decline in gasoline prices, based on the median estimate.

https://www.bloomberg.com/

Powell Signals Recession May Be Price to Pay for Crushing Inflation

50 basis point hike possible for May

Federal Reserve Chairman Jerome Powell affirmed the central bank’s determination to bring down inflation and said Thursday that aggressive rate hikes are possible as soon as next month.

“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell said while part of an International Monetary Fund panel. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. … I would say 50 basis points will be on the table for the May meeting.”

Powell’s statements essentially meet market expectations that the Fed will depart from its usual 25 basis point hikes and move more quickly to tame inflation that is running at its fastest pace in more than 40 years. A basis point equals 0.01 percentage point. However, as Powell spoke, market pricing for rate increases got somewhat more aggressive.

Expectations for a 50 basis point move in May rose to 97.6%, according to the CME Group’s FedWatch Tool. Traders also priced in an additional hike equivalent through year’s end that would take the fed funds rate, which sets the overnight borrowing level for banks but also is tied to many consumer debt instruments, to 2.75%.

https://www.cnbc.com/

Fed hikes interest rates by 0.75 percentage point for second consecutive time

Objective: fight inflation

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

https://www.cnbc.com/

Recession fears mount

Stock market plunges to new lows

Federal Reserve Chair Jerome Powell has pledged to do whatever it takes to curb inflation, now raging at a four-decade high and defying the Fed’s efforts so far to tame it. Increasingly, it seems, doing so might require the one painful thing the Fed has sought to avoid: A recession.

A worse-than-expected inflation report for May — consumer prices rocketed up 8.6% from a year earlier, the biggest jump since 1981 — helped spur the Fed to raise its benchmark interest rate by three-quarters of point Wednesday. Not since 1994 has the central bank raised its key rate by that much all at once. And until Friday’s nasty inflation report, traders and economists had expected a rate hike of just half a percentage point Wednesday. What’s more, several more hikes are coming.

The “soft landing” the Fed has hoped to achieve — slowing inflation to its 2% goal without derailing the economy — is becoming both trickier and riskier than Powell had bargained for. Each rate hike means higher borrowing costs for consumers and businesses. And each time would-be borrowers find loan rates prohibitively expensive, the resulting drop in spending weakens confidence, job growth and overall economic vigor.

https://apnews.com/

Federal Reserve raises key interest rate 0.75%

A move to try to calm inflation

The Federal Reserve said on Wednesday that it is raising its benchmark interest rate by three-quarters of a percentage point, the sharpest hike since 1994, as it seeks to combat the fiercest surge in U.S. inflation in four decades.

The U.S. central bank set its target rate in the range of 1.5 to 1.75%. The federal funds rate, which controls how much banks pay to borrow money from each other, affects borrowing costs for consumers and businesses.

The Fed had previously suggested it was likely to boost rates by half a percentage point at each of its three meetings this year, but recent signals that inflation is accelerating spurred policymakers to move more aggressively to slow economic growth in a bid to tame prices

https://www.cbsnews.com/

Fed raises rates by half a percentage point

Fed Chairman Jerome Powell underlined the commitment to bringing inflation down

The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most aggressive step yet in its fight against a 40-year high in inflation.

“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He noted the burden of inflation on lower-income people, saying, “we’re strongly committed to restoring price stability.”

That likely will mean, according to the chairman’s comments, multiple 50-basis point rate hikes ahead, though likely nothing more aggressive than that.

https://www.cnbc.com/

Fed’s Powell Seals Expectations of Half-Point Rate Rise in May

Federal Reserve officials have broadly signaled a desire to raise interest rates to levels that don’t provide stimulus

Federal Reserve Chairman Jerome Powell signaled the central bank was likely to raise interest rates by a half percentage point at its meeting next month and indicated similar rate rises could be warranted after that to lower inflation.

A rate increase in May, following the Fed’s decision to lift rates from near zero by a quarter percentage point last month, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings. A half-point increase would be the first such move since 2000.

The Fed has indicated it will also formally announce plans at the May 3-4 meeting to begin shrinking its $9 trillion asset portfolio in June, a double-barreled effort to remove stimulus to curb price pressures that are at a four-decade high.

https://www.wsj.com/

Jeremy Grantham Doubles Down on Crash Call

Selloff Has Started

Jeremy Grantham, the famed investor who for decades has been calling market bubbles, said the historic collapse in stocks he predicted a year ago is underway and even intervention by the Federal Reserve can’t prevent an eventual plunge of almost 50%.

In a note posted Thursday, Grantham, the co-founder of Boston asset manager GMO, describes U.S. stocks as being in a “super bubble,” only the fourth of the past century. And just as they did in the crash of 1929, the dot-com bust of 2000 and the financial crisis of 2008, he’s certain this bubble will burst, sending indexes back to statistical norms and possibly further.

That, he said, involves the S&P 500 dropping some 45% from Wednesday’s close — and 48% from its Jan. 4 peak — to a level of 2500. The Nasdaq Composite, already down 8.3% this month, may sustain an even bigger correction.

https://finance.yahoo.com/

The Federal Reserve is anticipating multiple rate hikes in 2022

99% of employers planning raises

More than half of U.S. states are raising minimum wages next year, but employers are moving even faster on pay increases.

Salary budget increases set by employers for 2022 are higher than they have been in at least a decade, with 99% of employers planning raises and many planning increases of 5% to 6% in 2022, according to compensation consulting firm surveys. Deloitte’s fourth quarter CFO Signals survey funds 97% of CFOs saying that labor costs will increase substantially in 2022.

Top companies are aggressively fighting for talent and fighting their own employees’ demands for higher pay to fight inflation. Apple is reportedly even paying rare $180,000 stock bonuses to keep engineers for going to tech rivals.

But while the Federal Reserve says wage inflation is a factor to monitor in 2022, it is not a primary inflation driver yet.

Some economists aren’t as sure as the central bank that rising pay isn’t already contributing to what is known as a wage-price spiral, a labor market dynamic in which wage inflation leads to higher prices, and higher prices lead to calls for even higher pay.

https://www.cnbc.com/

Twitter CEO Jack Dorsey says ‘hyperinflation’ is looming in the world

“It will happen in the US soon”, Dorsey tweeted

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse. “Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.” The tweet comes with consumer price inflation running near a 30-year high in the U.S. and growing concern that the problem could be worse that policymakers have anticipated.

On Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.” The central bank leader added that he expects the Fed soon to begin pulling back on the extraordinary measures it has provided to help the economy that critics say have stoked the inflation run.

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

https://www.cnbc.com/