The US economy shrank 1.6% in the first quarter

First quarter of 2022 marked the start of Russia’s invasion of Ukraine

The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming. Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.

Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.

The first quarter GDP performance, which the BEA noted includes some unquantified effects from the pandemic and the Omicron variant surge, stood in contrast to the fourth quarter of 2021, when the economy grew at a rate of 6.9% from the prior quarter.

The first quarter of 2022, however, marked the start of Russia’s invasion of Ukraine, which sent economic shockwaves throughout the global supply chain, as well as the food, finance and energy markets.Domestically, US inflation has soared to levels not seen in decades amid ongoing supply chain challenges, rising costs for commodities and labor and spiking oil prices.

https://edition.cnn.com/

Oil prices could slump to $75 a barrel in a recession

For now analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022

Oil prices could surge higher or plunge lower depending on what happens next in global markets, according to Bank of America. Mounting fears of a recession have sent crude prices to their second consecutive weekly decline, but they remain above $100 per barrel amid still-high demand and constrained supply, while inflation, hawkish central banks and war still loom.

“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” analysts wrote in a recent note. The various crosscurrents and risks left BofA with a wide range of possibilities. For now, analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022 and 2023, after averaging about $104 for the year to date.

On Friday, Brent oil rose 2.6% to nearly $113 per barrel, but is down from a high of $133 reached in March. A recession, however, would trigger a pullback in fuel consumption, and oil prices could crash more than 30% from current levels, according to BofA’s estimates. If growth does go south, any easing in monetary policy from central banks would support oil prices somewhat. So even in the event of a recession in 2023, BofA sees crude averaging more than $75 a barrel.

https://finance.yahoo.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/

British pound is taking on ‘emerging market’ characteristics

Short positions have been mounting against the currency

Sterling is in danger of becoming an “emerging market” currency as falling growth and growing risks cause investors to flee the pound, according to Bank of America.

As of Tuesday afternoon in Europe, sterling was down 7% against the dollar year-to-date, trading just below $1.26 having been as low as $1.22 earlier this month. Short positions have been mounting against the currency as the global economic challenges of the war in Ukraine, inflation, supply chain bottlenecks and slowing growth converge with domestic risks stemming from the Bank of England’s unique predicament and the fallout from Brexit.

In a research note Monday, BofA Senior G-10 FX Strategist Kamal Sharma said further weakness can be expected in the pound through the rest of 2022. He also dismissed comparisons between the monetary tightening paths of the U.S. Federal Reserve and the Bank of England, arguing that the reaction functions of the two central banks are different.

“The challenges facing the BoE are unique along with a supply dynamic that it remains wholly unwilling to discuss: Brexit. This has resulted in a confusing communication strategy: hiking rates against a sharply slowing economy is never a good look for any currency,” Sharma said.

https://www.cnbc.com/

U.K. Inflation Hits 40-Year High

Prices rose 9% in one year

UK inflation, the rate at which prices rise, jumped to 9% in the 12 months to April, up from 7% in March. The surge came as millions of people saw an unprecedented £700-a-year increase in energy costs last month.

Higher fuel and food prices, driven by the Ukraine war, are also pushing the cost of living up, with inflation expected to continue to rise this year. Citizens Advice said “the warning lights could not be flashing brighter” for the government to offer more support for households, and debt charities urged anyone finding it difficult to pay bills to seek help earlier rather than later in the year.

Around three quarters of the rise in inflation in April came from higher electricity and gas bills, according to the Office for National Statistics (ONS).

https://www.bbc.com/

Aiming for a ‘soft landing’

How to to cool off inflation without sinking into recession

The Federal Reserve sees several avenues to solve the problem of inflation without a recession, but none of them will be easy, Chair Jerome Powell said Tuesday.

The central bank is focused solely on a single objective: a “soft landing” for the US economy. The phrase describes the ideal scenario in which inflation returns to the Fed’s 2% target while unemployment remains low.

Yet trying to accomplish such a landing would require some careful maneuvering. Economic growth has begun to slow with the Fed raising rates, but if spending cools too quickly, companies could halt their hiring plans or even lay off employees.

https://biz.crast.net/

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/

Inflation hit a 41-year high in March

Signs price hikes could slow down soon

Prices climbed at the fastest pace in decades in the month leading up to the war in Ukraine, underlining the high stakes facing the United States — along with many developed economies — as the conflict promises to drive costs higher.

The Consumer Price Index rose by 7.9 percent through February, the fastest pace of annual inflation in 40 years. Rising food and rent costs contributed to the big increase, the Bureau of Labor Statistics said, as did a nascent surge in gas prices that will become more pronounced in the March inflation report. The February report caught only the start of the surge in gas prices that came in response to Russia’s invasion of Ukraine late last month. Economists expect inflation to pick up even more in March because prices at the pump have since jumped to record-breaking highs. The average price for a gallon of gas was $4.32 on Thursday, according to AAA.

https://www.nytimes.com/

Former central banker wants Fed to ‘inflict more losses’ on stock-market investors to tame inflation

Historically tight labor market

William Dudley, the former president of the powerful New York Fed, thinks that his former colleagues won’t get a handle on inflation that’s running at around a 40-year high unless they make investors suffer.

There are myriad uncertainties the Fed must navigate, he acknowledged, including the effect of easing supply-chain disruptions and a historically tight labor market. But the effects of the Fed’s tightening of monetary policy on financial conditions — and the the effect that tightening will have on economic activity — is one of the biggest unknowns, Dudley wrote.

Unlike many other economies, the U.S. doesn’t respond directly to changes in short-term interest rates, Dudley said, partly because most U.S. home buyers have long-term, fixed-rate mortgages. But many U.S. households, also in contrast to other countries, have a significant amount of their wealth in equities, which makes them sensitive to financial conditions.

https://www.marketwatch.com/

Wall Street rallies on hopes Russia, Ukraine can resolve conflict

Prices eased for oil and other commodities

U.S. stocks rose on Tuesday, with the Dow and S&P notching their fourth straight session of gains, on optimism some progress was being made toward a deal to resolve the conflict between Russia and Ukraine.

Russia pledged to cut down on military operations around Kyiv and in northern Ukraine, while Ukraine proposed adopting a neutral status, the first sign of progress toward peace in weeks.

Prices eased for oil and other commodities, helping calm concerns about rising inflation and the path of monetary policy by the Federal Reserve, which has started hiking interest rates to combat rising prices.

https://www.reuters.com/

Gold price closing in on $1,900 as tensions escalate in Ukraine

Gold offers inflation protection

Gold prices jumped to an eight-month high on Thursday, closing in on the key $1,900 /oz mark, after reports of mortar fire in eastern Ukraine drove investors toward safe haven assets. Spot gold rose 1.4% to $1,895.84/oz by noon ET, its highest since early June 2021. US gold futures were also up 1.4%, trading at $1,899.00/oz in New York.

Russian-backed rebels and Ukrainian forces traded accusations on Thursday that each had fired across the ceasefire line in eastern Ukraine. The escalating tensions reinforced gold’s investment appeal while dampening appetite for riskier assets.

“When times really get uncertain and anxiety is running high, gold is still the safe-haven asset to go to,” Jim Wyckoff, a senior analyst at Kitco Metals, said in a Reuters report.

Meanwhile, the RIA news agency reported Russia has expelled deputy US ambassador Bartle Gorman and Washington will respond to the move. “Not only do the events on the Ukrainian border have investors seeking out safe-havens, but it (gold) also offers inflation protection at a time of surging prices and the prospect of higher oil and gas prices, if Russia does invade,” Craig Erlam, senior market analyst at OANDA, said in a note.

On Wednesday, minutes from the Federal Reserve’s January meeting revealed US policymakers’ intention to begin raising interest rates to curb inflation, which would translate into higher opportunity cost of holding bullion.

http://www.mining.com

U.S. economy grew by 5.7 percent last year

The nation’s gross domestic product has bounced back from the 2020 coronavirus recession

The U.S. economy grew last year at its fastest pace since 1984, rebounding from a sharp but brief coronavirus-induced recession in March 2020.

The nation’s gross domestic product, a measure of all goods and services produced, expanded by 5.7 percent in 2021, the Commerce Department reported Thursday. Growth accelerated even faster during the period from October to December, rising to 6.9 percent on annualized basis.

With inflation running hot and Covid-19 cases from the highly contagious omicron variant filling overworked hospitals and keeping workers at home, the economy is expected to grow at a slower rate in 2022. Economists have already slashed their forecasts for the first quarter, due to the impact of omicron.

https://www.nbcnews.com/

Stocks Turn Lower After Fed Announcement on Interest Rates

Federal Reserve plans to raise rates in March

Stocks staged another late-day reversal Wednesday, giving up their gains and adding to the week’s breathtaking volatility after the Federal Reserve signaled that interest hikes are indeed around the corner.

After trading higher most of the day, the Dow Jones industrial average shed more than 600 points following the Fed’s policy announcement. It cut some of its losses to settle at 34,168.09, down 129.64 points, or about 0.4 percent. A day earlier, the blue-chip index limped out of a tumultuous session that saw it stage a more than 1,000-point comeback and still close in the red.

The S&P 500 index, battered in five of the last six trading sessions, also turned negative and ended the day with a 6.52-point decline, or 0.2 percent, to 4,349.93. The tech-heavy Nasdaq composite index, which has taken steep losses as investors rotated away from pricey stocks that have been pandemic favorites, eked out a 2.82-point advance, or 0.02 percent, to settle at 13,542.12.

In its post-meeting statement, the central bank cautioned that “the path of the economy continues to depend on the course of the virus.” The pandemic has created a vexing set of supply and demand constraints that have pushed inflation to a 40-year high, and the Fed noted that it will “soon be appropriate” to start raising rates, but stopped short to taking immediate action.

https://www.washingtonpost.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/