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/

Treasury Sec. Janet Yellen said she’s hopeful prices will substantially decrease next year.

Yellen is an economist with over 50 years of experience 

As inflation hovers at a 40-year high, the pandemic lingers, and the war in Ukraine rages, a growing number of economists and CEO’s are saying the U.S. is headed for a recession.

The secretary of the treasury, Janet Yellen, essentially the nation’s chief financial officer, says she’s doing everything in her power to avoid one. Yellen is an economist with over 50 years of experience and the former chair of the Federal Reserve, the U.S. Central Bank in charge of setting American interest rates. She knows better than most about the delicate balance of trying to engineer an economy that keeps inflation at bay without causing widespread layoffs and a downturn. “So I believe inflation will be lower. I am very hopeful that the labor market will– remain quite healthy– so that people can feel good about their finances and their personal economic situation”, said Janet Yellen.

https://www.cbsnews.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/

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

Objective: to tamp down runaway inflation without creating a recession

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.

Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting. Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

https://www.cnbc.com/

Is a cruel winter ahead for Wall Street?

Recession looms

A cruel winter is likely for Wall Street as markets remain choppy and their biggest clients scale back. Traditional deal-making such as IPOs has dropped significantly. At every major investment house, management is quietly planning layoffs (and some, like Goldman Sachs, not so quietly).

One area of potential growth: Wall Street restructuring departments. They’re eyeing expansion to provide advice to companies so burdened by high debt load they need to sell stuff or “restructure” in Chapter 11 bankruptcy. Sources tell investment banking firm Morgan Stanley is weighing a big expansion of its restructuring team (Morgan Stanley wouldn’t deny the matter). Other banks are likely to follow because none of this is really rocket science. If you think the Fed needs to raise rates by a lot (which, given the latest inflation number, it does) the economy will suffer. Recession looms. The likelihood is that some segments of corporate America loaded up on cheap debt and will need help avoiding bankruptcy — or navigating a way out of it. That becomes a big business for Wall Street.

https://nypost.com/

Oil prices fall

U.S. inflation still hot

Oil prices declined on Tuesday, driven by a hotter-than-expected U.S. inflation report. The West Texas Intermediate for October delivery decreased 47 cents, or 0.5 percent, to settle at 87.31 U.S. dollars a barrel on the New York Mercantile Exchange. Brent crude for November delivery lost 83 cents, or 0.9 percent, to settle at 93.17 dollars a barrel on the London ICE Futures Exchange.

The above market reactions came as high U.S. inflation increased the likelihood for another big rate hike from the Federal Reserve, which could subdue demand for energy.

The U.S. Labor Department reported Tuesday that the country’s consumer price index (CPI) rose 0.1 percent in August for an 8.3 percent year-on-year increase. The core CPI, which excludes food and energy, rose 0.6 percent for a 6.3 percent year-on-year increase. The readings were higher than market expectations.

https://www.thestar.com.my/

Inflation: FED Chairman warns of ‘some pain’ ahead

The Fed will fight to bring down inflation

Federal Reserve Chairman Jerome Powell delivered a stern commitment Friday to halting inflation, warning that he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.

In his much-anticipated annual policy speech at Jackson Hole, Wyoming, Powell affirmed that the Fed will “use our tools forcefully” to attack inflation that is still running near its highest level in more than 40 years. Even with a series of four consecutive interest rate increases totaling 2.25 percentage points, Powell said this is “no place to stop or pause” even though benchmark rates are probably around an area considered neither stimulative nor restrictive to growth. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

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/

Russia hikes interest rates to 20% as rouble dives in value

Western sanctions on reserves prevent further support of rouble

Russia’s central bank more than doubled interest rates on Monday in an attempt to steady the country’s financial markets, after unprecedented western sanctions sent the rouble tumbling as much as 29 per cent. The central bank boosted its main interest rate to 20 per cent from 9.5 per cent in an emergency decision, saying “external conditions for the Russian economy have drastically changed”.

The rouble dropped to almost 118 against the dollar in offshore trading on Monday, according to Bloomberg data, after Russian president Vladimir Putin put his nuclear forces on high alert and the United StatesEurope and UK unleashed sanctions aimed at cutting the country off from the global financial system. Trading in shares and derivatives on the Moscow Exchange was suspended, Russia’s central bank confirmed on Monday. However, Russia-focused shares traded on other markets around the world dropped heavily.
https://www.irishtimes.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/