Tag Archives: FED

by | September 21, 2022 · 6:40 pm

Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man

Inflation is serious stuff. It makes people`s money less valuable, and it means a lot of trouble for a lot of people. But I`m not shocked, because we knew it was coming someday. I wrote about nine years ago, and here we are.

Ronald Reagan was fighting against inflation in the ’80s, and he once said;

«Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.»

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I bet Chair Powell thinks the same, as he raised the federal fund’s rate by 75 bps to the 3% – 3,25% range during its September meeting. This is the third three-quarter point increase, pushing borrowing costs to the highest since 2008.

Policymakers also anticipate that ongoing increases in the target range will be appropriate which was reinforced by Chair Powell during the press conference.

«We have got to get inflation behind us. I wish there were a painless way to do that. There isn`t. The so-called dot plot showed interest rates will likely reach 4,4% by December, above 3,4% projected in June, and rise to 4,6% next year.

Meanwhile, GDP growth forecasts were revised lower to show a 0,2% expansion this year, compared to 1,7% seen in June and 1,2% in 2023, below 1,7% seen in June. Inflation as measured by PCE is seen to reach 5,4% in 2022 (5,2% projected in June) and 2,8% in 2023 (vs 2,6%).

They also expect the unemployment rate to raise up to 4,4% next year. In August this year, the unemployment rate rose to 3,7%, which is the highest since February and above market expectations of 3,5%.

The number of unemployed people increased by 344 thousand to 6,014 million, while employment levels went up by 442 thousand to 158,732 million. Meanwhile, the labor force participation rate rose to 62,4% in August from 62,1% in July.

The unemployment rate was about 4% right after the dot com bubble, but it rose to about 6% a few years later. In 2010, the unemployment rate rose to about 10% but it peaked at an all-time high of nearly 16% after all the lockdowns.

Banks in nearly every country (not China and Japan) are facing similar trade-offs as they raise rates to combat their own inflation problems.

The inflation rate in the US is 8,3%. In the UK it`s 9,9%. Euro Area; 9,1%. In China and Japan, the inflation rate is 2,5% and 3,0%. But this is nothing compared to Turkey where the inflation rate rose for the 15th consecutive month to 80,2% in August of 2022.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | June 15, 2022 · 4:15 am

Hawkish Fed can make the biggest rate hike in 28 years on Wednesday

Investors don`t like higher rates. Normally, the higher the rates go the lower the stock market goes. The Fed needs to do something with the inflation, and raising rates is a tool they use, and this year they seem to be very aggressive.

In March, the Fed raised the fed-funds rate by a quarter of a percentage point, and that was the first increase in three years. Two months later, they raised the rates by another half-point. The Federal Open Market Committee has a meeting on Tuesday and Wednesday this week, so what now?

Experts claim the rate hike can be 50 points, but it can also go to 0,75% or as much as 1,00%

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Nasdaq is already in a recession, and S&P 500 jumped into that territory a few days ago. Investors fear the Fed will be more aggressive than expected, as they are opting for the first three-quarter-point increase in the Fed-funds rate since 1994. That was 28 years ago.

Raising the rate 75 points or more is not what we often see, and the last time we saw that happen was in November 1994. The Fed hiked rates many times that year to try to fix the inflation. The problem for the Fed is that if they raise the rates too much and too fast, a recession can occur.

The Fed will look at Unemployment, GDP, and inflation. So, where do we go from here? The Fed Funds futures are now at a rate of 3,05% for December 2022, and it will peak at 3,65% for July 2023. As you can see, there is more hawkish Fed to come.

Will the Fed sacrifice employment and growth to bring down inflation? The higher the rate is, the more expensive the money is for borrowers. This means that people will save more as they borrow less. That can lead to slower growth and lower prices and inflation.

The risk here is that this will lead to a recession. Corporations’ earnings will fall, and so can the stock market. Let`s listen to FOMC and Powell on Wednesday.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | May 28, 2021 · 6:16 pm

Biden is not a capitalist but a “far-left” politician

«I`m a capitalist, but here`s the deal…..» president Biden said. He also bashes trickle-down economy. Steve Forbes said Biden is not a capitalist. He is a far-left politician. Economists like Forbes are concerned about the rising inflation.

Core PCE prices in the US, which exclude volatile food and energy cost, increased 3,1 percent YoY in April of 2021, following an upwardly revised 1,9 percent gain in March and compared to market forecasts of 2,9 percent.

It is the highest rate since the 1990s, bringing it well above the Fed`s 2 percent target.

The Core Personal Consumption Expenditure Price Index provides a measure of the prices paid by people for domestic purchases of goods and services, excluding the prices of food and energy. The core PCE is the Fed`s preferred inflation measure, and the targest is 2 percent.

President Biden released a proposal that calls for $6 trillion in additional spending over the next decade. An ambitious plan that would run a $1,8 trillion federal government deficit despite a raft of new tax increases.

The budget proposal incorporates the American Jobs Plan, the American Families Plan and the $4 trillion infrastructure. Looking for the expectations about unemployment, the White House sees it falling to 4,7% by the end of 2021, 4,1% in 2022, and 3,8% the following year. They expect it will remain at 3,8% for the ensuing seven years.

The Treasury Department said that the deficit for the first seven months of fiscal 2021 still hit a new record of USD 1,932 trillion, which is a 30% increase from the same period of fiscal 2020.

Somebody have to pay for all the debt, and that is the people. To solve that, Biden wants people to pay more tax, but inflation (higher prices) is also a form for tax. A hidden tax.

To contact the author: post@shinybull.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shinybull.com. The author has made every effort to ensure the accuracy of the information provided; however, neither Shinybull.com nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities, or other financial instruments. Shinybull.com and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | May 2, 2018 · 4:00 am

Officials said the appropriate path for the FED`s funds rate over the next few years would likely be slightly steeper than they had previously expected

The Interest Rate are increasing while the outlook for the economy are getting stronger and the inflation is expected to follow the rate in the coming months. The FED, meeting for the first time under Chairman Jerome Powell, raised the funds rate to 1,5 – 1,75 percent during its March meeting.

FOMC holds eight regularly scheduled meetings during the year and other meetings as needed. Their next meeting is May 1 – 2, 2018, and GDP, Interest Rate and Inflation is on the table. The economic outlook is improving and the FED officials has recently projected a steeper path of hikes next year and 2020.

The FEDs funds rate was extremely volatile when Ronald Reagan entered the White House in 1981. In the early 80s the rate peaked at 20 percent and plummeted to about 10 percent and then back to nearly 20 percent again. That`s what I call action.

During the period of Ronald Reagan, the rate went from 20 percent and down to 10 percent in 1989, when Ronald Reagan said welcome to the next president; George Bush. He succeeded to push down the rate even more, but it hit a record low of 0,25 percent in 2008. That time is for now over.

The increase in March was the sixth rise since the central bank began a tightening cycle back in December 2015. As the economy has strengthened, the FED has upped the pace of hikes.

After the FOMC meeting in March, officials said the economy looks good and that the inflation is expected to move up. Almost all of the officials agreed that a gradual tightening remains appropriate.

The FED also said that the prospect of retaliatory trade actions by other countries as well as other issues and uncertainties associated with trade policies as downside risks for the economy.

Some people are concerned among their business contracts about the possible ramifications of the recent imposition of tariffs on imported steel and aluminium. They didn`t see the steel and aluminium tariffs, by themselves, to have significant effect on the national economic outlook.

Contracts in the agricultural sector reported feeling particularly vulnerable to retaliation.

The stance of monetary policy will remain accommodative, supporting strong labor market conditions and a sustained return to 2 percent inflation.

Some of the participants in the March meeting said that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent, implied that the appropriate path for the FED`s funds rate over the next few years would likely be slightly steeper than they had previously expected.

It is expected to see the rate unchanged after the meeting on Wednesday, but another hike is imminent at the following one in mid June.

The next FOMC meeting took place on Tuesday this week and will end on Wednesday with any changes to monetary policy announced immediately after the meeting.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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by | March 24, 2017 · 11:59 pm

The FED`s “Adverse Scenario” and the major shift in the economy

The stock market has been in a euphoric rally since Donald Trump won the election in November last year. This is something that Janet Yellen and the FED has monitored. Not only that. They also monitored strong economic data which have strengthened the case for a rate hike.

As you may know, the FED raised the rates a few days ago, and normally after a rate hike, the stock market drops. Thats the case right now, but the market didnt fall much. Janet Yellen said the FED will continue to raise the rates. What will happen then?

The FED came out with Scenarios for annual stress test required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule on February 10, 2017. It is just a forecast; an Armageddon forecast, which is called «Adverse Scenario» Report, and the scenarios are not forecasts of the FED.

The adverse and severely adverse scenarios describe hypothetical sets of conditions designed to assess the strength of banking organizations and their resilience to adverse economic environments. The baseline scenario follows a profile similar to the average projections from a survey of economic forecasters.

We must be prepared for higher long-term interest rates. What is that suppose to mean? First of all; that is good for banks with retail customers, simply because retail customers usually have checking accounts with zero interest on them.

So, if the rates rise, the spread in the banks rise simply because the banks will make more on their lending. About 2,000 banks has disappeared the last seven years, which means the competition among the rest is not that big anymore.

We can also see a steeper yield curve and regionally concentrated episodes of deflation. More pronounced in Japan, but less severe in the Euro zone and Asia and absent in the UK and US.

This is the major shifts we will see in the FED`s «Adverse Scenario» for 2017, and U.S banks will be stress-tested again. The apocalyptic scenario means that the level of U.S real GDP will decline in the first quarter of this year.

The US economy advanced an annualized 1,9 percent on quarter in the three months of 2016, slowing from a 3,5 percent growth in the previous period and matching earlier estimates. Consumer spending rose faster than anticipated while business investment was revised lower. Last year, the GDP expanded 1,6 percent, which is the lowest since 2011.

Check out next GDP number at 2017-03-30 at 12:30 PM.

In the scenario, the unemployment rate increases to 10 percent, by the third quarter of 2018, and short-term treasury rates fall and remain near zero. House prices will also decline by about 25 – 35 percent, through the first quarter of 2019, and so will equity prices.

In the same scenario, we will se a slowdown in Asia, severe recessions and the dollar will appreciate against euro, the pound sterling and the currencies of developing Asia.

I think the next big think to look at now is the election in France. If Le Pen and the populist wins, it can turn things upside down, and start a new international crisis. Until then, trade in small caps are profitable when rates rise, and higher rates doesn`t stop tech stocks like Alphabet, Apple and Amazon from surging. This is the bull market that everyone hates.

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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