Bond traders were once deemed so powerful and all-knowing that Tom Wolfe described them as the “Masters of the Universe” in his classic 1987 novel “The Bonfire of the Vanities” that used Wall Street as its backdrop.
Markets have been whipsawed in recent weeks, first by talk that a cooling labor market would allow the Federal Reserve to “pivot” away from its aggressive interest-rate hiking campaign, and then by comments from central bankers that any such move would be premature — as Thursday’s hot consumer price index report proved.
In times like these, I’m reminded of Robert Rubin. The former US Treasury Secretary in the Clinton administration was unequivocal that a strong dollar was in the country’s best interests, and the government should be careful not to undermine trust in the currency.
If the consumer price index report for August that showed inflation remains much hotter than forecast was not enough of a shocker, then talk that the Federal Reserve needs to raise interest rates in even bigger chunks starting with its meeting next week surely is.
Just like old times. That’s what it must seem like with the S&P 500 Index up about 15% since mid-June and poised for its fourth consecutive weekly gain, its longest winning streak of the year.
The bond market’s yield curve has a sort of mythical hold on economists and investors. It’s easy to see why, given that every recession since the 1950s has been preceded by an inverted curve, which happens when short-term rates rise above long-term ones.
The Federal Reserve looks like it’s finally getting what it really needs in its fight to tame inflation: a cooling in the red-hot labor market.
In just more than a week, US Federal Reserve Chair Jerome Powell has gone from expressing confidence that policy makers will be able to avoid pushing the economy into a recession while rapidly raising interest rates to control inflation to remarking, as he did on Thursday, that a downturn is out of the central bank’s control.
Savers are about to learn one painful and one surprising lesson about interest rates and banks. First, just because the Federal Reserve is raising rates doesn’t mean the rate investors earn on their cash will rise as much — if at all. In fact, the financial repression in the form of zero rates suffered for more than a dozen years by those who are ultra conservative with their savings isn’t going away soon.
The recession chatter has been building for a few weeks but really picked up on Easter Sunday, when Goldman Sachs Group Inc. chief economist Jan Hatzius published a report putting the odds of a recession at about 35% over the next two years. He noted that 11 out of 14 tightening cycles in the U.S. since World War II were followed by a recession within two years.
The S&P 500 Index officially fell into a correction on Tuesday, tumbling 10% from its record high on Jan. 3. The benchmark for U.S. stocks extended its decline on Wednesday, dropping as much as 1.8%. The word “correction” implies something was “wrong” with stocks.
The Federal Reserve, European Central Bank and others have created so much money to go along with unprecedented support from governments to combat the Covid-19 pandemic that the world is awash in liquidity.
When the going gets tough in the U.S., the tough go shopping. The Commerce Department said Wednesday that retail sales surged 3.8% in January, the most in 10 months and well above the 2% median estimate of economists surveyed by Bloomberg.
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