How fed controls inflation

Fed chair Jerome Powell Federal Reserve Chair Jerome Powell on Thursday downplayed the idea that government pandemic aid was the key factor fueling US inflation, instead blaming a confluence of global issues including the war in Ukraine. While stimulus spending was a factor, "a great deal of the price increases that you saw were a matter of supply being unable to meet demand" and "when demand hits fixed supply, what happens is prices go up," Powell told lawmakers. US inflation has surged to a 40-year high, picking up speed in recent months as the fallout from Russia's invasion of Ukraine has sent fuel and food prices soaring, with gas at more than $5 a gallon for the first time -- putting strain on American families. Opposition Republicans have blamed President Joe Biden's $1.9 trillion American Rescue Plan approved last year for the blistering price increases. But Powell, who was testifying Thursday before a House committee, and others have noted that inflation is a … [Read more...] about Fed chief Jerome Powell says pandemic aid not primary driver of US inflation

Representative Image The euro and sterling fell on Wednesday as investors turned to the safe haven dollar as part of a move away from riskier assets which also saw a stock market rally fizzle out, and after data showed British consumer price inflation hit a new 40-year high. With investors turning nervous again about global growth prospects, the U.S. dollar gained ground on most peers. The yen hit a fresh 24-year low as rising U.S. and European bond yields contrasted with low Japanese interest rates. Sterling was down 0.8% at $1.2198, touching its lowest level in almost a week, after British consumer prices rose to 9.1% last month, the highest rate out of the Group of Seven countries, underlining the severity of the cost-of-living crunch. Mike Bell, global market strategist at J.P. Morgan Asset Management, said as real wages in Britain are already being squeezed by higher prices, increasing borrowing costs further "could feel like rubbing salt in the wound" and elevates … [Read more...] about Euro, sterling knocked by growth worries and UK inflation at new 40-year high

Share to Twitter Share to Linkedin Average Credit Card Interest Rates Have Topped 20% Rising interest rates have pushed the annual percentage rates on credit cards to new highs. The average annual percentage rate on a new credit card is now more than 20%, according to LendingTree’s tracker. It’s the first time that rates have topped 20% since the tracker began in 2018. And rates are poised to go even higher across the board. Credit card balances reached $841 billion in the first three months of the year, according to a report from the Federal Reserve Bank of New York. In the same timeframe, 229 million people opened new credit card accounts, an increase from the previous quarter. [ CNBC ] Inflation Causing 85% Of Americans to Adjust Their Essential Purchases You don’t have to follow the news to know inflation is raging. Inflation in May 2022 was up 8.6% from the past twelve months. A quarter of respondents selected that they only have a little … [Read more...] about This Week In Credit Card News: Average Card Interest Rate Tops 20%; Inflation Wrecking Personal Budgets

Share to Twitter Share to Linkedin Memories of the Federal Reserve’s 1994 tightening cycle still tend to trigger financial PTSD here in Asia. Under the direction of then-Chairman Alan Greenspan, the Fed doubled short-term interest rates in just 12 months. The ferocity of the moves racked up some serious collateral damage: Mexico’s economic meltdown; the bankruptcy of Orange County, California; the death of 129-year-old bond dealer Kidder, Peabody & Co.; and developing Asia. It took a few years, but the dollar’s powerful rally in response to higher U.S. rates made currency pegs in Bangkok, Jakarta and Seoul impossible to maintain. The resulting devaluations in 1997 set the region back decades in terms of living standards and economic confidence. Now, the Jerome Powell-led Fed seems set to outdo the worst of the Greenspan era. Not because of the magnitude of the rate hikes Team Powell might engineer, but because of how far it’s fallen behind the … [Read more...] about Federal Reserve Is Losing Asia Faster Than In 1994

US Federal Reserve Chair Jerome Powell Jerome Powell, chair of the Federal Reserve, said Wednesday that the central bank was committed to wrestling rapid price increases under control and that it might be able to pull that off without tipping the economy into a painful downturn. This would be “very challenging” to achieve, he said. “We’re not trying to provoke, and don’t think that we will need to provoke, a recession,” Powell said while testifying before the Senate Banking Committee. “But we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else.” Powell, testifying before senators Wednesday, will speak to the House Financial Services Committee on Thursday. His trip to Capitol Hill comes at a challenging moment for the central bank. Inflation as measured by the Consumer Price Index is running at 8.6%, the fastest pace in more than four decades, having reaccelerated in May thanks to surging … [Read more...] about Powell says Fed is ‘not trying to provoke’ a recession

The markets are yet to find their trough, and real interest rates in the US (down 700bps from pre-pandemic levels) are likely to outgrow the hike in India (down only 300bps from pre-pandemic levels). This is likely to accelerate capital outflows and form a vicious cycle impacting the currency, inflation, real yields and causing further capital drain, believes IIFL Securities Chairman R Venkataraman. At an interview with Moneycontrol , he says that that markets are some way off from the bottom and there could be another 15 percent correction from here. "We suggest Cipla , SBI Life , HUL , ITC , Ashok Leyland , Persistent Systems , Deepak Nitrite , ICICI Bank as our top picks after a severe correction," Venkataraman shares. Excerpts from the interview: What is the message you get from the central banks that continued rate hikes and hinted more hikes to control inflation? Central banks worldwide were clearly taken by surprise at the violent inflationary … [Read more...] about Daily Voice | More capital drain on cards, expect 15% more correction, says R Venkataraman of IIFL Securities

Gold traded lower on Thursday as a stronger dollar and remarks from U.S. Federal Reserve Chair Jerome Powell about the central bank’s commitment to tame rising prices dimmed its safe-haven appeal. Spot gold fell 0.4% to $1,829.89 per ounce by 1056 GMT. U.S. gold futures inched 0.4% lower to $1,830.70. While the precious metal is considered a hedge against inflation and economic instability, it also contends with the dollar as a safe-store of value. Therefore, a firmer dollar makes greenback-priced bullion more expensive for overseas buyers. [USD/] Gold is expected to face gradual downward pressure and move towards $1,800, with Powell reiterating the rate hike path and the dollar also strengthening, Bank of China International analyst Xiao Fu said. ”Because gold’s a safe haven asset, it will attract buying on (recession risk) demand, but the rising rates are very powerful in terms of impacting other asset classes and including gold.” Close Higher US … [Read more...] about Gold dips as dollar gains upper hand after Powell remarks

The Reserve Bank of India (RBI) will not let go off the bond market, deputy governor Michael Patra said June 24, adding that the central bank will aid the government's market borrowing. “(The) RBI is reacting on an ongoing basis,” Patra said at an event in New Delhi. “This year we have to shift our gaze to inflation but we will not let go off the bond market and we will make dispensation of other type like the HTM (held to maturity).” In this year’s budget, the government had estimated a fiscal deficit target of 6.4 percent of gross domestic product. Simply put, a fiscal deficit occurs when the government’s expenditure exceeds revenue from taxes and other sources. A fiscal deficit is mainly financed through market borrowings like treasury bills and government bonds. New Delhi aims to borrow a record Rs 14.31 lakh crore via bonds this financial year. The RBI, as the government's debt manager, is expected to manage the borrowing programme and keep yields low. It is currently … [Read more...] about RBI will not let go off bond market, says Deputy Governor Patra

UOB: Room for Bank Negara to hike OPR by another 50bps before end-September - A + A KUALA LUMPUR (June 22): There is growing pressure on Bank Negara Malaysia to hike rates faster in the face of an aggressive US Federal Reserve, while there is widening consensus that global food and energy prices will continue to stay elevated for longer, with any potential supply shocks seen capable of driving prices and inflation even higher. In a note on Wednesday, UOB Global Economics and Market Research cautioned that the key takeaway is that "doing nothing or acting too slow" could sow seeds of more persistent and elevated inflation in the future, with more negative effects on demand and the economy. "Rate hikes would then also need to be sharper and more abrupt in that scenario. There may also be a need to act faster now in order to have sufficient policy buffers in preparation for the next recession (when it happens). A lagged policy response by BNM relative to peers … [Read more...] about Growing pressure on Bank Negara to hike rates faster

It's reality check time and we are opening the holiday-shortened trading week in a bear market in the S&P 500 after U.S. stocks had their worst week last week since March of 2020. The Federal Reserve hiked the federal funds rate by three quarters of a percent last week as it tries to cool inflation. I know, I said that would be "out of character" and "off script" on last week's podcast . So, you know the situation is pretty serious, and the Federal Reserve does not have inflation under control. No central bank does, for that matter. It's going to take aggressive interest rate hikes to get to what the Fed calls a normal rate environment (3.4%), which means we may very well see another 75 basis point hike at the Fed's next meeting in July. While that 3.4% may be normal, if you look at the last 50 years, it is not normal when you look at the past decade, which has been characterized by accommodative monetary policy via low interest rates and low inflation well under 2%. This is new … [Read more...] about Investing in Wine With the NBA’s Elite Players