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CNN Business
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Investors looking for clues as to what the Federal Reserve will decide at its December policy meeting have had quite a bit this week. But hints about the future of monetary policy point to an outcome they won’t be very pleased with.
What’s going on: Federal Reserve officials delivered a series of speeches this week suggesting that aggressive rate hikes to combat inflation will continue, dampening investors’ hopes for a policy change coming of the central bank. On Thursday, Federal Reserve Chairman St. Louis James Bullard said the central bank still has a lot of work to do before it gets inflation under control, sending the S&P 500 down more than 1% in early trading. It then reduces the loss.
Bullard, a voting member on the Federal Open Market Committee (FOMC) that sets interest rates, said that the moves the Fed has taken so far to combat inflation have not been enough. “To reach a sufficiently restrictive level, policy rates will need to rise further,” he said.
These comments come a day after Kansas City Fed President Esther George, a voting member of the FOMC, said: The Wall Street Journall that she is “looking at a labor market so closely, I don’t know how you are going to keep bringing this inflation down without a real slowdown, and maybe we even have to shrink economy to get there.”
San Francisco Fed President Mary Daly added on Wednesday that the pause in rate hikes was “indisputable.”
A number game: Fed officials should raise interest rates to somewhere between 5% and 7% to reduce inflation, Bullard said on Thursday. Those numbers shocked investors, as they would require a series of significant and economically painful price hikes, increasing the chances of a hard landing.
Current interest rates range from 3.75% to 4%, and the average FOMC participant predicts a peak fund rate of 4.5-4.75% in September. If those numbers hold, Fed members will only raise rates by three-quarters of a percentage point.
But Fed Chair Powell said at the November meeting that forecasts are likely to increase in December, and if Bullard is correct, that means investors can expect a 1- to 3-point increase in interest rates. percent more.
Dream of a Spindle: October CPI is lower than expected and read production price bolstering investors’ hopes that the Fed might ease its aggressive interest rate hikes and sent the market soaring to its best day since 2020 last week.
But the message from Fed officials this week sent Wall Street back to normal.
That’s because market rallies help expand the economy, said Liz Ann Sonders, CEO and chief investment strategist at Charles Schwab, which is the opposite of what the Fed is trying to do. try to do with its tightening policy. Fed officials may be trying to channel some “criticism” through overly aggressive speeches aimed at bringing markets down, she said.
Key point: Peter Boockvar, chief investment officer at Bleakley Financial Group, wrote in a note on Thursday that investors listen closely to Bullard’s comments because he is known for having softer lips than the public. other Fed officials. But his hawkish predictions may have been “overzealous,” especially since he won’t become a voting member of the FOMC next year.
Still, Wall Street analysts are listening. Goldman Sachs raised its peak lending rate forecast on Thursday to 5-5.25 percent, up from 4.75-5%.
A series of high-level personnel layoffs have occurred riot Big Tech this month.
Amazon confirms that layoffs have begun at the company and will continue next yearjust a few days after many stores report The e-commerce giant has planned to cut about 10,000 employees. Facebook’s parent company, Meta, recently announced 11,000 job cuts, largest in company history. Twitter also announced widespread job cuts after Elon Musk bought the company for $44 billion.
A series of announcements about layoffs have raised concerns that the labor market is weakening and Recession could be around the corner.
Those concerns are not unfounded: The Federal Reserve is actively working to slow economic growth and tighten financial conditions to rebalance the white-hot labor market. Further layoffs in both the tech and other industries are inevitable as the Fed continues to raise interest rates.
But this wave of layoffs is not as significant as the headlines might lead Americans to believe. Thursday’s weekly jobless claims actually fell 4,000 to 222,000 despite an increase in job cuts in the tech sector.
In a Thursday note, Goldman Sachs analysts outlined three reasons why layoffs may not indicate an impending recession in the US.
First of all, the tech industry makes up a small portion of all jobs in the United States. While information technology companies account for 26% of the S&P 500’s market capitalization, it accounts for less than 0.3% of total employment.
Second, tech job opportunities are still much higher than pre-pandemic levels, so tech workers who get laid off will have a good chance of finding new jobs.
Finally, Goldman analysts found that layoffs of tech workers have frequently spiked in the past without a corresponding increase in total layoffs, and historically are not indicative. leading to a broader labor market downturn.
They conclude: “The main problem with the labor market is that the demand for labor is too strong, not too weak.
Mortgage rates fell sharply last week after a flurry of economic reports suggested inflation could finally ease, reported my colleague Anna Bahney
The 30-year fixed-rate mortgage averaged 6.61% for the week ending November 17, down from 7.08% the week before, according to Freddie Mac, the biggest weekly drop since 1981.
But that number is still significantly higher than a year ago when the 30-year fixed rate was at 3.10%.
“While falling mortgage rates is welcome news, there is still a long way to go for the housing market,” said Sam Khater, chief economist at Freddie Mac. “Inflation remains high, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”
The affordability of a home remains a challenge for many homebuyers. Mortgage rates are not expected to be stable for the rest of the year. And prices remain high in many areas, especially in places where there are very few homes for sale.
Meanwhile, rising inflation and interest rates mean that many homebuyers are also facing tight budgets.
