Tag: Fed policy

Expect markets to continue being jittery as we approach the FOMC meet

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With rising inflation and a banking crisis in hand, it will be important to see what the Fed decides to do in the upcoming FOMC meet.

Jerome Powell, Fed Chair in his speech on 7th March said US inflation has moderated since the middle of last year but remains well above the FOMC’s longer-run objective of 2 percent. He added that although inflation has been moderating in recent months, the process of getting it back down to targeted levels will be longer and is likely to be bumpy. Adding to it, the latest economic data is stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.

In line with Powell’s indication, economists expect another rate hike for the upcoming Fed meet on March 21 -22. Madan Sabnavis, Chief Economist at Bank of Baroda says “Fed will continue to increase interest rates in the next policy and expect 25 bps hike. Given that employment remains tight, can look at 50-100 bps increase from the present levels.”

Along with keeping inflation and employment numbers in check, the recent failure of two banks will be kept in mind when the FOMC meets next. The US Government has clarified to taxpayers that their money shall not be used to bail out Silicon Valley Bank and Signature Bank, though deposit holders will be protected.

Sabnavis feels larger banks will largely remain unaffected and most will need a reassessment of their portfolios. He says “there may not be a contagion even in the USA as the larger banks have a more diversified asset and liability book. However, niche banks which have concentration on either sides would need to reassess their position.”

If there are signals given that the foot still remains on the pedal, markets could continue their jitteriness. What also needs to be seen is how the RBI reacts to this, given that another 25 bps hike is expected in the next RBI’s Monetary Policy Committee meeting.

Also read: Fed Minutes show members inclined toward more hikes to curb inflation

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Global share sell-off pauses in Asia as investors await Fed policy update

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian share markets steadied on Wednesday after three sessions of losses as investors awaited any hints about faster tightening of monetary policy from the US Federal Reserve later in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent on Wednesday, after sharp losses earlier in the week which have left the index off 2.8 percent this year. It is testing mid-December’s one-year low.

Japan’s Nikkei pared some early losses to trade 0.37 percent lower, hovering around its lowest level since December 2020.

The cautious rebound for shares looked set to continue in Europe, with pan-region Euro Stoxx 50 futures 0.5 percent higher, and FTSE futures were up 0.8 percent.

Nasdaq futures climbed 0.3 percent in Asian trading, while the S&P 500 e-minis were flat, after all three main US indices had fallen on Tuesday.

The Fed is due to update its policy plan later on Wednesday (1900 GMT) after a two-day meeting, and markets are priced for its first rate hike in March, with three more quarter-point increases by year-end.

“Asian markets are currently being affected by volatility in global markets, concerns about Fed tightening in the face of higher inflation and uncertainty about events in Russia and Ukraine,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore.

“We expect the Fed meeting, however, will not add to volatility. The central bank is set to only finish its quantitative easing in March and while it will signal interest rates are likely to be raised in March too, the Fed will endorse market expectations for quarterly 25bps hikes for its Fed funds rate rather than more aggressive tightening this year,” Mohi-uddin added.

Growing tensions as Russian troops massed on Ukraine’s border have added to a risk-averse environment for investors.

Globally, US stocks posted their worst week since 2020 last week, and MSCI’s world index is on course for its biggest monthly drop since the COVID-19 pandemic hit markets in March 2020.

However, analysts thought this was unlikely to derail the Fed’s plans to tighten policy.

“As long as turbulence remains relatively contained to equity markets, the bar for the Fed becoming dovish is high,” said analysts at Nomura in a note.

They said they thought some of the Fed’s policy committee would interpret the latest sell-off in equities as potentially taking out some of the “froth” in the market, so it would not change their view, especially amid worries about high inflation.

On Wednesday, China’s blue-chip index reversed earlier gains to slide 0.33 percent to its lowest since October 2020, while Hong Kong’s Hang Seng Index was down 0.3 percent.

Hao Hong, Head of Research at BOCOM International, expects limited appetite from investors to hold big positions in Asia after heavy market selling, as the Lunar New Year holiday approaches.

US Treasuries were steady, with yields on two-year notes at 1.0313 percent, holding onto gains made earlier this month. The yield on benchmark 10-year Treasury notes was 1.7743 percent, a little below the two-year high of 1.9 percent hit last week.

The dollar index against a basket of major currencies was mostly unchanged, with the greenback near its month high versus the euro hit the day before.

US crude dipped 0.4 percent to $85.22 a barrel, and Brent crude fell 0.25 percent to $87.96 per barrel, as investors booked profits from recent highs.

Gold prices were steady on Wednesday at $1,846 per ounce supported near the previous session’s 10-week high.

Read Also | Oil falls 3% as US Federal Reserve rate hike talk spooks risk markets

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US Fed may raise rates more than 4 times this year due to inflation: Goldman Sachs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In view of the rising inflation rate in the United States, the Federal Reserve may adopt an aggressive policy and hike interest rates at a faster-than-expected pace, according to an analysis by Goldman Sachs, a US-based multinational investment bank and financial services company.

David Mericle, an economist at Goldman Sachs, has said that even as the market is already expecting four quarter-percentage-point hikes this year, the rise in Omicron cases could prompt the Fed to increase the cost of borrowing “at every Federal Open Market Committee (FOMC) meeting until the inflation picture changes”. He, however, added, “Our baseline forecast calls for four hikes in March, June, September, and December.”

The analysis report comes just two days ahead of FOMC’s proposed two-day meeting on Tuesday. While market observers don’t expect FOMC to raise interest rate in this two-day meeting, they forecast that the officials could reach a consensus on effecting a hike in March, which would be the first increase in the Federal Reserve System’s benchmark rate since December 2018.

Meanwhile, according to the CME’s FedWatch tool, the chances of FOMC increasing the interest rate five times this year have moved to nearly 60 percent. If this happens, it would be the most aggressive Fed policy since the dot-com bubble in the late 1990s.

Besides, some market observers also predict that the FOMC would shut down its monthly bond-buying program at next week’s meeting. However, Goldman Sachs doesn’t expect it to happen at the two-day meeting, starting Tuesday.

At present, the inflation rate in the United States is at its highest 12-month pace in nearly 40 years. The annual inflation rate was estimated at 7 percent for the 12 months ending December 2021 — the highest since June 1982.

Read Also | President Biden says central bank should bear down on fighting inflation

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

S&P 500 to surge 100 points in September, says market expert

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Investors are set to reap gains this month, albeit for a short period of time, said long-time market bull Tom Lee. Lee predicted that the S&P 500 index will rise more than 100 points in September, but will see a 10 percent correction in the following month.

“We could have a really strong rally in September,” Lee, co-founder and head of research at Fundstrat Global Advisors told CNBC on September 3.

According to Lee, uncertainty due to the pandemic and the growing risks on the fiscal and monetary policy front are the reasons behind the vulnerability.

“Part of it has to do with the fear that had built in the last eight weeks around the Delta variant and the glumness developing around the economy and that led to both retail and institutional investors raising quite a lot of cash,” he said.

He predicted that the S&P 500 will soar to above 4,650 points. “The US is still in an underlying expansion,” he said, citing the comeback on crude oil prices and Bitcoin trading above $50,000.

On the Fed’s policy, Lee said policymakers are likely to stay dovish for longer, keeping a watch on the path of the Delta variant and its economic impact.

However, the rise in September will be short-lived. “We didn’t think there was a window for a 10 percent correction for most of 2021. The window where we think you could start to have potentially a 10 percent pullback is October,” he said.

In October, the markets would be closer to tapering. “For Washington, that’s when the debt ceiling rhetoric comes back, and if there are going to be concerns about the debt ceiling, the bond market could panic,” the market bull said, adding that this would spill on to the stock market as well.

“The markets can alarm everybody because we are already up 20 percent year-to-date and we are still in the pandemic. But the underlying fundamentals are still very strong and there is a lot of pent-up demand,” Lee had told CNBC earlier.

Lee sees opportunities of investment in Facebook, Amazon, Apple, Netflix and Alphabet.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Ultra-low interest rates due to wealth accumulation, not Fed policy: Study

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Advanced economies like the US have witnessed low interest rates for over a decade. Often viewed as an outcome of central bank policies, the downtrend is more a consequence of the rich accumulating more wealth, says a latest study.

The ever-increasing income of the rich is responsible for the decade-long fall in interest rates in the US, economists Atif Mian, Ludwig Straub, and Amir Sufi said in a paper presented at the Jackson Hole economic symposium in August.

Low interest rates make loans cheaper and boost the economy. They are responsible for boosting stocks that led to the recent rebound of the markets from the lows in 2020. The Federal Reserve has maintained low interest rates for a decade to maintain this economic stability.

However, the near-zero rates have worsened inequality and helped the wealthy amass significant appreciation of their investments. Consequently, the global glut of savings has led to the decline in the natural rate of interest (denoted as r*), the paper said.

Also read: Fed can’t afford to raise rates; headroom available for global rally: Shankar Sharma

“As the rich get richer in terms of income, it creates a saving glut. The saving glut forces interest rates to fall, which makes the rich even wealthier. Inequality begets inequality. It is a vicious cycle, and we are stuck in it,” said Professor Atif Mian in a series of tweets recently.

This op-ed argues that Fed should tighten monetary policy to fight rising wealth inequality

That is not quite right – we shouldn’t mistake the symptom for the disease

I’ll explain my thoughts a bit more …https://t.co/TpZcGTiaPo

— Atif Mian (@AtifRMian) August 24, 2021

The rich have more propensity to save. The paper said by 2020 the top 10 percent of earners in the US took home about 45 percent of all US income as against 30 percent in the 1970s. The rise in earnings led to an increase in the cash pile. The country’s top earners held about 40 percent of private savings in 2019 as against 30 percent in 1995. The rich, therefore, hold the larger part of the savings glut that is dragging the natural rate lower.

“Since it is the very rich who own most of the assets, a fall in interest rates makes them richer,” Mian said.

This also limits the Fed’s ability to tighten monetary policies. If the Fed raises interest rates to counter the decline, it would discourage borrowing and drag the economy into a recession. On the other hand, if the rates remained at low levels, it would limit the Fed’s ability to stimulate the economy in times of crisis.

Also read: Jerome Powell says Fed will start dialing back ultra-low-rate policies this year

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

From new drone rules to global oil majors joining race for BPCL; here are the top news of Aug 26

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Centre has notified Drone Rules, 2021 to attempt relaxing the rules and regulations surrounding the drone ecosystem. Global oil majors may be teaming to acquire BPCL and compete for India’s biggest privatisation effort. Reliance Life Sciences has sought regulatory approval to conduct early-stage human trials of its two-dose COVID-19 vaccine candidate. For all these stories and everything in between, here are some top news of the day.

ECONOMY

Government notifies drone rules, no permission now required for green zones 

The Centre has notified Drone Rules, 2021 to attempt relaxing the rules and regulations surrounding the drone ecosystem and give it a boost. Per the new rules, the maximum penalty is now reduced to Rs 1 lakh. Want to know more new rules? Click here.

Global oil majors may be joining race for BPCL 

Global oil majors may be teaming to acquire BPCL, govt-owned oil and gas corporation and compete for India’s biggest privatisation effort. Detailing the ‘Next Step’, the ‘Brief Note on BPCL Disinvestment’ said Transaction Advisor and Asset Valuer are to submit an inception report, bidders have to complete due diligence of the company, and sale-purchase agreement has to be finalised. Check out who is in the race here.

MARKET

Vijaya Diagnostic Centre fixes price band at Rs 522-531 for IPO 

M&M Financial Services to rope in Raul Rebello as new COO; shares gain 

The company has inducted Raul Rebello, Axis Bank’s previous EVP & head of rural lending & financial inclusion as its COO. CNBC-TV18 reported that MMFSL is looking to strengthen its top management team in a challenging environment. Here’s how the shares responded.

Correction in broader markets a healthy sign focus on bottom-up approach: Emkay Global

Also Read | Commodity Wrap on August 26: Natural gas inches higher; agri, metal lose ground

YOU & ME

Which COVID-19 test should you take? 

While the RT-PCR test delivers result in a day or two, the DIY gives results in 15 minutes. But the PCR results are far more accurate than the DIY kit. The antigen tests or the rapid test is also recommended if you are contagious.  Check out which one should you opt for

Income tax return filing: Key things to know before using ITR-3 and ITR-4 forms

Income Tax Department has notified 7 forms for filing ITR this year. These forms include Sahaj (ITR-1), Form ITR-2, Form ITR-3, Form Sugam (ITR-4), Form ITR-5, Form ITR-6 and Form ITR-7. Continue Reading

Xiaomi Mi Smart Band 6 to be available from August 30

The Mi Band 6 is priced at Rs 3,499 and will be available across Mi.com, Mi Homes, Amazon, and other retail stores. Though officially launched, it will be available for sale from August 30. Continue Reading 

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is a rate hike in US far away? How economists are reading latest Fed policy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Reserve kept benchmark interest rates on hold after a two-day scheduled policy meeting that ended on Wednesday. The Fed, however, maintained that the US economy is on track despite a spike in COVID-19 cases.

The US job market still had “some ground to cover” before it would be time to pull back from economic support, chairman Jerome Powell said. “Right now, it is not the ideal time to think about raising interest rates. Instead, the Fed is focusing on asset purchases,” he said.

Though the US central bank hinted at progress on talks on tapering of bond purchases, it did not offer any clarity on the timing of tightening of stimulus that it introduced in 2020 to help the world’s largest economy tackle the fallout from the pandemic.

Also read: Not time to start talking about tapering asset purchases: Powell

For now, the central bank is purchasing $120 billion in Treasury and mortgage bonds each month to support the US economy.

Here’s how analysts and economists are reading the latest policy statement from the Fed and chairman Powell’s remarks:

Madhavi Arora, lead economist, Emkay Global Financial Services:

Changes to the statement language skewed mildly hawkish as the Federal Open Market Committee indicated that the US economy “has made progress” towards its goals to begin reducing asset purchases. But overall tone on the path of rates remains pretty dovish.

On the composition of tapering, Powell threw cold water on the idea of an early start to tapering mortgage-backed securities vs Treasuries but indicated some support for tapering the purchase of the former more rapidly than the latter.

We see this meeting opening the door to a possible taper announcement in December that begins reducing the purchase pace in January-March.

Madan Sabnavis, chief economist, CARE Ratings:

The Fed policy talks of continuity in its approach to quantitative easing of $120 billion a month which has assuaged markets. Interestingly, it has mentioned that it is not too confident on employment generation in the country and while there is an improvement, there is no full-scale recovery as yet. This gives a signal that rates will remain untouched for some more time even though inflation is high. Inflation is considered to be transient as of now.

Also read: Is India headed for stagflation? Here’s how COVID-19 vaccination coverage is linked

A sharp recovery in the US accompanied by interest rates going up can retard FPI flows. The signal now of the status quo is useful to that extent as it indicates that funds can continue to flow to emerging market economies.

VK Vijayakumar, chief investment strategist, Geojit Financial Services:

The Fed’s announcement sends out the clear message that a rate hike is far away. The Fed chief’s statement that ‘substantial progress on inflation and unemployment is needed” is indicative of the central bank’s priority now. If things go according to its plans, a rate hike is possible only by the end of 2022 or early 2023. Tapering may happen by April 2022 and the Fed is likely to communicate this appropriately and condition the market for the event.
An important takeaway from the Fed’s announcement is that it is not unduly concerned about the asset price inflation caused by the humongous liquidity it has unleashed. It can be presumed that the Fed sees no threats to financial stability.

Sandip Sabharwal of Asksandipsabharwal.com:

The Fed policy was on expected lines. They have slowly started recognising the pickup in the economy and inflationary build-up. The key is to see how long they can hold up the start of the bond-buying tapering. They are likely watching the current Covid wave and will give a more clear outlook in September.

Also read: Indianomics: Morgan Stanley maintains 6.5% global growth forecast; says RBI can look through inflation for now

As such it’s status quo right now and markets will react to results and overall global market movements where valuations are extremely stretched. The possibility of sudden knee-jerk selloffs is increasing.

AK Prabhakar, head of research, IDBI Capital:

The latest Fed policy was on expected lines and good for markets. There was no negative surprise.

Arnab Das, global market strategist, Invesco:

What has happened over the last few months is that the Fed has to a significant extent reduced the concern that it would let inflation run too hard. It has begun talking about tapering, talking about it a bit more deeply but not going so far as to preempt the labour market and to preempt recovery, which does shift the tone from having been too dovish before they started talking about tapering to being too hawkish and now being just about right in the kind of Goldilocks way.

Also read: Inflation will moderate, expect it to be below 6% in July, says CEA

I agree with the consensus that this was a bit of a dovish take on the growth recovery and the process. I think it is appropriate because the delta variant – although the Fed downplayed the risks of delta variant to the US economy itself, it is clear that the delta variant is constraining recovery in parts of the world.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed keeps key interest rates near zero, says economic recovery on track: Highlights

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Reserve kept key policy rates unchanged at the end of a two-day meeting on Wednesday as widely expected, and maintained that the US economy remains on track despite a spike in coronavirus cases. The US central bank, however, offered no clues about when it will start to tighten its ultra loose monetary policy for the world’s largest economy that it introduced in 2020 to battle the economic fallout from the pandemic.

The US job market still had “some ground to cover” before it would be time to pull back from economic support, Chairman Jerome Powell said after the much-awaited scheduled policy review. “Right now, it is not the ideal time to think about raising interest rates. Instead, the Fed is focusing on asset purchases,” he said. He suggested that the Delta variant of the deadly virus poses little threat to the economy, at least so far.

For now, the central bank is purchasing $120 billion in Treasury and mortgage bonds each month to support the US economy.

Wall Street ended on a mixed note after an initial spike and the greenback slid. The Dow Jones Industrial Average ended 0.36 percent lower at 34,930.93, the S&P 500 slipped 0.02 percent to 4,400.64 and the tech stocks-heavy Nasdaq Composite jumped 0.70 percent to shut shop at 14,762.58.

The dollar index — which gauges the American currency against six peers — declined 0.10 percent to 92.2290.

Brent crude oil futures slipped to the $74.69 per barrel mark. US stockpiles last week dropped to their lowest since January 2020 while imports and production declined. WTI oil futures edged lower to $72.35 per barrel.

Here are the highlights of Fed’s latest policy meeting:

• Fed keeps benchmark interest rates unchanged at 0-0.25 percent, says economy continues to progress despite Covid spread
• Hints at progress on talks on tapering of bond buys but gives no timeline
• Wants to see substantial further progress toward goals of maximum employment, price stability before considering reducing bond buys
• Says indicators of economic activity, employment have continued to strengthen
• Says US economy has kept strengthening despite rise in infections
• FOMC to continue to assess progress in coming meetings
• Fed Chair Jerome Powell acknowledges a fresh outbreak might slow return of workers to jobs market to some extent
• Fed still expects vaccinations to reduce effect of public health crisis on US economy
• Jerome Powell:
• Would want to see some strong job numbers in coming months before reducing bond purchases
• Seems like we have learned to handle this “with progressively less economic disruption”
• “Very little support” for cutting $40 billion a month mortgage-backed securities earlier than $80 billion in Treasuries
• Once the process begins, Fed to taper them at same time
• Not yet time to think about raising interest rates; Fed has not set a timetable for when to do so
• Fed wants inflation to moderately exceed its 2 percent average inflation target, to show signs of remaining above that level
• Last summer’s wave of infections had inflicted less damage to US economy that many analysts had forecast
• We have kind of learned to live with it, a lot of industries have kind of improvised their way around it; seems like we have learned to handle this

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow