The Worst Is (May Be?) Yet to Come
US core inflation hit a 40-year high, dashing hopes the Federal Reserve will dial back interest-rate hikes that may tip the country into a downturn and further damage the global economy. That number excludes rent and food, but those aren’t getting cheaper either (though people still want their Pizza Hut). The inflation problem seems to run deep and almost certainly means another 75 basis-point hike is coming next month. The International Monetary Fund cut its global forecast as its chief economist warned “the worst is yet to come” and “for many people, 2023 will feel like a recession.” Another looming issue is liquidity in Treasuries, Janet Yellen warned this week. “If the Treasury market seizes up,” Robert Burgess wrote in Bloomberg Opinion, the global economy and financial system will have much bigger problems than elevated inflation.” Meanwhile, when it comes to the US housing market, things are just getting weird. - Bloomberg Weekend Reading 10/15/22
A closely watched measure of US consumer prices rose by more than forecast to a 40-year high last month, pressuring the Federal Reserve to raise interest rates even more aggressively. The core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the highest level since 1982. From a month earlier, the core CPI climbed 0.6%. On the heels of a solid jobs report last week and record-low unemployment, the inflation data likely cement an additional 75-basis point interest rate hike at the Fed’s November policy meeting. Markets oddly skyrocketed rather than tanked. Here’s your markets wrap. - Bloomberg Evening Briefing 10/13/22
The Fed should keep raising rates, even beyond 4.75%, if inflation is still rising, according to Minneapolis Fed President Neel Kashkari. In remarks on Tuesday, Kashkari said that if core inflation keeps surprising to the upside then "I don't see why I would advocate stopping at 4.5% or 4.75% or something like that." Higher rates raise the likelihood of a US recession, something that Citigroup analysts believe equities are pricing in more than any other asset. Still, Alex Saunders, a quantitative analyst at Citi, said that equities have not priced in enough recession risk as "earnings estimates have further to adjust." - Bloomberg 5 Things 10/19/22
St. Louis Fed President James Bullard said he expects the central bank to end its ‘’front-loading” of aggressive interest-rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools. “You do have to think about what the reasonable level is,” said Bullard, who has become Wall Street’s gauge for any Fed policy pivots. Such an approach would resonate with DoubleLine Capital Chief Investment Officer Jeffrey Gundlach’s view that Treasury yields may hit a peak between now and the end of the year. - Bloomberg 5 Things 10/20/22
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