London (CNN Business) – After a slow start, central banks have made it plain that they are committed to keeping inflation under control. Even as costs continue to rise at an even quicker rate than projected, they are considering more extreme measures.
When will the Federal Reserve raise interest rates by an entire percentage point for the first time in modern history? Investors believe it is more likely. When the Federal Reserve hiked interest rates in June, it was the first time since 1994 that it had done so.
In the wake of the 9.1 percent year-over-year increase in June’s consumer prices, the S&P 500 and the Nasdaq were mainly unmoved. Politicians, on the other hand, expressed grave worry.
Raphael Bostic, president of the Atlanta Federal Reserve Bank, told reporters on Wednesday that “everything is in play.”
Previously, Fed officials expressed concern about the ramifications of such a significant rate increase.
“I think the markets would have a heart attack,” Federal Reserve Chairman Christopher Waller said in a recent interview.
Traders believe that a surge of this magnitude is increasingly plausible. According to statistics from CME Group, markets gave it an 81 percent likelihood on Thursday.
To summarise: To put it mildly, the short-term inflation picture has had to put a lot of pressure on the central bankers.
“I saw that data and thought: This wasn’t good news,” Federal Reserve Bank of San Francisco President Mary Daly said in an interview with the New York Times on Wednesday.
Much of the rise in June was fueled by a 60 percent spike in the price of gasoline. Energy is no longer the primary focus of inflation fears. Over the last year, the housing index rose by 5.6 percent (more on that below). Furniture prices increased by 9.5%, while airfares rose by 34.0% in the same time frame.
As a guide to what’s ahead, gaze to the north. “Higher and more persistent” inflation in Canada has led the Bank of Canada to raise its primary interest rate by a whole percentage point on Wednesday, the central bank said in a statement.
Several other decision-makers are also hard at work. In addition to South Korea and New Zealand raising interest rates yesterday, Singapore’s monetary authority and the central bank of the Philippines made emergency policy decisions on Thursday.
“Clearly, given other central banks are acknowledging the need to step up, the Fed isn’t alone anymore,” James Knightley, ING’s chief international economist, told me. That gives it “more cover to go more aggressively.”
It’s still possible that the Fed will raise interest rates by three-quarters of a percentage point this month since many policymakers are concerned about pushing the US into recession. However, he emphasized that a one-point rise is “definitely on the table” in light of the most recent inflation statistics.
Housing expenses hurt inflation:
During yesterday’s Before the Bell, we looked at the more optimistic scenario in which inflation may decline in the midterm. After sifting through the CPI statistics, I decided to go deeper into one of the most compelling counterarguments: the price of a roof over one’s head.
In June, the CPI’s shelter component rose at its fastest annual rate since February 1991.
Because rising home costs tend to linger, economists worry about this. The price of food and petrol may fluctuate quite rapidly. However, signing a lease commits renters to a 12- to 24-month period.
Keep an eye out for: A survey from Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants found that the average monthly rent in Manhattan hit $5,000 in June for the first time. Compared to last year, that’s a 30 percent increase.
Housing accounts for about one-third of consumer goods and services, according to the US Bureau of Labor Statistics.
Remember that the Federal Reserve Bank of San Francisco warned in February that rents and housing prices can push the Consumer Price Index “for up to a year.”
So, even as oil prices fall and people trust the Fed to execute its job correctly, expectations of “peak inflation” are complicated.
The crypto-bankruptcies keep on coming:
According to many who support digital currencies, the current “crypto winter” is beneficial.
Their pitch: Weak or doubtful ventures will fail as cryptocurrency prices plummet and market volatility increases. Only well-established companies can go on to the next phase, developing a more solid basis.
In any case, the interim period will be chaotic, even if you accept that rationale.
On Wednesday, Celsius became the latest company to declare bankruptcy. “Extreme market circumstances” prompted the crypto lender, which has more than 1.7 million customers, to halt withdrawals and transfers last month.
At the end of last week, Voyager Digital became the latest crypto lender to declare bankruptcy. “Deliberate and decisive action” was needed because of the “prolonged volatility and contagion in the crypto markets over the past several months,” as well as a client default on loan.
There will be a lot more casualties in the next several months. It’s been a rough ride for those who gambled on Bitcoin when the price was considerably higher, as investor uncertainty continues to stifle the market. Over 70% of its value has been lost since November, and ether is down 78% from its all-time high price.
As originally reported https://www.cnn.com/2022/07/14/investing/premarket-stocks-trading/index.html
