According to new economic projections made by the central bank, the Fed is expected to raise interest rates in 2023. Officials raised their expectations for inflation this year, which brought the time frame on when they will next raise interest rates to light. The announcement turned heads as it came just three months after a previous forecast showed rates would stay near zero for at least the next two years. The news caused U.S. stock futures to slide Thursday morning.
CNN Business/Anneken Tappe
The Fed expects to raise rates sooner than you’d think
The Federal Reserve expects to raise interest rates in 2023, according to new economic projections the central bank published Wednesday.
That’s a sharp contrast from the Fed’s previous forecast in March, in which the central bank predicted rates would stay near zero for at least the next two years.
Some members of the Federal Open Market Committee — which decides the central bank’s policy — are in favor of raising interest rates next year, the projections show.
The central bank also expects stronger growth, with real gross domestic product — the broadest measure of economic activity — climbing 7% in 2021, up from 6.5% in the March projections.
But with stronger growth comes higher inflation. The Fed has upped its 2021 inflation forecast by a whole percentage point to a brisk 3.4%, reflecting the increases in prices across the spectrum for both consumers and producers.
You can read the full story, here.
Fox Business/Jonathan Garber
Stock futures slide as Fed signals exit from emergency measures
U.S. stock futures pointed to a lower open Thursday as investors digest the Federal Reserve’s plan to exit from the emergency measures put in place during the COVID-19 pandemic.
Dow Jones Industrial Average futures fell 83 points, or 0.24%, while S&P 500 futures and Nasdaq 100 futures were lower by 0.24% and 0.38%, respectively.
The Federal Reserve on Wednesday held its benchmark interest rate near zero and maintained its bond-buying program at a pace of $120 billion per month, but moved up the forecast for the first rate hike to 2023 from 2024. More members, but not a majority, said the first rate hike could occur in 2022.
In stocks, financials including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. were among the bright spots as interest rate hikes would boost net interest margin, or the spread between interest income earned from their borrowers and the amount of interest paid out to their lenders.
The threat of rate hikes coming sooner than the Fed had previously planned weighed on growth stocks like Tesla Inc., Square Inc. and Facebook Inc.
Meanwhile, Microsoft Corp. named CEO Satya Nadella as chairman of the board. Nadella replaces John Thompson who will serve as independent director.
Read the full story, here.
Kitco News/David Lin
Already ‘bubbly’ market at risk of popping if Fed hikes rates says economist – Peter Berezin
Peter Berezin, chief global strategist at BCA Research, discusses with David Lin, anchor for Kitco News, the likelihood of the economy slumping back into a recession and a hyperinflationary scenario hitting the U.S.
Berezin notes that the stock market is currently “bubbly” and explains the conditions necessary for this bubble to pop.
“We are in a bubbly phase, I’ll absolutely admit it, but this bubbly phase is not going to end until we have turn towards hawkishness from the Fed and that’s not in the cards, at least for the next few months,” Berezin said.
Prior to joining BCA Research, Berezin was a researcher at the International Monetary Fund and served as the senior global economist at Goldman Sachs.
Berezin said that although economic growth is peaking, it is peaking “from a very high level” and while growth is still strong, it is ideal to be positioned in stocks.
“You generally want to stay bullish on stocks if growth is strong, and growth is still strong,” he said.
On inflation, Berezin said that price surges are indeed transitory, and the highest inflation reading since the financial crisis of 2008 was due to temporary base effects, not as a result of monetary or fiscal policies.
“What I think it’s due to is a lot of temporary factors”, he said. “About half of that 5% [increase in headline CPI] is simply due to base effects. Prices went down during the pandemic, now they’re recovering to more normal levels.
You can watch the full interview, here.