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 Or surrender to the market and the cheerleaders there.  Fed looks determined to take rates higher As expected, the committee announced Wednesday that it was not going to raise interest rates, the first time it has skipped an opportunity to do so since early 2022. As not expected, it accompanied this by publishing an update of governors’ projections showing that the great majority expect the fed funds rate to reach 5.6% by the end of this year. If they’re so much more convinced that rates need to be higher for longer, why pass on an opportunity to raise them now?   Decided against inflicting a nasty surprise on the market by hiking. you can't have the incoming vice chair be proven immediately wrong. As has been happening a lot recently, Fed Chair Jerome Powell went into his press conference with a clear message, and by the end the market collectively convinced itself that he hadn’t meant it. But how important is the press conference, really? Perhaps not very. By sugg...

 For two years, everyone from Dr. Doom to Elon Musk has been warning of an  imminent recession, and yet the Nasdaq 100 is up by 23% this year — within spitting distance of a 52-week high.  Jonathan Levin says it’s clear that the pessimists were premature. The surprising batch of optimism is causing people in the storied soft landing camp — once looked at with incredulity — to breathe easier. Isabelle Lee notes that “out of nowhere, regional banks in the US enjoyed their strongest rally since 2021” last week, adding to the bullish vibes.  The Federal Reserve Bank of San Francisco estimates there’s still a ton of excess savings floating around the economy — some $500 billion.  “Economists are looking clueless. Despite elevated levels of inflation and interest rates, consumers are hardly cracking as many have predicted,” Robert Burgess writes. Jessica Karl Bloomberg 21 maj 2023  https://www.bloomberg.com/opinion/articles/2023-05-21/it-s-taylor-swift-s-economy-...

 After another good session for US equities on Thursday, the S&P 500 is up 9.3% for the year, while the Nasdaq Composite is now in the black by more than 20%.  Not Earnings Not Rates The rally has happened while bond yields, previously seen as vital to the stock market’s resurgence, have stayed roughly where they were. The yield on 10-year Treasuries advanced eight basis points to 3.65% on Tuesday, its highest since the Silicon Valley Bank failure in early March The market still thinks that the Fed will be easing by the end of the year — but it’s significantly less certain than it was Jan 1. Maybe It’s the Liquidity Then Virtually all of the S&P 500’s gain for the year (barring this week’s surge) can be traced to the 7.5% rally from March 13 to April 13, which took it from 3,856 to 4,146.  This coincided with the creation and growth of the BTFP as well as an expansion of the Fed’s balance sheet in response to the collapse of SVB and Signature Bank There’s one fina...

 Penningpolitiken i västvärlden har de senaste 18 månaderna stramats åt i den snabbaste takten på 40 år. Ändå ligger inflationen kvar på plågsamt höga nivåer. Och världens mest väntade recession, som den kallats, tycks aldrig riktigt infinna sig. De goda nyheterna är att, jo, åtstramningarna kommer att trycka ned inflationen.  De dåliga är att effekten på BNP är minst lika stor och kommer tidigare. DI 17 maj 2023 https://www.di.se/analys/da-kommer-den-stora-smallen-fran-rantechocken/ Kommentar RE: Ganska självklart egentligen. Varför skulle inflationen gå ner utan sjunkande total efterfrågan. A US recession is a virtual certainty and the Federal Reserve may lower interest rates  by the third quarter as growth loses momentum, according to JPMorgan Asset Management.  “The market is right to be penciling in cuts,” said Seamus Mac Gorain, head of global rates in London. “Inflation is too high and it will take a recession to bring it back down,” he said, adding that US ba...

 Generally, a narrow market, in which performance is dominated by a few, is not a healthy one. That can be illustrated simply by comparing the S&P 500 equal-weighted index, in which each constituent is given a 0.2% allocation regardless of its size, and the usual cap-weighted S&P 500, in which companies are represented in proportion to their market value.  For another demonstration of just  how top-heavy the market has become, Apple Inc., the largest stock, is now bigger than the entire market capitalization of the 2,000 smaller companies in the Russell 2000 index. The S&P 500 is still up 7.7% for the year. What explains its continuing strength?  After more than a decade when low rates have propped up equity valuations, the animating hope is that trouble for the banks will mean lower rates  John Authers Bloomberg 16 maj 2023  https://www.bloomberg.com/opinion/articles/2023-05-16/rising-stocks-market-anomaly-is-playing-by-its-own-rules  The ...

  Kärninflationen, där livsmedels- och energipriser rensats ut, föll i linje med förväntningarna till 5,5 procent.  Jämfört med föregående månad steg både inflationen och kärninflationen med 0,4 procent, vilket var helt i linje med förväntningarna. https://www.bloomberg.com/news/articles/2023-05-10/us-core-cpi-moderates-slightly-giving-fed-some-room-to-p ause Fed faces a long battle to trim inflation to its 2% target Prices are finally coming down but ‘core’ price pressures remain stubbornly high Officials are now contemplating whether they have done enough or if they need to squeeze the economy further to ensure inflation — as measured by the core personal consumption expenditures price index — returns to the Fed’s 2 per cent target.  As of March, it was running at an annual pace of 4.6 per cent. FT 15 May 2023 https://www.ft.com/content/6e229e69-c33c-453f-89cc-d53acc698207 It's a Long Way to Tipperary. It is also a long way to 2 percent.  I should not start from he...

 The confidence with which bond markets are now betting that the Federal Reserve must “pivot” (start cutting rates) and do so imminently has never been greater. This divergence has been present and growing for a while, but some resolution must now be close. Fed funds futures now price a likelihood that over the next six meetings  from now until January, we’ll see the equivalent of five 25-basis-point cuts  This is based on various assumptions, but the idea that inflation will come under control very swiftly is critical to them. The two-year inflation breakeven suggests that inflation will average almost exactly 2%, the Fed’s official target, into the first half of 2025.  It’s eminently reasonable to brace for a recession before much longer. The more important question is whether it will come with sufficient speed and severity to force the Fed to cut rates at least five times over its next six meetings. The extra cash that landed in consumers’ wallets via stimulus pay...

 There was one notable question at the post FOMC press conference. At the post FOMC press conference, Michael McKee of Bloomberg asked Fed Chair Jerome Powell "Are you ruling out the rate cuts that the market has prices in?" Powell responded "We on the committee have a view that inflation is going to come down not so quickly. It will take some time. And in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won't cut rates. Markets from time to time have been pricing in quite rapid reductions in inflation. We factor that in but that's not our forecast." The bond market ignored those comments, going so far as to accelerate the pace of rate cuts.  Mish 4 May 2023 https://mishtalk.com/economics/market-ignores-fed-chair-powells-comments-prices-in-more-interest-rate-cuts 2-year Treasury yield falls below 3.9% day after Fed rate hike, pointing to widening disconnect between markets and central bank MarketWatch 4 May 2023 ...