Economy
JPMorgan: “Armageddon Scenario” from U.S. federal reserve system not so bad
The market expects the U.S. federal reserve system to slow the rate hike to 50 basis points after the next Federal Open Market Committee (FOMC) meeting next week. but the consensus is also that the central bank will continue to raise the federal funds rate to about 5%.
Investors then expect a more or less extended pause. However, the Fed’s policy on the US federal reserve cash rate will depend on inflation, which remains close to multi-year highs despite the recent slowdown. How will this affect the US 100 and other important indices?
Inflation is affected not only by the key rate, but also by rising energy prices and supply chain problems, among others, and there is no guarantee that the rapid Fed rate hike seen this year will have the expected impact. The Fed will decide that the key rate of 5% will ultimately prove insufficient to return inflation to its target level.
That’s the scenario that JPMorgan strategists led by Nikolaos Panigirtzoglu, presented in a recent note, suggesting that the Fed would eventually raise the federal funds rate to 6.5% in the second half of 2023. The probability of such a scenario is 28%, while the market currently only considers a 10% chance of such an outcome, according to Investing.com’s Fed Interest Rate Barometer.
JP Morgan noted that its discussions with clients show that this scenario is widely perceived as the “Armageddon Scenario. But the “Armageddon Scenario” would have a weaker impact on the market than previously thought. The bank estimates that the S&P 500 could fall 10 percent and that 10-year Treasury yields could increase by 50 basis points.
While that’s not a cause for celebration, it’s far less worrisome than most clients with whom the bank’s strategists spoke, as clients on average fear a drop in the S&P 500 below 3,000 points and a rise in the 10-year bond yield above 5 percent.
The 5% rate scenario is one of 4 that JP Morgan economists have set for next year. Other scenarios suggest that the Fed would cut rates starting in mid-2023 so that the rate would peak around 5% in a moderate recession, or that the central bank would halt inflation without causing serious economic damage.
Earlier we reported that German authorities are urging companies and citizens to save gas.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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