History Shows No Example of Hiking US Rates Too Fast, Summers Says

S&P 500

3,873.33

-28.02(-0.72%)

 

Dow 30

30,822.42

-139.40(-0.45%)

 

Nasdaq

11,448.40

-103.95(-0.90%)

 

Russell 2000

1,798.19

-27.04(-1.48%)

 

Crude Oil

85.40

+0.30(+0.35%)

 

Gold

1,684.50

+7.20(+0.43%)

 

Silver

19.61

+0.35(+1.80%)

 

EUR/USD

1.0018

+0.0018(+0.18%)

 

10-Yr Bond

3.4480

-0.0110(-0.32%)

 

GBP/USD

1.1421

-0.0046(-0.40%)

 

USD/JPY

142.9060

-0.5510(-0.38%)

 

BTC-USD

19,856.52

+59.14(+0.30%)

 

CMC Crypto 200

458.57

-4.87(-1.05%)

 

FTSE 100

7,236.68

-45.39(-0.62%)

 

Nikkei 225

27,567.65

-308.26(-1.11%)

 

History Shows No Example of Hiking US Rates Too Fast, Summers Says

(Bloomberg) — Former Treasury Secretary Lawrence Summers argued against the Federal Reserve holding back from aggressive monetary tightening, saying that greater economic damage would result from any hesitation.

Most Read from Bloomberg

Bezos Loses Spot as World’s Second-Richest Person to Adani

Patagonia Billionaire Who Gave Up Company Skirts $700 Million Tax Hit

Putin Threatens New Military Strikes on Ukraine Infrastructure

There’s an Unusual Thing Happening in the Housing Market

Germany Tightens Control Over Industry With Russian Oil Grab

“History records many, many instances when policy adjustments to inflation were excessively delayed and there were very substantial costs to that,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “I am aware of no major example in which the central bank reacted with excessive speed to inflation and a large cost was paid.”

Summers highlighted that even Paul Volcker, who famously vanquished elevated inflation as Fed chair, “had a kind of false start,” as recounted in a recent opinion piece by former Fed Governor Frederic Mishkin. In response to weakening economic data, Volcker relaxed the Fed’s stance in the spring of 1980, “which then had to be reversed” later, generating higher interest rates than would otherwise have been needed, he said.

“We’ve got a substantial underlying inflation problem — that doesn’t come out without very substantial monetary policy adjustment,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “And the market is waking up to that fact.”

Terminal Rate

The S&P 500 Index slid again on Friday, bringing the week’s retreat as of midday to more than 5%, as the bond market ratcheted up expectations for Fed rate increases. Two-year Treasury yields have jumped about 32 basis points this week, to 3.88% as of 12:07 p.m. in New York.

Chair Jerome Powell and his colleagues are forecast by economists to boost their benchmark rate by 75 basis points next week, taking the top of the target range to 3.25%. Interest-rate futures suggest that policy makers will take it toward 4.5% by spring 2023.

“We’re more likely to end up above 4 1/2 than we are to end up below 4 1/2, and it certainly wouldn’t surprise me if that rate has to get above 5,” Summers said. “Whether the Fed is going to stay the course and do what’s necessary to contain inflation, we’re going to have to see how that plays down the road.”

Most Read from Bloomberg Businessweek

The Biggest Copper Mine in the US Stalled in Dispute Over Sacred Ground

It’s White-Collar Jobs That Are at Risk in the Next Recession

The Ethereum Merge Ups the Stakes—and Reshapes the Crypto Universe

Chinese Manufacturers Get Around US Tariffs With Some Help From Mexico

©2022 Bloomberg L.P.

Advertisement

TipRanks

J.P. Morgan Says These 2 ‘Strong Buy’ Energy Stocks Can Beat the Market

We’re getting toward the tail end of the year, and it’s time to start deciding just how to allocate the portfolio for a solid year-end return. In a recent note from JPMorgan, focused on the energy sector, 5-star analyst Arun Jayaram recommended oil and gas producers as likely to beat the overall markets going forward. Getting quickly to the bottom line, Jayaram states, “We remain fans of the longer-term story for natural gas driven by a growing global demand for low cost U.S. gas exports.” With

Reuters

As markets churn, investors hide in cash despite surging inflation

A tough year in markets is leading some investors to seek refuge in cash, as they capitalize on higher interest rates and await chances to buy stocks and bonds at cheaper prices. The Federal Reserve has roiled markets in 2022 as it implements huge rate hikes in an effort to moderate the steepest inflation in 40 years. That’s made cash a more attractive hideout for investors seeking shelter from market gyrations – even though the highest inflation in forty years has dented its appeal.

Barrons.com

Short-Term Bonds Yield 4%. Why They Could Beat Cash.

A rising interest-rate environment typically pressures bond prices, which move inversely to yields. But this could be a good entry point for short-term bonds.

Bloomberg

Gold Plunges to Lowest in Two Years Amid Fed Rate-Hike Bets

(Bloomberg) — Gold fell to the lowest since April 2020 amid expectations of more aggressive interest-rate hikes by the Federal Reserve despite a fresh round of mixed US data.Most Read from BloombergAdobe Near Deal for Online Design Startup Figma, Sources SayRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Putin Acknowledges Xi’s ‘Concerns’ on Ukraine, Showing TensionAdobe Tumbles After Deal to Buy Figma for About $20 BillionPutin’s Options Narrow After Ukraine Scores Battlefield R

Barrons.com

Cash Is No Longer Trash. T-Bill Yields Near 4%.

Surging yields don’t just benefit seniors and savers. They help companies like Berkshire Hathaway, Apple, Alphabet, and Microsoft sitting on tens of billions in cash.

Motley Fool

60% of Warren Buffett’s Portfolio Is Invested in These 3 Stocks

Warren Buffett is one of the best investors of all time. Since 1965, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), the masterfully crafted conglomerate he helped build, has returned over 20% annually, creating fortunes for its shareowners along the way. Berkshire’s public stock portfolio is thus closely watched by investors seeking to build lasting wealth in the stock market.

Bloomberg

Fed Seen Raising to 4% in 2022 And Signaling Higher for Longer

(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.Most Read from BloombergPatagonia Billionaire Who Gave Up Company Skirts $700 Million Tax HitGermany Tightens Control Over Industry With Russian Oil GrabJeff Bezos Loses Spot as World’s Second Richest Person to Gautam AdaniPutin Acknowledges Xi’s ‘Concerns’ on Ukraine, Showing TensionAdobe Near Deal for Online Design Startup Figma, Sources SayFederal Reserve officials will signal a more

Bloomberg

Summers Expects Fed to Raise Rates Above 4.3% to Curb Inflation

(Bloomberg) — The Federal Reserve may have to eventually raise rates above 4.3% to control inflation, Former Treasury Secretary Lawrence Summers said Thursday. Most Read from BloombergAdobe Near Deal for Online Design Startup Figma, Sources SayRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Putin Acknowledges Xi’s ‘Concerns’ on Ukraine, Showing TensionAdobe Tumbles After Deal to Buy Figma for About $20 BillionGermany Seizes Assets of Russian Oil Giant RosneftSpeaking at an event

MarketWatch

These 20 stocks have short interest of 19% or more, and AMC and GameStop are not even in the top half

DEEP DIVE Short selling is a trading technique that gets especially popular during bear markets in stocks. Short selling — or betting on a decline in prices — can come to the fore if investors suspect a company is entering a difficult period, during a period of stress on financial markets, or when a group of traders acts to bid up the shares of companies that professional investors have bet against.

Reuters

GLOBAL MARKETS-Stocks fall, 2-year yields soar with rates, economy in focus

Wall Street indexes followed European stocks lower on Friday and short-dated Treasury yields soared while the dollar rose as investors braced for a U.S. interest rate hike next week and grew alarmed at signs of a global economic slowdown. Souring the mood was a warning from FedEx Corp late on Thursday that a global demand slowdown accelerated at the end of August and was on pace to worsen in the November quarter, causing it to withdraw its financial forecasts. The FedEx warning “set the tone for people being forced to take on board what they had been reluctant to take on board all along – that rates will be higher for longer,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA.

Reuters

GLOBAL MARKETS-U.S. stocks slip while yields rise, Fed in focus

Wall Street indexes were firmly in the red after a choppy start to Thursday’s session while bond yields rose as investors digested economic data that provided the Federal Reserve little reason to ease its aggressive interest rate hiking cycle. Oil futures tumbled more than 3% on demand concerns and after a tentative agreement that would avert a U.S. rail strike, as well as continued U.S. dollar strength with expectations for a large U.S. rate increase.

Leave A Reply

Your email address will not be published.