The Fed: Fed Funds rate will increase by ½ a percentage point each month
We had a stock market bounce back last week with a bounce off the intraday bottom in the SP 500 of a 20% decline defined as a bear market. The bond market stabilized last week with 10-year yields below 3%, a recent high. Mortgage rates moved down slightly from their highs for 30-year mortgages of close to 6%. Not surprisingly, mortgage refinancing has slowed down very quickly. Will housing prices follow? So far no, as records continue to be set in April 2022 for home price increases. Eventually, higher rates will have an impact on housing prices despite the general housing shortage which is keeping prices high.
For the next two months, the Fed has stated that the Fed Funds rate will increase by ½ a percentage point each month. How much this has been factored into stock market performance and the economy is unclear. As the week began, stock market volatility continued. In addition to increasing interest rates, the Fed is reducing its balance sheet by not reinvesting maturing securities. This is called “quantitative tightening.”
Yesterday, Janet Yellen, US Treasury Secretary admitted on CNN that she was wrong about inflation when she said it was temporary and should decline shortly. It is refreshing to hear an administration official admit they were wrong but little comfort when you refill your gas tank.
Today, job openings remained near historic highs and workers continued to leave jobs at a record pace. This job situation is contributing to record inflation because the record demand for workers is contributing to wage increases. Employers have added 400,000 jobs per month contributing to historically low unemployment rates.
Consumer demand is increasing and so is manufacturing output despite supply chain issues. The overall sentiment on the economy is sour. Inflation is the number one issue. Future expectations for the economy are even lower. In the meantime, the Biden administration is attempting to turn the table on the economy highlighting the economic recovery from covid in terms of job openings and wages. It’s a slog though, each time an American fills their gas tank.
As far as the stock market, June started with further declines and the mood is sour. Interest rates are creeping up probably in anticipation of Fed increases at the June and July meeting.
Video worth watching:
The problem with most productivity advice: https://www.youtube.com/watch?v=xY0tJAkukWc
The data and anecdotes seem to reinforce a strange paradox: those who are most effective at work, rest the most too.
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