Results for: Federal Reserve

Former Dallas Fed President Robert Kaplan criticizes expansive fiscal policies, suggesting they are contributing to sustained inflation and limiting the Fed’s ability to lower interest rates. Kaplan highlights the contradiction between the Fed’s efforts to tighten monetary policy and the government’s fiscal actions, which continue to stimulate demand. He expresses concerns over the economic consequences of these policies, including rising debt-to-GDP ratios and interest payments that could surpass national defense spending. Kaplan suggests that the central bank might need to avoid lowering rates throughout this year due to persistent services inflation caused by loose fiscal measures.

Goldman Sachs economist Jessica Rindels forecasts a decline in core Personal Consumption Expenditure (PCE) Inflation for the remainder of the year, despite recent inflation increases. The firm anticipates a drop from +0.33% in Q1 to +0.18% over the remainder of the year due to factors including slowing consumer electronics and financial services prices, combined with stable trends in housing and healthcare services.

Stocks rallied broadly on Tuesday, extending Monday’s rebound, as lower-than-expected economic data fueled expectations of a potential Federal Reserve rate cut by summer’s end. Market participants parsed the S&P Global’s Purchasing Managers’ Index (PMI) for April, which pointed to a slowdown in private sector growth and eased inflationary pressures. The probability of a Fed rate cut by September jumped to 72%, prompting optimism in the markets. Corporate earnings have also largely exceeded estimates, with investors awaiting results from Visa and Tesla after market close. By midday, the S&P 500 had gained 1.2%, on track for its best performance in over a month. The Nasdaq 100 outpaced the broader market with a 1.5% rise, while the Dow Jones Industrial Average advanced by a more modest 0.6%.

Veteran investor Howard Marks believes the Federal Reserve will not lower interest rates back to their post-financial crisis lows, and he sees this as a positive development. According to Marks, the U.S. economy is performing well and does not require additional stimulus. He argues that low rates over the past 13 years have distorted economic behavior and markets, leading to excessive risk-taking and inflation. Marks emphasizes the importance of allowing credit to play a more significant role in investment portfolios, as it can provide solid returns in the current interest rate environment. He notes that his firm, Oaktree Capital Management, which specializes in distressed securities, benefits from higher interest rates.

UBS has revised its forecast for the USD/PLN currency pair, expecting the exchange rate to reach 4.10 in the second quarter of 2024, with a gradual decrease to 3.92 by the first quarter of 2025. The updated forecast reflects changes in the Federal Reserve’s interest rate outlook and escalating tensions in the Middle East.

US business activity slowed in April, with demand weakening across the private sector. Inflation rates eased slightly, but input prices remained elevated. The slowdown is a potential sign of relief as the Federal Reserve continues to raise interest rates to combat inflation.

Stocks gained Tuesday on anticipation of earnings reports from a third of the S&P 500 companies this week, with tech stocks leading the charge. However, analyst Lawrence Fuller believes broader market strength is crucial to sustaining the bull market and economic expansion. He sees a rotation from tech to non-tech sectors, potentially limiting gains for the major market averages. Friday’s Personal Consumption Expenditures (PCE) inflation data will also be crucial in shaping the market’s direction, with expectations of a decline in the core rate to 2.7% in March. The Fed’s continued commitment to rate cuts this year contrasts with some market skepticism, but Fuller believes the economy will face the impact of tighter monetary policy in the coming quarters, leading to a slowdown in consumer spending growth. He emphasizes the need for the Fed to start lowering rates to cushion the economic impact.

The US dollar remained stable in early European trading on Tuesday, while the euro gained on the back of positive European services activity data for April. Traders cashed in on recent safe-haven dollar gains following the easing of Middle East tensions and comments from Iranian officials indicating no retaliation against Israel. However, the greenback remains elevated due to strong economic data and hawkish Federal Reserve statements. Meanwhile, the eurozone PMI composite index rose to its highest level in almost a year, aided by a jump in the services PMI. Despite this, analysts anticipate interest rate cuts from the European Central Bank before the Federal Reserve, which may limit the euro’s gains. The British pound also strengthened on data signaling the fastest growth in business activity in nearly a year, although the manufacturing sector experienced an unexpected decline. The Japanese yen weakened against the dollar amid speculation of possible government intervention as it approaches new multi-year highs. The Bank of Japan’s policy meeting on Friday will be closely watched for any changes in interest rates, which were raised for the first time in 17 years in March.

Financial markets face a resurgence of the US dollar, driven by a robust US economy, persistent inflation, and delayed interest rate cuts by the Federal Reserve. The dollar’s strength, coupled with higher US growth forecasts, has boosted stock and bond yields, further enhancing its appeal.

The Japanese yen remains near its lowest level since the mid-1990s against the strong U.S. dollar. Investors are watching for possible intervention from Japanese authorities as the yen approaches 155.00, a trigger point for past interventions. The Bank of Japan’s rate decision this week will also be closely monitored, as it could signal a more hawkish stance to combat the yen’s weakness. The dollar’s strength against other currencies, including the euro and sterling, has supported the possibility of continued yen weakness and U.S. dollar strength in the near term.