In fact, the chances of a three-quarters increase in percentage points on Wednesday, though still somewhat remote, increased after the CPI report in May. “The Fed needs to show determination. It does not have the luxury of showing that it does not have the confidence to lay its hands on this persistent and persistent inflation. The next two sessions should be half-increases,” said Todd Lowenstein. Head of The Private Bank’s share strategy at Union Bank. However, Lowenstein acknowledged that there was growing debate over whether the Fed should slow down interest rate hikes or even pause for a meeting later this year to assess the impact of higher interest rates on the wider economy. There is a gap between when higher interest rates are announced and when they actually slow down consumer spending. Certainly, a pause seems less likely after the hot inflation report for May. In fact, traders are now pricing with more than a 40% chance of a three-quarter increase at the Fed meeting in July. Barclays economists wrote on Friday that “it is a close communication” on whether the Fed raises interest rates so much in June or July. However, not everyone believes that the Fed should be so aggressive. The Fed has launched a process called quantitative easing, which could slow down consumer demand by pushing long-term interest rates higher. Here’s how it works: As part of the Fed’s efforts to boost Covid 2020, the central bank bought huge amounts of bonds and mortgages. This so-called quantitative easing has pushed the Fed’s balance sheet to a cumbersome size of almost $ 9 trillion. Now, the Fed is unwrapping some of these assets by letting the bonds in its balance sheet mature rather than reinvesting capital payments back into those bonds. This should, in theory, push long-term returns higher. That could be another reason why fears of multiple large interest rate hikes by the Fed could be exaggerated. “Quantitative easing is sure to drive long-term interest rates higher and I do not think the market is taking that into account. Denis J. Villere & Co. “The market has reacted too much and that gives us opportunities to buy some things.” Villere said bonds and some US small-cap companies look attractive. But he acknowledged that investors could be wary. There is no guarantee that the Fed can slow down the economy without causing a recession. “We will see if the Fed can do this magic trick and have a gentle landing instead of a landing. There is no doubt that the Fed waited too long to react to inflation,” Villere said. Others worry that large increases in interest rates by the Fed will not help reduce inflation, especially since much of the higher prices are due to rising energy costs. And unless the Fed can somehow mediate a peace deal between Russia and Ukraine, good luck seeing any relief at the pump soon. “We hoped we had reached the peak of inflation,” said Jay Woods, chief market strategist at DriveWealth. “But the Fed does not control the price of oil and gas. Consumer habits will change dramatically.”
Technology canaries in the coal mine?
Technology stocks are having a violent year. The Nasdaq is in a declining market as investors worry about the impact of higher interest rates on Silicon Valley earnings. Are fears justified? Investors will feel better as two software giants – Oracle (ORCL) and Adobe (ADBE) – report earnings this week. Both companies have extensive exposure to Corporate America. Oracle is a pioneer in database and customer relationship management software, while Adobe’s creative tools (PhotoShop, Acrobat and InDesign to name a few) are used by armies of graphic designers. Shares of Oracle and Adobe, like the rest of technology, fell this year. Oracle shares have fallen nearly 25%, while Adobe has fallen more than 30%.
Next
Monday: Earnings from Oracle Tuesday: US producer prices Wednesday: US Retail Sales. Federal Reserve policy announcement Thursday: Start of US housing and building permits. Weekly US unemployment applications. profits from Kroger (KR), Jabil (JBL) and Adobe Friday: Industrial production USA
