The two most significant events for gold demand in 2023 were the collapse of Silicon Valley Bank and the Hamas attack on Israel, the World Gold Council(WGC) said, estimating that geopolitics added between 3% and 6% to gold’s performance over the year.
The WGC estimated that central bank demand added 10% or more to gold’s performance in 2023 and said even if 2024 does not reach the same heights, above-trend buying should still offer an extra boost to gold prices.
The precious metal broke through $2,100 per ounce on Monday 4th December 2023 in intra-day trading, before moderating slightly. Spot gold prices were hovering at around $2,030 per ounce Friday 8th December 2023.
Gold price year to date chart
What is the World Gold Council
The World Gold Council (WGC) is a market development organization for the gold industry. It works across all parts of the industry, from gold mining to investment, with the aim of stimulating and sustaining demand for gold. The council sets standards, strengthens markets, and shapes the global conversation about gold. It was established to promote the use of and demand for gold through marketing, research, and lobbying.
The council includes 33 members, many of which are gold mining companies.
The latest U.S. job data indicates that job growth accelerated in November 2023, with seasonally adjusted non-farm payrolls increasing by 199,000.
The unemployment rate has dropped to 3.7%, even as more workers entered the labour market. This points to underlying strength in the labour market and is a positive sign for the U.S. economy.
U.S. job creation chart January 2022 – November 2023
U.S. job creation chart January 2022 – November 2023
Stocks had risen as investors awaited these latest employment figures, which are closely watched as an indicator of potential moves by the central bank on interest rates.
Mixed reaction
Markets showed a mixed reaction to the report, with stock market futures modestly negative while Treasury yields surged. Job creation showed little signs of slowing as payrolls grew even faster than expected and the unemployment rate fell despite signs of a weakening economy.
Good news for the U.S. economy but Treasury yields are on the up again.
U.S. citizens have accumulated a record-breaking $1 trillion in credit card debt.
The Federal Reserve’s interest rate hikes through 2023 have caused average interest rates for credit cards to spike to more than 22%. Rates on retail credit cards are even higher, nearing 29% on average.
Despite rising costs and higher borrowing rates, a record number of consumers shopped over the Thanksgiving holiday weekend. The National Retail Federation found that more than 200 million consumers went shopping that weekend, more than the 196.7 million shoppers who turned out in 2022.
Retailers Macy’s and other larger retailers have issued warnings about a slowdown in repayments on their credit cards, highlighting a potential risk to retail revenue this holiday season.
The resilience of the American consumer will continue to be tested by the still-rising costs of groceries, fuel, energy and housing.
Interesting fact
The U.S. credit card debt is approximately equal to the size of Apple’s market cap of $1 trillion.
A report published Tuesday by the Kick Big Polluters Out coalition found that at least 2,456 fossil fuel lobbyists registered to attend the two-week long summit. That’s more than almost every other country delegation, except for Brazil (3,081) and COP28 host the United Arab Emirates (4,409), the report said.
Supporters say the number of fossil fuel lobbyists attending the talks is ‘beyond justification’ and demonstrates that polluting industries are seeking to advance a fossil fuel agenda.
Others however say that Big Oil’s participation at COP28 should be welcomed.
Unabated
There’s also a debate about whether an agreement should centre on abated fossil fuels, which are trapped and stocked with carbon capture and storage technologies. Unabatedfossil fuels are largely understood to be produced and used without substantial reductions in the amount of emitted greenhouse gases.
Delegates at the beginning of COP28 sealed a landmark deal to help the world’s most vulnerable countries pay for the impacts of climate disasters. To me, that suggests it is okay to carry on with business as usual because the industry can throw money at the poorer people suffering at the brunt end of climate effects.
Announcements at COP28 have sought to help decarbonize the energy sector, with nearly 120 governments pledging to triple renewable energy capacity by 2030, recent news reports show.
Whichever way we care to spin this, we are nowhere near ready to switch to renewables.
The UK economy will grow much more slowly than expected in the next two years as inflation takes longer to fall, the Office for Budget Responsibility (OBR) says.
Are we locked in a never-ending austerity cycle?
Living standards are also not expected to return to pre-pandemic levels until 2027-28, the Office for Budget Responsibility (OBR) said. It comes as the chancellor announced tax cuts and a rise in benefits in his 2023 Autumn Statement.
The OBR publishes two sets of economic forecasts a year, which are used to independently predict or guess what may happen to government finances. These are based on its best guess calculations about and are subject to ‘change’.
It’s just a forecast – so should we take any notice?
According to the OBR, the UK will grow by 0.6% in 2023 – much better than previous predications last autumn, when it calculated the economy would fall into recession and shrink.
However, it slashed its growth outlook to 0.7% in 2024 and 1.4% in 2025 – down from a previous forecast of 1.8% and 2.5%.
The OBR warned that inflation – currently 4.6% – will only fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target in 2025. Previously it forecast inflation would easily beat the target next year.
OBR & ONS data set
These gloomy predictions put the Government on a collision course with the Bank of England and Britain’s budget watchdog as they clash over whether or not the UK economy is on the up.
Annual inflation in the euro zone sank to 2.4% in November 2023 from 2.9% in October 2023, data showed Thursday 30th November 2023.
Core inflation was also below expectations at 3.6%.
The European Central Bank has stressed that it is too early to declare victory in the 20-member euro zone bloc, as they monitor potential pressures from wage increases and energy markets.
Headline inflation has now fallen significantly from the peak levels of 10.6% in October 2022.
China’s factory activity contracted for a second month in a row in November 2023.
Non-manufacturing activity hit yet another new low this year, signalling that the world’s second-largest economy was still not out of the woods and may require more policy support.
The official manufacturing purchasing managers’ index unexpectedly dropped slightly lower to 49.4 in November 2023 from 49.5 in October 2023, according to data from the National Bureau of Statistics released Thursday 30th November 2023.
The U.S. economy grew even stronger than previously calculated in the third quarter, the result of better than expected business investment and stronger government spending, the Bureau of Economic Analysis reported Wednesday 29th November 2023.
Gross domestic product (GDP), a measure of all goods and services produced during the three-month period, climbed to 5.2% annualised pace, the department’s second estimate showed. The increase superseded the initial 4.9% figure and was better than the 5% forecast from economists.
Upward revision
Primarily, the upward revision came from increases in non-residential fixed investment, which includes structures equipment and intellectual property. The category showed an increase of 1.3%, which still presented a sharp downward shift from previous quarters. Government spending also helped boost the Q3 estimate, rising 5.5% for the July-through-September 2023 period.
However, consumer spending registered a downward revision, now rising just 3.6%, compared to 4% in the initial estimate.
Inflation
There was some mixed news on the inflation front. The personal consumption expenditures price index, a gauge the Federal Reserve follows closely, increased 2.8% for the period, a 0.1% downward revision.
Corporate profits increased 4.3% during the period, up sharply from the 0.8% gain in the second quarter.
Spending plans outlined in the chancellor’s Autumn Statement represent ‘a very big fiscal risk’, according to the UK’s OBR.
Mr Richard Hughes, chair of the Office for Budget Responsibility (OBR), told MPs on the Treasury Select Committee that spending plans carried a level of ‘uncertainty’. He suggested that much of the promised spending is funded by projected savings rather than income already received.
Last week, the OBR slashed its forecast for UK economic growth.
In March, the OBR said it expected GDP – a measure of the size and health of a country’s economy – to grow by 1.8% in 2024 and 2.5% in 2025.
Predications cut
Those predictions have now been cut, with a new forecast suggesting the UK economy will grow by 0.7% in 2024 and 1.4% in 2025.
‘It is very difficult to assess the credibility of the government’s spending plans, because after March 2025 the government doesn’t have any spending plans,’ Mr Hughes said, as he and other members of the OBR faced questions on the Autumn Statement.
Tax by stealth
Even though the chancellor announced a cut to NI rates, he opted to leave NI and income tax thresholds untouched, meaning they remain frozen until 2028. By doing this, more workers will fall into the higher tax bracket thus creating larger than expected tax revenue for the treasury. And, as workers secure pay rises, they may end up paying more tax if they are dragged into that higher tax band.
Some 2.2 million more workers now pay the basic rate income tax of 20% compared with three years ago, according to official figures, while 1.6 million more people have found themselves in the 40% tax bracket in the same period.
Just a thought, wasn’t the former UK prime minister ousted because of unfunded projections or was that unfunded tax cuts?
The governor of the Bank of England, Andrew Bailey has raised concerns over economic growth as he warned again that interest rates will not be cut in the ‘foreseeable future’.
The bank boss said he was concerned over the UK economy’s potential to grow. It comes after the government’s forecaster cut its growth outlook for the UK, due to high inflation, interest rates, energy and food price increases which were exacerbated by the Covid pandemic and Russia’s invasion of Ukraine.
Inflation, which is the rate consumer prices rise at, has dropped sharply in recent months, falling to 4.6% in the year to October largely as a result of lower energy prices.
However, it is still more than double the Bank of England’s 2% target and Mr Bailey warned lowering inflation further would be ‘hard work’.
Interest rates are currently at 5.25%, a 15-year high, which has pushed up borrowing and mortgage costs.
The first transatlantic flight using 100% sustainable aviation fuel (SAF) is scheduled to take off on Tuesday, 28th November 2023.
UK Government funded project
The flight is operated by Virgin Atlantic and will fly from London’s Heathrow to New York’s JFK airport. The flight is part of a UK government-funded project to demonstrate the feasibility and benefits of using SAF as an alternative to conventional jet fuel. SAF can reduce carbon emissions by over 70% compared to fossil jet fuel.
The flight will also use biochar credits to offset any remaining emissions and achieve net zero.
Biochar is the lightweight black residue, made of carbon and ashes, remaining after the pyrolysis of biomass, and is a form of charcoal.
Support
The flight is supported by a consortium of companies, including Boeing, Rolls-Royce, BP, Imperial College London, University of Sheffield, Rocky Mountain Institute, and ICF. The transatlantic flight has received a permit to fly from the UK Civil Aviation Authority, after undergoing technical assessments and ground testing.
The flight will use a Boeing 787 Dreamliner powered by Rolls-Royce Trent 1000 engines. The SAF used will be made primarily from waste oils and fats, such as used cooking oil.
The flight is not the first transatlantic flight to use SAF, but it is the first to use 100% SAF. In 2019, Gulfstream flew a G600 aircraft from Georgia to the UK using a 30/70 blend of SAF and jet fuel.
The Virgin Atlantic flight will be the first to use pure SAF on a commercial airliner.
Update 29th November 2023 – History made
The first transatlantic flight by a large passenger aeroplane, fueled by ‘greener fuel’ was a success.Operated by Virgin Atlantic, it flew from London’s Heathrow to New York’s JFK airport.
Gold prices on Monday 27th November 2023 climbed to a more than six-month high as the U.S. dollar weakened.
Investors, it is reported, have placed their bets, suggesting the Federal Reserve is finished with interest rate hikes.
Gold was up around 0.52% at $2,012 per ounce in early afternoon trading (London time). It reached a high of $2,017.82 earlier in the day. Gold futures for December 2023 hit $2,018.90 according to analysts’ data.
The dollar index, a measure of the greenback against major currencies, was 0.13% lower as markets price in a more than 90% chance the Fed will hold rates at its next two meetings.
Analysts at Goldman Sachs reportedly said that the outlook for 2024 is that gold’s ‘shine is returning’.
The potential upside in gold prices will be closely tied to U.S. real rates and dollar moves.
The UK energy price cap is expected to rise by 5% in January 2024, which means that a typical household who pays by Direct Debit will face an annual bill of £1,931, up from £1,834 in the previous quarter.
This increase comes at a “difficult period” for struggling households, as many are already facing higher costs of living due to the pandemic, Brexit, and inflation.
Designed to protect customers
The energy price cap is designed to protect customers from unfair price hikes and ensure that they pay a fair price for their energy. However, it does not limit the total bill, which depends on how much energy is actually used.
Therefore, customers are advised to shop around for better deals and switch to cheaper tariffs if possible. This, however, is easier said than done.
It is also recommended that struggling customers contact suppliers if they have difficulty paying their bills and seek help from schemes, grants, and benefits.
The UK energy price cap is a limit on the maximum amount that energy suppliers can charge customers on standard or default tariffs for each unit of gas and electricity they use. It is set by Ofgem, the energy regulator, every three months based on the underlying costs of energy and inflation.
Some of the main takeaways from the chancellor’s autumn statement November 2023
National Insurance rate cut from 12% to 10% from 6 January, affecting 27 million people.
The 75% business rates discount for retail, hospitality and leisure firms in England extended for another year.
Class 2 National Insurance – paid by self-employed people earning more than £12,570 – abolished from April.
Class 4 National Insurance for self-employed – paid on profits between £12,570 and £50,270 – cut from 9% to 8% from April.
Full tax break permitting companies to deduct spending on new machinery and equipment from profits – now made permanent.
Funding of £4.5bn to attract investment to strategic manufacturing sectors, including aerospace, green energy, aerospace, life sciences and zero-emission vehicles.
Some £500m over the next two years to fund artificial intelligence (AI) innovation centres.
New premium planning services for England, with faster decision times for major business applications and fee refunds when these are not met.
Defence spending to remain at 2% of national income – a Nato commitment.
Overseas aid spending kept at 0.5% of national income, below the official 0.7% target.
Reaffirms previous commitments made last autumn to provide £14.1bn for the NHS and adult social care in England, as well as an extra £2bn for schools, in both 2023‑24 and 2024-25.
Fuel duty remains 52.95p per litre for petrol and diesel, after the chancellor announced a 5p per litre cut for 12 months in March 2023
State pension payments to increase by 8.5% from April, in line with average earnings.
Claimants in England and Wales deemed able to work who refuse to seek employment to lose access to their benefits and extras like free prescriptions.
UK autumn statement – art illustration of office worker preparing data
Further £1.3bn to help people who have been unemployed for over a year.
National Living Wage – to increase from £10.42 to £11.44 an hour from April.
Funding of £1.3bn over the next five years to help people with health conditions find jobs.
OBR Stats
Independent Office for Budget Responsibility (OBR) expects the economy to grow by 0.6% this year and 0.7% next year, rising to 1.4% in 2025; then 1.9% in 2026; 2% in 2027 and 1.7% in 2028.
Living standards not expected to return to pre-pandemic levels until 2027-28.
Underlying debt forecast to be 91.6% of GDP next year; 92.7% in 2024-25; 93.2% in 2026-27; before declining to 92.8% in 2028-29.(One to watch)
OBR forecasts that inflation – the rate prices are rising – will fall to 2.8% by the end of 2024, before reaching the Bank of England’s 2% target rate in 2025.(One to watch)
The OBR says higher inflation means real value of departmental budgets will be £19bn lower by 2027/28 compared with March 2023 forecasts.
Borrowing forecast to fall from 4.5% of GDP in 2023-24; to 3% in 2024-25; 2.7% in 2025-26; 2.3% in 2026-27; 1.6% in 2027-28 and 1.1% in 2028-29.(One to watch)
Federal Reserve members, in their most recent meeting, gave little indication of cutting interest rates anytime soon, particularly as inflation remains well above their goal of 2%, according to minutes released Tuesday 21st November 2023.
The detail of the meeting held 31st October – 1st November 2023, showed that Federal Open Market Committee (FOMC) members are still concerned that inflation could be stubborn or move higher, and that more may need to be done.
They indicated that policy would need to stay ‘restrictive’ at the very least, inflation is on a convincing move back to the central bank’s 2% goal.
It was reported Friday 17th November 2023 by the city-state’s central bank that Singapore will be piloting the live issuance and use of wholesale central bank digital currencies in 2024.
During the pilot, the Monetary Authority of Singapore, (MAS) will partner with local banks to pilot the use of wholesale CBDCs to facilitate domestic payments.
What is a CBDC?
A CBDC is a digital form of a country’s fiat currency, issued and regulated by the central bank or monetary authority of that country. CBDCs are different from cryptocurrencies, which are decentralized and not backed by any government.
Singapore is one of the countries that has been actively exploring the potential of CBDCs, both for wholesale and retail purposes. Wholesale CBDCs are meant for interbank transactions and cross-border payments, while retail CBDCs are meant for general public use and everyday payments.
CBDC MAS timeline
In November 2021, the Monetary Authority of Singapore (MAS) launched Project Orchid, a retail CBDC project that aims to build the infrastructure and test the use cases for a digital Singapore dollar. The project will explore the concept of purpose-bound digital Singapore dollars, which allow senders to specify how and where the money will be used.
In August 2021, MAS announced Project Dunbar, a wholesale CBDC project that involves the collaboration of the Reserve Bank of Australia, Bank Negara Malaysia, and South African Reserve Bank. The project will develop prototypes of shared platforms for cross-border transactions using multiple CBDC’s.
In June 2021, MAS published a monograph on the economic considerations of a retail CBDC in the Singapore context. The monograph concluded that there is no urgent case for a retail CBDC in Singapore, but MAS wants to be prepared in case the situation changes in the future.
In April 2021, MAS extended the regulatory sandbox for Project Ubin, a wholesale CBDC project that started in 2016. Project Ubin has successfully demonstrated the feasibility of using blockchain technology for clearing and settlement of payments and securities.
Singapore to pilot use of wholesale central bank digital currencies in 2024
In March 2021, MAS joined the Multiple CBDC (m-CBDC) Bridge initiative, a wholesale CBDC project that involves the Bank of Thailand, the Hong Kong Monetary Authority, and the Bank for International Settlements. The project will explore the use of distributed ledger technology to enable real-time cross-border transactions using multiple CBDC’s.
Process
Banks will issue tokenized bank liabilities in the form of claims in balance sheets. Retail customers can then use the tokenized bank liabilities in transactions with merchants, who will then credit these bank liabilities with their respective banks. Tokenization refers to the process of issuing a digital form of an asset on a blockchain.
The CBDC will then be automatically transferred to the merchant as a form of payment during the transaction.
Many central banks are testing and exploring their own digital currencies, includung the UK and U.S.
European Central Bank President Christine Lagarde on Friday 17th November 2023 reportedly said that Europe is now at a critical juncture, with deglobalization, demographics and decarbonization looming on the horizon.
Fragmentation
‘There are increasing signs that the global economy is fragmenting into competing blocs’, she said at the European Banking Congress, according to a transcript.
Focusing on Europe, she said that a continuous decline in the population of working age looks set to start as early as 2025, alongside climate disasters that are increasing every year.
Her answer to these shocks was that massive investment would be needed in a short space of time, requiring what she called a ‘generational effort‘.
Barriers
‘As new trade barriers appear, we will need to reassess supply chains and invest in new ones that are safer, more efficient and closer to home‘, Lagarde reportedly said.
‘As our societies age, we will need to deploy new technologies so that we can produce greater output with fewer workers. Digitalization will help. And as our climate warms, we will need to advance the green transition without any further delays‘.
Shoppers bought less food and fuel in October 2023 as they were hit by rising living costs and poor weather, according to ONS data.
The volume of products sold last month fell by 0.3% to the lowest level since February 2021 when large parts of the UK were in Covid lockdowns. Retail sales had been expected to grow in October 2023.
Demand for other goods was also lower, the ONS reported.
The CNBC/NRF Retail Monitor, which tracks card transactions, also reported a drop in consumer spending in October 2023, with retail sales, excluding autos and petrol/diesel, falling by 0.08%, and core retail, which also removes restaurants, declining by 0.03%.
The report suggested that the consumer took a spending break ahead of the holiday season, amid rising inflation, supply chain disruptions, and labour shortages.
Observing the data available at CME FedWatch the stock market does not seem to expect the Fed to start cutting rates aggressively anytime soon, this opinion is based on the current pricing data of the fed-funds futures market.
According to the CME FedWatch Tool, the probability of a rate cut in the next FOMC meeting on 13th December 2023 is very low. It is likely interest rates will be left unchanged.
The market seems to expect the Fed will hold the current rate of 5.25% until at least March 2024, but will then gradually lower it to 4.75% by December 2024.
The market seems to be more optimistic about the U.S. economic outlook and the Fed’s ability to control inflation. The mood on rates has been buoyed recently with inflation data coming in better than expected.
It is highly likely that the Fed will have to cut rates more aggressively in 2024 and 2025 to stimulate the economy and avoid a potential prolonged recession.
UK inflation fell to 4.6% in October 2023, down from 6.7% in September 2023.
This is the lowest rate of price increases since 2021 and the bigger than expected fall should provide some relief to UK households gripped by the cost-of-living crisis.
The main factors that contributed to the drop in inflation were largely due to lower energy prices, food and non-alcoholic drink prices, and airfares. Economists suggested that the main reason inflation fell from its peak of 11.1% in October 2022 was due to the fall in the energy price cap, which limits what suppliers can charge consumers per unit of energy.
However, the UK still has the highest inflation rate of any G7 country, and some economists warn that the Bank of England (BoE) may need to raise interest rates to prevent inflation from rising again.
Target hit
The UK government will no doubt rejoice today as the end-of-year 5% has been achieved earlier than expected. But don’t party too early, the actual target is 2%. There is a limit to how much credit ministers can take for the fall as energy prices settle.
The FTSE100 was happy, it climbed some 100 points in morning trade.
U.S. Inflation was flat in October from the previous month, providing a positive sign that high prices are finally easing their tight grip on the U.S. economy. Is this also a green light for the Federal Reserve to stop raising interest rates.
The consumer price index (CPI) was flat in October 2023 from the previous month but up 3.2% from a year ago. Both were below analysts’ estimates, sparking a major stock market rally.
Excluding volatile food and energy prices, the core CPI rose 0.2% and 4%, against the forecast of 0.3% and 4.1%. The annual rate was the smallest increase since September 2021.
The flat reading on the headline CPI came as energy prices declined 2.5% for the month, offsetting a 0.3% increase in the food index.
Traders do not anticipate that the Fed will raise interest rates in December 2023, according to data from the CME Group.
Traders do not anticipate that the Fed will raise interest rates in December 2023, according to data from the CME Group.
U.S. Treasury yields fall
U.S. Treasury yields fell on Tuesday 14th November 2023 as key inflation data showed a surprisingly ‘soft’ change in prices last month.
The 10-year Treasury yield fell to about 4.45%. The 2-year Treasury yield fell more to under 4.9%.
Good data
Inflation stabilising, yields falling and equities up – are the stars aligning for a stock market rally leading into Christmas 2023?
Pay growth has outstripped inflation by the most since 2021, in a further sign that the pressure on living costs may be starting to ease.
Regular pay rose at an annual rate of 7.7% between July and September 2023, official figures show; higher than average inflation over the same three months.
But job vacancies fell for the 16th month in row, in a worrying sign that the jobs market is weakening. Between August and October 2023, the estimated number of vacancies in the UK fell to 957000, down 58000 – although the Office for National Statistics (ONS) said the total remains well above pre-pandemic levels.
Data Source: Office for National Statistics Data
UK pay outstrips inflation by highest amount for two years
The UK’s unemployment rate was largely unchanged between July to September 2023 at 4.2%, according to ONS data.
The U.K. economy flatlined in the third quarter, initial figures showed Friday 10th November 2023.
Gross domestic product (GDP) showed zero quarterly growth in the three months to the end of September 2023, following an increase of 0.2% in the previous quarter. In annual terms, the UK’s Q3 GDP was 0.6% higher than in the same period in 2022.
Services sector output dropped 0.1% on the quarter, but the decline was offset by a 0.1% increase in construction performance, while the production sector flatlined.
U.K. Chancellor of the Exchequer Jeremy Hunt said high inflation remains the ‘single greatest barrier to economic growth’ in the country, with the consumer price index remaining at 6.7% year-on-year in September 2023.
UK economy flatlines as inflation sticks at 6.7% year-on-year as at September 2023.
‘The best way to sustainably grow our economy right now is to stick to our plan and knock inflation on its head’, Hunt reportedly said.
It’s useful to know the government have a plan, even though they were very late to the inflation party! Guess they were sidetracked with all the other parties at No.10!
‘The Autumn Statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs’.
Up until September 2023, the Bank of England (BoE) raised interest rates 14 consecutive times to try to influence the UK ‘product and service’ price climb.
Red flags
Interest rates are now at a 15-year high of 5.25%, and are expected to remain high for some time to come. Bank Governor Andrew Bailey reportedly said last week it was ‘much too early’ to be considering rate cuts.
Thank you Governor Baily – it so comforting and reassuring to know that the very people who missed the red inflation flags are still in charge of policy.
Transitory?
Remember, the BoE and others originally suggested inflation would be transitory – I suppose it is, if given years to move back down. What did you think was going to happen after all that borrowing and the country crawling back to work after the pandemic.
Nice job guys! Don’t forget to collect your paycheque on the way out!
Moody’s, a credit rating agency, lowered its ratings outlook on the United States to negative from stable.
This means that Moody’s sees a higher risk of a downgrade in the future, which could affect the borrowing costs and confidence of the U.S. government.
Moody’s actions
The main reasons for Moody’s action are the rising deficits and debt levels of the U.S., as well as the continued political polarization that hampers effective policymaking. Moody’s also cited the impact of the Covid-19 pandemic and the recent failures of some U.S. banks as factors that have worsened the environment for the U.S. government and the banking system in general.
Warning!
Moody’s warned that the U.S.’s deficits are likely to remain ‘very large’. It also warned that ‘continued political turmoil or polarization’ in Congress further increases the risk the U.S. will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability‘.
Moody’s still maintains a triple ‘A’ (AAA) credit rating on the U.S. government debt, which is the highest possible rating, but warns of the challenges and uncertainties that the U.S. faces in restoring its fiscal strength and stability.
The ‘AAA‘ rating is at risk.
U.S. government on brink of shutdown, again
The federal government is on the brink of another shutdown, with just a week left for the Republican-led House, Democratic-led Senate and Biden White House to reach a breakthrough on funding.
Fed Chair Jerome Powell reportedly said he and his colleagues remain steadfast in getting policy in line with their 2% inflation target, but ‘we are not confident that we have achieved such a stance’.
He stressed the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance.
Federal Reserve Chairman Jerome Powell reportedly said Thursday 9th November 2023 that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.
Inflation battle
Speaking a little more than a week after the central bank voted to hold rates steady, Powell said in remarks aimed at the International Monetary Fund (IMF) gathering in Washington, D.C., that more work could be ahead in the battle against high prices.
The statement comes with inflation still well above the Fed’s long-standing goal but also considerably below its peak levels in the first half of 2022. After 11 U.S. rate hikes, we have witnessed the most aggressive policy tightening since the early 1980s, the FOMC have increased rates from pretty much zero to a range of 5.25%-5.5%.
Those increases have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June of last year.
Progress
Powell referenced the progress the economy has made. Gross domestic product (GDP) accelerated at a ‘quite strong’ 4.9% annualised pace Q3 2023, though Powell also said the expectation is for growth to ‘moderate in coming quarters’. He described the economy as ‘just remarkable’ in 2023 in the face of a broad expectation that a recession was inevitable.
Nothing like a massive ‘self-pat’ on the back for a job well-done? Remember the Fed’s initial analysis? IT was for inflation to be ‘transitory’. They didn’t get that right either.
Futures pricing, according to the CME Group, suggested there’s less than a 10% chance that the FOMC will approve a final rate hike at its Dec. 12-13, 2023, meeting, even though committee members in September pencilled in an additional 0.25% rise before the end of 2023.
Impression drawing of Fed Chair. The Fed is ‘not confident’ according to Jerome Powell.
Traders anticipate the Fed will start cutting rates next year, probably around June 2024.
