Gold prices climbed to $2,482 per ounce, hitting an all-time high.
Gold prices continued to peak at new record highs Tuesday and Wednesday 15th and 16th July 2024.
On Monday 15th July 2024, Powell reportedly said the Fed won’t wait for inflation to reach the central bank’s 2% target before it begins cutting, due to the ‘lag’ in policy effects. He reportedly said the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level. The monthly inflation rate dipped in June 2024 – the first time in over four years.
The price increase has been aided by encouraging comments from the Federal Reserve that it will now more likely cut interest rates in September 2024 following comments from Fed Chair Jerome Powell.
And that has given market investors and traders more confidence. According to the CME FedWatch tool, traders are convinced the FOMC will cut rates by September 2024.
As interest rates fall, gold usually becomes more appealing compared to fixed-income assets such as bonds and general savings accounts.
Jerome Powell appears to be further paving the way for a rate cut at the next meeting in July 2024.
Federal Reserve Chair Jerome Powell reportedly said Monday 15th July 2024 that the central bank will not wait until inflation hits 2% to cut interest rates.
Powell referenced the idea that central bank policy works with ‘long and variable lags’ to explain why the Fed wouldn’t wait for its target to be hit.
‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,’ Powell reportedly said.
Instead, the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level, Powell remarked.
‘What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,’ he reportedly said.
Powell also said he thinks a ‘hard landing’ for the U.S. economy was not ‘a likely scenario.’
It looks like it is time for that rate cut, he didn’t say that!
Bank of England offers no election help to Rishi Sunak as the UK interest rate is held at 5.25%. Not that they should.
But the UK inflation is on target now at 2% so that’s some consolation. The PM claimed credit as the inflation target was met – happily informing us that his plan was working. But isn’t it the job of the Bank of England to maintain inflation at 2%?
Not that they have done a very good job of that either.
The Bank has maintained the interest rates at 5.25% for the seventh consecutive time to combat inflation, resulting in increased mortgage repayments and higher savings rates.
The interest rates, at their peak for the past 16 years, have been sustained at 5.25%. Currently, there are indications of a shift in stance, with a growing consensus for a potential reduction in August 2024.
UK interest rate and inflation chart June 2021 – June 2024
UK interest rate and inflation chart June 2021 – June 2024
The Fed in March 2024, indicated for the markets to expect three interest rate cuts by the end of 2024 – but what if this didn’t happen?
The Federal Reserve’s decision to maintain interest rates in 2024 could have significant implications for the U.S. economy.
Fed cred –credibility would be the first to go!
The cost of borrowing would remain unchanged. This could discourage businesses from taking out loans for expansion or investment, potentially slowing economic growth. Consumers may also be less inclined to take on debt for major purchases, such as homes or cars, which could impact sectors reliant on consumer spending.
Value of the U.S. dollar could strengthen relative to other currencies. A higher interest rate typically attracts foreign investors seeking better returns, increasing demand for the dollar. While a strong dollar can benefit consumers by making imports cheaper, it can hurt exporters whose goods become more expensive for foreign buyers.
The decision could signal the Fed’s confidence in the economy’s health. By not lowering rates, the Fed may be indicating that it believes the economy can withstand higher borrowing costs without slipping into recession. This could boost investor confidence and potentially lead to increased market activity.
However, the decision could also exacerbate wealth inequality. Those with investments tend to benefit from higher interest rates, as they can earn more from savings and bonds. Conversely, those living paycheck to paycheck may not see any immediate benefit and could face higher costs if they need to borrow.
In conclusion, should the Federal Reserve decide to maintain interest rates in 2024 this could have a mixed impact on the U.S. economy.
The effects would likely be felt across various sectors, influencing everything from business investment and consumer spending, credit to the strength of the dollar and wealth inequality. As always, the actual outcome would depend on a multitude of factors, including the overall health of the global economy and domestic fiscal policy decisions.
In February 2024, inflation decreased to 3.4%, a decline from January’s 4%, moving closer to the Bank of England’s self-imposed target of 2%
This reduction signifies that the cost of living is increasing at its least rapid rate since September 2021, when it was recorded at 3.1%.
Since reaching a peak of 11.1% in October 2022, the highest in 40 years, inflation has been on a steady decline. In the big inflation picture, that’s a pretty good result.
It has only taken around 16 months to move the rate from 11.1% (a 40-year high) down to just 1.4% above the BoE’s target of 2%.
The primary factor contributing to this decrease, as reported by the Office for National Statistics (ONS), is the deceleration of food price inflation.
In January 2024, inflation logged its biggest monthly jump since August with a 6.7% rise from December 2023.
Year-on-year inflation hit nearly 65%, according to the Turkish Central Bank’s figures released Monday 5th January 2024
The consumer price index (CPI) for the country of 85 million people increased by 64.86% annually, up slightly from the 64.77% of December.
Sectors with the largest monthly price rises were health at 17.7%, hotels, cafes and restaurants at 12%, and miscellaneous goods and services at just over 10%. Clothing and footwear were the only sectors showing a monthly price decrease, with -1.61%.
Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month-on-month, while housing was up 7.4% since December 2024.
Federal Reserve Chair Jerome Powell said in a U.S. TV interview on Sunday 4th January 2024 that the central bank will proceed carefully with interest rate cuts this year and likely will move at a considerably slower pace than the market expects.
Election year rate cuts?
In the interview and after last week’s Federal Open Market Committee meeting (FOMC), Powell expressed confidence in the economy. However, he promised he wouldn’t be swayed by this year’s presidential election and said the pain he feared from rate hikes never really materialised.
“With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully,” he reportedly said.
“We want to see more evidence that inflation is moving sustainably down to 2%,” Powell added. “Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.”
Powell indicated that it was unlikely the FOMC will make that first move in March 2024, which markets have been anticipating.
UK interest rates have been held at 5.25%. This is the third time in a row the Bank of England has opted to hold rates the same.
The decision, which was widely expected by financial markets, means borrowing costs will remain at their highest level for 15 years.
the Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep rates at a 15-year high.
There was reportedly no discussion of cutting interest rates, and it’s still concerned that price rises might be stickier in the UK economy than in the U.S. or Eurozone.
The U.S. yesterday, 13th December 2023 indicated that 2024 could see three interest rate cuts. No such indication was forthcoming from the UK.
The Dow Jones Industrial Average (DJIA) hit a new all-time high, on 13th December 2023. It closed at 36799 surpassing its previous record of 36585points that it had set on 4th January 2022. This was the fourth consecutive record close for the index.
Record high
The Dow’s record high was driven primarily by the Fed holding the interest rate at 5.5% and signalling that it expects to cut interest rates three times in 2024 to stimulate growth and inflation.
Other factors such as strong corporate earnings, optimism about the economic recovery from the COVID-19 pandemic, the emergence of AI and its effect on the economy and for a U.S. ‘soft landing’ all played their part.
Dow a bellwether for the U.S. economy
The Dow is not only a measure of stock market performance, but also a reflection of the overall health and confidence of the U.S. economy. It is often used as a benchmark for investors and analysts to evaluate their portfolios and strategies. The Dow is also closely watched by policymakers and media outlets as a measure of public sentiment and expectations.
Dow hits new all-time high
Dow hits new all-time high
The Dow, in intraday trading, continued to climb to over 37200.
Fed holds U.S. rates at 5.5%, indicates three cuts coming in 2024
The Federal Reserve on Wednesday 13th December 2023 held its key interest rate steady for the third time in a row and set the scene for multiple rate cuts in 2024 and 2025.
With inflation easing and the economy holding up policymakers Federal Open Market Committee policymakers voted unanimously to keep the rate in a range between 5.25%-5.5%.
Possible three Fed rate cuts pencilled in for 2024
Along with the decision to stay on hold, the FOMC pencilled in at least three rate cuts in 2024, assuming quarter percentage point increments. That’s less than market pricing of four, but more aggressive than what officials had previously indicated.
Markets had widely anticipated the status quo decision which could end a cycle that has seen 11 hikes, pushing the interest rate to its highest level in more than 22 years. There was uncertainty, though, about how ambitious the FOMC might be regarding policy easing.
The FOMC’s so called ‘dot plot’ of individual members’ expectations indicate another four cuts in 2025, or a full 1%. Three more reductions in 2026 would take the Fed rate down to between 2%-2.25%, close to the longer-term outlook, though there were considerable difference in the estimates for the final two years.
Dow at new all-time high!
Following the Fed update the Dow Jones Industrial Average jumped more than 400 points, surpassing 37,000 for the first time creating a new Dow all-time high.
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.
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.
The Bank of England (BoE) announced its latest interest rate decision on Thursday, 2nd November 2023 to hold the bank rate at 5.25%.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of 5-4 to maintain Bank Rate at 5.25%, the highest level in 15 years. However, four members preferred to increase the bank rate, to 5.5%.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next twelve months, to a total of £658 billion.
The BoE’s decision was influenced by the weak economic outlook, the high inflation rate, and the uncertainty surrounding the Covid-19 pandemic and the Brexit saga.
The BoE said that the UK economy was likely to contract by 0.5% in Q3 2023, and that underlying growth in the second half of 2023 was also likely to be weaker than expected. The BoE also warned that there was a 50% chance of a recession in the next year (50/50). I think even I could guess with odds at 50/50.
2% target inflation to be hit by Q2 2025
The BoE also said that inflation, which was 6.7% in September 2023, was expected to peak at around 7% in Q4 2023, before falling back to the 2% target by 2025 Q2. The BoE said that the inflation spike was largely driven by temporary factors, such as higher energy and food prices, and that it would not respond to it.
The Bank of England was behind the curve calling it transitory. Can we trust any future forecasts?
The BoE’s decision was in line with the market expectations, as most analysts and investors had predicted that the BoE would keep rates on hold.
The U.S. Treasury yields are the interest rates that the U.S. government pays to borrow money for different periods of time.
The 10-year Treasury yield is one of the most important indicators of the state of the economy and the expectations of inflation and growth. On 23rd October 2023, the 10-year Treasury yield rose above 5% for the first time since 2007, as investors increasingly accepted that interest rates will stay higher for longer and that the U.S. government will further increase its borrowing to cover its deficits.
Significant
This is a significant milestone, as it reflects the market’s view that the Federal Reserve will maintain elevated interest rates to control inflation and that the U.S. economy will remain resilient despite the challenges posed by the Covid-19 pandemic, geopolitical tensions and environmental issues.
The higher yield also means that the government will have to pay more to service its debt, which could affect its fiscal policy and spending priorities. The higher yield also affects other borrowing costs, such as mortgages, student loans, and corporate bonds, which could have implications for consumers and businesses.
10 Year Yield
The 10-year Treasury yield is influenced by many factors, such as supply and demand, inflation expectations, economic growth, monetary policy, and global events. The yield has been rising steadily since it hit a record low of 0.5% in March 2020, when the pandemic triggered a flight to safety and a massive stimulus from the Fed. Since then, the yield has been driven by the recovery of the economy, the surge in inflation, the reversal of the Fed’s bond-buying program, and the increase in the government’s borrowing needs.
Yield curve
The ten-year yield is closely watched by investors, analysts and policymakers as it provides a benchmark for valuing other assets and assessing the outlook for the economy. The yield is also used to calculate the yield curve, which is the difference between short-term and long-term Treasury yields.
The shape of the yield curve can indicate the market’s expectations of future interest rates and economic activity.
Artwork impression of computer screen: U.S. ten-year treasury yield breaches 5% for the first time since 2007
A steep yield curve means that long-term yields are much higher than short-term yields, which suggests that investors expect higher inflation and growth in the future. A flat or inverted yield curve means that long-term yields are lower than or equal to short-term yields, which implies that investors expect lower inflation and growth or even a recession.
The current yield curve is steepening, as long-term yields are rising faster than short-term yields. This indicates that investors are anticipating higher inflation and growth in the long run, but also that they are concerned about the sustainability of the government’s fiscal position and the impact of higher interest rates on the economy.
Indicators
The 10-year Treasury yield is an important indicator of the state of the economy and the expectations of inflation and growth. It has reached a level that has not been seen since before the global financial crisis of 2008-2009. This reflects the market’s view that interest rates will stay higher for longer and that the government will increase its borrowing to cover its deficits. The higher yield also affects other borrowing costs and asset prices, which could have implications for consumers and businesses.
The yield is influenced by many factors and is closely watched by investors, policymakers, and analysts. A 5% yield is a worry for the market, inflation, interest rates, geo-political risks and recession are the others, that’s enough!
