Wednesday, December 15, 2021
Today is the day the Fed issues its new monetary policy, and by all accounts, it should be a consequential one: last month, the Fed began to taper its $120 billion in monthly asset purchases by $15 billion per. Today, that figure is likely to go up. Powell himself late last month said so.
Doing the math, $15 billion per month tapered from treasuries and mortgage-backed securities would draw that $120 billion down to zero in eight months, which would put us into July 2022. Assuming interest rates cannot be raised until the taper is completed, that would make mid-next-year the earliest starting point for raising rates, the tightening of which would be felt across the economy.
But if the Fed this afternoon doubles this taper buyback level to $30 billion, we’ll be finished before the end of wintertime. This, as much as anything currently going on having an effect on equity trading, is why we’ve seen major indexes pulling back from their recent highs in the past few sessions. Because if we are now to expect our first rate hike in March of 2022, it will be the first time in two full years the Fed has not accommodated the market with cheap money.
That said, even four rate hikes by this time next year — assuming they are all a quarter-point each — brings us to 1.00%, which is historically still pretty loose. What the Fed will have to keep an eye on is whether inflation is overpowering whatever and whenever hikes are made next year, and if it is, whether the Fed will have to tighten by 50 basis points per move instead of 25. And if so, will this derail the robust economy?
Ahead of today’s policy meeting, statement and press conference from Fed Chair Jay Powell, we see new Retail Sales for November: they disappointed expectations, at +0.3% less than half what economists were expecting. Subtracting volatile month-over-month auto sales, we also got a +0.3%, well off the +1.0% expected. Ex-autos and gas, we’re at +0.2%, with the Control number also a disappointing -0.1% month over month.
However, we saw exceptionally strong October numbers for Retail Sales, and if we recall our news headlines from back then, supply-chain issues threatened the availability of consumer goods ahead of holiday shopping season. Based on this morning’s data, it would appear consumers did take the advice of economists and news reporters and bought their goods a month ahead of time.
The November Import Price Index was also released ahead of today’s opening bell, giving even more grist to the Fed’s mill today: +0.7% was 10 basis-points higher than expectations, though still down from the +1.2% in October. Ex-fuel prices, we’re still +0.7%, well higher than the +0.4% expected. Exports doubled estimates to +1.0% — also nicely robust. Year over year, Import Prices are +11.7% — the highest figure we’ve seen since +12.7% in 2011. Exports have reached +18.2% year over year, which is a new all-time high.
Finally, the Empire State Manufacturing Index for December swept way past expectations to 31.9 from 25.0 anticipated. This is even higher than the very strong 30.9 registered in November. This New York State productivity survey — which goes back to 2001 — saw its all-time high back in July of this year, at 43. Again, we’re looking at hot productivity to go with our hot imports and exports, and recently-reported CPI and PPI gains. All of these are very likely to impact the Fed’s decision this afternoon.
Interestingly, pre-market indexes are rather unmoved by this latest stream of economic data, steadily remaining in slightly positive territory ahead of the opening bell. The Dow and Nasdaq both swung higher on the news, in fact, and are perched at +20 points at this minute. The S&P 500 is flattish at +3 points.
Questions or comments about this article and/or its author? Click here>>
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Big Day for the Fed, Economy, Markets
Wednesday, December 15, 2021
Today is the day the Fed issues its new monetary policy, and by all accounts, it should be a consequential one: last month, the Fed began to taper its $120 billion in monthly asset purchases by $15 billion per. Today, that figure is likely to go up. Powell himself late last month said so.
Doing the math, $15 billion per month tapered from treasuries and mortgage-backed securities would draw that $120 billion down to zero in eight months, which would put us into July 2022. Assuming interest rates cannot be raised until the taper is completed, that would make mid-next-year the earliest starting point for raising rates, the tightening of which would be felt across the economy.
But if the Fed this afternoon doubles this taper buyback level to $30 billion, we’ll be finished before the end of wintertime. This, as much as anything currently going on having an effect on equity trading, is why we’ve seen major indexes pulling back from their recent highs in the past few sessions. Because if we are now to expect our first rate hike in March of 2022, it will be the first time in two full years the Fed has not accommodated the market with cheap money.
That said, even four rate hikes by this time next year — assuming they are all a quarter-point each — brings us to 1.00%, which is historically still pretty loose. What the Fed will have to keep an eye on is whether inflation is overpowering whatever and whenever hikes are made next year, and if it is, whether the Fed will have to tighten by 50 basis points per move instead of 25. And if so, will this derail the robust economy?
Ahead of today’s policy meeting, statement and press conference from Fed Chair Jay Powell, we see new Retail Sales for November: they disappointed expectations, at +0.3% less than half what economists were expecting. Subtracting volatile month-over-month auto sales, we also got a +0.3%, well off the +1.0% expected. Ex-autos and gas, we’re at +0.2%, with the Control number also a disappointing -0.1% month over month.
However, we saw exceptionally strong October numbers for Retail Sales, and if we recall our news headlines from back then, supply-chain issues threatened the availability of consumer goods ahead of holiday shopping season. Based on this morning’s data, it would appear consumers did take the advice of economists and news reporters and bought their goods a month ahead of time.
The November Import Price Index was also released ahead of today’s opening bell, giving even more grist to the Fed’s mill today: +0.7% was 10 basis-points higher than expectations, though still down from the +1.2% in October. Ex-fuel prices, we’re still +0.7%, well higher than the +0.4% expected. Exports doubled estimates to +1.0% — also nicely robust. Year over year, Import Prices are +11.7% — the highest figure we’ve seen since +12.7% in 2011. Exports have reached +18.2% year over year, which is a new all-time high.
Finally, the Empire State Manufacturing Index for December swept way past expectations to 31.9 from 25.0 anticipated. This is even higher than the very strong 30.9 registered in November. This New York State productivity survey — which goes back to 2001 — saw its all-time high back in July of this year, at 43. Again, we’re looking at hot productivity to go with our hot imports and exports, and recently-reported CPI and PPI gains. All of these are very likely to impact the Fed’s decision this afternoon.
Interestingly, pre-market indexes are rather unmoved by this latest stream of economic data, steadily remaining in slightly positive territory ahead of the opening bell. The Dow and Nasdaq both swung higher on the news, in fact, and are perched at +20 points at this minute. The S&P 500 is flattish at +3 points.
Questions or comments about this article and/or its author? Click here>>