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Fed Rate hikes are starting to bite and that is not good - Dailyforextrading

assetsfx.com

Fed Rate hikes are starting to bite and that is not good - Dailyforextrading

After three months of sharp declines, the gold market is seeing some new bullish momentum. It comes as the U.S. economy contracted for the second consecutive quarter.

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Economists and politicians are fairly evenly divided as to whether or not the U.S. is in a recession. The National Bureau of Economic Research (NBER) is the agency that would officially declare a recession, which happens after months of research and debate; however, the traditional definition is when an economy contracts for two consecutive quarters.

Despite what politicians and economists might think, consumers are started to feel the effects of rising interest rates and persistently high inflation. Data from the U.S. Conference board this week showed consumer confidence for July fell to its lowest level since February 2021.

The growing pessimism is expected to weigh on growth further. At the same time, a Twitter poll this week showed that 80% of Kitco News followers think the U.S. is in a recession.

Are we in a recession? It doesn’t matter, Fed official says: ‘I’m focused on the inflation data’

If you’re debating whether or not the U.S. is in a recession, you’re asking the wrong question, according to a top Federal Reserve official.

“Whether we are technically in a recession or not doesn’t change my analysis,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, told CBS’ “Face the Nation” on Sunday.

“I’m focused on the inflation data. I’m focused on the wage data. And so far, inflation continues to surprise us to the upside. Wages continue to grow.”

Last month, U.S. inflation jumped to a four-decade record high, rising 9.1% from a year ago. At the same time, the labor market remained strong: Nonfarm payrolls increased by 372,000 last month, alongside a low national unemployment rate of 3.6%.

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On Thursday, new Labor Department data showed signs of a job market cooldown, with initial jobless claims hitting their highest level since mid-November. Still, Kashkari said, the labor market is “very, very strong.”

“Typically, recessions demonstrate high job losses, and high unemployment, those are terrible for American families. And we’re not seeing anything like that,” he said.

The problem, Kashkari said, is that even in a strong job market, inflation is outpacing wage growth — giving many Americans a functional “wage cut” as living costs increase nationwide. Solving that problem by reducing inflation is the Federal Reserve’s top goal right now, he added.

“Whether we are technically in a recession or not doesn’t change the fact that the Federal Reserve has its own work to do, and we are committed to doing it,” Kashkari said.

Shock July Stock Rally Was a Monster the Fed May Regret Seein

Among the many superlatives attached to markets in July, one that could come back to haunt the Federal Open Market Committee is Wednesday and Thursday, when the stocks posted their biggest post-meeting rally on record.

Believing they heard a dovish tilt from Jerome Powell, traders pushed the S&P 500 up nearly 4% over two days -- and kept on buying Friday.

Welcome as it was by bulls, the spike raises the question of when the rebound itself starts to work against the goal of draining bloat from the economy. It’s an issue investors must weigh in calculating the recovery’s staying power.

A dynamic in which surging stocks complicate the goal of subduing inflation is one reason giant rallies are rare in times of tightening.

While the Fed may be ambivalent about equities in general, the role of markets in mediating a real-world economic lever -- financial conditions -- means they are never completely out of mind.

Right now, those conditions are loosening in proportion to the S&P 500’s gains. Could that be a concern for Powell?

Inflation figure that the Fed follows closely hits the highest level since January 1982

An inflation gauge that the Federal Reserve uses as its primary barometer jumped to its highest 12-month gain in more than 40 years in June, the Bureau of Economic Analysis reported Friday.

The personal consumption expenditures price index rose 6.8%, the biggest 12-month move since the 6.9% increase in January 1982. The index rose 1% from May, tying its biggest monthly gain since February 1981.

Excluding food and energy, so-called core PCE increased 4.8% from a year ago, up one-tenth of a percentage point from May but off the recent high of 5.3% hit in February. On a monthly basis, the core was up 0.6%, its biggest monthly gain since April 2021.

Both core readings were 0.1 percentage points above the Dow Jones estimates.

Fed officials generally focus on core inflation but have turned their attention recently to the headline numbers as well, as food and fuel prices have soared in 2022.

The BEA release also showed that personal consumption expenditures, a gauge of consumer spending, increased 1.1% for the month, above the 0.9% estimate and owing largely to the surge in prices.

Real spending adjusted for inflation increased just 0.1% as consumers barely kept up with inflation. Personal income rose 0.6%, topping the 0.5% estimate, but disposable income adjusted for inflation fell 0.3%.

The dollar could crash from 20-year highs if the Fed pauses rate hikes in a weak economy, says a top economist

The US dollar remains near 20-year highs but a shift by the Federal Reserve away from its aggressive rate-hike campaign would reverse the greenback's direction, a top economist said.

In 2022, the dollar has jumped more than 10% against other major currencies, strengthening to levels not seen since 2002, as the Fed has pushed interest rates higher at a more rapid pace than other central banks around the world UC Berkeley economist Barry Eichengreen wrote in the Financial Times recently.


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Russia's war on Ukraine, rising US-China tensions over Taiwan, and geopolitical risks related to Iran may also be bolstering the dollar's status as a safe haven for investors.

"But at the end of the day, recent currency movements have been driven by central banks. The same will be true going forward," Eichengreen said.

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