Light at the End of the Tunnel 🤞

The Federal Reserve isn’t quite ready to raise interest rates, but they’ve provided investors with high hopes for taper time later this year. 🙏

As the pandemic ramped up in early 2020, the Fed committed to purchasing $120 billion worth of Treasury and mortgage-backed securities every month. By purchasing the assets, the Fed puts its arm on the scale, which arguably keeps prices stable.

By tapering purchases of assets (namely bonds), the Fed will begin to let the market return to relative normalcy. Tapering is the step that precedes raising interest rates, which is expected to happen next year. 📈

A stronger-than-expected Summer recovery pushed forward the rate hike from 2023, but a disappointing August jobs report prompted the Fed to err on the side of caution. Federal Reserve Chairman Jerome Powell indicated that he wanted to see more progress in employment numbers before making any aggressive moves.

The markets rose today on the news, a stark turn from the turmoil earlier this week caused by China’s Evergrande. 😪 Stocks and crypto both rallied and found some green. 💚

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The Generative AI Push Continues

At the Alibaba Cloud Summit, the Chinese tech giant’s Alibaba Cloud unit revealed its ChatGPT-style product. 🤖

The product, called Tongyi Qianwen, will be available in Chinese and English. It’ll initially be rolled out via several existing products, including its workplace communication software (DingTalk) and its provider of smart home appliances (Tmall Genie).

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A “Pause” That Refreshes

Today’s big story was the Federal Reserve’s interest rate decision and projections, so let’s jump right into it. 👇

First, we’ll start with the market’s expectations. Coming into the decision, the bond market was pricing in a roughly 93% chance of a Fed “pause” today, with only 7% expecting another 25 bp hike. And…that’s exactly what we got. However, the devil is in the details. 🔍

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A Unanimous Decision

After a hectic few weeks in the banking sector, most of the market expected a 25 bp rate hike at today’s meeting. And that’s what the Fed delivered. 👍

Let’s start with the redlined version of the FOMC’s statement from Nick Timiraos: 

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Bears Lurk As Bankers Hike

The Federal Reserve’s 25 bp hike is getting all the attention this week, but several other central banks recently made policy decisions worth noting. 📝

The European Central Bank (ECB) raised rates by 50 bps to 3.00%;
The Swiss National Bank raised rates by 50 bps to 1.50%;
The Bank of England raised rates by 25 bps to 4.25%;
The Bank of Canada held rates at 4.50%;
The Bank of Japan held rates at -0.1%; and
Banco Central do Brasil held rates at 13.75%.

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