Financial markets have a bumpy future as the Fed kicks off the fastest global monetary tightening cycle in decades
Powell’s “one-sentence statement” A group of analysts rushed to predict that the Fed will raise interest rates earlier and faster:
Federal Reserve Chairman Jerome Powell has argued that the U.S. faces a “different economic expansion” than the last time monetary policy was tightened, prompting some economists to expect the Fed to raise interest rates sooner than previously expected. Hours after Powell’s statement paved the way for a rate hike to begin in March, economists at Nomura Holdings said in a report that the Fed is now expected to raise its benchmark interest rate by 50 basis points from near zero in March. BNP Paribas said it still thinks the Fed will raise rates by 25 basis points, but will raise rates six times throughout 2022 instead of four. Deutsche Bank economists said they now expect five rate hikes this year. “Powell’s press conference was more hawkish than expected, and he appears to have repeatedly wanted to separate the upcoming rate hike cycle from the fact that the last time the Fed normalized policy, it moved roughly every other quarter,” said Nomura Economics. The home team wrote to clients in a report.
Financial markets have a bumpy future as the Fed kicks off the fastest global monetary tightening cycle in decades:
Federal Reserve Chairman Jerome Powell fired the first shot in what could be the biggest and fastest tightening of global monetary policy in years. His hawkish remarks included not ruling out a rate hike at every meeting in 2022. In the next week, the Bank of England and other central banks are likely to raise their benchmark interest rates, and more central banks have hinted that they will follow suit in the coming months.
U.S. economic growth accelerated in the fourth quarter of last year, driven by inventory rebuilding:
The U.S. economy grew faster than expected in the fourth quarter of last year, buoyed by inventory rebuilding, and the full-year growth was the strongest since the 1980s. Preliminary estimates released by the U.S. Commerce Department on Thursday
It showed that gross domestic product grew at an annualized rate of 6.9% in the fourth quarter and 2.3% in the third quarter. It was the strongest quarterly increase in more than a year.
Morgan Stanley expects more losses in U.S. stocks, which may underperform the rest of the world:
Morgan Stanley cross-asset strategist Andrew Sheets believes that as U.S. stocks struggle to adapt to an era of policy tightening, they double down on bets that U.S. stocks will turn from winners to losers. Sheets further reinforced expectations, arguing that inflation-adjusted yields will return to pre-pandemic levels from deeply negative levels, potentially delivering a fresh shock to the rate-sensitive growth stocks that drive the U.S. mega-cap index . “We prefer a defensive position in U.S. equities, which are the most sensitive to higher real interest rates and underperform stocks in the rest of the world,” Sheets said in an interview. Real yields rose to their highest level in 18 months on Wednesday after Fed Chairman Jerome Powell signaled a rate hike in March in an effort to curb the hottest inflation in 40 years, while raising the possibility of raising rates at every meeting. Sheets expects inflation-adjusted rates to rise by a further 40 basis points to -0.1% by the end of the year. Just two weeks ago, his forecast was -0.3%.
China approves AMD’s $35 billion acquisition of Xilinx:
Chinese regulators have cleared AMD’s acquisition of Xilinx, clearing the way for one of the biggest deals in the global semiconductor industry. China’s antitrust regulator, the State Administration for Market Regulation, said in a statement that it had approved the deal with restrictive conditions attached. After determining that the transaction has or may have the effect of eliminating or restricting competition, the bureau requires AMD to adopt a non-discriminatory principle to treat Chinese customers and continue to guarantee the sale of Xilinx products to the Chinese domestic market. The acquisition has been approved by regulators in jurisdictions including the US, Europe and the UK. Shares of Xilinx rose more than 6% in premarket trading in New York, while AMD edged up. The chipmaker, which competes with Intel and Nvidia in computers and graphics processors, announced the deal in 2020. CEO Su Zifeng signed the deal at the time to allow AMD to strive to challenge Intel’s lead in chips.
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