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The Fed wants “more evidence” of easing inflation and supports new rate hikes

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Fed officials have warned that they will need to see “significantly more evidence” of easing inflation before they can be convinced that price pressures are under control because they have supported new rate hikes this year, according to the account of their latest meeting.

December meeting minutes, at the US central bank Starch The benchmark interest rate of half a percentage point, showed the Fed intends to keep squeezing the economy to try to address price pressures, which they warned could be “consistent than expected.”

The half-point rise ended a long string of 0.75 percentage point increases over months, and raised the target range for the federal funds rate to between 4.25 percent and 4.5 percent.

The decision in December came after new evidence that inflation appeared to have peaked as energy and commodity prices fell, developments that respondents described as “welcome”.

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“Respondents generally noted that the restrictive policy stance should be maintained until incoming data provided confidence that inflation was on a sustainable downward trajectory to 2 percent, which was likely to take some time,” said the minutes, which were released on Wednesday. , referring to the federal inflation target.

The minutes also indicated that officials agree with how investors and others have absorbed their political contacts on Wall Street. In the weeks leading up to the December meeting, financial conditions eased as traders in fed funds futures bet that the Fed would roll back its tightening campaign sooner than officials indicated.

A number of respondents said that the slower pace of price increases “was not indicative of any weakening in the committee’s resolve to achieve its price stability target or to judge that inflation was already on a sustained downward trajectory.” according to the minutes.

Officials also warned that “undue easing in financial conditions, especially if driven by a public misunderstanding of the commission’s reactive function, would complicate the commission’s efforts to restore price stability.”

According to the “dot plot” for policy makers Interest rate Projections published after the meeting Most officials now see the federal funds rate peaking between 5 percent and 5.25 percent, with a large group of opinion that it may need to be raised even higher. This indicates at least 0.75 percentage point of interest rate hikes in the future.

At the press conference following last month’s interest rate decision, Jay Powell, the Fed chair, warned that he could not say “with confidence” that the central bank would not raise its ratings again as it seeks to push back Against speculation that she will soon abandon her tightening plans.

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“We’ve covered a lot of ground and we’re not yet feeling the full effects of our rapid tightening yet. We have a lot more work to do,” he told reporters.

Michael Gapin, chief US economist at Bank of America, said the Fed could respond to easing financial conditions by raising interest rates more than expected and delivering a hawkish surprise to financial markets. The central bank next meets later this month, with an interest rate decision to be announced in early February.

The minutes did not indicate whether officials were likely to support another half-point rate hike or switch to a quarter-point increase, although the odds for a smaller jump are 70 percent, according to CME Group.

However, Jabin said he believes the Fed will go ahead with a half-point rate hike and warned that there is a chance the central bank will eventually need to raise interest rates to between 5.5 percent and 6 percent.

The dot graph showed interest rate cuts are not expected until 2024, when the benchmark rate is expected to drop to 4.1 percent, before easing to 3.1 percent in 2025. Growth is set to slow significantly while keeping Borrowing costs are high for an extended period. During the period, most officials expect an expansion of just 0.5 percent this year before a rebound of 1.6 percent in 2024.

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It is estimated that the unemployment rate is likely to rise by about a full percentage point from its current level to 4.6 percent.

The minutes also noted that officials remain mainly concerned about “upside risks to the inflation outlook” and are not doing much in terms of tightening. But there are also concerns that the Fed will raise interest rates excessively and to the point of causing an “unnecessary reduction in economic activity”.

While the weak economy is poised to exert downward pressure on prices, it is expected to take some time for inflation to drop to the Fed’s longstanding 2 percent target. The central bank’s preferred measure of inflation – the core personal consumption expenditures price index – is expected to fall to 3.5 percent by the end of 2023 and 2.5 percent in 2024. As of November, the index was hovering at 4.7 percent. Cent.

So far, the Fed’s tightening has been most felt in rate-sensitive sectors like housing, where prices have fallen dramatically from their coronavirus pandemic peaks. However, demand for labor remains high as consumers continue to spend, helping to offset inflationary pressures that have taken hold across the country. Services sector. And economists warn that eradicating them will require a recession and job losses.

Powell and his colleagues as well White House officialsMaintaining a recession, even with high unemployment, can be avoided.

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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