REUTERS
"U.S. dollar strength creating 'untenable' situation that risks financial crisis - Morgan Stanley"
Reuters
September 26, 2022
NEW YORK, Sept 26 (Reuters) - The recent rally in the U.S. dollar is creating an “untenable situation" for riskier assets that could end in a financial or economic crisis, strategists at Morgan Stanley warned in a note Monday.
The dollar index hit a new two-decade high Monday as the pound hit an all-time low against the greenback.
The wild swings in currencies are another pressure on the global economy and corporate earnings, which are expected to fall as the Federal Reserve’s aggressive interest rate hikes over the summer begin to weigh on spending.
“The ultimate lows for stocks, and highs for yields, will likely be determined by the growth trajectory in earnings and the economy rather than inflation or the Fed,” analysts including Michael Wilson at Morgan Stanley wrote.
The pressures from the dollar’s rally will help push the S&P 500 to a new bear market low between 3000 and 3400 by early 2023, the firm said.
The S&P 500 fell 1% on Monday and it is close to its year low.
Reporting by David Randall; Editing by Andrea Ricci
https://www.reuters.com/markets/europe/ ... 022-09-26/
THE ECONOMY
Re: THE ECONOMY
THE HILL
"White House downplays CBO report on $400 billion cost of student loan forgiveness plan"
Alex Gangitano
26 SEPTEMBERB 2022
The White House on Monday pushed back on a report by the Congressional Budget Office (CBO) released earlier that day, arguing that 90 percent of federal student loan borrowers are unlikely to take advantage of President Biden’s forgiveness plan.
The CBO reported that the plan to forgive $10,000 in federal student loan debt for borrowers earning under $125,000 and $20,000 for borrowers who received Pell Grants will cost about $400 billion.
It also projected that 90 percent of income-eligible borrowers will apply for debt cancellation.
“CBO called its own estimate ‘highly uncertain.’"
"We agree,” the White House said in a memo.
“CBO assumes that 90% of eligible borrowers take the necessary steps to claim relief."
"We would be thrilled if 90% of eligible middle- and low-income Americans applied for this program."
"But unfortunately, that’s unlikely based on the data from other programs.”
The White House in its memo argued that the 90 percent mark is not likely because previous debt relief programs to discharge borrowers whose schools closed, including ITT Technical institute and Corinthian College, had takeup rate of less than 50 percent.
Also, it called Social Security and Medicare outliers, and although they have 90 percent takeup rates, they are for older Americans and “extraordinarily broadly popular.”
The White House said that the cost is not $400 billion “this year, next year, or even over ten years.”
“While the CBO estimate is meant to reflect the full effects over the entire lifespan of the program, the annual cash flow effects — which is what matters for the federal debt and for economic impacts — are much smaller."
"All estimates of the Administration’s plan will face this same challenge,” the White House said in its memo.
The administration did note that its estimate aligns with the CBO estimate that in 2023, the impact of loan forgiveness will be about $21 billion.
The White House had estimated $24 billion in 2023.
Biden released the student loan forgiveness plan last month and has argued that it is economically responsible and will be paid for.
The president has been under fire since releasing the plan from Republicans who have criticized it for being too expensive and for costing taxpayers.
Additionally, moderate Democrats, especially those in swing districts, have raised concerns that it will add to the inflation rate that is already at a 40-year high.
https://www.msn.com/en-us/news/politics ... 3b52adcb0e
"White House downplays CBO report on $400 billion cost of student loan forgiveness plan"
Alex Gangitano
26 SEPTEMBERB 2022
The White House on Monday pushed back on a report by the Congressional Budget Office (CBO) released earlier that day, arguing that 90 percent of federal student loan borrowers are unlikely to take advantage of President Biden’s forgiveness plan.
The CBO reported that the plan to forgive $10,000 in federal student loan debt for borrowers earning under $125,000 and $20,000 for borrowers who received Pell Grants will cost about $400 billion.
It also projected that 90 percent of income-eligible borrowers will apply for debt cancellation.
“CBO called its own estimate ‘highly uncertain.’"
"We agree,” the White House said in a memo.
“CBO assumes that 90% of eligible borrowers take the necessary steps to claim relief."
"We would be thrilled if 90% of eligible middle- and low-income Americans applied for this program."
"But unfortunately, that’s unlikely based on the data from other programs.”
The White House in its memo argued that the 90 percent mark is not likely because previous debt relief programs to discharge borrowers whose schools closed, including ITT Technical institute and Corinthian College, had takeup rate of less than 50 percent.
Also, it called Social Security and Medicare outliers, and although they have 90 percent takeup rates, they are for older Americans and “extraordinarily broadly popular.”
The White House said that the cost is not $400 billion “this year, next year, or even over ten years.”
“While the CBO estimate is meant to reflect the full effects over the entire lifespan of the program, the annual cash flow effects — which is what matters for the federal debt and for economic impacts — are much smaller."
"All estimates of the Administration’s plan will face this same challenge,” the White House said in its memo.
The administration did note that its estimate aligns with the CBO estimate that in 2023, the impact of loan forgiveness will be about $21 billion.
The White House had estimated $24 billion in 2023.
Biden released the student loan forgiveness plan last month and has argued that it is economically responsible and will be paid for.
The president has been under fire since releasing the plan from Republicans who have criticized it for being too expensive and for costing taxpayers.
Additionally, moderate Democrats, especially those in swing districts, have raised concerns that it will add to the inflation rate that is already at a 40-year high.
https://www.msn.com/en-us/news/politics ... 3b52adcb0e
Re: THE ECONOMY
CNBC
"Stock market losses wipe out $9 trillion from Americans’ wealth"
Robert Frank @ROBTFRANK
PUBLISHED TUE, SEP 27 2022
KEY POINTS
* Americans’ holdings of corporate equities and mutual fund shares fell to $33 trillion at the end of the second quarter, down from $42 trillion at the start of the year.
* With major market indexes falling further since July, experts say losses from financial markets could total $9.5 trillion to $10 trillion.
* Economists say the drops could add pressure to Americans’ balance sheets and possibly hurting spending.
Falling stock markets have wiped out more than $9 trillion in wealth from U.S. households, putting more pressure on family balance sheets and spending.
Americans’ holdings of corporate equities and mutual fund shares fell to $33 trillion at the end of the second quarter, down from $42 trillion at the start of the year, according to data from the Federal Reserve.
With major market indexes falling even further since early July, and the bond market adding further losses, market experts say the current wealth losses from financial markets could total $9.5 trillion to $10 trillion.
Economists say the drops could soon start rippling through the economy, adding pressure to Americans’ balance sheets and possibly hurting spending, borrowing and investing.
Mark Zandi, chief economist of Moody’s Analytics, said the losses could reduce real GDP growth by nearly 0.2 percentage points over the coming year.
“The loss of stock wealth suffered to date, if sustained, will be a small, but meaningful headwind to consumer spending and economic growth in coming months,” Zandi said.
The wealthy are bearing the largest losses, since they own an outsize share of stocks.
The top 10% of Americans have lost over $8 trillion in stock market wealth this year, which marks a 22% decline in their stock wealth, according to the Federal Reserve.
The top 1% has lost over $5 trillion in stock market wealth.
The bottom 50% have lost about $70 billion in stock wealth.
The losses mark a massive and sudden reversal for shareholders who saw record wealth creation from soaring stocks since the pandemic.
From the market lows of 2020 to the peak at the end of 2021, America’s stock wealth nearly doubled, from $22 trillion to $42 trillion.
The bulk of that wealth went to those at the top, since the wealthiest 10% of Americans own 89% of individually held stocks, according to the Federal Reserve.
With stocks declining, and with those at the top bearing most of the losses, wealth inequality has fallen slightly this year.
The top 1% owned 31% of the nation’s household wealth at the end of the second quarter, down from 32.3% in the beginning of the year.
The share of wealth held by the top 10% slipped from 69% to 68%.
While Americans have gained wealth from rising housing prices, the gains have been more than offset by stock market losses.
America’s housing wealth rose by $3 trillion in the first half of the year to $41 trillion.
The gain is only about a third of the amount lost in the stock market.
Yet with rising mortgage rates, home prices have started to decline or cool in many markets.
The drop in stock wealth also far exceeds the $6 trillion in quarterly stock losses during the beginning of the pandemic in 2020.
While stock markets have seen larger drops on a percentage basis, this year’s stock losses are among the largest ever on a dollar basis.
The big question is how much the stock declines will impact consumer spending.
So far, there are few signs that affluent consumers have cut their spending.
Yet some say the “negative wealth effect ” — the theory that wealth declines lead to spending declines — could soon start to bite, especially if market declines continue.
Zandi said lost stock wealth in the U.S. could reduce consumer spending by $54 billion in the coming year.
Yet he added that the “stock-wealth effect” is smaller that in the past, since the wealthy own such a large share of stocks and have “have substantial excess saving built up during the pandemic.”
“Since their saving cushion is so large, they won’t feel as compelled to save more given the decline in their stock wealth,” he said.
https://www.cnbc.com/2022/09/27/stock-m ... alth-.html
"Stock market losses wipe out $9 trillion from Americans’ wealth"
Robert Frank @ROBTFRANK
PUBLISHED TUE, SEP 27 2022
KEY POINTS
* Americans’ holdings of corporate equities and mutual fund shares fell to $33 trillion at the end of the second quarter, down from $42 trillion at the start of the year.
* With major market indexes falling further since July, experts say losses from financial markets could total $9.5 trillion to $10 trillion.
* Economists say the drops could add pressure to Americans’ balance sheets and possibly hurting spending.
Falling stock markets have wiped out more than $9 trillion in wealth from U.S. households, putting more pressure on family balance sheets and spending.
Americans’ holdings of corporate equities and mutual fund shares fell to $33 trillion at the end of the second quarter, down from $42 trillion at the start of the year, according to data from the Federal Reserve.
With major market indexes falling even further since early July, and the bond market adding further losses, market experts say the current wealth losses from financial markets could total $9.5 trillion to $10 trillion.
Economists say the drops could soon start rippling through the economy, adding pressure to Americans’ balance sheets and possibly hurting spending, borrowing and investing.
Mark Zandi, chief economist of Moody’s Analytics, said the losses could reduce real GDP growth by nearly 0.2 percentage points over the coming year.
“The loss of stock wealth suffered to date, if sustained, will be a small, but meaningful headwind to consumer spending and economic growth in coming months,” Zandi said.
The wealthy are bearing the largest losses, since they own an outsize share of stocks.
The top 10% of Americans have lost over $8 trillion in stock market wealth this year, which marks a 22% decline in their stock wealth, according to the Federal Reserve.
The top 1% has lost over $5 trillion in stock market wealth.
The bottom 50% have lost about $70 billion in stock wealth.
The losses mark a massive and sudden reversal for shareholders who saw record wealth creation from soaring stocks since the pandemic.
From the market lows of 2020 to the peak at the end of 2021, America’s stock wealth nearly doubled, from $22 trillion to $42 trillion.
The bulk of that wealth went to those at the top, since the wealthiest 10% of Americans own 89% of individually held stocks, according to the Federal Reserve.
With stocks declining, and with those at the top bearing most of the losses, wealth inequality has fallen slightly this year.
The top 1% owned 31% of the nation’s household wealth at the end of the second quarter, down from 32.3% in the beginning of the year.
The share of wealth held by the top 10% slipped from 69% to 68%.
While Americans have gained wealth from rising housing prices, the gains have been more than offset by stock market losses.
America’s housing wealth rose by $3 trillion in the first half of the year to $41 trillion.
The gain is only about a third of the amount lost in the stock market.
Yet with rising mortgage rates, home prices have started to decline or cool in many markets.
The drop in stock wealth also far exceeds the $6 trillion in quarterly stock losses during the beginning of the pandemic in 2020.
While stock markets have seen larger drops on a percentage basis, this year’s stock losses are among the largest ever on a dollar basis.
The big question is how much the stock declines will impact consumer spending.
So far, there are few signs that affluent consumers have cut their spending.
Yet some say the “negative wealth effect ” — the theory that wealth declines lead to spending declines — could soon start to bite, especially if market declines continue.
Zandi said lost stock wealth in the U.S. could reduce consumer spending by $54 billion in the coming year.
Yet he added that the “stock-wealth effect” is smaller that in the past, since the wealthy own such a large share of stocks and have “have substantial excess saving built up during the pandemic.”
“Since their saving cushion is so large, they won’t feel as compelled to save more given the decline in their stock wealth,” he said.
https://www.cnbc.com/2022/09/27/stock-m ... alth-.html
Re: THE ECONOMY
CNBC
"Fed’s Evans says he’s getting a little nervous about going too far, too fast with rate hikes"
Sam Meredith @SMEREDITH19
PUBLISHED TUE, SEP 27 2022
KEY POINTS
* Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.
* His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.
Chicago Federal Reserve President Charles Evans says he’s feeling apprehensive about the U.S. central bank raising interest rates too quickly in its quest to tackle runaway inflation.
Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.
His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.
The central bank raised benchmark interest rates by three-quarters of a percentage point earlier last week, the third consecutive increase of that size.
Fed officials also indicated they would continue hiking rates well above the current range of 3% to 3.25%.
Asked about investor fears that the Fed didn’t seem to be waiting long enough to adequately assess the impact of its interest rate increases, Evans replied, “Well, I am a little nervous about exactly that.”
“There are lags in monetary policy and we have moved expeditiously."
"We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release,” Evans said.
‘Peak funds rate’
Traders have been concerned that the Fed is remaining more hawkish for longer than some had anticipated.
The Fed’s Evans, 64, has consistently been one of the Fed’s policy doves in favor of lower rates and more accommodation.
He will retire from his position early next year.
“Again, I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks."
"And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” Evans said.
“That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties,” he said.
“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that something has happened."
"So, cautiously optimistic.”
— CNBC’s Jeff Cox contributed to this report.
https://www.cnbc.com/2022/09/27/feds-ev ... hikes.html
"Fed’s Evans says he’s getting a little nervous about going too far, too fast with rate hikes"
Sam Meredith @SMEREDITH19
PUBLISHED TUE, SEP 27 2022
KEY POINTS
* Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.
* His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.
Chicago Federal Reserve President Charles Evans says he’s feeling apprehensive about the U.S. central bank raising interest rates too quickly in its quest to tackle runaway inflation.
Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.
His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.
The central bank raised benchmark interest rates by three-quarters of a percentage point earlier last week, the third consecutive increase of that size.
Fed officials also indicated they would continue hiking rates well above the current range of 3% to 3.25%.
Asked about investor fears that the Fed didn’t seem to be waiting long enough to adequately assess the impact of its interest rate increases, Evans replied, “Well, I am a little nervous about exactly that.”
“There are lags in monetary policy and we have moved expeditiously."
"We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release,” Evans said.
‘Peak funds rate’
Traders have been concerned that the Fed is remaining more hawkish for longer than some had anticipated.
The Fed’s Evans, 64, has consistently been one of the Fed’s policy doves in favor of lower rates and more accommodation.
He will retire from his position early next year.
“Again, I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks."
"And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” Evans said.
“That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties,” he said.
“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that something has happened."
"So, cautiously optimistic.”
— CNBC’s Jeff Cox contributed to this report.
https://www.cnbc.com/2022/09/27/feds-ev ... hikes.html
Re: THE ECONOMY
REUTERS
"Fed's Harker says housing shortage a key inflation driver"
By Michael S. Derby
September 27, 2022
NEW YORK, Sept 27 (Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Tuesday a housing shortage is a key driver of the nation's historic surge in inflation.
"Since the Great Recession, the United States has not built enough housing to keep price growth relatively modest," Harker said in an essay published on the bank's website.
This shortage is "a major driver of the far-too-high inflation plaguing our country," he added.
"Inflation is far too high across most goods and services in our economy," Harker said, noting that the Fed "is working to stabilize inflation and put the economy on a firmer footing for the long haul."
Harker, a nonvoting member of the rate-setting Federal Open Market Committee, did not comment on the monetary policy outlook in his essay.
The central bank has been pressing forward with aggressive rate hikes aimed at taming the highest inflation in four decades.
Last week, the FOMC hiked its overnight target rate range by 0.75 percentage point, to between 3% and 3.25%, as it signaled more increases ahead.
Fed officials and many private sector economists tie the inflation surge to pandemic-related disruptions and periods of aggressive government stimulus.
Housing has been a key factor in rising prices.
Harker's essay noted that housing-driven inflation is "particularly alarming" in part because along with food price increases, housing factors affect almost all Americans.
Moreover, "high housing inflation is a macroeconomic problem; money spent on housing is money not spent on education, durable goods, or meals out," he added.
"We must do everything we can to get shelter inflation under control."
Reporting by Michael S. Derby; Editing by Chris Reese and Richard Chang
https://www.reuters.com/markets/us/feds ... 022-09-27/
"Fed's Harker says housing shortage a key inflation driver"
By Michael S. Derby
September 27, 2022
NEW YORK, Sept 27 (Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Tuesday a housing shortage is a key driver of the nation's historic surge in inflation.
"Since the Great Recession, the United States has not built enough housing to keep price growth relatively modest," Harker said in an essay published on the bank's website.
This shortage is "a major driver of the far-too-high inflation plaguing our country," he added.
"Inflation is far too high across most goods and services in our economy," Harker said, noting that the Fed "is working to stabilize inflation and put the economy on a firmer footing for the long haul."
Harker, a nonvoting member of the rate-setting Federal Open Market Committee, did not comment on the monetary policy outlook in his essay.
The central bank has been pressing forward with aggressive rate hikes aimed at taming the highest inflation in four decades.
Last week, the FOMC hiked its overnight target rate range by 0.75 percentage point, to between 3% and 3.25%, as it signaled more increases ahead.
Fed officials and many private sector economists tie the inflation surge to pandemic-related disruptions and periods of aggressive government stimulus.
Housing has been a key factor in rising prices.
Harker's essay noted that housing-driven inflation is "particularly alarming" in part because along with food price increases, housing factors affect almost all Americans.
Moreover, "high housing inflation is a macroeconomic problem; money spent on housing is money not spent on education, durable goods, or meals out," he added.
"We must do everything we can to get shelter inflation under control."
Reporting by Michael S. Derby; Editing by Chris Reese and Richard Chang
https://www.reuters.com/markets/us/feds ... 022-09-27/
Re: THE ECONOMY
REUTERS
"U.S. core capital goods orders surge; consumer confidence rises further"
By Lucia Mutikani
September 27, 2022
Summary
* Core capital goods orders increase 1.3% in August
* Core capital goods shipments rise 0.3%
* Consumer confidence index increases to 108.0 in September
* House price growth decelerates in July
WASHINGTON, Sept 27 (Reuters) - New orders for U.S.-manufactured capital goods increased more than expected in August, suggesting that businesses remained keen to invest in equipment despite higher interest rates, which could keep the economy on a moderate growth path.
Some of the largest gain in orders in seven months reported by the Commerce Department on Tuesday, however, reflected higher prices.
The data suggested that business spending on equipment probably rebounded in the third quarter, further dispelling fears that the economy was in recession.
That was reinforced by a survey showing consumer confidence rising for a second straight month in September, supported by a resilient labor market, which continues to churn out jobs at a brisk clip and generate strong wage gains, as well as falling gasoline prices.
More consumers planned to buy big-ticket items like motor vehicles and household appliances over the next six months, which should help to underpin consumer spending.
"It is hard to know whether companies are ordering up more widgets to produce the goods and provide the services for a stronger economy in the future or whether the jump in spending reflects the higher prices from inflation that remains out of control," said Christopher Rupkey, chief economist at FWDBONDS in New York.
"The economy may be more resilient than we think."
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.3% last month.
That was the biggest gain since January.
Data for July was revised higher to show these so-called core capital goods orders gaining 0.7% instead of 0.3% as previously reported.
The data is not adjusted for inflation.
Economists polled by Reuters had forecast core capital goods orders rising 0.2%.
There were increases in orders for machinery, primary metals, computers and electronic products as well as electrical equipment, appliances and components.
But orders for fabricated metal products fell.
Core capital goods shipments rose 0.3% after climbing 0.6% in July.
Core capital goods shipments are used to calculate equipment spending in the gross domestic product measurement.
Business spending on equipment contracted by the most in two years in the second quarter.
That together with a sharp slowdown in the pace of inventory accumulation resulted in GDP contracting at a 0.6% annualized rate last quarter after declining at a 1.6% pace in the January-March period.
But the economy was not in recession in the first half, with the income side of the growth ledger showing moderate expansion.
Goldman Sachs is forecasting GDP rebounding at a 1.2% rate in the third quarter.
The economy is hanging on despite the aggressive monetary policy tightening by the Federal Reserve to fight inflation.
The U.S. central bank last week raised its policy interest rate by 75 basis points, its third straight increase of that size.
It signaled more large increases to come this year.
Stocks on Wall Streets were trading lower after a brutal beating over the last six sessions.
The dollar was steady against a basket of currencies.
Longer-dated U.S. Treasury prices fell.
TIGHT LABOR MARKET
A second report from the Conference Board on Tuesday showed its consumer confidence index rose to 108.0 this month from 103.6 in August, beating economists' expectations for a reading of 104.5.
Households' worries about inflation eased, largely reflecting lower gasoline prices.
Consumers' 12-month inflation expectations slipped to 6.8%, the lowest since January, from 7.0% in August.
The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, rose to 38 from a reading of 36 in August.
This measure correlates to the unemployment rate from the Labor Department and points to a still-tight jobs market.
"The labor market differential suggests that joblessness fell in September, contrary to the Fed's goal of creating slack in the labor market to bring down wage growth," said Bernard Yaros, an economist at Moody's Analytics in West Chester, Pennsylvania.
There were increases in the share of consumers planning to buy motor vehicles and appliances such as refrigerators, washing machines and vacuum cleaners over the next six months.
But consumers were less inclined to buy a house as soaring mortgage rates and still-high home prices eroded affordability.
While a third report from the Commerce Department showed new home sales surged 28.8% to a seasonally adjusted annual rate of 685,000 units in August, that was likely due to builders offering incentives to clear inventory.
With the 30-year fixed mortgage rate now at levels last seen during the Great Recession, the rebound in new home sales is likely temporary.
There was, however, some good news for prospective buyers, who have been priced out of the market.
A fourth report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 15.8% year-on-year in July, slowing from an 18.1% advance in June.
On a monthly basis, prices fell 0.3% in July, the first drop since late 2018.
The cooling house price inflation was corroborated by a fifth report from the Federal Housing Finance Agency showing home prices increased 13.9% in the 12 months through July after rising 16.3% in June.
Prices fell 0.6% on a monthly basis.
An outright house price collapse, however, is unlikely as housing remains in short supply.
"Rapid home price deceleration was anticipated given the Fed's actions and will bring home price growth closer in line with income growth," said Selma Hepp, deputy chief economist at CoreLogic.
"Returning to a long-term average of 4% to 5% annual price growth is closer than initially anticipated, potentially by early 2023."
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/us-c ... 022-09-27/
"U.S. core capital goods orders surge; consumer confidence rises further"
By Lucia Mutikani
September 27, 2022
Summary
* Core capital goods orders increase 1.3% in August
* Core capital goods shipments rise 0.3%
* Consumer confidence index increases to 108.0 in September
* House price growth decelerates in July
WASHINGTON, Sept 27 (Reuters) - New orders for U.S.-manufactured capital goods increased more than expected in August, suggesting that businesses remained keen to invest in equipment despite higher interest rates, which could keep the economy on a moderate growth path.
Some of the largest gain in orders in seven months reported by the Commerce Department on Tuesday, however, reflected higher prices.
The data suggested that business spending on equipment probably rebounded in the third quarter, further dispelling fears that the economy was in recession.
That was reinforced by a survey showing consumer confidence rising for a second straight month in September, supported by a resilient labor market, which continues to churn out jobs at a brisk clip and generate strong wage gains, as well as falling gasoline prices.
More consumers planned to buy big-ticket items like motor vehicles and household appliances over the next six months, which should help to underpin consumer spending.
"It is hard to know whether companies are ordering up more widgets to produce the goods and provide the services for a stronger economy in the future or whether the jump in spending reflects the higher prices from inflation that remains out of control," said Christopher Rupkey, chief economist at FWDBONDS in New York.
"The economy may be more resilient than we think."
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.3% last month.
That was the biggest gain since January.
Data for July was revised higher to show these so-called core capital goods orders gaining 0.7% instead of 0.3% as previously reported.
The data is not adjusted for inflation.
Economists polled by Reuters had forecast core capital goods orders rising 0.2%.
There were increases in orders for machinery, primary metals, computers and electronic products as well as electrical equipment, appliances and components.
But orders for fabricated metal products fell.
Core capital goods shipments rose 0.3% after climbing 0.6% in July.
Core capital goods shipments are used to calculate equipment spending in the gross domestic product measurement.
Business spending on equipment contracted by the most in two years in the second quarter.
That together with a sharp slowdown in the pace of inventory accumulation resulted in GDP contracting at a 0.6% annualized rate last quarter after declining at a 1.6% pace in the January-March period.
But the economy was not in recession in the first half, with the income side of the growth ledger showing moderate expansion.
Goldman Sachs is forecasting GDP rebounding at a 1.2% rate in the third quarter.
The economy is hanging on despite the aggressive monetary policy tightening by the Federal Reserve to fight inflation.
The U.S. central bank last week raised its policy interest rate by 75 basis points, its third straight increase of that size.
It signaled more large increases to come this year.
Stocks on Wall Streets were trading lower after a brutal beating over the last six sessions.
The dollar was steady against a basket of currencies.
Longer-dated U.S. Treasury prices fell.
TIGHT LABOR MARKET
A second report from the Conference Board on Tuesday showed its consumer confidence index rose to 108.0 this month from 103.6 in August, beating economists' expectations for a reading of 104.5.
Households' worries about inflation eased, largely reflecting lower gasoline prices.
Consumers' 12-month inflation expectations slipped to 6.8%, the lowest since January, from 7.0% in August.
The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, rose to 38 from a reading of 36 in August.
This measure correlates to the unemployment rate from the Labor Department and points to a still-tight jobs market.
"The labor market differential suggests that joblessness fell in September, contrary to the Fed's goal of creating slack in the labor market to bring down wage growth," said Bernard Yaros, an economist at Moody's Analytics in West Chester, Pennsylvania.
There were increases in the share of consumers planning to buy motor vehicles and appliances such as refrigerators, washing machines and vacuum cleaners over the next six months.
But consumers were less inclined to buy a house as soaring mortgage rates and still-high home prices eroded affordability.
While a third report from the Commerce Department showed new home sales surged 28.8% to a seasonally adjusted annual rate of 685,000 units in August, that was likely due to builders offering incentives to clear inventory.
With the 30-year fixed mortgage rate now at levels last seen during the Great Recession, the rebound in new home sales is likely temporary.
There was, however, some good news for prospective buyers, who have been priced out of the market.
A fourth report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 15.8% year-on-year in July, slowing from an 18.1% advance in June.
On a monthly basis, prices fell 0.3% in July, the first drop since late 2018.
The cooling house price inflation was corroborated by a fifth report from the Federal Housing Finance Agency showing home prices increased 13.9% in the 12 months through July after rising 16.3% in June.
Prices fell 0.6% on a monthly basis.
An outright house price collapse, however, is unlikely as housing remains in short supply.
"Rapid home price deceleration was anticipated given the Fed's actions and will bring home price growth closer in line with income growth," said Selma Hepp, deputy chief economist at CoreLogic.
"Returning to a long-term average of 4% to 5% annual price growth is closer than initially anticipated, potentially by early 2023."
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/us-c ... 022-09-27/
Re: THE ECONOMY
REUTERS
"Fed's Evans: Market volatility can create restrictiveness"
By Dhara Ranasinghe and Jorgelina Do Rosario
September 28, 2022
LONDON, Sept 28 (Reuters) - Federal Reserve Bank of Chicago President Charles Evans said on Wednesday that volatility in markets can create additional restrictiveness in financial conditions.
Global markets have been whipsawed this week by turmoil in UK markets, already on edge over aggressive rate hikes from the U.S. Federal Reserve and other major central banks.
"The U.S. economy and inflation are going to be largely dictated by the stance of monetary policy and everything else that is going on supply shocks, the labour issues we're dealing with," Evans said in London.
"It is a case that financial market volatility can add to additional financial restrictiveness."
"So anything around the world in terms of policy or developments like Russia's invasion of Ukraine can add to additional restrictiveness."
Still, speaking with reporters after an event at the London School of Economics, Evans gave no indication that any of that would blow the Fed off its course.
"We just really need to get inflation in check," Evans said.
It would be good, he said, to get the Fed policy rate - now at 3%-3.25% - to a range of 4.5%-4.75% by the end of the year or March, and then keep it there for a while.
Real rates currently are "not nearly restrictive enough," given high inflation, but by March should be around 2%, he said, enough to put downward pressure on prices.
Relief on inflation could also come from improvements in supply, he said, and giving him some comfort is the fact that inflation expectations are "relatively consistent" with the Fed's 2% inflation goal.
Reporting by Dhara Ranasinghe, Jorgelina Do Rosario in London and Ann Saphir in San Francisco; Editing by Matthew Lewis and David Gregorio
https://www.reuters.com/markets/europe/ ... 022-09-28/
"Fed's Evans: Market volatility can create restrictiveness"
By Dhara Ranasinghe and Jorgelina Do Rosario
September 28, 2022
LONDON, Sept 28 (Reuters) - Federal Reserve Bank of Chicago President Charles Evans said on Wednesday that volatility in markets can create additional restrictiveness in financial conditions.
Global markets have been whipsawed this week by turmoil in UK markets, already on edge over aggressive rate hikes from the U.S. Federal Reserve and other major central banks.
"The U.S. economy and inflation are going to be largely dictated by the stance of monetary policy and everything else that is going on supply shocks, the labour issues we're dealing with," Evans said in London.
"It is a case that financial market volatility can add to additional financial restrictiveness."
"So anything around the world in terms of policy or developments like Russia's invasion of Ukraine can add to additional restrictiveness."
Still, speaking with reporters after an event at the London School of Economics, Evans gave no indication that any of that would blow the Fed off its course.
"We just really need to get inflation in check," Evans said.
It would be good, he said, to get the Fed policy rate - now at 3%-3.25% - to a range of 4.5%-4.75% by the end of the year or March, and then keep it there for a while.
Real rates currently are "not nearly restrictive enough," given high inflation, but by March should be around 2%, he said, enough to put downward pressure on prices.
Relief on inflation could also come from improvements in supply, he said, and giving him some comfort is the fact that inflation expectations are "relatively consistent" with the Fed's 2% inflation goal.
Reporting by Dhara Ranasinghe, Jorgelina Do Rosario in London and Ann Saphir in San Francisco; Editing by Matthew Lewis and David Gregorio
https://www.reuters.com/markets/europe/ ... 022-09-28/
Re: THE ECONOMY
REUTERS
'Fed's Evans: expect to reach top Fed policy rate by March"
By Dhara Ranasinghe and Jorgelina Do Rosario
September 28, 2022
LONDON, Sept 28 (Reuters) - The Federal Reserve is raising interest rates expeditiously to address very high, persistent inflation, and will likely get U.S. short-term borrowing costs to where they need to be by early next year, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.
Most Fed policymakers are penciling in a top Fed policy rate of 4.5% to 4.75% by end of next year, based on their projections published last week, and "by March we will be at that point," Evans said at an event on current economic conditions hosted by the London School of Economics.
Benchmark U.S. 10-year Treasury yields rose to their highest level in about 12-1/2 years on Tuesday as investors girded for higher interest rates that could possibly remain for longer than anticipated as Federal Reserve officials held firm in their hawkish stance.
Since August 2, the 10-year yield has surged by 145 bps.
The Federal Reserve has aggressively hiked interest rates by 3 percentage points this year, taking its target range to 3.00%-3.25%.
It carried out its third consecutive 75 basis point increase last week and signaled that rates are likely to rise to the 4.25%-4.5% range by the end of the year.
Reporting by Dhara Ranasinghe, Jorgelina Do Rosario and Ann Saphir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-09-28/
'Fed's Evans: expect to reach top Fed policy rate by March"
By Dhara Ranasinghe and Jorgelina Do Rosario
September 28, 2022
LONDON, Sept 28 (Reuters) - The Federal Reserve is raising interest rates expeditiously to address very high, persistent inflation, and will likely get U.S. short-term borrowing costs to where they need to be by early next year, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.
Most Fed policymakers are penciling in a top Fed policy rate of 4.5% to 4.75% by end of next year, based on their projections published last week, and "by March we will be at that point," Evans said at an event on current economic conditions hosted by the London School of Economics.
Benchmark U.S. 10-year Treasury yields rose to their highest level in about 12-1/2 years on Tuesday as investors girded for higher interest rates that could possibly remain for longer than anticipated as Federal Reserve officials held firm in their hawkish stance.
Since August 2, the 10-year yield has surged by 145 bps.
The Federal Reserve has aggressively hiked interest rates by 3 percentage points this year, taking its target range to 3.00%-3.25%.
It carried out its third consecutive 75 basis point increase last week and signaled that rates are likely to rise to the 4.25%-4.5% range by the end of the year.
Reporting by Dhara Ranasinghe, Jorgelina Do Rosario and Ann Saphir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 022-09-28/
Re: THE ECONOMY
REUTERS
"Fed's Bostic backs 75-basis-point hike in November, smaller rise in December"
By Howard Schneider
September 28, 2022
WASHINGTON, Sept 28 (Reuters) - The lack of clear progress on inflation means the Federal Reserve needs "moderately restrictive" interest rates that should reach a level between 4.25% and 4.50% by the end of this year, Atlanta Fed President Raphael Bostic said on Wednesday.
"Inflation is still high ... and it is not moving with enough speed back down to our 2% target," Bostic said in a conference call from Atlanta, adding that his baseline outlook is for the U.S. central bank to hike rates by three-quarters of a percentage point at its November policy meeting and by half a percentage point at the December gathering.
That puts Bostic at the median of his colleagues who projected last week that they would need to lift the Fed's target policy rate an additional 1.25 percentage points at the two remaining meetings this year.
That rate is currently in a range of 3.00% to 3.25%.
Recent overseas events, Bostic said, including a crash in the value of the British pound and an emergency return to bond-buying by the Bank of England, had not yet influenced his views on appropriate Fed policy or raised a risk of economic contagion in the United States.
U.S. Treasury markets showed no evidence of dysfunction, he said, and the economy's "considerable momentum," particularly its strong job market, "suggest it is less likely that contagion would play out."
Markets tied to the federal funds rate, however, have wavered in recent days as events overseas rattled investors, a U.S. equities sell-off continued, and economists said risks of a global recession were rising.
Traders on Wednesday put less than even odds on the prospect of the Fed getting its policy rate to the 4.25%-4.50% range cited by Bostic and other officials by year's end.
Bostic did say there were signs U.S. demand had begun to cool, a precursor in his view to falling inflation, and if that happens fast enough "the less we will have to do" with interest rates.
Housing "has definitely cooled" under the pressure of rising mortgage interest rates, he said, adding that businesses in his district "noted a steep decline in demand for consumer discretionary products," a sign consumers may be tightening their belts.
As well, "a growing chorus" of executives report it is getting easier to hire workers, Bostic said.
If those trends continue it could provide a clue that inflation will turn lower, and give the Fed a reason to halt its rate hikes.
"I would expect growth to be below trend, we would start to see demand for a wider range of products start to soften, and we would start to see labor markets start to be more rationalized," Bostic said, with few job openings and slower wage growth.
If that begins to happen, it will be a sign that ... "we should contemplate stopping and holding at that level."
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 022-09-28/
"Fed's Bostic backs 75-basis-point hike in November, smaller rise in December"
By Howard Schneider
September 28, 2022
WASHINGTON, Sept 28 (Reuters) - The lack of clear progress on inflation means the Federal Reserve needs "moderately restrictive" interest rates that should reach a level between 4.25% and 4.50% by the end of this year, Atlanta Fed President Raphael Bostic said on Wednesday.
"Inflation is still high ... and it is not moving with enough speed back down to our 2% target," Bostic said in a conference call from Atlanta, adding that his baseline outlook is for the U.S. central bank to hike rates by three-quarters of a percentage point at its November policy meeting and by half a percentage point at the December gathering.
That puts Bostic at the median of his colleagues who projected last week that they would need to lift the Fed's target policy rate an additional 1.25 percentage points at the two remaining meetings this year.
That rate is currently in a range of 3.00% to 3.25%.
Recent overseas events, Bostic said, including a crash in the value of the British pound and an emergency return to bond-buying by the Bank of England, had not yet influenced his views on appropriate Fed policy or raised a risk of economic contagion in the United States.
U.S. Treasury markets showed no evidence of dysfunction, he said, and the economy's "considerable momentum," particularly its strong job market, "suggest it is less likely that contagion would play out."
Markets tied to the federal funds rate, however, have wavered in recent days as events overseas rattled investors, a U.S. equities sell-off continued, and economists said risks of a global recession were rising.
Traders on Wednesday put less than even odds on the prospect of the Fed getting its policy rate to the 4.25%-4.50% range cited by Bostic and other officials by year's end.
Bostic did say there were signs U.S. demand had begun to cool, a precursor in his view to falling inflation, and if that happens fast enough "the less we will have to do" with interest rates.
Housing "has definitely cooled" under the pressure of rising mortgage interest rates, he said, adding that businesses in his district "noted a steep decline in demand for consumer discretionary products," a sign consumers may be tightening their belts.
As well, "a growing chorus" of executives report it is getting easier to hire workers, Bostic said.
If those trends continue it could provide a clue that inflation will turn lower, and give the Fed a reason to halt its rate hikes.
"I would expect growth to be below trend, we would start to see demand for a wider range of products start to soften, and we would start to see labor markets start to be more rationalized," Bostic said, with few job openings and slower wage growth.
If that begins to happen, it will be a sign that ... "we should contemplate stopping and holding at that level."
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 022-09-28/
Re: THE ECONOMY
CNBC
"In a reversal, the Education Department is now excluding some borrowers from student loan relief"
Lorie Konish @LORIEKONISH
PUBLISHED THU, SEP 29 2022
KEY POINTS
* Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate for forgiveness as of Thursday.
* Borrowers with FFEL or Perkins loans not held by the Education Department can only qualify for forgiveness if they applied for consolidation before Sept. 29, new guidance states.
Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate in order to qualify for President Joe Biden’s student loan forgiveness program, according new guidance from the department.
The update on the Education Department’s guidance for the one-time student loan debt relief is an about-face from previous guidelines, which said those borrowers could consolidate their debts to Direct Loans in order to qualify for the relief.
Biden announced plans for sweeping student loan forgiveness in August.
That includes up to $10,000 in forgiveness for federal student loan borrowers and up to $20,000 in relief for Pell Grant recipients.
In order to qualify, borrowers had to be under certain income thresholds — $125,000 for individuals and $250,000 for households.
However, the plan announcement immediately raised questions as to whether borrowers with Federal Family Education Loan Program, or FFEL, loans not held by the government would also be eligible.
At the time, the Education Department was said to be exploring strategies to allow those “overlooked borrowers,” who are estimated to total roughly 5 million, from being excluded from forgiveness.
However, the number of borrowers affected by this decision is about 770,000, according to an administration official.
That’s as some may be excluded based on income requirements, while others may qualify for the relief based on other loans held by the government.
Those with commercially-held FFEL loans have been excluded from the federal student loan payment pause that has been in place throughout the pandemic.
In an update to its website, the Education Department now states, “Consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022.”
Student loan experts and borrowers were quick to express their shock as news of the policy change hit social media on Thursday.
“As recently as yesterday, the site said they were working on a solution for these borrowers,” Betsy Mayotte, president of The Institute of Student Loan Advisors, tweeted.
“This is a gut punch, to say the least.”
The Education Department is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by ED, including FFEL Program loans and Perkins Loans, and is discussing this with private lenders,” the website states.
Data also provided by Reuters
https://www.cnbc.com/2022/09/29/some-fe ... eness.html
"In a reversal, the Education Department is now excluding some borrowers from student loan relief"
Lorie Konish @LORIEKONISH
PUBLISHED THU, SEP 29 2022
KEY POINTS
* Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate for forgiveness as of Thursday.
* Borrowers with FFEL or Perkins loans not held by the Education Department can only qualify for forgiveness if they applied for consolidation before Sept. 29, new guidance states.
Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate in order to qualify for President Joe Biden’s student loan forgiveness program, according new guidance from the department.
The update on the Education Department’s guidance for the one-time student loan debt relief is an about-face from previous guidelines, which said those borrowers could consolidate their debts to Direct Loans in order to qualify for the relief.
Biden announced plans for sweeping student loan forgiveness in August.
That includes up to $10,000 in forgiveness for federal student loan borrowers and up to $20,000 in relief for Pell Grant recipients.
In order to qualify, borrowers had to be under certain income thresholds — $125,000 for individuals and $250,000 for households.
However, the plan announcement immediately raised questions as to whether borrowers with Federal Family Education Loan Program, or FFEL, loans not held by the government would also be eligible.
At the time, the Education Department was said to be exploring strategies to allow those “overlooked borrowers,” who are estimated to total roughly 5 million, from being excluded from forgiveness.
However, the number of borrowers affected by this decision is about 770,000, according to an administration official.
That’s as some may be excluded based on income requirements, while others may qualify for the relief based on other loans held by the government.
Those with commercially-held FFEL loans have been excluded from the federal student loan payment pause that has been in place throughout the pandemic.
In an update to its website, the Education Department now states, “Consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022.”
Student loan experts and borrowers were quick to express their shock as news of the policy change hit social media on Thursday.
“As recently as yesterday, the site said they were working on a solution for these borrowers,” Betsy Mayotte, president of The Institute of Student Loan Advisors, tweeted.
“This is a gut punch, to say the least.”
The Education Department is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by ED, including FFEL Program loans and Perkins Loans, and is discussing this with private lenders,” the website states.
Data also provided by Reuters
https://www.cnbc.com/2022/09/29/some-fe ... eness.html