After the Federal Reserve hiked its key interest rate on Wednesday for the 10th consecutive time, those seeking a mortgage or looking to refinance their home are going to wonder just how much more they will end up paying for it.
Good question.
Mortgages aren’t tied directly to Fed rate decisions (but rather to movements in the 10-year Treasury yield), but if inflation keeps dropping, then mortgage rates are expected to drift lower too. But don’t expect them to go back to 3%.
The US labor market’s continued resiliency in the face of a barrage of interest rate hikes makes a soft landing still a possibility, Federal Reserve Chair Jerome Powell said Wednesday.
“We’ve raised rates by 5 percentage points in 14 months, and the unemployment rate is 3.5%, pretty much where it was or even lower than it was when we started,” Powell said.
Job openings remain high — the March Job Openings and Labor Turnover Survey showed there were 1.6 available jobs for every job seeker — and there are indications of gradual cooling in the labor market, he said.
It wasn’t supposed to be possible for job openings to decline as much as they’ve declined without unemployment going up, he said.
“It’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes,” he said. “And that would be against history. I fully appreciate that would be against the pattern.”
He added: “It’s still possible that the case of avoiding a recession is, in my view, more likely than that of having a recession. The case of having a recession, I don’t rule that out either: It’s possible that we will have what I hope would be a mild recession.”
Stocks fell Wednesday after the Federal Reserve raised rates by an expected quarter point and opened the door to pausing rates later this year.
Still, the central bank maintained that future rate decisions “will be driven by incoming data meeting by meeting.”
Fed Chair Jerome Powell remained coy on questions about recession concerns, stating that it’s still possible to avoid a recession but that he doesn’t “want to characterize the staff’s forecast for this meeting.”
That could leave investors wondering if Fed officials are “making it up as they go along,” said Matthew Tuttle, CEO and CIO of Tuttle Capital Management.
Powell also maintained the Fed’s inflation target of 2%.
Still, inflation remains far from that goal – which doesn’t bode well for Wall Street.
“The markets and our economy will continue to live in purgatory until inflation is closer to the Fed’s target rate of 2%. I can’t envision any sustainable market rally until inflation is tamed,” said Eric Sterner, CIO at Apollon Wealth Management.
The market’s declines come a day after the Dow fell over 360 points, as investors grew fearful that that the banking turmoil has not been contained even after JPMorgan Chase’s purchase of failed lender First Republic Bank.
Shares of regional banks continued their slide Wednesday. Shares of PacWest Bancorp slumped about 2%, New York Community Bancorp dipped 3.4% and Western Alliance Bank faded 4.4%.
The Dow slid 270 points, or 0.8%.
The S&P 500 fell 0.7%.
The Nasdaq Composite slipped 0.5%.
As stocks settle after the trading day, levels might still change slightly.
The Federal Reserve will release its Senior Loan Officer Opinion Survey on May 8, Powell said Wednesday.
Known as SLOOS, the report surveys lending conditions in around 80 US banks and is a key indicator of the extent to which banks are tightening or loosening the availability of credit.
Powell said to expect the May report would be “broadly consistent with how we’ve been thinking about the situation.”
He acknowledged that midsized banks have been tightening their lending standards in recent months, noting that the pace “has been slowing since the second half of last year.”
“I don’t have an agenda to consolidate US banks,” Fed Chair Powell said Wednesday in response to a question about the growing size of JPMorgan Chase, after it absorbed First Republic Bank on Monday.
“Having small, large and medium-sized banks is a great part of our system,” Powell said, noting the benefits of community banks as well as GSIBs (global systemically important banks, such as JPMorgan).
However, Powell stressed that the Federal Deposit Insurance Corporation, which runs the process of closing and selling a failing bank, is “bound by law to make sure the bank goes to the least cost bid” — which was JPMorgan.
Powell said the Fed doesn’t “want the largest banks doing big acquisitions,” but that JPMorgan’s takeover of First Republic was “a good outcome for the banking system.”
However, he noted that there could have been an equally good outcome had “one of the regional banks” bought First Republic.
Federal Reserve Chair Jerome Powell warned Wednesday that the central bank shouldn’t be looked to for guaranteeing economic stability if the US defaults on its debt.
“It’s essential that the debt ceiling be raised in a timely way so that the US government can pay all its bills when they’re due. A failure to do that would be unprecedented,” Powell said. “No one should assume that the Fed can protect the economy from the potential short- and long-term effects of a failure to pay our bills on time. It would be so uncertain,” he said.
“I wouldn’t say that it was important in today’s monetary policy decision,” he said.
Federal Reserve Chair Jerome Powell kicked off his post-meeting press conference by acknowledging the banking crisis.
Conditions in the banking sector have “broadly improved since early March,” he said.
Three banks have failed since mid-March, the most recent of which occurred on Monday when First Republic Bank was seized.
Despite that, Powell said “the US banking system is sound and resilient.”
He also referenced the Fed’s report on Silicon Valley Bank, saying it underscores the need to “address our rules and supervisory practices” to avoid more bank failures.
Because of the banking crisis that emerged in March this year, the Fed expects credit to tighten, meaning it will become harder for people and businesses broadly to secure loans.
“These tighter credit conditions are likely to weigh on economic activity, hiring and inflation,” Powell said. “The extent of these effects remains uncertain.”
The Federal Reserve on Wednesday raised its key interest rate for the 10th time since mid-March of last year.
Each time the Fed raises the rate, the lending rates that banks charge their customers tend to follow. That means consumer debt — especially variable-rate credit card debt — will get more expensive.
If you pay off your bill in full every month, that is not a concern for you. But if you carry a balance, and especially if you only pay the minimum amount due, you will be shelling out more dollars every month just for interest, and it will take you longer to pay off what you owe.
Expect to see your interest rate go up within a few statements.
The Federal Reserve’s post-meeting statement omitted a key phrase, introduced at the last meeting, that said “some additional policy firming may be appropriate” in order to bring down historically high inflation.
Instead, the new verbiage says the central bank will be focusing on various “economic and financial developments” before “determining the extent” to which there would be additional rate increases.
Those developments likely include any tightening of credit conditions as a result of the banking sector turmoil, along with a slowing labor market and cooling inflation.
In a press conference after the policy announcement, Federal Reserve Chair Jerome Powell said removal of that phrase indicates a “meaningful change.”
When asked if the central bank intends to pause its rate-hiking cycle, Powell said: “We’ll approach that question at the June meeting.”
The Federal Reserve voted unanimously to raise interest rates by a quarter point Wednesday, the tenth rate hike since the central bank started its battle against inflation last March.
The move comes amid ongoing fragility in the banking sector triggered partly by higher interest rates, and following the collapse of three regional banks.
The Fed’s post-meeting statement re-emphasized the central bank’s commitment to bringing down inflation, and left additional rate increases a possibility, depending on developments in the financial system and on inflation.
The Fed also noted that tougher lending standards are likely to slow the economy, which could help the central bank achieve its targeted inflation goal.
“Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the statement said. “The extent of those effects remains uncertain.”
This story is developing and will be updated.
When Fed Chair Jerome Powell talks, markets listen. But you may not.
It’s without a doubt not nearly as entertaining as an episode of Love is Blind, the NBA Playoffs or — if we’re being real — just about everything else you could stream.
But what he says matters a lot. He (and other members of the Fed) have power over your bank account, employment situation and more.
We’ll help you translate Jayspeak when Powell holds his post-meeting press conference at 2: 30 p.m.
President Joe Biden congratulated his nominee for the World Bank, former Mastercard executive Ajay Banga, after he was approved by its executive board to lead the development bank for the next five years in a tenure expected to focus on addressing climate change.
“Ajay Banga will be a transformative leader, bringing expertise, experience, and innovation to the position of World Bank President. And together with World Bank leadership and shareholders, he will help steer the institution as it evolves and expands to address global challenges that directly affect its core mission of poverty reduction—including climate change,” Biden said in a written statement.
Banga will replace previous president David Malpass, who is stepping down a year early — serving four years of a five-year term. Since 2022, Banga has been the vice chairman at General Atlantic, a New York-based investment firm. Prior to that, the 63-year-old was the CEO of MasterCard from 2010 to 2021.
Biden added: “I look forward to working with Ajay in his new role and to supporting his efforts to transform the World Bank, which remains one of humanity’s most critical institutions to reduce poverty and expand prosperity around the globe.”
Since he was nominated earlier this year, Banga has been visiting capitals around the world as part of a global listening tour ahead of the World Bank board’s vote. During his tour, Banga met with key World Bank shareholding like borrowing countries, private sector lenders, civil society leaders and others, according to the US Treasury.
The Federal Reserve should not raise interest rates on Wednesday because inflation is already cooling and the banking crisis is not over, according to Moody’s Analytics chief economist Mark Zandi.
“It’s a mistake to raise rates. They’re taking a risk that’s not necessary,” Zandi told CNN in a phone interview ahead of the Fed’s announcement. “I think it’s an error to keep raising rates.”
Zandi noted the banking crisis “doesn’t feel like it’s completely over” and raising rates could keep pressure on lenders. He added that inflation is moderating “on script.”
Investors widely expect the Fed to raise rates on Wednesday for the 10th straight meeting. But many economists anticipate the Fed will signal a pause after this rate hike.
“This will likely be the last hike, at least for a while,” Zandi said.
The Moody’s economist said he will be “very disappointed” if Fed officials don’t signal a pause, and warned it would be a “pretty bad day” for the bond and stock markets.
Shares of Starbucks fell Wednesday after the company said Tuesday that it has room for improvement in its business, despite beating earnings and revenue expectations for its latest quarter.
The coffee giant’s stock fell about 8.5% midday Wednesday.
Chief Executive Laxman Narasimhan, talking on his first earnings call as the company’s head, said Starbucks’s “health could be stronger” though performance was solid.
In particular, the company is focusing on modernizing the brand and its culture, he added.
“There is more work to do to tailor our stores on the demand that we see, advance our technology, enhance how we innovate our equipment and also more fundamentally, how we get back to focusing on fundamental operations and executing better,” Narasimhan said.
Starbucks also reiterated its original outlook for the year, though the company noted its earnings per share growth in the current quarter would “be meaningfully lower than our fiscal year guidance range of 15% to 20%.”
The former heads of collapsed lenders Silicon Valley Bank and Signature Bank are set to testify before Congress on May 16, the Senate Banking Committee said Tuesday.
Former SVB CEO Greg Becker, former Signature Bank Chairman Scott Shay and former Signature Bank President Eric Howell are scheduled to testify.
The committee will also hold a hearing on May 18 assessing regulators’ reports and actions on the recent bank failures, with testimonies from Federal Reserve Vice Chair Michael Barr, FDIC Chairman Martin Gruenberg and more.
The Treasury Department is expected to roll out a new program next year to buy back older securities in an attempt to inject liquidity into the Treasuries market, according to a letter Wednesday.
The department last bought back government securities between 2000 and 2002.
US Treasuries have recently grappled with liquidity troubles, largely because the Federal Reserve has reduced its holdings.
The move comes as the Treasury Department attempts to manage its cash flow in order to meet the government’s financial obligations as lawmakers debate raising the debt ceiling.
The letter added that “the program should not be used to mitigate episodes of acute market stress.”
Well, it was a nice 24 hours we had there, thinking the banking crisis might be kinda-sorta wrapping up. Then Wall Street woke up Tuesday and had a change of heart.
Regional bank stocks got hammered yesterday, led by PacWest Bancorp and Western Alliance Bancorp — both of which were halted several times for volatility. They rebounded slightly Wednesday.
What happened to make Wall Street lose its cool yesterday?
In short: There are too many things to worry about right now. We’ve got the all-important Fed meeting, the April jobs report set for Friday, the threat of a US default in less than a month, and, of course, the sneaking suspicion that banks are not, actually, in the clear.
Everyone’s basically wondering which regional bank is going to be the next to stumble. Investors are eyeing banks with profiles similar to SVB, Signature and First Republic — regional, coastal, heavy on uninsured deposits.
Tuesday’s selloff also reflects some general anxiety about macroeconomic news on the horizon.
Parsing Powell
This afternoon, all eyes will be on Fed Chair Jay Powell when he announces the central bank’s latest policy decision — widely expected to be another quarter-point hike.
Investors will be tuned in for any sign, explicit or implicit, that the Fed board is going to hit pause.
“I’m hoping that they sit around today and look at each other and say, ‘we can’t do this,’ ” Daniel Alpert, Managing Partner of Westwood Capital, told me. “I think they feel committed to this last 25 basis points, but I think the message he should deliver tomorrow is: ‘Higher for longer’ just to make the hawks happy. And basically, ‘we see this as the last for a while.’”
Stocks inched up Wednesday as Wall Street awaited the Federal Reserve’s latest interest rate decision.
The market’s tentative rally comes after a rough trading session that saw the Dow plunge more than 500 points at its lows, after investors grew fearful that the banking turmoil hasn’t been contained despite JPMorgan Chase’s purchase of failed regional lender First Republic.
The Fed is set to announce its latest interest rate hike decision at 2 p.m. ET. Analysts expect a quarter-point hike.
The focus will be on any commentary from Fed Chair Jerome Powell about credit conditions and the central bank’s plans for its fight against inflation.
Meanwhile, private sector hiring rose last month in a surprising reversal from recent data that suggested the red-hot labor market has finally started to cool.
Shares of big and regional banks were mixed. Shares of PacWest Bancorp rose 2.1% and Western Alliance slid 0.8%. JPMorgan shares fell 0.5% and Wells Fargo gained 0.8%.
The Dow advanced 36 points, or 0.1%.
The S&P 500 marched up 0.1%.
The Nasdaq Composite added 0.2%.
A closely watched employment report released Wednesday showed that private sector hiring unexpectedly surged in April, a surprising escalation of job growth at a time when expectations are for the US labor market to continue cooling.
Employers added an estimated 296,000 jobs last month, doubling economists’ expectations for a net gain of 148,000 jobs and representing a dramatic upswing from the 142,000 hires made in March.
According to ADP’s report, which is conducted with the Stanford Digital Economy Lab, some of the month’s largest job gains were in the industries of leisure and hospitality, education and health services, natural resources, and construction. The biggest losses occurred in industries such as financial services and manufacturing.
The report also showed that pay gains continued to slow: Workers who remained at their jobs saw annual pay growth of 6.7%, down 0.2 percentage points, and those who changed employers had annual pay growth of 13.2%, down from 14.2% the month before.
“The slowdown in pay growth gives the clearest signal of what’s going on in the labor market right now,” Nela Richardson, chief economist, ADP, said in a statement. “Employers are hiring aggressively while holding pay gains in check as workers come off the sidelines. Our data also shows fewer people are switching jobs.”
The report measures private-sector employment activity — how many employees are on companies’ payrolls and how many were paid — via an analysis of ADP’s job and pay data of more than 25 million workers.
The ADP report isn’t correlated to the government’s official monthly employment tally, which is due out Friday morning, but it has been considered a proxy. Economists polled by Refinitiv expect a monthly gain of only 179,000 jobs for April, a cooldown from March’s 236,000.
