Why the Fed is so strongly considering what it is trying to tell us about the future: Hurricane Ian triggered a global economic crisis in Florida

Meteorologists tell us that global warming has created new problems for forecasters. Not only are hurricanes getting stronger, they’re also intensifying more rapidly than they used to, making it difficult to issue early warnings for communities in their path. Notably, officials in Florida’s Lee County waited for definitive evidence that they would be hit hard by Hurricane Ian before ordering evacuations — and by then it was too late for many people.

The economy and inflation will moderate in the coming months, according to economists. But they have been expecting an imminent cool-down for the past 18 months, and the data have repeatedly proved them wrong. Worried that rapid inflation might last, Fed officials have been clear that they plan to raise interest rates to a point where they are constraining the economy and hold them at a high level until price increases are clearly moderating. The officials estimated that by the end of 2023 they will have raised borrowing costs to 4.5 percent.

Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.

How much pain today’s moves will ultimately cause remains unclear: So many countries are raising rates so quickly — and so in sync — that it is difficult to determine how intense any slowdown will be once it takes full effect. Monetary policy takes months or years to kick in completely.

A UN agency warned that the damage could be particularly acute in poorer nations, because of the danger of overdoing it. Because of soaring food and fuel prices developing economies have already been dealing with a cost-of- living crisis and now American imports are growing more expensive because of the rising dollar.

It is a recipe for globe-spanning turmoil and even recession. The Fed is going to keep raising interest rates. That is because the Fed has domestic economy goals that it is supposed to keep inflation low and employment high. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.

Conservative Conservative Conservative Leaders Revisiting the Government’s Plan to Expand the UK: The Fate of the Recession and Implications for the Treasury

But the recovery has stopped. On Monday, the pound was trading around $1.10 amid skepticism that the government’s plan would expand the economy as promised, and that instead large public spending cuts would be necessary.

“Rising funding costs, tighter financing conditions, including for mortgage borrowers, and increased uncertainty will outweigh the impact of looser fiscal policy” next year, analysts at the ratings agency wrote. They think that Britain’s economy will get into a recession this quarter. It has a negative ratings outlook for Britain.

That was one of the many ways the government was rebuked. For example, the International Monetary Fund encouraged the government to re-evaluate the tax cuts, which it said would increase inequality.

But Ms. Truss, seeking to reverse years of sluggish growth and weak productivity, has been clear that she wants to run the economy differently than her predecessors. One early decision was to fire the top civil servant in the Treasury, Tom Scholar, a move that rattled some analysts. James Bowler, who worked for the Treasury for 20 years, will be replacing him in the international trade department.

The First Month of Inflation: Bond Buying at the Central Bank and Implications for the Fed-Bondi Wall Street

The bank bought less than 5 billion pounds of bonds in the last eight trading days, despite setting a limit of 5 billion a day. With markets wondering what will happen when the bond-buying operation ends on Friday, the central bank announced that it would expand its support. The new facility will allow it to ease Liquidity problems faced by the pension funds. That facility will continue beyond this week.

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter by clicking the same link.

Markets on average, said Blinder, overreact to inflation-related data by a factor of three to 10 times more than they should. He said that it was what was happening now.

He told me he expects the swings to continue until the Fed declares that it has accomplished its mission in lower inflation and will no longer be involved in the current regime.

Even though many of the central banks are expected to follow the Fed in hiking rates, investors are worried that policy makers will not be able to prevent an economic downturn in the next few years.

“The market’s short-term reaction may be strong, but this is only one month’s data,” warned Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “This entire year has seen the market careen from one narrative to the next. The Fed may be able to make a dovish pivot by the end of the year with the help of the October inflation numbers, however it would take more than that in the coming months to do so.

Last week’s unemployment number may have been too low for investors’ liking, he said, but it’s important to remember how much growth has slowed since the Fed began tightening earlier this year. The US economy added 263,000 jobs in September, but that’s a lot lower than the 431,000 jobs added in March 2022.

The likelihood of a recession in next year is better than 50% and it would be a stretch to say we are currently in one. He expects the Federal Reserve to raise rates by three-quarters of a percentage point in November.

Emerging Banks: The Fed, Goldman, Truss, and UK Banks During the 2008 Financial Meltdown Reassessment

It confirmed that the bond-buying program would end Friday, but said it would extend extra support “beyond the end of this week” to banks still reeling from the fallout of a meltdown in some pension funds.

See here: The UK government sold index-linked gilts due in 2051 at a yield of 1.55%. That’s the highest yield since October 2008, according to Reuters.

The yields on long-dated government bonds, which move opposite prices, fell sharply after the Bank of England announced its initial action in late September, but they’ve been climbing again since.

The central bank has said that it was forced to act to prevent a “self-reinforcing spiral” after the market experienced historic selling in the wake of the budget plans revealed by Finance Minister Kwasi Kwarteng and Prime Minister Liz Truss.

The Bank of England stressed that funds have made a lot of progress in the past week and that they would continue to work with them to make sure the industry operates on a more resilient basis in the future.

Bernanke, alongside two other academics, won the prize for research that showed how bank failures worsen financial meltdowns and how the system can be made safer.

During the 2008 financial disaster, the Fed took big banks, including Goldman and Morgan Stanley, to the brink of ruin and Chairman Ben Bernanke was in charge. An emergency government rescue partially saved those banks.

The Federal Reserve implemented a policy of’stress tests’ for major US banks that test whether they are prepared to cope with a severe Recession and turmoil in financial markets. The tests are used to determine if the banks can increase their dividends.

The research is especially relevant today as rapid interest rate hikes to combat inflation have sent markets into turmoil, drawing comparisons to 2008.

The research papers offer some insights into the beneficial role banks play in the economy, but also into how their vulnerabilities can lead to devastating financial crises.

The Mortgage Rates and Homebuying Rates of First-Time Home Buyers: Implications for the Real Estate Market and the Baby Boomer Population

▸ Third quarter earnings season begins. The reports will likely include big banks such as JPMorgan Chase, Wells Fargo, Citigroup, Morgan Stanley and US Bancorp as well as consumer brands like Domino’s.

According to Mr. Biden, the report showed some progress in containing the increases, as costs have climbed less over the past three months than they had in the prior three months. He acknowledged that the inflation was still very high.

The Fed’s most aggressive monetary tightening in modern history — while driving up mortgage rates above 7% for the first time in 20 years, slowing business growth and crimping household spending — has barely made a dent in the labor market.

More bad news for the younger Millennial and Gen Zers hoping to buy their first home: The typical age of a first-time homebuyer is now a record 36 years old, up from 33 last year.

(It also didn’t hurt that dizzying stock surges meant Baby Boomer parents with large investment portfolios were happy to pass on some of those gains to their darling Millennial kids.)

As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.

A report that was released on Thursday shows that first-timers made up just 26% of all buyers in the year ending in June, the lowest level in four decades.

“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. Home prices were going up while mortgage rates were going down.

Oh yeah, one other thing: In addition to mortgage rates going up, home prices also shot up, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)

Housing is not safe. I don’t purport to have a silver bullet, but it’s clear that inventory constraints and outdated zoning restrictions are a big part of the problem.

The housing supply has expanded through single-family subdivisions at the urban fringe rather than rebuilding within existing neighborhoods. People and homes are being put in vulnerable areas such as wildfire prone regions of the West.

As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.

Why the Fed is Hitting the Ground: Why It May Come at a Fingers and a Dilaton in the Heart of the Rock

The Fed is likely to raise interest rates again, but the expectations are for just a half-point increase this go-around, following four consecutive hikes of three-quarters of a point.

(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One basis point = one-tenth of a percentage point.)

When the Bureau of Labor Statistics releases its October jobs report tomorrow, it will be the final major read on the economy before the upcoming elections, as new data suggests that the white-hot labor market is cooling off.

That kind of news is worth celebrating in normal times. It suggests the economy is overheating and that is something that is cause for concern. The Fed made a fourth-straight three-quarter-point hike in order to push it closer to a rate hike that would have been unthinkable a few months ago.

Bill Adams wrote in a note that the economy will weaken less if the Fed does not have to tighten as aggressively.

The Democrats were hoping to hold on to power next week but the pain of inflation made it hard to believe in job security. Three-quarters of likely voters feel that the country is in a recession according to a new CNN poll.

After a key inflation indicator came in softer than expected, the stocks surged in their best day since 2020. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. That means the Federal Reserve could be less aggressive with its rate hikes.

The Fed could hike rates by a quarter point early in the future, according to Jones who thinks it will be half a point this week. She acknowledged that the Fed was making it up as they went along.

But investors have a knack for getting their hopes up about a central bank pivot only to be crushed by another piece of negative data or hawkish messaging from a Fed official.

Rick Rieder said that the Federal Reserve’s attempt to bring inflation down toward its 2% target requires some patience, but importantly, moving forward is important if it is early on in the race.

Bad News for Cryptocurrencies After the Covid-Emergy: The Covid Expansion and the Implosion of FTX

It has been a bad year for cryptocurrencies. The value of Bitcoin has dropped nearly 75% since last November and the spectacular implosion of cryptocurrency exchange FTX, a so-called unicorn startup that was recently valued at $32 billion, is just the latest bit of bad news for investors in digital currencies.

The assets have gotten hit just as bad as stock and bonds, showing there is no place to hide in the market with rate hikes and recession on the horizon.

The Covid-era saw a lot of investors come in, as well as near-zero interest rates. It reached a record high of nearly $70,000 in November.

When the central banks started raising rates to fight inflation, investors became more willing to put their money in the dollar. The economy started to sour while new investors who believed in the risk of the digital currency left in droves.

It pales in comparison to what is happening with bitcoin and other cryptocurrencies, despite the fact that the CNN Business Fear & Greed index is now in neutral territory after spending the past month in Greed mode.

The Freddie Mac chief economist said that the housing market is the most interest rate sensitive segment of the economy and the impact rates have on homebuyers continues to evolve. Year-end is when home sales decline the most, and they are not expected to improve.

The hope is that inflation pressures are starting to abate so that the Fed can start to think about cutting rates in order to avoid a recession.

Consumer Prices and the Fed: Implications for the Stock Market and the Economic Outlook in the Near-Term Next-to-Leading Year

But it may not be that simple. The Producer Price index, a key indicator of wholesale prices, has risen over the past year. It was higher than anticipated but still slower than the 8% increase through October.

The Consumer price index data for November comes out on Tuesday, just a day before the Fed announcement. Through October, the consumer price index has increased 7.7% compared to last year.

So investors are going to need to pay attention not to just what the Fed says in its policy statement about rates and what Powell talks about in his press conference. The Fed also will release its latest projections for gross domestic product growth, the job market and consumer prices Wednesday.

The pivot or pause isn’t a cure-all for this market, says a Truist advisory services co-chief investment officer. “Rate cuts may be too late. Recession risks are still relatively high.”

Economists are actually forecasting a small dip of 0.1% in retail sales from October. That number is important to put in context. Retail sales surged 1.3% from September and 8.3% over the past 12 months.

So it’s possible consumers were simply getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.

Everyone is talking about inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.

What Does Investors Want to Know About Financial Markets and Global Central Banks? Analytical Models of Inclusive Earnings from Hermes and L’Oreal

What does that mean to investors? People should be looking for consumer companies that have pricing power and can maintain their profit margins. Two of the stocks that his firm has in stock are luxury goods maker Hermes and cosmetics giant L’Oreal.

Earnings from Starbucks (SBUX) and Marriott (MAR), as well as Eurozone PMI and UK retail sales.

“Central banks will continue their aggressive tightening cycle into early 2023 before pausing as inflation falls and job losses mount,” said mutual fund giant Vanguard in a report Monday. The need for wage growth will make most central banks hesitant to cut rates in the foreseeable future.

Stocks rallied sharply in October and November due to hopes that the Fed would begin to scale back on the size of its rate hikes. They’re down dramatically for the year and stocks have been volatile, so far in December.

The major concern is that the Fed and other central banks may not begin to pause, let alone consider lowering interest rates to try and stimulate the economy, until it’s too late.

“The macroeconomic focus will shift from fears of Fed tightening to how badly growth slows and earnings fall before global central banks can hint at providing accommodation,” said Tom Essaye, founder and editor of the Sevens Report investing newsletter, on Monday.

Investors may get some answers this week when FTX founder Sam Bankman-Fried testifies in front of the House Financial Services Committee on Tuesday. The Senate Banking Committee will hold its own FTX hearing Wednesday, but Bankman-Fried is not currently on the list of witnesses set to appear.

Relaxing Before the Fed: Is it Possible to Take a Deep Breath before Weakly Recognizing the Core-Violation?

Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. Although there is no guarantee of that.