monetary policy – John Hesch http://johnhesch.com/ Tue, 15 Mar 2022 13:43:00 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://johnhesch.com/wp-content/uploads/2021/07/icon-150x150.png monetary policy – John Hesch http://johnhesch.com/ 32 32 How rising interest rates will affect the stock market https://johnhesch.com/how-rising-interest-rates-will-affect-the-stock-market/ Tue, 15 Mar 2022 13:43:00 +0000 https://johnhesch.com/how-rising-interest-rates-will-affect-the-stock-market/ The Bank of England’s monetary policy committee is due to meet on Thursday March 17 to decide whether or not to raise interest rates. At its last meeting on February 3, the central bank doubled interest rates to 0.5% from 0.25%. According to data from the Office for National Statistics (ONS), a measure of inflation, […]]]>

The Bank of England’s monetary policy committee is due to meet on Thursday March 17 to decide whether or not to raise interest rates. At its last meeting on February 3, the central bank doubled interest rates to 0.5% from 0.25%.

According to data from the Office for National Statistics (ONS), a measure of inflation, the consumer price index (CPI) fell from 5.4% in December to 5.5% in January, marking an acceleration for four consecutive months.

© 2022 Kalkine Media®

Inflation in the UK has reached its highest rate since March 1992, adding pressure to the current cost of living with soaring gas and electricity prices, high weekly shopping expenses and a additional pressure on stagnant wages. The situation was difficult before the start of the Russian-Ukrainian war. Now, with the invasion, inflation is set to climb higher than expected and stay at unexpected levels for longer than experts and industries thought.

READ ALSO : Top 5 Dividend-Paying Consumer Stocks to Watch

Inflation is not always bad for an economy, but extremely high inflation can devalue the currency, increase the cost of living and economic uncertainty, and can even lead to hyperinflation if left untreated. too long.

Usually, to cope with rising inflation, central banks raise interest rates, which means that high interest rates slow down rising inflation because they reduce purchasing power and lower interest rates increase the rate of inflation because they encourage purchasing power. However, central banks cannot massively raise interest rates all at once, as this could lead to economic collapse. Instead, in times of high inflation, central banks raise interest rates in small increments.

Related Reading: How Rising Interest Rates Will Affect Britons

How can rising interest rates impact the stock market?

When the Bank of England decides to raise the interest rate, it increases the cost of borrowing on loans, mortgages and credit cards for individuals and businesses, which slows down cash flow in the ‘economy. This means that if a company wants to take out a loan or debt, it has to pay a higher interest rate, which makes that company’s stock riskier to invest in.

© 2022 Kalkine Media®

Raising the interest rate also reduces the demand for loans in an economy and can reduce available consumer spending. Customers have to pay more on their outstanding bills, which will leave them with less disposable income.

This can again hamper growth and spending in the economy, which is negative for businesses as they may have to raise prices. So this will hit customers again as many won’t or can’t pay. This could slow the sale, reduce corporate profits and ultimately affect their stock price.

However, the impact of rising interest rates can be different across sectors, such as financial institutes that often do well when the central bank raises interest rates because it increases their profit potential.

Conclusion
A little inflation in an economy is considered healthy, but if inflation is rising sharply, it should be a matter of concern and should be addressed.

Investing in stock markets can be risky, especially when the situation is volatile due to a geopolitical crisis. Although many stocks can offer excellent returns to their investors, things could turn out differently. It is therefore very important to study and then invest.

Related reading: How does inflation affect interest rates?

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Have interest rate hikes in New Zealand brought any changes? https://johnhesch.com/have-interest-rate-hikes-in-new-zealand-brought-any-changes/ Wed, 09 Mar 2022 06:25:00 +0000 https://johnhesch.com/have-interest-rate-hikes-in-new-zealand-brought-any-changes/ Wednesday, March 9, 2022, 7:25 p.m.Press release: Kalkin Summary The political action unfolded in the form of several closely spaced interest rate hikes in New Zealand over a short period. The immediate effect of an interest rate hike was felt in the foreign exchange market for the New Zealand dollar. Some experts suggest that domestic […]]]>


Summary

  • The political action unfolded in the form of several closely spaced interest rate hikes in New Zealand over a short period.
  • The immediate effect of an interest rate hike was felt in the foreign exchange market for the New Zealand dollar.
  • Some experts suggest that domestic policy measures may not be effective against inflation resulting from international forces.

In the era of COVID-19, central banks around the world have resorted to interest rate hikes to combat inflationary pressures and move closer to normalcy. For New Zealand, the political action unfolded in the form of several closely spaced interest rate hikes in a short period of time. This has left many people worried about the economy and house prices.

Despite the uncertainty, financial confidence is improving among New Zealanders. According to the latest Financial Resilience Index (FRI) from the Financial Services Council, more and more people feel secure about their jobs. At a time when the country is slowly moving towards economic stability, rising interest rates appear to pose serious affordability and consumer spending issues.

Overall, it is difficult to separate the effects of rising interest rates from a whirlwind of growing geopolitical tensions. In the meantime, some direct impacts of an interest rate hike are already visible. These effects can translate into a slowdown in spending over time if policy tightens again.

GOOD READING: New Zealand consumer confidence plummets, will it rebound soon?

NZD and mortgage rates

The hawkish policy stance taken by the Reserve Bank of New Zealand (RBNZ) has led to many short-term changes across the economy. Finally, the central bank raised interest rates by 25 basis points, bringing the current interest rate to 1%. While the move was largely expected, it was the RBNZ’s third interest rate hike since the pandemic began.

The immediate effect of an interest rate hike was felt in the foreign exchange market for the New Zealand dollar. The indication of a tightening cycle initially pushed the New Zealand dollar higher as the currency found comfort in rising resource prices. However, it recently fell from new 2022 highs after skyrocketing oil prices threatened the global economic recovery.

Besides the local currency, mortgage rates also reacted to changes in interest rates. Following in the central bank’s footsteps, commercial banks like ASB and Westpac have recently raised mortgage interest rates, but to a lesser extent. Both banks took inspiration from ANZ’s decision to raise mortgage rates to dampen inflation.

Experts suggest that rising mortgage rates are crucial for stabilizing house prices as it could discourage even the wealthiest borrowers from taking out a loan. The effects of these expectations are visible in the easing of real estate prices observed in January, with the drop in sales leading the way.

Fight against inflation

While the central bank’s efforts are focused on controlling the rate of inflation, little effect has been observed so far on consumer prices. Rising consumer prices have become a persistent problem amid supply chain constraints and lack of adequate manpower.

Some experts suggest that domestic policy measures may not be effective against inflation resulting primarily from international forces. Supply bottlenecks developed in global economies require a well-integrated solution with a broader reach.

Meanwhile, other experts say interest rates have a direct impact on investors’ risk and investment appetite. They believe that changes in interest rates can affect consumer spending and inflation. However, recent data suggests that these links have led to a slowdown in stock market activity. Alternatively, the successful recovery of the economy has helped support an improvement in corporate profit margins.

Despite tentative results, the central bank is expected to press ahead with tightening measures in the coming months. Speculation is rife that the RBNZ will undertake a more aggressive tightening of monetary policy and reduce its bond holdings of NZ$50 billion acquired under the large-scale asset purchase program in the coming months. It remains to be seen whether this will be the central bank’s longstanding response to skyrocketing inflation.

GOOD READING: New Zealand transport services take a hit amid Omicron wave

Despite continued headwinds, some experts are predicting up to ten consecutive 25 basis point rate hikes from the RBNZ. However, rising interest rates could hamper economic activity, doing little to control the larger problem of rising inflation. Meanwhile, the outlook for New Zealand’s economy remains uncertain amid the ongoing Russian-Ukrainian war, even with adequate political regulation.

© Scoop Media

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Would a bear market affect Fed interest rate hikes? https://johnhesch.com/would-a-bear-market-affect-fed-interest-rate-hikes/ Tue, 15 Feb 2022 19:56:00 +0000 https://johnhesch.com/would-a-bear-market-affect-fed-interest-rate-hikes/ Bet_Noire/iStock via Getty Images The stock market is often seen as a leading indicator of the economy, and it is widely believed that the Fed will react to what is happening in the markets. Currently, we are in a situation where the market consensus is that inflation is high and persistent. While the high is […]]]>

Bet_Noire/iStock via Getty Images

The stock market is often seen as a leading indicator of the economy, and it is widely believed that the Fed will react to what is happening in the markets. Currently, we are in a situation where the market consensus is that inflation is high and persistent. While the high is evident from the CPI statistics, which are indeed concerning, the persistence is more of a question mark, but that’s for later. Nevertheless, the markets are anxious about the inflation situation, and it is clear that the rate hikes, already explicitly promised by the Fed, are priced in by the market, where the promised rate hikes are aimed at combating inflation.

We believe that a bear market in the wake of immediate rate hikes is not particularly likely to affect Fed decision-making, since inflation is a major concern for the economy and the market. In fact, if we enter a difficult period due to inflation fears, rate hikes could even come sooner and with more conviction than expected. However, with built-in rate hikes, a bear market following rate hikes is unlikely. What worries us most is what will happen if inflation persists after rate hikes. We think this is entirely possible, and the markets could react very badly to this news, as it should. If that happens, the Fed hikes are likely to reverse. Overall, inflation remains at the center of the discussion, and our belief in its dynamics is very different from the market consensus, which could create a buying opportunity.

What is the impact of Fed interest rates on the market?

the Fed interest rates, or the federal funds rate, is one of the most fundamental rates in the economy because it is dictated by the Federal Reserve, which controls the money supply and refers to the rate at which the funds’ key day-to-day liquidity between depository institutions owned at The Fed is borrowed from and lent to. The rate of these short-term overnight loans eventually spreads out to the rest of the economy for loans of longer duration and with higher credit risk that are priced above the basic federal funds rate. Thus, when the federal funds rate is raised, interest rates experience a general increase and credit becomes less in demand and therefore less available. This is also spreading due to the mechanics of debt, and there is a reduction in the availability of credit which reduces household and industry spending.

Would a bear market affect Fed rate hikes?

There have been times in the past when the market seemed to hold the Fed hostage, when its temper tantrums “dictated” monetary policy. It was such a widely recognized phenomenon that a term was coined for it, known as “Sale of Greenspan‘. Although there is a political discussion here, what can certainly be said is that the stock market, being the rather efficient opinion machine that it is, is a leading indicator of the economy, and the Fed is undoubtedly paying some attention to it. So, what would be the interactions between the markets and a rise in rates in this case?

Fed rate hikes are almost certain to happen at least initially, as the language has been fairly unequivocal at this point and focused on fighting inflation. A degree of market jitters are to be expected as rates actually rise, especially with all the leverage introduced into the economy following the initial pandemic outbreak. However, in this case, rate hikes are already priced in to some degree, so a negative impact on markets beyond that point is not guaranteed. We don’t believe rate hikes will actually cause a bear market and are therefore unlikely to have an immediate impact on the decision to raise rates.

Is inflation transitory?

Our concern is whether rate hikes, which honestly might even be appreciated by the markets given that inflation is the real boogeyman, will actually help reduce inflation. Our belief is that over the longer term, despite the Fed’s withdrawal of this language, inflation is transitory. In the medium term, however, that is not the case, and that is because inflation comes from physical and not immediately changeable constraints on the supply side, and not so much on the demand side. Our non-consensus view is that COVID-19 has actually had a positive impact on the productivity of our economies by accelerating and proliferating digitalization, hence even disinflationary pressure. Moreover, it permanently shifted demand from services to goods, for which our production capacity was not prepared. Planned closures and maintenance in anticipation of greater declines or at least uncertainty about the economy in 2020 have created drawdowns on stocks. In addition, capacity had to increase to meet higher levels of demand for goods. We are seeing an increase in production facilities across the industry, with an example among our holdings being Suzano (NYSE:SUZ), a major pulp producer that is increasing its production by 20% with a project lasting about three years. Other companies like Costamare (NYSE: CMRE) in maritime transport, are increasing the size of their fleet. Besides very clear bottlenecks in logistics, with submerged ports, and generally tight commodity environments, we are seeing substantial inflation. This includes oil where OPEC maintains discipline due to pandemic-related reduced mobility.

We believe that inflation is transitory, in the sense that it will take about 2-3 years before all shortages and rising commodity prices are normalized by increases in production capacity, which will take about as long, if not longer, again due to shortages and high commodity prices. Until then, we believe that interest rates will not have such a significant impact on inflation, as a lot comes from the supply side.

Conclusion

If our non-consensual view turns out to be true, the markets could become very disrupted. While an initial bear market might not start with rate hikes, the failure of rate hikes to fight inflation could create serious concerns about the economy, inflation being a very pernicious force. . This could trigger a bear market, or even deleveraging, since nominal rates will remain quite high if inflation persists and corporate fundamentals are likely to be affected for all players downstream in the supply chains. At this point, further rate hikes, or at least maintaining higher fed funds rates, may no longer be desired, and with markets being an important measure for the economy, rate hikes may be reversed. So while an immediate bear market on the initial rate hikes seems unlikely, and therefore an effect on Fed policy unlikely, what happens over the 6-12 month period is more uncertain. and could include serious market concerns about the economy possibly reversing. rates.

We continue to believe that the rate of inflation is supply-driven to a large extent, so we continue to position ourselves in commodity-related positions like SUZ, or companies where cost bases are fixed and products are needed with pricing power. Therefore, we are also quite optimistic about the economy of the developed world. But we believe that a bear market could be looming in connection with the appearance of galloping inflation. With our non-consensus view, we would then see a buying opportunity.

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Home loan interest rate will remain at multi-year low as RBI keeps repo rate unchanged https://johnhesch.com/home-loan-interest-rate-will-remain-at-multi-year-low-as-rbi-keeps-repo-rate-unchanged/ Thu, 10 Feb 2022 05:12:44 +0000 https://johnhesch.com/home-loan-interest-rate-will-remain-at-multi-year-low-as-rbi-keeps-repo-rate-unchanged/ Since October 1, 2019, RBI has mandated banks to offer retail loans such as home and car loans linked to an external benchmark, which for most banks is the RBI repo rate. In the last meeting of the Monetary Policy Committee (MPC) in the financial year 2021-22 held in February 2022, the Reserve Bank of […]]]>

Since October 1, 2019, RBI has mandated banks to offer retail loans such as home and car loans linked to an external benchmark, which for most banks is the RBI repo rate.

In the last meeting of the Monetary Policy Committee (MPC) in the financial year 2021-22 held in February 2022, the Reserve Bank of India (RBI) kept policy rates unchanged. The repo rate therefore remains at 4% while the reverse repo rate is at 3.35%.

The RBI repo rate has a direct and immediate influence on the interest rate of the home loan. The repo rate is the interest rate at which banks borrow money from the RBI, while the reverse repo rate is the rate at which banks earn by keeping excess funds with the RBI.

Since October 1, 2019, RBI has mandated banks to offer retail loans such as home loans and car loans linked to an external benchmark, which for most banks is the RBI repo rate. For most banks, new home loans are based on the bank’s Repo Linked Lending Rate (RLLR), also known as the External Reference Rate (EBR).

Whenever RBI revises the repo rate, the interest rate reset is much faster in RLLR for the borrower compared to MCLR-linked loans. The marginal cost of funds (MCLR) lending rate was introduced in April 2016. Among other factors, the MCLR is based on the bank’s cost of equity.

Going forward, those who pay EMIs on a home loan and auto loan on a flexible interest rate basis will continue to pay almost the same interest rate that is currently applicable to them. confidence in homebuyers and support the current market and economic recovery that has shown promise in recent years,” said Lincoln Bennet Rodrigues, President and Founder of The Bennet and Bernard Company.

Most banks currently offer home loans starting at an interest rate of around 6.5%. For those looking to secure a home loan to purchase their home, the interest rate environment looks favorable to them as the interest rate on the home loan is at multi-year lows.

Banks may not offer loans on their RLLR, but depending on the loan amount and other factors, the effective home loan interest rate may differ. On average, for the majority of borrowers depending on the loan amount, occupation, gender, etc., the home loan interest rate is 7% or even higher at most banks. Some of the banks that a new borrower can explore to get the best interest rate on home loans include SBI, LIC Housing Finance, Bank of Baroda, ICICI and HDFC, Kotak Mahindra Bank, etc.

Even borrowers who pay EMI based on the bank’s MCLR may see their monthly installments revised as they reset their date. If you are a borrower with a loan tied to the marginal cost of funds (MCLR) lending rate, lowering the MCLR will help you pay lower EMIs on your loan as your reset date arrives.

Existing borrowers who already had a loan taken out before October 1, 2019 can continue their loans linked to the lending rate based on the marginal cost of funds (MCLR) or can switch to the RLLR. MCLR loans can be replaced by RLLR loans, but the cost-benefit ratio should be carefully assessed before doing so. This may incur a cost and therefore consider the remaining term of the loan before taking this step. Before changing, we can wait a few more months to get a clear picture of the evolution of interest rates.

Choose a lender that offers a low interest rate based on your profile. Even a 100 basis point cut can save you a few thousand dollars in interest charges, depending on the remaining term of the loan. Assuming a home loan of Rs 40 lakh for 15 years, one can save Rs 8.5 lakh in total interest charges and even save in EMI totaling Rs 57,000 in one year, if 2% lower rate is what l borrower chooses.

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ICE SONIA hits record volume as investors manage UK interest rate risk | Business https://johnhesch.com/ice-sonia-hits-record-volume-as-investors-manage-uk-interest-rate-risk-business/ Mon, 07 Feb 2022 13:02:27 +0000 https://johnhesch.com/ice-sonia-hits-record-volume-as-investors-manage-uk-interest-rate-risk-business/ LONDON–(BUSINESS WIRE)–February 7, 2022– Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of market data, technology and infrastructure, today announced that futures and options on the ICE SONIA Index, the benchmark contract to manage sterling interest rate risk hit a record single-day volume of 916,964 contracts on February 3, the day the Bank of […]]]>

LONDON–(BUSINESS WIRE)–February 7, 2022–

Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of market data, technology and infrastructure, today announced that futures and options on the ICE SONIA Index, the benchmark contract to manage sterling interest rate risk hit a record single-day volume of 916,964 contracts on February 3, the day the Bank of England’s Monetary Policy Committee voted to raise UK interest rates from 0.25% to 0.5%.

SONIA’s volume record is up 13% from the previous record set on September 16, 2021.

ICE Euribor futures and options, the benchmark contract for managing euro-denominated interest rate risk, saw a total of 3,857,686 contracts traded on February 3, marking the highest trading day in 2022 to date for the contract. SARON futures, the Swiss franc (CHF) interest rate risk management contract, also reached a record volume of 29,278 lots on February 3.

“The Bank of England’s announcement led to the first real change in expectations for sterling interest rates this year and resulted in SONIA’s busiest day on record,” said Chief Executive Steven Hamilton. world of financial derivatives at ICE. “As evidenced by the strong volumes of Euribor, interest rate risk and its close correlation to inflation are issues that our clients actively manage using our liquid derivatives markets.”

As of February 3, open interest on Euribor futures and options was 13.1 million contracts, up 71% year-on-year, with open interest of 7.15 million on SONIA futures and options contracts and an open interest of 170,532 on SARON futures contracts.

In December 2021, ICE transferred all open interest held in its three-month LIBOR-based pound sterling futures and options and three-month euro Swiss franc (eurosuisse) futures contracts into their equivalent interest-rate contracts. risk-free, three-month SONIA and three-month SARON index futures and options. Index futures. Two three-month British Pound futures contracts were converted into a three-month SONIA index futures contract with the same delivery month, showing that a SONIA futures contract is twice the notional value of a British Pound futures contract, while the conversion of three-month Euroswiss positions into SARON was straightforward for a conversion.

About intercontinental exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks to connect people to opportunity. We provide financial technology and data services across major asset classes that provide our clients with access to critical workflow tools that increase transparency and operational efficiency. We operate Exchangesincluding the New York Stock Exchangeand clearing houses that help people invest, raise capital and manage risk across multiple asset classes. Our comprehensive fixed income securities data services and execution capabilities provide insights, analytics and platforms that help our clients take advantage of opportunities and operate more effectively. AT ICE Mortgage Technology, we are transforming and digitizing the residential mortgage process in the United States, from consumer engagement to loan registration. Together, we transform, streamline and automate industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates can be found here. Key information documents for certain products covered by the EU Regulation on packaged retail and insurance-based investment products can be accessed on the website of the relevant exchange under the heading “Information Documents keys (KIDS)”.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 — Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements, see ICE’s filings with the Securities and Exchange Commission (SEC), including, but not Limit thereto, the risk factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 3, 2022.

Source: Intercontinental Exchange

ICE CORP

Show source version on businesswire.com:https://www.businesswire.com/news/home/20220207005454/en/

CONTACT: ECI Media Contact

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rebecca.mitchell@theice.com

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SOURCE: Intercontinental Exchange

Copyright BusinessWire 2022.

PUBLISHED: 02/07/2022 08:00 AM/DISC: 02/07/2022 08:02 AM

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Despite record inflation, the Bank of Canada is keeping interest rates steady – for now https://johnhesch.com/despite-record-inflation-the-bank-of-canada-is-keeping-interest-rates-steady-for-now/ Wed, 26 Jan 2022 18:47:18 +0000 https://johnhesch.com/despite-record-inflation-the-bank-of-canada-is-keeping-interest-rates-steady-for-now/ The Bank of Canada has decided not to raise its benchmark interest rate for the time being. Like many other central banks around the world, the bank lowered its policy rate – known as the target for the overnight rate – at the start of the pandemic in March 2020, to ensure that consumers and […]]]>

The Bank of Canada has decided not to raise its benchmark interest rate for the time being.

Like many other central banks around the world, the bank lowered its policy rate – known as the target for the overnight rate – at the start of the pandemic in March 2020, to ensure that consumers and businesses have access to cheap loans to keep the economy afloat.

But two years of lower borrowing rates have been a major contributor to inflation, which hit nearly 5% in Canada last month, its highest level in more than 30 years.

This has raised expectations that the bank will soon start raising its rate. But the bank has decided not to do so for the time being, opting to keep its rate at 0.25%, the same level it has been for the past 670 days.

But it made it clear that he might lean that way in the very near future.

Although the rate remained the same, the bank decided to remove what it calls its “exceptional forward guidance” to keep rates where they are for as long as necessary, until the economy slows. be absorbed.

“This is a significant change in monetary policy,” Governor Tiff Macklem said at a press conference after the announcement. “[It] signals that interest rates will now be on an upward trajectory.”

But the bank said continued uncertainty around the Omicron variant means it is not yet ready to take its first steps down that path.

WATCH | The Bank of Canada explains why it’s not ready to raise rates yet:

Bank of Canada governor discusses timeline for post-pandemic return to normal

Tiff Macklem is asked when the bank will be ready to remove stimulus from the economy. 1:52

At least one bank supervisor says standing up was a mistake.

“The decision, in our view, is a political faux pas,” said FX analyst Simon Harvey of Monex Canada, “and it’s a move that could prove costly down the road.”

By waiting to raise its rate, Harvey said, the bank risks “emboldening near-term inflation expectations and stoking the fire under the housing market.”

The Canadian housing market has been on fire during the pandemic, with cheap loans acting like rocket fuel on the scorching tinder of demand, driving up prices.

The central bank rate affects the rates Canadians get from their banks on things like variable rate mortgages, so keeping the rate low will prolong that.

Adrian Howell owns a condo in Toronto and took out a variable rate loan. He says he is looking to secure a fixed rate before interest rates rise. (Doug Husby/CBC)

That’s good news for Adrian Howell, who has an adjustable-rate loan on his Toronto condo and is watching the market carefully, waiting for a moment to lock in before rates rise.

“With interest rates remaining the same, I have a bit more time to make comparisons, but I will definitely lock in my rate or lock in a fixed mortgage at some point before March,” he said. he declares. told CBC News in an interview.

He is not the only one. Mortgage broker Sung Lee of Rates.ca says she sees a number of existing homeowners and potential buyers trying to lock in ahead of upcoming hikes.

“Whether it’s potential customers looking to make an offer for a home or for mortgages to renew, we get a lot of early renewal requests,” she said. “People are trying to take advantage of the really low interest rate environment before they see further increases.”

Small increases add up quickly

While the bank should start to climb slowly, a number of consecutive small hikes would add up.

Lee says that today a qualified buyer on an adjustable rate loan could get a $500,000 mortgage that would cost him $1,964 a month to pay off over 25 years.

One rate hike would add $58 a month to their monthly payment, while four hikes would bring it to just over $2,200 a month. Their mortgage rate would only have increased by one percentage point, from 1.35% to 2.35, but their actual payment would have increased by more than 12%.

And it is only with four rises, not the six or seven that the market anticipates. Calculations that add up quickly could be hard to swallow “if someone is on a really tight budget and they don’t want to have to worry about their payments fluctuating,” she said.

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What interest rate hikes could mean for personal loan borrowers – Forbes Advisor https://johnhesch.com/what-interest-rate-hikes-could-mean-for-personal-loan-borrowers-forbes-advisor/ Sat, 22 Jan 2022 14:00:25 +0000 https://johnhesch.com/what-interest-rate-hikes-could-mean-for-personal-loan-borrowers-forbes-advisor/ Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors. Personal loans are a popular and easy way to pay for larger expenses such as moving, home renovations, weddings, and even emergencies. They’re also handy for consolidating your high-interest debt, such as […]]]>

Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

Personal loans are a popular and easy way to pay for larger expenses such as moving, home renovations, weddings, and even emergencies. They’re also handy for consolidating your high-interest debt, such as credit cards, at a lower rate that will help you save money over time.

The amount you pay for personal loans depends on several different factors, including your credit score and history, your income, and the federal funds rate.

What is the federal funds interest rate?

The federal funds rate is the target rate that the Federal Reserve sets for banks to lend to each other overnight. Banks lend to each other every night because they need to keep a certain amount of money in the bank and available for people to withdraw the next day, also known as reserves.

Every day, some banks may have more or less than they need for their reserves, depending on how people have deposited or withdrawn money during the day. By lending money to each other overnight, at the target interest rate set by the Federal Reserve, they can ensure that they meet their reserve requirements.

The federal funds rate is the first tipping point in a long series of dominoes that ripple through and impact the entire economy, including you, in other ways. For example, because the federal funds rate helps determine the cost to banks of exchanging money, banks pass it on to you when you need a loan. The higher the federal funds rate, the more they charge you for a personal loan, and vice versa.

How is the federal funds rate determined?

The federal funds rate is set by the Federal Open Market Committee (FOMC), a group of 12 senior members of the Federal Reserve System. They change the federal funds rate in an attempt to move the economy in certain directions. For example, if inflation is higher than they would like, they can raise the federal funds rate to try to curb inflation.

A point that is often confusing is that the FOMC sets a range of rates, which are more like targets. Banks are free to choose the rate they want to lend to each other within this range. The rate at which banks actually lend money to each other is called the effective federal funds rate.

How the Federal Funds Rate Affects Personal Loan Rates

Although the fed funds rate is a bit of an arcane monetary policy, it does affect you. This is because of how it plays into your overall personal loan costs, among other loan products.

Each personal lender sets their own range of interest rates they can charge. The lower interest rates are usually reserved for highly qualified applicants, while the higher rates usually fall into the hands of people with weak or damaged credit.

Most lenders base their interest rates on an index, such as the prime rate. For example, they can set their lowest rate at prime plus 3%. If the prime rate is 3.25%, that means you will be charged 6.25%.

These indexes are themselves based in part on the federal funds rate. As the federal funds rate rises, the indexes also rise, which also causes personal loan interest rates to rise.

Fluctuations in the federal funds rate are like a cascade of dominoes that ultimately accrue to you, the borrower.

Impact of interest rates on the cost of borrowing

Interest rates play a key role in personal loans because they determine how much it costs you to borrow money and how much you owe monthly.

Take, for example, SoFi, which offers personal loan rates starting at around 5% annual percentage rate of charge (APR). Here’s how much it would cost to take out a four-year, $5,000 term loan at three different rates:

Federal funds rate forecast for 2022

The effective federal funds rate has been about as low as possible since April 2020, hovering around 0.08%. The latest minutes from the FOMC meeting in December indicate that they will raise rates, and at a faster pace this year.

According to the Federal Reserve, the median where FOMC members and Federal Reserve bank presidents think rates will go forward is 0.9% in 2022, 1.6% in 2023, and 2.1% in 2024.

Another question is when these rate hikes will take place. The FOMC meets eight times in 2022 and could raise the Federal Reserve rate at any of those meetings. According to CME Group’s FedWatch tool, the most likely times we’ll see a rate hike could be at the following meetings:

  • March 16
  • June 22
  • July 17
  • December 22

At the end of the line

The federal funds rate is one of the levers the Federal Reserve uses to tinker with the economy. Specifically, it is the rate banks use to lend each other money each night to ensure they meet reserve requirements. This affects you as a borrower because banks take the federal funds rate into account when setting interest rates for their products, including personal loans.

If the federal funds rate increases, as expected in 2022, you will have to pay a little more to borrow money. If you wanted to consolidate debt or finance a big purchase, now might be a good time to apply for a personal loan if you can, before rates go up.

Related: Best Low Interest Personal Loans

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Soaring interest rates reflect Fed policy that ‘overstayed its welcome’: Morning Brief https://johnhesch.com/soaring-interest-rates-reflect-fed-policy-that-overstayed-its-welcome-morning-brief/ Wed, 19 Jan 2022 11:03:47 +0000 https://johnhesch.com/soaring-interest-rates-reflect-fed-policy-that-overstayed-its-welcome-morning-brief/ This article first appeared in the Morning Brief. Get the Morning Brief delivered straight to your inbox Monday through Friday by 6:30 a.m. ET. Subscribe Wednesday, January 19, 2021 The Fed is catching up and investors are spooked Soaring inflation — and by extension interest rates and expectations of Federal Reserve rate hikes — have […]]]>

This article first appeared in the Morning Brief. Get the Morning Brief delivered straight to your inbox Monday through Friday by 6:30 a.m. ET. Subscribe

Wednesday, January 19, 2021

The Fed is catching up and investors are spooked

Soaring inflation — and by extension interest rates and expectations of Federal Reserve rate hikes — have made their presence felt on Wall Street in a big way.

After spending most of last year downplaying the threat of tighter monetary policy and rising yields, the 10-year note (TNX) climbed nearly 2%, the yield at 2-year inflation-sensitive bond hitting 1%, both at their highest level in nearly 2 years.

The surge in yields, which we’ve been warning Morning Brief readers about for months, has spooked investors and sent blue-chip and tech stocks teetering.

Tuesday’s selloff is “about interest rates,” UBS Global Wealth Management Americas head of equities David Lefkowitz told Yahoo Finance Live. The rise in the 10-year yield “has big implications for the internals of the market.”

The decisive end to market placidity regarding the upcoming rate hike cycle largely reflects a few drivers, but with a general theme. Namely, investors are increasingly concerned that a lagging Fed will get its hand pushed by inflation – and as a result will have to be much more aggressive on rate hikes than current conditions suggest, even if growth rates come back down to Earth.

“At the end of last year, the market had less than a 2 in 3 chance of a rally in March,” noted Marc Chandler of Bannockburn Global Forex.

“Now he has a fully reduced hike and about a 1 in 3 chance of a 50 [basis point] movement. At the end of last year, the market had nearly three fully discounted bulls for this year. Now the market is about 107 basis points completed,” Chandler said — meaning fed funds could quickly end up a full percentage point above current near-zero levels.

Since last month, investors have taken a noticeably more bearish stance, according to the data.

Much of the blame lies with the Fed for “far overstaying its welcome with [quantitative easing] and zero rates and a misinterpretation of inflation that they are now forced to catch up with,” said Peter Boockvar, chief investment officer of the Bleakley Advisory Group, which is a relentless critic of Fed monetary policy.

“The other sin, so to speak, was that by waiting this long to tighten, they let asset prices inflate further, creating a higher peak that they inevitably fall to when the tightening intensifies,” a- he added.

Banks are probably approaching the era of higher interest rates with aplomb. Yahoo Finance’s Brian Cheung wrote last week that the banking industry is executing a “pivot away from capital markets firm profitability in favor of higher net interest income in loan portfolios. “.

Yet, judging by the Nasdaq’s dramatic fall, high-growth and tech stocks have a lot more to worry about and are bearing the brunt of market jitters amid this CNBC’s Patti Domm noted that interest rates could maintain a “stangle” in this market segment.

the The Wall Street Journal rightly pointed out “Money-burning tech companies, biotech companies without any approved drugs, and startups that quickly listed via mergers with blank check companies” as the most vulnerable to the current slump.

“I think it makes perfect sense that some of these names need to calm down a bit, and then when you think about the trajectory of interest rates over this year, you need to look for companies that can generate realistic profitability. JPMorgan Chase Asset Management global market strategist Jack Manley told Yahoo Finance Live on Tuesday.

“For any tech company that’s burning through cash without any sort of viable product, that’s a tough sell this year,” he added. “I understand the volatility, I understand the sell-off, I think that’s a bit of a stretch but I certainly don’t think that’s a long-term issue for the sector.”

Indeed, Northern Trust Wealth Management has reminded its clients that tighter monetary policy does not mean tighter policy in absolute terms.

CIO Katie Nixon wrote last week that despite rising rate expectations“, it is important to stress that monetary policy will remain very accommodative and Treasury yields will remain negative. Based on our forecast of slower growth and more subdued inflation as we head Mid-2022, we also believe this particular rate hike cycle will be short and incomplete relative to the Fed’s dot chart as well as market expectations.”

Through Javier E.David, editor at Yahoo finance. Follow him on @Teflongeek

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China warns the West against a rapid rise in interest rates | Mondial economy https://johnhesch.com/china-warns-the-west-against-a-rapid-rise-in-interest-rates-mondial-economy/ Mon, 17 Jan 2022 20:39:00 +0000 https://johnhesch.com/china-warns-the-west-against-a-rapid-rise-in-interest-rates-mondial-economy/ China has warned the United States and Europe against a rapid rise in interest rates that would “stifle” the global recovery from the pandemic. Central banks would have to maintain monetary stimulus or risk “serious economic consequences” from spillover effects, with developing markets bearing the brunt. In a virtual address to open the World Economic […]]]>

China has warned the United States and Europe against a rapid rise in interest rates that would “stifle” the global recovery from the pandemic.

Central banks would have to maintain monetary stimulus or risk “serious economic consequences” from spillover effects, with developing markets bearing the brunt.

In a virtual address to open the World Economic Forum’s Davos Agenda, Chinese President Xi Jinping said that as global inflation risks emerge, policymakers should strengthen economic policy coordination and develop policies. to prevent the global economy from plunging again.

“We must do whatever is necessary to erase the shadow of the pandemic and spur economic and social recovery and development,” he said.

“If major economies slow down or reverse course in their monetary policies, there will be serious negative fallout. They would present challenges to global financial and economic stability and developing countries would bear the brunt of it.

China is among many countries in Asia, Africa and South America concerned about plans announced by the US central bank to accelerate a series of interest rate hikes scheduled for this year and begin to cancel its program. quantitative easing stimulus.

The Federal Reserve has come under intense pressure to respond to rising inflation, which soared to 7% in December, its highest level in 40 years.

Rising US interest rates will make it more expensive to finance dollar-denominated debt.

Policymakers at the Bank of England and the European Central Bank are also expected to tighten monetary policy in the coming months, increasing the risk that indebted countries fail to repay their loans.

Tensions with the United States extend beyond monetary policy to concerns over intellectual property, trade, the fate of Taiwan, human rights and the South China Sea.

Xi said, “We must abandon the Cold War mentality and pursue peaceful coexistence and win-win outcomes. Our world today is far from tranquil,” Xi said, through a translator.

“Protectionism and unilateralism cannot protect anyone. Ultimately, they harm the interests of others as well as his own. Worse still are the practices of hegemony and intimidation, which run counter to the course of history.

“A zero-sum approach that increases one’s own gain at the expense of others won’t help,” he added. “The right path for mankind to follow is peaceful development and win-win cooperation.”

Xi was speaking after latest figures showed China’s economy had slowed at the end of last year to 4% in the three months from October to December compared to the same period in 2020.

Data from the National Bureau of Statistics revealed the weakest expansion in 18 months as the Covid-19 pandemic and crisis in its property sector hit growth.

In the first three quarters of 2021, China’s economy grew by more than 9%, but since the summer it has slowed significantly, prompting Beijing to cut a key interest rate.

Analysts have blamed Beijing’s zero-tolerance approach to the Covid-19 virus, which has included restricting all movement in cities that have only a handful of cases.

Retail sales growth slowed sharply to just 1.7% year-on-year in December from 3.9% previously, the bureau said.

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The repercussions of the crisis on indebted real estate developer Evergrande have also weighed on the Chinese economy.

Louis Kuijs, head of Asian economics at Oxford Economics, said Xi’s administration was unlikely to tolerate GDP growth below 5%, meaning further cuts in borrowing costs were possible. .

“If growth is weaker than that, Beijing will feel strongly motivated to pursue further policy easing,” she said.

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Week Ahead: Interest Rate Anxiety Intensifies https://johnhesch.com/week-ahead-interest-rate-anxiety-intensifies/ Sun, 16 Jan 2022 05:03:00 +0000 https://johnhesch.com/week-ahead-interest-rate-anxiety-intensifies/ Can earnings season soothe investors’ nerves? It’s been a turbulent start to the year in the markets and that’s unlikely to change as we enter earnings season. Fear of high inflation and accelerated monetary tightening has driven much of the volatility seen in financial markets over the past two weeks and is unlikely to ease […]]]>

Can earnings season soothe investors’ nerves?

It’s been a turbulent start to the year in the markets and that’s unlikely to change as we enter earnings season. Fear of high inflation and accelerated monetary tightening has driven much of the volatility seen in financial markets over the past two weeks and is unlikely to ease any further. soon, with a peak still ahead of us.

Earnings season could help soothe nerves in the weeks ahead as we are reminded that the economy is still in good shape despite the challenges it faces. But even that comes with an element of uncertainty given that Omicron hit in late November, which will no doubt have had an impact. Of course, as we have seen over the past two years, there are also winners when consumers stay home and restrictions are imposed.

Ultimately, however, central banks currently remain high on the list for investors and the week ahead offers a selection of meetings, minutes and speakers that are sure to attract plenty of attention. It’s hard to look past CBRT as one of the highlights for next week. After an aggressive easing cycle that has cost a lot of money, will the central bank finally slam the brakes?

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The week ahead is busy with economic data and earnings results. Goldman Sachs (NYSE:), Bank of America (NYSE:) and Morgan Stanley (NYSE:) will close big bank earnings, while Procter & Gamble (NYSE:) may provide better insight into the scale of price increases additional that the consumer can expect.

On Tuesday, activity should have cooled in January. Wednesday is all about real estate activity which could show both up and down slightly.

On Thursday, they are expected to resume their decline, while they should improve, and could show a slight decline.

Blackout dates are in effect for the Fed, so it will be quiet until the FOMC meeting on Jan. 26. While financial markets are pricing in more than a 90% chance of the Fed raising rates in March, they seem to be forming a range just below the 1.80% level.

EU

With the ECB among the minority of central banks still singing from the transitional hymn sheet, the focus this coming week will be on the ECB’s accounts from December, comments from policymakers including the President Christine Lagarde on Monday, and the final inflation figures for December. At 5%, it is uncomfortably high and the central bank could soon give in like the others if the pressures do not ease quickly.

UK

The week will be a data dump week for the UK, with the labor market, and everything will be released. But Wednesday is undoubtedly the star, with the governor due to speak hours after the CPI is released, which could make for some interesting comments. Three or four rate hikes are expected this year, so expectations are quite hawkish, but as we’ve seen recently, there are growing fears that more may be warranted.

Russia

No major data or economic events next week, so the focus will remain on the various geopolitical risks at the center of which Russia has found itself. A possible invasion of Ukraine tops the list, with a week of intense talks between the United States and Russia apparently failing to yield a breakthrough.

Russia is also intrinsically linked to the energy crisis in Europe which is intensifying as new failures of French reactors put additional pressure on limited reserves.

South Africa

Inflation data next week is expected to show mounting price pressures, rising to 5.7%, which will increase calls for further rate hikes from the SARB.

Turkey

A rare period of relative stability for CAF which should not last, since CAF meets next week. Can the central bank resist the urge to cut again or are bigger losses on the horizon? Not cutting could provide some support for the reading as it could signal the end, for now, of the easing cycle.

China

China releases Q4 and Monday. Markets are bracing for slower growth, with a consensus of 3.5%, down from the 4.9% gain in Q3. It would be the weakest GDP report since the second quarter of 2020.

Retail sales are forecast at 3.8% year-on-year in December, from 3.9% previously. The government has adopted a zero COVID strategy, which has restricted travel and restaurants. Weak income growth is also hurting consumers and dampening consumer spending.

China’s real estate sector remains in deep crisis, with no sign of improvement on the horizon. Evergrande (HK:) and other developers owe billions and investment growth and household lending has declined. The government has eased restrictions on housing finance, but these measures have so far proved ineffective.

China was liberated on Saturday. The previous version, however, showed 3% growth and is widely considered low impact data.

Also on Monday, before the GDP release, the PBOC will decide whether or not to keep the MLF rate at 2.95%.

India

No major economic data or events next week.

Australia

Australia releases key jobs data for December next week. is expected to slow to 60,000 from 366,100 in November. The is expected to decline to 3.5% from 3.6%.

Prices hit their highest level in three months as heavy rains hit Brazil’s mining region, raising supply concerns.

New Zealand

It’s a quiet economic calendar next week. On Thursday, New Zealand releases the for December. The PMI was flat in November, reading 50.6 points.

Japan

Inflationary pressures in Japan are much lower than those in the UK or the US, but are nonetheless rising after years of deflation. The Bank of Japan is expected to maintain its ultra-accommodative policy on Tuesday, but will likely revise its view on inflation risks for the first time since 2014.

Inflation remains well below the bank’s 2% target, but the BoJ may consider raising interest rates before reaching it.

Economic Calendar

Sunday January 16

The National Retail Federation of the United States opens its annual Retail’s Big Show at the Javits Center in New York

Monday January 17

Economic data/events

  • US stock and bond markets are closed for the Martin Luther King Jr. holiday.
  • China GDP, retail sales, industrial production, surveyed unemployed, real estate investment, medium-term loans
  • Handelsblatt Energy Summit with German Economics Minister Habeck
  • Euro region finance ministers meet in Brussels
  • Japanese Prime Minister Kishida addresses parliament
  • Sales of existing homes in Canada
  • CPI Poland
  • Japanese industrial production, basic machinery orders, tertiary industry index
  • Singapore Electronic Exports
  • Russia Trade
  • Norway Trade
  • Remittances to the Philippines Abroad
  • Rightmove UK house prices
  • Sight deposits in Switzerland, Bloomberg Economic Survey January
  • Turkish central government fiscal balance

Tuesday, January 18

Economic data/events

  • US cross-border investment, empire making, NAHB housing market index
  • BOJ Rate Decision: No Change in Monetary Policy, May Adjust View on Inflation Risks
  • Japanese industrial production, capacity utilization
  • EU finance ministers meet in Brussels and hold a policy debate on global minimum taxation for multinational companies.
  • Australian consumer confidence
  • Housing starts in Canada
  • Registrations of new cars in the euro zone
  • Expectations from the ZEW survey in Germany
  • New Zealand house sales
  • Russia Trade
  • Mexico’s international reserves
  • Claims for unemployment insurance in the UK, unemployment
  • CPI Poland
  • Producer and import prices in Switzerland
  • Mining, gold and platinum production in South Africa
  • Property price index in Turkey
  • Sweden Riksbank Gov Ingves speaks during a panel at a blockchain and stablecoin conference

Wednesday January 19

Economic data/events

  • Housing starts in the United States
  • UK CPI, house price index
  • French President Macron addresses the European Parliament
  • BOE Governor Bailey addresses the UK Parliament Treasury Committee
  • IPC Canada
  • CPI Germany
  • IPC South Africa
  • Construction output in the euro area
  • Australia Westpac consumer confidence
  • Card spending in New Zealand
  • Retail sales in South Africa
  • Current account Russia
  • Banking profits of BoA and Morgan Stanley

Thursday January 20

Economic data/events

  • Sales of existing homes in the United States, first claims for unemployment
  • ECB December Policy Meeting Minutes
  • BOJ December Meeting Minutes
  • UK RICS housing prices
  • Norway Rate Decision: Should keep rates stable
  • Turkey Rate Decision: Should Keep Rates Stable
  • Hungary Rate Decision: Rates Expected to Hold Stable
  • Eurozone CPI
  • Hong Kong CPI
  • CPI Russia
  • Japan Trade
  • Preferential Chinese Lending Rates, Fast Global Payments
  • Australia Unemployment, Consumer Inflation Expectations, RBA FX Trades
  • New Zealand food prices, heavy traffic ANZ Truckometer
  • Germany PPI
  • Taiwan export orders
  • Unemployment in Mexico
  • Spain real estate transactions, trade
  • Business and industry confidence in France
  • Unemployment in the Netherlands, consumption expenditure
  • Consumer confidence in Poland
  • EIA Crude Oil Inventory Report
  • Netflix releases earnings after the bell

Friday January 21

Economic data/events

  • Conf. Board Main Index
  • CPI Japan
  • UK retail sales
  • BOE Mann speaks at the Official Monetary and Financial Institutions Forum
  • Retail in Canada
  • Eurozone consumer confidence
  • The Bank of Italy publishes the Quarterly Economic Bulletin
  • Consumer confidence in Turkey
  • New Zealand Manufacturing Index Performance, Net Migration
  • Singapore Property Prices
  • Switzerland Money supply
  • Russia Money supply
  • Thailand trade, futures, foreign exchange reserves
  • China FX Net Settlement
  • Poland sold industrial output, construction output, employment, PPI

Sovereign Ratings Updates

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