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President Harry Truman famously pleaded for a one-handed economist. “All my economists say ‘on the one hand . . .’, then ‘but on the other . . .’”
He would have been happy with today’s Federal Reserve officials, at least in December.
Minutes from the Fed’s Dec. 14-15 policy meeting signaled that officials were prepared to raise interest rates faster than they previously anticipated amid growing worries over inflation. And some officials thought the central bank should begin shrinking its $9 trillion balance sheet relatively soon after rate increases begin.
That tracked with projections officials submitted in December penciling in three rate increases for next year, and with comments Chair Jerome Powell made at his post-meeting press conference.
The unequivocal statement underlines how fast the economic outlook has shifted since early November, when Powell said officials could be patient as they assessed the need for rate increases. Inflation readings have climbed to four-decade highs and price pressures have broadened, as supply chains remain tangled. Meanwhile, strong demand has propelled hiring, pushed down the jobless rate and boosted competition for workers.
What was unusual: There was little mention in the minutes of “the other hand,” i.e. the possibility that a slower approach might be necessary, say, if a new Covid variant derailed the recovery.
Fed minutes are typically written in a formulaic way. They lay out the baseline view among participants, then usually explain the views of a few people on one side, and a few people on the other.
That typical two-sidedness to the decision wasn’t there this time, said Bill Nelson, chief economist at the Bank Policy Institute and the former deputy director of the Fed’s monetary affairs division.
“You really get the impression that the committee was divided between people who wanted to do what they did and people who wanted to be tighter still,” Nelson told MM. “That means that there’s significant upside risk to how policy is going to proceed.”
The key paragraph:
“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the minutes said.
“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”
Some officials said a “measured approach” to tightening policy would help them assess incoming data and put them in a better position to respond to a range of outcomes, according to the minutes. But there wasn’t any counterweight to the view that policy should be less accommodative.
Consider a similar paragraph from the minutes of the Nov. 2-3 policy meeting, when officials voted to begin tapering asset purchases. It said various officials thought the Fed should be prepared to raise rates sooner than expected if inflation persists but emphasized that a number of policymakers also stressed “a patient attitude” given the uncertainty around supply chain disruptions and the path of the virus.
Maximum employment: The minutes suggested a similarly one-sided view among officials on whether and when the Fed may meet its threshold for raising rates.
Officials agreed that the labor market was making rapid progress, including solid job gains, a substantial decline in the jobless rate and a labor-force participation rate that had recently edged up. There was no mention of potential slack.
“Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment. Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment.”
Markets got the message loud and clear: Stocks sold off sharply and bond yields climbed Wednesday afternoon as markets digested the uber-hawkish minutes. The S&P 500 fell 1.9 percent, the Nasdaq composite was down 3.3 percent and the Dow Jones Industrial Average declined 1.1 percent.
IT’S THURSDAY — Add this one to the #JOLTS file: The Red Sox are looking for a Green Monster scoreboard operator to work inside the left field manual scoreboard. (h/t Dan Primack) Qualifications: “Ability to work in close quarters on days, nights, weekends, holidays” and “in all types of weather & temperatures.” Alas, the position is already closed to new applicants.
Hit us up with your dream job listings, plus tips and takes, at [email protected] and [email protected], or on Twitter at @katedavidson and @aubreeeweaver.
November trade data released at 8:30 a.m. … Labor Department releases initial jobless claims numbers at 8:30 a.m…. St. Louis Fed President James Bullard speaks at 1:15 p.m.
NFTS MOVE TO INFLUENCE CONGRESS, EVEN IF LAWMAKERS HAVE NO IDEA WHAT THEY ARE — Our Hailey Fuchs: “Non-fungible tokens, or NFTs, may be an industry deeply perplexing for much of the country. But those monetizing collectible digital assets have already begun playing the classic Washington game, turning to K Street to protect its interests before the government.
“One of the largest companies in the NFT space—the Vancouver, Canada-based Dapper Labs, Inc.—became the first to federally register to lobby on issues related to NFTs, doing so in a public disclosure posted on Monday.”
—We’re also reading: Yahoo! Finance’s Marquise Francis on why Black Americans are “leading the NFT, crypto revolution”: “Twenty-three percent of African-Americans own cryptocurrency, compared to 11% of white Americans and 17% of Hispanics, according to two recent surveys conducted by Harris Poll and provided to USA Today.”
FANNIE, FREDDIE TO RAISE FEES FOR HIGH-COST LOANS IN APRIL — Our Katy O’Donnell: “Fannie Mae and Freddie Mac will raise guarantee fees for high-cost loans and second-home loans in April, the Federal Housing Finance Agency said Wednesday. Starting April 1, the companies will charge fees between 0.25 percent and 0.75 percent higher for mortgages with high balances, depending on the loan-to-value ratio. The fee for mortgages on second homes will rise between 1.125 percent and 3.875 percent.”
CFPB DIRECTOR SLAMS CREDIT REPORTING COMPANIES OVER COMPLAINTS — Katy again: “The CFPB on Wednesday put credit reporting companies on notice for mounting concerns about how they respond to consumer complaints, in Director Rohit Chopra’s first big swing at the industry. The CFPB said in a report that consumers submitted more than 700,000 complaints to the agency about Equifax, Experian and TransUnion between January 2020 and September 2021. …
“The CFPB found that the companies have begun closing complaints faster and with fewer instances of relief, such as corrections to credit reports.”
SUPPLY CHAIN WOES PROMPT A NEW PUSH TO REVIVE U.S. FACTORIES — NYT’s Nelson D. Schwartz: “Since the pandemic began … efforts to relocate manufacturing have accelerated, said Claudio Knizek, global leader for advanced manufacturing and mobility at EY-Parthenon, a strategy consulting firm. …Decades of dependence on Asian factories, especially in China, has been upended by delays and surging freight rates — when shipping capacity can be found at all.
“Backups at overwhelmed ports and the challenges of obtaining components as well as finished products in a timely way have convinced companies to think about locating production capacity closer to buyers.”
—A new global supply gauge signals some relief might be ahead: Bloomberg’s Anna Monteiro: “A new gauge of global supply-chain disruptions developed by the Federal Reserve Bank of New York shows how these pressures are at the highest level since at least 1997, but are exhibiting signs of peaking and “might start to moderate somewhat going forward.”
INTEREST RATE WORRIES (BA)TTER STOCK MARKET — Fintech Zoom’s Hardika Singh: “Investors are bracing themselves for volatility in 2022. Easing supply chain snarls, potential interest rate increases and slowing growth in corporate earnings are all being closely watched. Contributing to the murky picture: a mixed economic recovery, complicated by the fast-moving Omicron variant of Covid-19, which is making it harder for investors to consider whether to readjust portfolios toward value stocks.
HEAVIEST TECH SELLING IN A DECADE FUELED STOCK MARKET RATE ROUT — Bloomberg’s Lu Wang: “The hammering in technology stocks that began to spread into the broader market Wednesday is being fueled by one of the most intense bouts of selling by professional speculators since the financial crisis.
WALL STREET ANALYSTS’ 2022 OUTLOOK FOR S&P 500 — Reuters: “Wall Street analysts have rolled out their predictions for U.S. equity markets in 2022. The benchmark S&P 500 index rose about 27 percent in 2021. It closed at 4,793.54 on Tuesday. …
—Morgan Stanley: ‘While earnings for the overall index remain durable, there will be greater dispersion of winners and losers and growth rates will slow materially… 2022 will be more about stocks than sectors or styles, in our view.’
—Wells Fargo: ‘Persistent supply shortages and inflation pressures lead us to adjust the magnitudes of some 2022 targets, but we believe the global economy should still mark an above-average pace next year. More importantly, our tactical preferences for the next 6 to 18 months are nearly all unchanged.’
—Goldman Sachs: ‘Decelerating economic growth, a tightening Fed, and rising real yields suggest investors should expect modestly below-average returns next year.’”
BITCOIN DECLINES TO (LOW)EST LEVEL SINCE DECEMBER’S FLASH CRASH — Bloomberg’s Vildana Hajric and Joanna Ossinger: “Bitcoin slumped to the lowest level since its December flash crash as growing expectations of rising borrowing rates weighs on some of the best performing assets over the past few years. The largest cryptocurrency by market value dropped as much as 6 percent to $43,451. That pushed the price to the lowest since it touched $42,296 during a weekend crash at the start of last month.”
AMEX, BLACKROCK LATEST FINANCIAL FIRMS TO URGE WORKERS TO STAY HOME — Fintech Zoom Money’s Matt Egan: “New York-based AmEx said it has decided to delay the January 24 launch of a new flexible working plan that will require most employees to be in the office one to three days a week. AmEx CEO [Stephen Squeri] said the launch is delayed ‘until we feel comfortable bringing a large number of colleagues back together in the office.’”
“Meanwhile, BlackRock, which is also based in New York, is encouraging employees to ‘work from wherever they are most comfortable’ as a result of the Omicron variant, company spokesperson Aziz Nayani told Fintech Zoom.”
ADP: PRIVATE JOB GROWTH TOTALED 807,000 IN DECEMBER — CNBC’s Jeff Cox: “Companies hired at the fastest pace in seven months in December ahead of escalating concerns over surging Covid cases, according to a report Wednesday from payroll processing firm ADP. Private job growth totaled 807,000 for the month, well ahead of the Dow Jones estimate for 375,000 and the November gain of 505,000. …The total was the best for the job market since May 2021′s 882,000 figure, according to the ADP data.”