How the Fed has stopped the "catastrophic loop" and why it could come back


Falling stock prices – the S & P 500 has had its worst December since the Great Depression – has dealt a serious blow to consumer and CEO confidence. And declining confidence threatened to delay spending by households and businesses, a major challenge for the economy. It was a vicious circle.

"They had to stop this catastrophic loop," said Seema Shah, global investment strategist at Principal Global Investors, which manages more than $ 600 billion in assets.

Inspired by the Fed's turnaround, US stock prices skyrocketed to begin in 2019. This then boosted the confidence of US buyers and policymakers.

"The Fed has made the right choice," said Shah.

Powell could provide new information on the Fed's quick turnaround on Sunday night at "60 minutes". the CBS (CBS) This program will broadcast a rare interview with Powell, with his predecessors, Janet Yellen and Ben Bernanke.

After a "series of political gaffes," the Fed has managed to "calm the markets for now," according to Scott Minerd, director of global investment at Guggenheim Partners.

Minerd, however, warned in a recent report that its prediction tools for the recession continued to predict an economic slowdown as of mid-2020.

& # 39; Caught hostage & # 39;

A potential problem that the suddenly thirsty Fed faces is how it would react to an inflation spike.

Although inflation has been under control for a long time, some people wonder how long it will last. With the labor market at full capacity or almost, wages are finally warming up.

Last week's jobs report showed that the United States had created only 20,000 jobs in February, which did not meet expectations. Yet wages jumped 3.4% – the fastest pace in more than a decade.

"We are planning further wage increases," writes Guggenheim in his report. The firm said a "new rate hike may be needed" in 2020 if inflation expectations began to rise.

Others think that inflation will remain under control despite a historically low unemployment rate.

"I do not think inflation will get out of hand," said Gus Faucher, chief economist at PNC.

The bull market is 10 years old

But if inflation has been dormant for a long time, the Fed could be forced to resume its cycle of rising interest rates, which could be a problem for the credit-sensitive market and businesses.

"There is a real fear that once inflation occurs, the Fed will be trapped. Will they have to brake suddenly?" said the director's shah.

This could make the "catastrophic loop" between financial markets and trust start all over again.

"One has the impression that they are being held hostage by the market," Shah said.

2. Great week for Tesla: The electric car maker has announced the unveiling of its mainstream Model Y crossover SUV at an event held on March 14th. Consumer enthusiasm for sedans blending in favor of sedans, crossovers and SUVs, Model Y could become From Tesla (TSLA) most important car.
On Monday, Tesla must respond to the SEC's request that Elon Musk be found guilty of contempt of court. The SEC said Musk had violated a deal last month by mistakenly tweeting the number of cars Tesla should produce in 2019.
3. T-Mobile and Sprint: T Mobile (TMUS) CEO John Legere and Sprint (S) Chief Executive Michel Combes will testify on Wednesday before the House Judiciary Subcommittee. They will answer questions about the proposed merger of their businesses.
Companies said they needed to merge to stay competitive with their larger rivals Verizon (VZ) and AT & T as the wireless market moves to 5G. AT & T (T) owns CNN's parent company, Warner Media.
4. Wells Fargo: Wells Fargo (WFC) Chief Executive Officer Tim Sloan will testify on Wednesday at the House Financial Services Committee at a hearing titled "Holding MegaBanks Accountable: Examining Wells Fargo's Behavior in Consumer Abuse" .

Wells Fargo continues to recover from its many scandals in recent years. Government regulators, including the Federal Reserve, are watching the issue closely.

5. It's the (American) economy, stupid: Investors looking for new signs of direction for the US economy will have many reports to consider this week.

Retail sales, durable goods, new home sales, industrial production and consumer confidence point to a long list of economic reports to come in the next five days.

6. Coming this week:

On Monday – United States Retail Sales Report for January. Tesla's deadline for responding to the SEC; Stitch Fix (SFIX) earnings
TuesdayDick's Sporting Goods (DKS) earnings; Wells Fargo CEO testifies before House Financial Services Committee; CEOs of T-Mobile and Sprint Testify Before Judicial Subcommittee of House

Wednesday – US Durable Goods Report

Thursday – General Dollar (DG) earnings; New report on US home sales; Tesla organizes the Model Y event

Friday – Report of US Industrial Production and US Consumer Confidence

Source link