The big winner from the Fed’s announcement Wednesday? It just might be the U.S. dollar.
The Fed sounded more hawkish yesterday, moving the start of rate hikes into 2023 from 2024. That sent stocks lower and bond yields higher.
The tone also sent the greenback soaring. The dollar rose 0.7% against a basket of foreign currencies, and it’s up another 0.8% in Thursday trading.
Stock market investors yawn at a 0.8% move. For currency traders, 0.8% makes their eyes widen. The average move in the dollar is less than 0.3%.
The dollar isn’t as volatile as stocks, but it certainly matters for investors. Commodity prices, which are typically quoted in dollars, when it rises. Gold prices are down 3.3% Thursday, while copper prices are off 2.1%.
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A stronger dollar can also ding U.S. manufacturing. The price of, say, a Deere tractor exported from the U.S. is slightly more expensive, relatively speaking, for a European farmer as the dollar rises. But a higher dollar also makes goods imported into the U.S. cheaper.
Lower commodity prices? Cheaper imports? Perhaps inflation is transitory after all.
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Federal Reserve Moves Up Timeline for Interest Rate Hikes
Interest rate hikes could come sooner than expected. The Federal Reserve set its sights on raising rates by late 2023, as inflation heats up and the U.S. economy recovers rapidly from the pandemic.
- More policy makers projected moves up for the benchmark rate, to 0.6% by the end of 2023 from near-zero now. Three months ago, most of them expected that number to hold steady that year.
- The Fed also has been purchasing at least $120 billion a month of Treasury and mortgage bonds since June 2020 to hold down longer-term borrowing costs and said it expects to continue bond purchases until “substantial further progress” has been made in the recovery.
- Fed officials want the economy to get closer to their goals of “maximum employment” and sustained 2% inflation before reducing the bond purchases.
- Since the Fed’s last meeting, employers added 837,000 jobs in April and May, while 2.6 million people retired between February 2020 and April 2021. Employment is 7.6 million jobs short of levels before the pandemic.
What’s Next: Inflation is another worry, with consumer prices jumping 5% in the year ended in May. The Fed says it now expects its preferred measure of inflation to rise 3.4% in the fourth quarter of 2021 from a year earlier, up from a March forecast of 2.4%.
Delta Strain Officially a ‘Variant of Concern’ in the U.S.
The Centers for Disease Control and Prevention has designated the Delta strain of coronavirus as a “variant of concern,” a more serious category that underscores how prominent the variant first identified in India has become in the U.S.
- The Delta variant, now in more than 80 countries, contributed to the recent surge of cases in India and is now the dominant strain in the United Kingdom. Its rapid spread is why Prime Minister Boris Johnson delayed the U.K.’s scheduled reopening by four weeks to July 19.
- The World Health Organization upgraded the Delta strain to a variant of concern last month, and said it is still mutating as it spreads. It has been detected in nearly 30 U.S. states.
- Covid-19 vaccines show effectiveness at neutralizing the variant, but as of Wednesday, only 54.8% of U.S. adults are fully vaccinated. And 61% of unvaccinated people say they are “not at all likely” to get a shot, a Civic Science study found.
- CureVac’s shot was found to be 47% effective against Covid, in a “fast changing environment” of at least 29 variants, the company said. Shares dropped nearly 50% after hours.
What’s Next: Ugur Sahin, CEO of vaccine maker BioNTech, warned at Barron’s Investing in Tech conference Wednesday of a possible resurgence of Covid. He foresees the need for booster shots, since antibody levels have been observed decreasing six months following full vaccination.
—Janet H. Cho
Biden Wraps Up Putin Summit, Saying ‘The Last Thing He Wants Now Is a Cold War’
President Joe Biden wrapped up his summit with Russian President Vladimir Putin, saying he made clear U.S. priorities and helped Putin understand “why I say what I say and why I do what I do.” Biden added: “I think that the last thing he wants now is a Cold War.”
- Biden gave Putin a list of 16 critical infrastructure entities, from the energy sector to water supplies, that he called “off limits to cyberattack.” Putin earlier denied Russia was involved in cyberattacks against the U.S.
- “The bottom line is I told President Putin that we need to have some basic rules of the road that we can all abide by,” Biden told reporters, including issues ranging from Ukraine to arms control and jailed Russian dissident Alexei Navalny.
- Biden asked Putin to respect human rights, including “wrongfully imprisoned” Americans Paul Whelon and Trevor Reed, and warned that if Navalny dies in prison, the consequences would be “devastating for Russia.”
- Putin said in separate remarks that the two leaders had agreed to return their respective ambassadors to their posts, and begin a strategic stability dialogue to focus on arms control and other issues.
What’s Next: Biden and Putin issued a joint statement after their summit confirming their shared goals of “ensuring predictability in the strategic sphere” and reducing the risk of armed conflicts, saying, “today, we reaffirm the principle that a nuclear war cannot be won and must never be fought.”
—Janet H. Cho
SEC Delays Approval of Bitcoin ETF, Solicits More Comments
The Securities and Exchange Commission on Wednesday postponed a decision to approve asset manager VanEck’s Bitcoin exchange-traded fund, saying that it is seeking more comments on whether the product should trade on markets.
- The SEC issued its regulatory filing a day before a deadline on a decision on the ETF was due on June 17. The move is a setback for crypto backers who see approval of an ETF as an important new way to open crypto to individual investors.
- The watchdog pointedly says it needs more analysis to ensure that the rules of the exchange would be “designed to prevent fraudulent and manipulative acts and practices.”
- The SEC has received roughly a dozen Bitcoin ETF proposals over the past eight years, but has not approved any due to concerns over investor protection.
What’s Next: SEC Chairman Gary Gensler outlined his concerns about crypto-assets exchanges earlier this month in front of the House of Representatives’ subcommittee on financial services. Expect more delays on the other dozen Bitcoin or Ethereum ETF applications.
The Takeaways From Barron’s Investing in Tech Conference
- Palantir CEO Alex Karp discussed his company’s popularity among retail investors online. “We respect the intelligence and the rigor of what is typically called individual investors,” Karp said about his data-mining and software solutions firm.
- HP CEO Enrique Lores said the pandemic “put the PC in the center of this world,” a change he thinks will be permanent. The rise of hybrid office schedules is putting a greater focus on laptops compared to desktop computers, he said.
- Carrie Wheeler, finance chief at online real estate start-up Opendoor, thinks the hot housing market can continue. “Certainly, there’s nothing on the horizon in the near term that would suggest that we’re going to see a real change in housing momentum right now,” she says.
What’s Next: Geeta Gupta-Fisker, co-founder and finance chief of electric vehicle start-up Fisker, sees major automotive companies entering the space as a positive. “One of the critical things in automotive is volume,” she says. “It’s volume that drives price points down.”
Inflation has hit a 13-year high, and consumers are feeling the pinch from higher prices. But there are some people who stand to benefit when inflation increases. Who are they?
Higher prices for rental cars, airplane tickets and uncooked beef roasts have economists and consumers wondering whether we’re living through the start of an inflationary period.
It remains to be seen whether these price hikes are just a temporary blip resulting from a pandemic-era mismatch of supply and demand or an indication of inflation, an uptick in prices that continues month after month across a broad array of goods and services. If the latter holds true, at least one demographic could benefit from the trend: anyone, including consumers and governments, that holds fixed-rate debt.
“Inflation could be this giant wealth transfer,” from lenders to borrowers, said Kent Smetters, the faculty director of the Penn Wharton Budget Model, which analyzes public policy proposals’ impact on the budget and economy. “A lot of the lenders are people with wealth and a lot of the borrowers are people without wealth. It’s the lenders who are going to take a bit of a bath, and the borrowers are going to get a discount on what they have to repay.”
Read more here.
—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn