Economy

Federal Reserve Chair Jerome Powell said Wednesday the central bank could raise interest rates by a similar magnitude at the next policy meeting in July.
“From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting,” Powell said at a news conference.

Federal Reserve Chair Jerome Powell said Wednesday the central bank could raise interest rates by a similar magnitude at the next policy meeting in July as it did in June.
“From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting,” Powell said at a news conference following the central bank’s policy decision. “We anticipate that ongoing rate increases will be appropriate.”

“The pace of those changes will continue to depend on incoming data and evolving outlook on the economy,” Powell said. “Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.”

Federal Reserve Chair Jerome Powell.
Xinhua News Agency | Xinhua News Agency | Getty Images

The central bank on Wednesday raised benchmark interest rates by three-quarters of a percentage point to a range of 1.5%-1.75%, the most aggressive hike since 1994.
Powell leaving the door open to another big increase came as a positive surprise to markets as many investors urged the Fed chief to show his seriousness in combating surging prices. Major equity averages jumped to session highs after Powell’s remarks.
Pershing Square’s Bill Ackman said earlier this week that the Fed “has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed.”
Ackman called on the central bank to act more aggressively to restore market confidence, saying a series of 1 percentage point hikes would be more efficient in tamping down inflation.

The Fed’s move Wednesday comes with inflation running at its fastest pace in more than 40 years. The Federal Open Market Committee said in a statement that it is “strongly committed” to returning inflation to its 2% objective.
According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5 percentage points from the March estimate. The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was seen earlier this year.
“We will however make our decisions meeting by meeting and we’ll continue to communicate our thinking as clearly as we can,” Powell said.

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Builders have grown more pessimistic about the state of the housing market.
Sentiment, which has fallen for six straight months, is getting hit by higher interest rates.
Mortgage demand has fallen to less than half of what it was a year ago.

A contractor frames a house under construction in Lehi, Utah, U.S., on Wednesday, Dec. 16, 2020. Private residential construction in the U.S. rose 2.7% in November.
George Frey | Bloomberg | Getty Images

Sentiment among the nation’s homebuilders fell for the sixth straight month to the lowest level since June 2020, when the economy was grappling with shutdowns stemming from the Covid pandemic.
The National Association of Home Builders/Wells Fargo Housing Market Index fell 2 points to 67 in June. Anything above 50 is considered positive. The index hit 90 at the end of 2020, as the pandemic spurred strong demand for larger homes in the suburbs.

Of the index’s three components, buyer traffic fell 5 points to 48, the first time it has fallen into negative territory since June 2020. Current sales conditions fell 1 point to 77, and sales expectations in the next six months fell 2 points to 61.

“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” said NAHB Chairman Jerry Konter. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.”
The average rate on the 30-year fixed mortgage has risen sharply since the start of the year. In January it was right around 3.25%, and as of Tuesday it hit 6.28%, according to Mortgage News Daily. Mortgage demand has fallen to less than half of what it was a year ago.
Builders also continue to face supply-side challenges.
“Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown,” wrote Robert Dietz, NAHB’s chief economist.
Regionally, on a three-month moving average, sentiment in the Northeast fell 1 point to 71. In the Midwest it dropped 6 points to 56. In the South it fell 2 points to 78, and in the West it dropped 9 points to 74.

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What the federal funds rate means to you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and saving rates consumers see every day.

“We’re certainly going to see the cost of borrowing escalate relatively quickly,” Spatt said.
With the backdrop of rising rates and future economic uncertainty, consumers should be taking specific steps to stabilize their finances — including paying down debt, especially costly credit card and other variable rate debt, and increasing savings, said Greg McBride, chief financial analyst at Bankrate.com.

Pay down high-rate debt

Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark, so short-term borrowing rates are already heading higher.
Credit card rates are currently 16.61%, on average, significantly higher than nearly every other consumer loan, and may be closer to 19% by the end of the year — which would be a new record, according to Ted Rossman, a senior industry analyst at CreditCards.com.

If the APR on your credit card rises to 18.61% by the end of 2022, it will cost you another $832 in interest charges over the lifetime of the loan, assuming you made minimum payments on the average $5,525 balance, Rossman calculated.

If you’re carrying a balance, try consolidating and paying off high-interest credit cards with a lower interest home equity loan or personal loan or switch to an interest-free balance transfer credit card, he advised.
Consumers with an adjustable-rate mortgage or home equity lines of credit may also want to switch to a fixed rate, Spatt said. 
Because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, those homeowners won’t be immediately impacted by a rate hike.

However, the average interest rate for a 30-year fixed-rate mortgage is also on the rise, reaching 6.28% this week — up more than 3 full percentage points from 3.11% at the end of December.
“Given that they’ve already gone up so dramatically, it’s difficult to say just how much higher mortgage rates will go by year’s end,” said Jacob Channel, senior economic analyst at LendingTree.

On a $300,000 loan, a 30-year, fixed-rate mortgage would cost you about $1,283 a month at a 3.11% rate. If you paid 6.28% instead, that would cost an extra $570 a month or $6,840 more a year and another $205,319 over the lifetime of the loan, according to Grow’s mortgage calculator.

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising, so if you are planning to finance a new car, you’ll shell out more in the months ahead.
Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates — which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.
That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense.

Hunt for higher savings rates

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate. As a result, the savings account rates at some of the largest retail banks are barely above rock bottom, currently a mere 0.07%, on average.
“The rates paid by bigger banks are largely unchanged, so where you have your savings is really important,” McBride said.
Thanks, in part, to lower overhead expenses, the average online savings account rate is closer to 1%, much higher than the average rate from a traditional, brick-and-mortar bank.
“If you have money sitting in a savings account earning 0.05%, moving that to a savings account paying 1% is an immediate twentyfold increase with further benefits still to come as interest rates rise,” according to McBride.

Top-yielding certificates of deposit, which pay about 1.5%, are even better than a high-yield savings account.
However, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 
To that end, “one main opportunity out there is the possibility of buying some I bonds from the U.S. government,” Spatt said. 
These inflation-protected assets, backed by the federal government, are nearly risk-free and pay a 9.62% annual rate through October, the highest yield on record.
Although there are purchase limits and you can’t tap the money for at least one year, you’ll score a much better return than a savings account or a one-year CD.

What’s coming next for interest rates

Consumers should prepare for even higher interest rates in the coming months.
Even though the Fed has already raised rates multiple times this year, more hikes are on the horizon as the central bank grapples with inflation.
While expectations for those increases had been quarter and half-point hikes at each meeting, the central bank could hand out further 50 or 75 basis point increases if inflation doesn’t start to cool down.
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What does the Fed’s decision to raise its key interest rate by three-quarters of a percentage point mean for mortgages? [Here’s what the Fed’s decision means for credit cards, car loans and student loans.]Rates on 30-year fixed mortgages don’t move in tandem with the Fed’s benchmark rate, but instead track the yield on 10-year Treasury bonds, which are influenced by a variety of factors, including expectations around inflation, the Fed’s actions and how investors react to all of it.“We are seeing rates move up pretty briskly and a lot of that has to do with forward-looking expectations with where things are headed,” said Len Kiefer, deputy chief economist at Freddie Mac. “Maybe inflation will be stickier than the market thought.”Mortgage rates have jumped by two percentage points since the start of 2022, though they’ve held somewhat steady in recent months. But with consumer prices still surging, mortgage rates are on the rise once again — by some estimates, reaching as high as 6 percent.The closely watched rate averages from Freddie Mac won’t be released until Thursday, but they already began to tick a bit higher last week: Rates on 30-year fixed rate mortgages were 5.23 percent as of June 9, according to Freddie Mac’s primary mortgage survey, up from 5.09 percent the week before and 2.96 percent the same week in 2021.Other home loans are more closely tethered to the Fed’s move. Home equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the federal funds rates. More

NEW YORK (Reuters) – China’s holdings of U.S Treasuries tumbled in April to their lowest since May 2010, data showed on Wednesday, with Chinese investors likely cutting losses as Treasury prices fell after Federal Reserve officials signaled sizable rate hikes to temper soaring inflation.Chinese holdings dropped to $1.003 trillion in April, down $36.2 billion from $1.039 trillion the previous month, according to U.S. Treasury Department figures. China’s stock of Treasuries in May 2010 was $843.7 billion, data showed.The reduction in Treasury holdings may also have been aimed at diversifying China’s foreign exchange holdings, analysts said.The Chinese sales contributed to a drop in overall foreign holdings of Treasuries in April that helped propel yields higher. U.S. benchmark 10-year Treasury yields started April with a yield of 2.3895%, and surged roughly 55 basis points to 2.9375% by the end of the month.Japan’s holdings of U.S. Treasuries fell further in April to their lowest since January 2020, amid a persistent decline in the yen versus the dollar, which may have prompted Japanese investors to sell U.S. assets to benefit from the exchange rate. Japanese holdings fell to $1.218 trillion in April, from $1.232 trillion in March. Japan remained the largest non-U.S. holder of Treasuries.Overall, foreign holdings of Treasuries slid to 7.455 trillion, the lowest since April 2021, from $7.613 trillion in March.On a transaction basis, U.S. Treasuries saw net foreign outflows of $1.152 billion in April, from net new foreign inflows of $48.795 billion in March. This was the first outflow since October 2021.The Federal Reserve, at its policy meeting in March, raised benchmark interest rates by a quarter of a percentage point. It lifted rates by 50 bps in May, but at the June policy meeting on Wednesday lifted rates by a hefty 75 bps to stem a disruptive surge in inflation. The Fed also projected a slowing economy and rising unemployment in the months to come.In other asset classes, foreigners sold U.S. equities in April amounting to $7.1 billion, from net outflows of $94.338 billion in March, the largest since at least January 1978, when the Treasury Department started keeping track of this data. Foreign investors have sold stocks for four consecutive months.U.S. corporate bonds, on the other hand, posted inflows in April of $22.587 billion, from March’s $33.38 billion, the largest since March 2021. Foreigners were net buyers of U.S. corporate bonds for four straight months.U.S. residents, meanwhile, decreased their holdings of long-term foreign securities, with net sales of $36.7 billion, data showed. More

DUBAI (Reuters) – Most Gulf central banks followed the U.S. Federal Reserve on Wednesday, lifting their key interest rates by three-quarters of a percentage point, while Saudi Arabia made a smaller hike after the latest data showed inflation there slowing slightly.The U.S. central bank projected a slowing economy and rising unemployment in the United States in the months to come after raising its interest rate by its biggest hike since 1994.The Gulf Cooperation Council (GCC) countries have their currencies pegged to the U.S. dollar, except Kuwait. The Saudi Central Bank lifted its repo and reverse repo rates by 50 basis points (bps) to 2.25% and 1.75%, respectively. Saudi inflation edged down to 2.2% in May from 2.3% in April.The Central Bank of Kuwait raised its discount rate by 25 bps to 2.25%. Its peg to a basket, the composition of which is undisclosed, gives it more room to diverge from Fed policy if domestic economic conditions call for that.Monica Malik, chief economist at Abu Dhabi Commercial Bank, said, “on the whole, households in the region are seeing less pressures with weaker inflation than the global trend, albeit still rising. The economic outlook should still be supported by the investment programmes, which we see continuing.”The central banks of the United Arab Emirates, Qatar and Bahrain all hiked their key rates by 75 basis points in lockstep with the Fed.Oman, the remaining member of the six-country GCC, is widely expected to follow with a similar hike.The hikes “will create a headwind for recoveries in non-oil sectors by disincentivising borrowing and making it more attractive to save,” said James Swanston of Capital Economics.”However, we have tended to find that in periods when oil prices are high that it tends to be a stronger driver of credit growth than interest rates. This is usually a result of governments opting to loosen fiscal policy and, as a result, greater domestic economic confidence, which helps to drive demand for borrowing.”The Gulf economies rely heavily on hydrocarbons and have seen a huge windfall this year as oil prices soared amid supply concerns due to supply chain disruptions, the war in Ukraine and fears over a slowing economy, including due to hikes by world central banks as they try to tame inflation at multi-decade highs.(This story corrects to ‘hike’ from ‘cut’ in first paragraph) More

Chinese president Xi Jinping has renewed his support for Russia’s security interests in his first phone call with Vladimir Putin since the early days of Moscow’s invasion of Ukraine. The diplomatic gesture is designed to show that Russia is not isolated as the leaders of France, Italy and Germany prepare to travel to Ukraine and Nato defence ministers convene in Brussels this week to beef up military help to Kyiv. The Kremlin said Xi noted “the legitimacy of the actions taken by Russia to defend its core national interests in the face of challenges to its security created by external forces”. It added that the conversation, held on Xi’s 69th birthday, was “traditionally warm and friendly”, adding China’s relations with Russia were at “an unprecedentedly high level”. Xinhua, the Chinese state news agency, reported that Xi repeated his previous calls for Russia and other countries to find an end to the war, but said China was “willing to continue mutual support with Russia on issues related to sovereignty, security and issues of major concern”.More on the war in Ukraine: The US will provide an additional $1bn in security assistance to Ukraine, including artillery and coastal defence weaponry, president Joe Biden said.Feedback on today’s newsletter? Write to me at [email protected]. Thanks for reading FirstFT Asia — Emily Five more stories in the news1. New Hong Kong textbook seeks to recast city’s history New textbooks sent to Hong Kong secondary schools teach that the city was not a British colony, but an occupied territory — a recasting of history that is part of Beijing’s ideological clampdown in the city.2. Fed raises benchmark rate by 0.75 points The Federal Open Market Committee lifted its benchmark policy rate to a new target range of 1.50 per cent to 1.75 per cent, noting in a statement that it “anticipates that ongoing increases in the target range will be appropriate”. Wednesday also marked the start of the mammoth task of shrinking the Fed’s $9tn balance sheet.Market news: US stocks and government bond prices rebounded after five consecutive days of declines, as the Federal Reserve announced its largest interest rate rise in almost 30 years.3. Bitcoin tumble leaves the average buyer in the red The cryptocurrency industry’s “bloodbath” worsened as bitcoin touched fresh lows for the year that put the average buyer of the world’s most popular digital asset deeper in the red. Bitcoin dropped below $20,000 for the first time since July last year while ether, the token linked to the Ethereum blockchain, fell to nearly $1,000.4. China retail sales slide China’s retail sales declined for a third consecutive month in May as lockdowns and mass testing campaigns under President Xi Jinping’s zero-Covid strategy curtailed growth in the world’s biggest consumer market. Retail sales, an important gauge of consumption, fell 6.7 per cent compared with the same month a year ago. 5. Laos hit by fuel shortages and growing default risk Struggling with acute fuel shortages, rising food prices and growing debt, the Asian country has become the latest in the region after Sri Lanka to come under serious financial strain after a surge in global energy and commodity prices. Moody’s Investor Service yesterday downgraded the country’s sovereign debt rating one notch further into non-investment grade. The day aheadIndia hosts meeting of Asean foreign ministers New Delhi will host a meeting of Asean foreign ministers for the first time as it marks its 10th anniversary of its strategic partnership with the group. (Hindustan Times) Shanghai’s Disneytown and hotel to reopen After closing on March 21 because of rising Covid-19 cases in the city, Shanghai Disney Resort said Disneytown and the Shanghai Disneyland hotel will reopen today. However, the main park will remain closed for the time being. (Reuters) Japan trade balance figures Data will be released for the month of May. Trade imports are expected to have increased at the fastest pace in six-months, according to a Reuters poll. (Reuters) What else we’re reading and listening toDisney’s India cricket ploy has Wall Street stumped Disney was this week trumped in the race for the sport’s coveted five-year streaming rights by its own former Asia chief, Uday Shankar. Disney still stumped up for cricket rights, however, agreeing to pay $3bn to air the sport on traditional television in India — a move that left analysts and some rival bidders baffled.

The Board of Control for Cricket in India pulled in $6.2bn for the five-year IPL deal, valuing each match at $15mn © AP

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