Finance

As the U.S. Federal Reserve implemented its first interest rate cut since the early Covid pandemic, billionaire investor Ray Dalio flagged that the U.S. economy still faces an “enormous amount of debt.”
“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” the founder of Bridgewater Associates told CNBC’s “Squawk Box Asia.”

Ray Dalio, Bridgewater Associates co-chairman and co-chief investment officer, speaks during the Skybridge Capital SALT New York 2021 conference.
Brendan McDermid | Reuters

As the U.S. Federal Reserve implemented its first interest rate cut since the early Covid pandemic, billionaire investor Ray Dalio flagged that the U.S. economy still faces an “enormous amount of debt.”
The central bank’s decision to cut the federal funds rate by 50 basis points to a range of 4.75% to 5%. The rate not only determines short-term borrowing costs for banks, but also impacts various consumer products like mortgages, auto loans and credit cards.

“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” the founder of Bridgewater Associates told CNBC’s “Squawk Box Asia” on Thursday, noting the difficulty of this “balancing act.”
The U.S. Treasury Department recently reported that the government has spent more than $1 trillion this year on interest payments for its $35.3 trillion national debt. This increase in debt service costs also coincided with a significant rise in the U.S. budget deficit in August, which is approaching $2 trillion for the year.

On Wednesday, Dalio listed debt, money and the economic cycle as one of the top five forces influencing the global economy. Expanding on his point Thursday, he said he was generally interested in “the enormous amount of debt that is being created by governments and monetized by central banks. Those magnitudes have never existed in my lifetime.”
Governments around the world took on record debt burdens during the pandemic to finance stimulus packages and other economic measures to prevent a collapse.
When asked about his outlook and whether he sees a looming credit event, Dalio responded he did not.

“I see a big depreciation in the value of that debt through a combination of artificial low real rates, so you won’t be compensated,” he said.
While the economy “is in relative equilibrium,” Dalio noted there’s an “enormous” amount of debt that needs to be rolled over and also sold, new debt created by the government.”

Dalio’s concern is that neither former President Donald Trump or Vice President Kamala Harris will prioritize debt sustainability, meaning these pressures are unlikely to alleviate regardless of who wins the upcoming presidential election.
“I think as time goes on, the path will be increasingly toward monetizing that debt, following a path very similar to Japan,” Dalio posited, pointing to how the Asian nation has kept interest rates artificially low, which had depreciated the Japanese yen and lowered the value of Japanese bonds.
“The value of a Japanese bond has gone down by 90% so that there’s a tremendous tax through artificially giving you a lower yield each year,” he said.
For years, Japan’s central bank stuck to its negative rates regime as it embarked on one of the most aggressive monetary easing exercises in the world. The country’s central bank only recently lifted interest rates in March this year.

Additionally, when markets do not have enough buyers to take on the supply of debt, there could be a situation where interest rates have to go up or the Fed may have to step in and buy, which Dalio reckons they would.
“I would view [the] intervention of the Fed as a very significant bad event,” the billionaire said. Debt oversupply also raises questions of how it gets paid.
“If we were in hard money terms, then you would have a credit event. But in fiat monetary terms, you have the purchases of that debt by the central banks, monetizing the debt,” he said.
In that scenario, Dalio expects that the markets would also see all currencies go down as they’re all relative.
“So I think you’d see an environment very similar to the 1970’s environment, or the 1930 to ’45 type of period,” he said.
For his own portfolio, Dalio asserts that he does not like debt assets: “so if I’m going to take a tilt, it would be underweight in debt assets such as bonds,” he said.  More

Ray Dalio said the 2024 U.S. election will likely be the most important of his life, adding that he thinks the country needs is a “strong leader of the middle.”
The founder of Bridgewater Associates explained that what the U.S. should aim to reach “broad-based prosperity” and that the upcoming elections highlight challenges to society’s ability to function smoothly.
Asked about who he supported in the presidential race, Dalio said: “Neither is what the country needs.”

Ray Dalio said the 2024 U.S. elections will likely be the most important of his lifetime and he thinks the country needs a “strong leader of the middle.”
Speaking to CNBC’s “Squawk Box Asia” on Thursday, the founder of Bridgewater Associates explained that the U.S. should aim to reach “broad-based prosperity” and the presidential election highlights challenges to society’s ability to function smoothly.

“As far as the election goes, it’s going to be the most consequential election of my lifetime because we now have irreconcilable differences between the two sides,” he said. “The first question we’ll ask is: will we have an orderly transition of power? We have the question- the fact that it is possible — that election results may not be accepted — that’s quite something.”
On Wednesday, Dalio had named the elections as a major force shaping the global economy, calling it an “issue of internal order and disorder.”
He told CNBC on Thursday that there’s a larger problem with a “win-at-all-cost mentality,” as it presents “challenges to being able to compromise and make decisions in a way that is conducive to our democracy working effectively.”

Republicans and Democrats are sharply divided on a number of issues, such as abortion access, immigration and climate change. Top concerns for voters across the spectrum, however, include inflation and the high cost of living, according to nationwide polls.
When asked about who he supported in the presidential race, Dalio said “neither is what the country needs.”

“What the country needs is the moderates coming together to be able to work together and make great reform,” he said. “What the country needs is broad-based prosperity.”
While Dalio expressed optimism about certain parts of American society, like the universities and culture for innovation, he said that those exceptional elements benefit only a small percentage of the population.
He explained that broad-based prosperity creates a society where there is both order and opportunity, pointing to Singapore as an example. The Southeast Asian nation is frequently lauded for its high level of education and availability of public housing. More

The Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, amid signs that inflation was moderating and the labor market was weakening.
It was the first interest rate cut since the early days of the Covid pandemic.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Federal Reserve statement said.

WASHINGTON – The Federal Reserve on Wednesday enacted its first interest rate cut since the early days of the Covid pandemic, slicing half a percentage point off benchmark rates in an effort to head off a slowdown in the labor market.
With both the jobs picture and inflation softening, the central bank’s Federal Open Market Committee chose to lower its key overnight borrowing rate by a half percentage point, or 50 basis points, affirming market expectations that had recently shifted from an outlook for a cut half that size.

Outside of the emergency rate reductions during Covid, the last time the FOMC cut by half a point was in 2008 during the global financial crisis.
The decision lowers the federal funds rate to a range between 4.75%-5%. While the rate sets short-term borrowing costs for banks, it spills over into multiple consumer products such as mortgages, auto loans and credit cards.
In addition to this reduction, the committee indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year, close to market pricing. The matrix of individual officials’ expectations pointed to another full percentage point in cuts by the end of 2025 and a half point in 2026. In all, the dot plot shows the benchmark rate coming down about 2 percentage points beyond Wednesday’s move.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The decision to ease came “in light of progress on inflation and the balance of risks.” Notably, the FOMC vote was 11-1, with Governor Michelle Bowman preferring a quarter-point move. Bowman’s dissent was the first by a Fed governor since 2005, though a number of regional presidents have cast “no” votes during the period.

“We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with this inflation. That’s what we’re trying to do, and I think you could take today’s action as a sign of our strong commitment to achieve that goal,” Chair Jerome Powell said at a news conference following the decision.
Trading was volatile after the decision with the Dow Jones Industrial Average jumping as much as 375 points after it was released, before easing somewhat as investors digested the news and considered what it suggests about the state of the economy.
Stocks ended slightly lower on the day while Treasury yields bounced higher.
“This is not the beginning of a series of 50 basis point cuts. The market was thinking to itself, if you go 50, another 50 has a high likelihood. But I think [Powell] really dashed that idea to some extent,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “It’s not that he thinks that’s not going to happen, it’s that he’s not he’s not pre-committing to that to happen. That is the right call.”
The committee noted that “job gains have slowed and the unemployment rate has moved up but remains low.” FOMC officials raised their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June, and lowered the inflation outlook to 2.3% from 2.6% previous. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
The committee expects the long-run neutral rate to be around 2.9%, a level that has drifted higher as the Fed has struggled to get inflation down to 2%.
The decision comes despite most economic indicators looking fairly solid.
Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on continuing strength in consumer spending. Moreover, the Fed chose to cut even though most gauges indicate inflation well ahead of the central bank’s 2% target. The Fed’s preferred measure shows inflation running around 2.5%, well below its peak but still higher than policymakers would like.
However, Powell and other policymakers in recent days have expressed concern about the labor market. While layoffs have shown little sign of rebounding, hiring has slowed significantly. In fact, the last time the monthly hiring rate was this low – 3.5% as a share of the labor force – the unemployment rate was above 6%.
At his news conference following the July meeting, Powell remarked that a 50 basis point cut was “not something we’re thinking about right now.”
For the moment, at least, the move helps settle a contentious debate over how forceful the Fed should have been with the initial move.

However, it sets the stage for future questions over how far the central bank should go before it stops cutting. There was a wide dispersion among members for where they see rates heading in future years.
Investors’ conviction on the move vacillated in the days leading up to the meeting. Over the past week, the odds had shifted to a half-point cut, with the probability for 50 basis points at 63% just before the decision coming down, according to the CME Group’s FedWatch gauge.
The Fed last reduced rates on March 16, 2020, part of an emergency response to an economic shutdown brought about by the spread of Covid-19. It began hiking in March 2022 as inflation was climbing to its highest level in more than 40 years, and last raised rates in July 2023. During the tightening campaign, the Fed raised rates 75 basis points four consecutive times.
The current jobless level is 4.2%, drifting higher over the past year though still at a level that would be considered full employment.
“This was an atypical big cut,” Porceli said. “We’re not knocking on recessions’ door. This easing and this bit cut is about recalibrating policy for the fact that inflation has slowed so much.”
With the Fed at the center of the global financial universe, Wednesday’s decision likely will reverberate among other central banks, several of whom already have started cutting. The factors that drove global inflation higher were related mainly to the pandemic – crippled international supply chains, outsized demand for goods over services, and an unprecedented influx of monetary and fiscal stimulus.
The Bank of England, European Central Bank and Canada’s central bank all have cut rates recently, though others awaited the Fed’s cue.
While the Fed approved the rate cut, it left in place a program in which it is slowly reducing the size of its bond holdings. The process, nicknamed “quantitative tightening,” has brought the Fed’s balance sheet down to $7.2 trillion, a reduction of about $1.7 trillion from its peak. The Fed is allowing up to $50 billion a month in maturing Treasurys and mortgage-backed securities to roll off each month, down from the initial $95 billion when QT started.

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U.S. Federal Reserve Chair Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., July 31, 2024. 
Kevin Mohatt | Reuters

The Federal Reserve projected lowering interest rates by another half point before the end of 2024, and the central bank has two more policy meetings to do so.
The so-called dot plot indicated that 19 FOMC members, both voters and nonvoters, see the benchmark fed funds rate at 4.4% by the end of this year, equivalent to a target range of 4.25% to 4.5%. The Fed’s two remaining meetings for the year are scheduled for Nov. 6-7 and Dec.17-18.

Through 2025, the central bank forecasts interest rates landing at 3.4%, indicating another full percentage point in cuts. Through 2026, rates are expected to fall to 2.9% with another half-point reduction.
“There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done,” Fed Chairman Jerome Powell said in a news conference. “This process evolves over time.”
The central bank lowered the federal funds rate to a range between 4.75%-5% on Wednesday, its first rate cut since the early days of the Covid pandemic.
Here are the Fed’s latest targets:

Arrows pointing outwards

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the post-meeting statement said.

The Fed officials hiked their expected unemployment rate this year to 4.4%, from the 4% projection at the last update in June.
Meanwhile, they lowered the inflation outlook to 2.3% from 2.6% previously. On core inflation, the committee took down its projection to 2.6%, a 0.2 percentage point reduction from June.
— CNBC’s Jeff Cox contributed reporting.

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The Federal Reserve’s decision to lower interest rates by half a percentage point, announced on September 18th, is momentous for two reasons. As the first cut by America’s central bank since it lifted rates to quell inflation, it marks the start of a monetary-easing cycle. It also represents a bet by the Fed that inflation will soon be yesterday’s problem and that action is needed to support the labour market. For the first time since 2005, one of the Fed’s governors in Washington, DC, dissented from the decision. Michelle Bowman preferred to cut rates by a quarter-point. More

JPMorgan Chase created a new global role overseeing all junior bankers in an effort to better manage their workload after the death of a Bank of America associate in May forced Wall Street firms to examine how they treat their youngest employees.
The firm named Ryland McClendon its global investment banking associate and analyst leader in a memo sent this month, CNBC learned.
The memo specifically stated that McClendon would support the “well-being and success” of junior bankers.

JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C., on Dec. 6, 2023.
Evelyn Hockstein | Reuters

JPMorgan Chase has created a new global role overseeing all junior bankers in an effort to better manage their workload after the death of a Bank of America associate in May forced Wall Street to examine how it treats its youngest employees.
The firm named Ryland McClendon its global investment banking associate and analyst leader in a memo sent this month, CNBC has learned.

Associates and analysts are on the two lowest rungs in Wall Street’s hierarchy for investment banking and trading; recent college graduates flock to the roles for the high pay and opportunities they can provide.
The memo specifically stated that McClendon, a 14-year JPMorgan veteran and former banker who was previously head of talent and career development, would support the “well-being and success” of junior bankers.
The move shows how JPMorgan, the biggest American investment bank by revenue, is responding to the latest untimely death on Wall Street. In May, Bank of America’s Leo Lukenas III died after reportedly working 100-hour weeks on a bank merger. Later that month, JPMorgan CEO Jamie Dimon said his bank was examining what it could learn from the tragedy.
Then, starting in August, JPMorgan’s senior managers instructed their investment banking teams that junior bankers should typically work no more than 80 hours, part of a renewed focus to track their workload, according to a person with knowledge of the situation.
Exceptions can be made for live deals, said the person, who declined to be identified speaking about the internal policy.

Dimon’s warning

Dimon railed against some of Wall Street’s ingrained practices at a financial conference held Tuesday at Georgetown University. Some of the hours worked by junior bankers are just a function of inefficiency or tradition, rather than need, he indicated.
“A lot of investment bankers, they’ve been traveling all week, they come home and they give you four assignments, and you’ve got to work all weekend,” Dimon said. “It’s just not right.”
Senior bankers would be held accountable if their analysts and associates routinely tripped over the policy, he said.
 “You’re violating it,” Dimon warned. “You’ve got to stop, and it will be in your bonus, so that people know we actually mean it.”

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Steve Cohen is retiring from the trading floor at his hedge fund Point72.
Point72, which uses long/short, macro and systematic strategies, manages more than $35 billion.
The firm is planning to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.

Steven Cohen, founder of Point72 and majority owner of the New York Mets, attends a news conference at Citi Field, the home stadium of MLB’s New York Mets, in Queens, New York, on Feb. 10, 2021.
Brendan McDermid | Reuters

Billionaire investor Steve Cohen is retiring from the trading floor at his hedge fund Point72.
The prominent hedge fund investor, who also owns the New York Mets, will continue his role as the co-chief investment officer at Point72, which Cohen converted from S.A.C. Capital Advisors in 2014 after lofty insider-trading settlements.

“He is taking a break from trading his own book and he feels he can have a greater impact by focusing on running the firm, driving strategic initiatives, and mentoring and coaching the next generation of talent,” a spokesperson at Point72 said.
Point72, which uses long/short, macro and systematic strategies, manages more than $35 billion. Most recently, the firm is planning to launch a separate, artificial intelligence-focused hedge fund to capitalize on the boom.
Earlier this year, Cohen came out as a long-term AI bull. He has called AI a “really durable theme” for investing, comparing the rise to the technological developments in the 1990s.
“There’s huge value in having Steve as an impactful mentor for our investment professionals; he’s been doing this for 40 years and he’s seen a lot,” Point72 said. “That’s what gives him the most satisfaction these days — helping people succeed and seeing it make a difference — and where he feels he can add the most value.”
Bloomberg News first reported on Cohen’s move away from trading earlier Tuesday.

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Apple is in discussions with JPMorgan Chase for the bank to take over the tech giant’s flagship credit card program from Goldman Sachs, a person with knowledge of the negotiations said.
The discussions are still early and could falter, and key elements of a deal — such as price and whether JPMorgan would continue certain features of the Apple Card — are yet to be decided, said the person, who declined to be identified.
The bank is seeking to pay less than face value for the roughly $17 billion in loans on the Apple Card because of elevated losses on the cards.

Apple CEO Tim Cook introduces the Apple Card during a launch event at Apple headquarters in Cupertino, California, on March 25, 2019.
Noah Berger | AFP | Getty Images

Apple is in discussions with JPMorgan Chase for the bank to take over the tech giant’s flagship credit card program from Goldman Sachs, a person with knowledge of the negotiations said.
The discussions are still early and key elements of a deal — such as price and whether JPMorgan would continue certain features of the Apple Card — are yet to be decided, said the person, who requested anonymity to discuss the nature of the potential deal. The talks could fall apart over these or other matters in the coming months, this person said.

But the move shows the extent to which Apple’s choices were limited when Goldman Sachs decided to pivot from its ill-fated retail banking strategy. There are only a few card issuers in the U.S. with the scale and appetite to take over the Apple Card program, which had saddled Goldman with losses and regulatory scrutiny.
JPMorgan is the country’s biggest credit card issuer by purchase volume, according to the Nilson Report, an industry newsletter.
The bank is seeking to pay less than face value for the roughly $17 billion in loans on the Apple Card because of elevated losses on the cards, the person familiar with the matter said. Sources close to Goldman argued that higher-than-average delinquencies and defaults on the Apple Card portfolio were mostly because the users were new accounts. Those losses were supposed to ease over time.
But questions around credit quality have made the portfolio less attractive to issuers at a time when there are concerns the U.S. economy could be headed for a slowdown.
JPMorgan is also seeking to do away with a key Apple Card feature known as calendar-based billing, which means that all customers get statements at the start of the month rather than staggered throughout the period, the person familiar with the matter said. The feature, while appealing to customers, means service personnel are flooded with calls at the same time every month.
Apple and JPMorgan declined to comment on the negotiations, which were reported earlier by The Wall Street Journal.

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