Finance

Oliver Contreras/Sipa/Bloomberg via Getty ImagesThe U.S. would tax capital gains and dividends for the rich at among the highest rates in the developed world if President Joe Biden’s proposal were enacted.The top rate high-earning Americans pay on dividends and the sale of appreciated assets would jump to nearly 49%, when combining all federal and state taxes, according to the Tax Foundation.Ireland is the only other developed nation to levy a higher tax on investment income – 51% on dividends. But when it comes to capital gains, the U.S. would claim the highest top rate, according to Tax Foundation data.(Unlike the U.S., many countries tax capital gains and dividends at different rates.)”If the [Biden] proposal went through, we’re right at the top of the world,” according to James Hines Jr., a law and economics professor at the University of Michigan and research director at its Office of Tax Policy Research.The U.S. currently taxes qualified dividends and long-term capital gains for the wealthiest citizens at about 29%. (Again, that’s a combined rate that includes state and federal taxes.)That levy is about average among the 37 nations in the Organization for Economic Co-operation and Development, according to tax experts.The top 0.3%Of course, there are many caveats to this analysis. It’s difficult to compare tax burdens across countries due to extreme variation in certain details, according to experts.For one, the top U.S. rate would apply to relatively few taxpayers each year. Other developed countries impose their top tax rate on a broader pool of people.More from Personal Finance:Big savers may boost their retirement stash with this optionHere’s Suze Orman’s best advice for small business ownersJust 5% of people who applied for public service loan forgiveness have qualifiedThe Biden administration policy targets the richest Americans — the top 0.3% — because they are often able to manipulate the tax system in their favor, according to a White House official. It’s therefore unfair to compare the top tax rate more broadly, the official said.A recent ProPublica report found that some of the world’s wealthiest executives — like Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk — pay little to no taxes compared to their wealth.The wealthiest taxpayers often receive income from so-called “capital income” like interest, dividends and capital gains.Biden’s proposal would raise the top federal rate on long-term capital gains and qualified dividends to 39.6%, from 20%, for taxpayers with annual income over $1 million.(Under current law, a 3.8% net investment income tax also applies to taxpayers with more than $200,000 of income and married couples with more than $250,000. Most states also impose a separate tax on capital gains and dividends — the average top state rate is 5.2%, according to the Tax Foundation.)Combined, that yields a top rate of 48.6%.Denmark and Chile are the only other developed nations with a capital-gains tax rate of at least 40%. And relative to dividends, that’s true for just three countries: Ireland, Korea and Denmark.Biden’s proposal is part of a broader plan to raise taxes for households making more than $400,000 a year, to help fund domestic initiatives that largely benefit the low and middle class. The plan would change capital gains taxes in other ways, too, including taxing appreciated assets upon an owner’s death. Progressive tax systemBut most Americans would pay a much lower federal tax rate than the headline top rate.Indeed, the U.S. capital-gains tax regime is progressive relative to other countries, according to Garrett Watson, a senior policy analyst at the Tax Foundation.Single taxpayers with between roughly $40,000 and $446,000 of income pay 15% on their long-term capital gains or dividends in 2021. Those with less income don’t pay any taxes.The top bracket includes a lot of people in the U.K., whereas that wouldn’t be true in the U.S.James Hines Jr.research director at the University of Michigan’s Office of Tax Policy ResearchBut France, for example, has a flat 30% tax rate on capital gains and dividends — meaning it applies to everyone regardless of income. (High earners pay an additional 4%.) The Netherlands, Israel, Germany, Japan and Hungary also impose a flat tax.Even in nations without a flat tax, their top rate may include a broader swath of the population.”The top bracket includes a lot of people in the U.K., whereas that wouldn’t be true in the U.S.,” Hines said.Also, rules across developed countries may bump their tax rates up to levels higher than they might initially appear.For example, nine OECD countries — Belgium, the Czech Republic, Korea, Luxembourg, New Zealand, Slovakia, Slovenia, Switzerland and Turkey — have a 0% tax on capital gains.But they do tax dividends. And some levy a tax if the asset isn’t held for a certain length of time. In Slovenia, for example, the 0% tax only applies to assets held for at least 20 years. Rates could be as high as 27.5% for shorter holding periods.U.S. statesPlus, U.S. states vary greatly in how they tax capital gains and dividends, according to Hines. For example, residents of Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington state and Wyoming wouldn’t owe additional state tax on capital gains, according to the Tax Foundation. Their top rate under Biden’s proposal would be 43.4% (which includes the 39.6% federal rate and the 3.8% net investment income tax). By comparison, California, New York, and New Jersey would have combined rates of more than 54% for the wealthiest residents. More

Take a look at some of the biggest movers in the premarket:MicroStrategy (MSTR) – MicroStrategy shares tumbled 8.7% in premarket trading amid a slide in bitcoin prices following the expansion of China’s crackdown on bitcoin mining. The business analytics company is among the biggest corporate investors in bitcoin, with several billion dollars in holdings on its books.Coinbase (COIN) – The cryptocurrency platform’s stock slid 3% in premarket action, also hit by the drop in cryptocurrencies amid the latest actions by the Chinese government.Raven Industries (RAVN) – Raven agreed to be bought by fellow agricultural equipment maker CNH Industrial (CNHI) for $58 per share, or $2.1 billion, compared to Raven’s Friday close of $38.62 per share. The stock soared 49.7% in premarket trading.ZipRecruiter (ZIP) – The jobs website operator’s shares rose 2.8% in the premarket after Goldman Sachs rated it “buy” in new coverage and Evercore began coverage with a rating of “outperform.” The upbeat assessments cite ZipRecruiter’s growth prospects and ability to disrupt the employment market.HSBC (HSBC) – HSBC sold its French retail bank to private-equity firm Cerberus Capital for 1 euro, and expects to book a $3 billion loss after unloading the unprofitable operation.Pershing Square Tontine Holdings (PSTH) – The SPAC controlled by billionaire investor Bill Ackman finalized a deal to buy a 10% stake in Universal Music from Vivendi. The deal values Universal Music – the world’s largest music company – at about $40 billion. Shares gained 1.1% in the premarket.GlaxoSmithKline (GSK) – Glaxo is set to cut its dividend, according to a report in the U.K.’s Daily Mail newspaper. The drugmaker will hold an investor event on Wednesday, and the paper said a cut of as much as 50% will be revealed at that meeting.Tesla (TSLA) – Former Tesla executive Jerome Guillen sold about $274 million in Tesla shares since June 10, according to a Securities and Exchange Commission filing. Guillen left Tesla earlier this month after 11 years, most recently running the company’s Tesla Heavy Trucking unit.American Airlines (AAL) – American Airlines will cut planned flights for the first half of July by about 950 flights, or 1%, to relieve strains on its operations as it deals with the sharp rebound in travel demand.Westlake Chemical (WLK) – Westlake will buy the North American building products business of Australia’s Boral for $2.15 billion. Westlake said the acquisition will boost its presence in products like roofing and siding, and that it will be accretive to earnings during the first year.Amazon.com (AMZN) – Amazon’s two-day Prime Day event is underway, the first time the event has been held in June. A number of other major retailers – including Walmart (WMT), Target (TGT), Kohl’s (KSS), Macy’s (M) and Costco (COST) are holding competing sales events this week.Boston Beer (SAM) – Guggenheim repeated its “buy” recommendation on the Sam Adams beer brewer, and elevated it to “top pick” status. Guggenheim notes a depressed valuation, easier retail comps beginning in June and underappreciated growth prospects for the Truly hard seltzer brand. More

The Revolut logo displayed on a smartphone and a PC screen.Pavlo Gonchar | SOPA Images | LightRocket via Getty ImagesLONDON — British fintech start-up Revolut saw slower growth in revenues and mounting losses last year as the coronavirus pandemic hit payment volumes, though an increase in the value of cryptocurrencies gave the company a big boost.Revolut generated revenues of £222.1 million ($310.5 million) in 2020, up 34% from the £166 million revenue it made a year earlier. However, the company said adjusted revenues, a metric it uses to account for revaluation of intangible assets like crypto, came in at £261 million, up 57% year-on-year.Revenue growth was much slower last year compared to 2019, when the company reported an almost threefold increase in sales. Revolut was last privately valued at $5.5 billion and is reportedly seeking a valuation of more than $10 billion in its next fundraising round, according to a Sky News report.A rise in the value of cryptocurrencies, which Revolut supports through its trading features, led to a £38.7 million windfall for the firm. However, this wasn’t shown on Revolut’s income statement due to a change in reporting, Mikko Salovaara, Revolut’s chief financial officer, said.Bitcoin, the world’s biggest digital coin, almost quadrupled in value over the course of last year, and rallied to an all-time high close to $65,000 in April 2021, but it’s fallen significantly since and was last trading at about $33,000.Revolut reported a total annual loss of £167.8 million, or $231.8 million, higher than the £106.7 million it lost in 2019. But it reported adjusted operating losses, which include crypto revaluation income but exclude share-based payments, of £122 million, an increase from the £98.4 million loss in its previous fiscal year.Meanwhile, Revolut said gross profit, a measure that excludes onboarding costs, more than tripled year-on-year to £123 million. The company’s gross profit margin rose to 49% in 2020 from 25% a year earlier. By the fourth quarter of 2020, Revolut says its gross margin exceeded 60%, resulting in an adjusted operating profit in November and December.”It’s a translation into numbers of the very good performance that we’ve seen in the year 2020 and basically is ultimately a validation of the business model and the strategy we have set out,” Salovaara said.Revolut, which offers app-based checking accounts and trading services, still makes most of its revenue from interchange fees that are taken from a merchant’s bank account each time a customer uses their card. The firm sought to reduce its reliance on interchange, however, as the coronavirus pandemic led to a sharp drop in payment volume.Covid-19 forced Revolut to cut down on costs and “repurpose” staff for more profitable endeavors like crypto, stock trading and business accounts, CEO Nik Storonsky told CNBC.Now, “every single P&L [profit and loss] line is actually above Covid, some two, three, four or five times above Covid,” said Storonsky, adding the pandemic was “initially a painful experience” but overall “very positive for us because it allowed us to focus on the right product lines.”About 36% of Revolut’s 2020 revenues came from card and interchange income, according to its annual report, while foreign exchange income accounted for 31% and paid subscriptions made up 29%.The retail investing frenzy that kicked off 2021, pumping up the prices of stocks like GameStop and AMC, was likely a boon to Revolut as well. The company said revenue surged 130% year-on-year in the first quarter of 2021, while gross profit more than quadrupled. Revolut now has 15.5 million customers in total.Revolut has been pushing aggressively into overseas markets like the U.S. and Asia. The firm applied for a U.S. banking license earlier this year. The company is also investing heavily closer to home. It already has an EU banking license but submitted its application for a British banking license in January in a bid to expand lending activity. More

In this articleTraders on the floor of the New York Stock Exchange, June 18, 2021.Source: NYSEStock futures are mostly flat on Sunday to kick off a new week of trading after the Dow posted its worst week since October.Futures on the Dow Jones Industrial Average shed 8 points, or 0.02%. S&P 500 futures dipped 0.08%. Meanwhile, Nasdaq 100 futures edged 0.02% higher.U.S. stocks fell on Friday as investors digested new economic projections from the Federal Reserve and worried rate hikes could come sooner than expected.The Fed on Wednesday raised its inflation expectations and forecast rate hikes in 2023. St. Louis Fed President Jim Bullard said Friday on CNBC’s “Squawk Box” that it was natural for the central bank to tilt a little more “hawkish” and saw higher interest rates as soon as 2022.The Dow dropped 3.5% last week, while the S&P 500 and Nasdaq dipped 1.9% and 0.2%, respectively, on the week.Sectors tied to the economic recovery led last week’s dip. The S&P 500 financials and materials sectors lost more than 6% on the week, while energy fell more than 5% and industrials dropped more than 3%.Stock picks and investing trends from CNBC Pro:The global bull market will run through 2021 with only small pullbacks, Ned Davis Research predictsEnergy stocks roar toward their best year in three decades amid recovery in oilGoldman believes these quality stocks are cheap”Investors may be interpreting the Fed’s hawkish tilt Wednesday as a sign that an extended US post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy,” Goldman Sachs’ Chris Hussey said in a note.The Treasury yield curve also flattened last week. The yields of shorter-term Treasurys, like the 2-year note, rose — reflecting expectations of the Fed raising rates. Longer-term yields, like the 10-year note, retreated — a sign of less optimism toward economic growth.Investors await public appearances from Fed members on Monday. Bullard and Dallas Fed President Robert Kaplan are set to speak virtually on a Official Monetary and Financial Institutions Forum panel at 9:00 a.m. ET. New York Fed President John Williams is expected to deliver remarks at a Midsize Bank Coalition of America event Monday afternoon. More

A worker pours wine at a winery in Yinchuan, Ningxia Hui Autonomous Region in 2015.GOH CHAI HIN | AFP | Getty ImagesBEIJING — Fresh off a surge in wine exports and a visit from President Xi Jinping last year, China wants to turn its primary wine-producing region of Ningxia into one that rivals France’s Bordeaux.By 2035, Ningxia’s Helan Mountains area aims to produce 600 million bottles worth 20 billion yuan ($3.12 billion), according to a plan the central government approved in late May. The region along the Yellow River is about a two hours’ flight west from Beijing and lies in a latitude similar to that of France’s famed wine country.”If this goal can be achieved, Helan Mountains’ eastern foothills will become an internationally important and influential production area, with a scale matching that of Bordeaux,” Sui Pengfei, director of international cooperation at China’s agriculture ministry told reporters last week in Mandarin, according to a CNBC translation.Ningxia is just one of several wine-producing areas in China, but its Helan Mountains’ eastern foothills has a diverse variety of grapes on par with that of Bordeaux or Napa Valley in the U.S., and accounts for the majority of domestic wine production, Sui said.Even if the 15-year target is more than quadruple Ningxia’s annual wine production, the numbers roughly match up to those of France’s wine capital.Bordeaux produced 522 million bottles worth 3.5 billion euros ($4.16 billion) last year, according to a French industry group.Like many high-level Chinese plans, the one for wine is vague on implementation details. Instead, it lays out a framework for development that ranges from improving local winemaking knowledge and ecological conservation to “a window” for China’s wine to “integrate with the world,” according to a CNBC translation of the Chinese text.Read more about China from CNBC ProChina’s Gen Z are set to spend big – analysts pick 3 stocks that could be winnersCiti upgrades Nio, says growing EV demand in China can lift stock more than 50%Chinese yuan will become a top reserve currency sooner than expected, says Ray DalioLast year, during the coronavirus pandemic, Ningxia’s wine exports rose 46.4% to 2.65 million yuan (about $414,100), according to the local customs agency. Primary destinations included the U.S., the European Union, Australia and Japan.Ningxia-based winery Xige Estate exported some wine to Canada last year, founder Zhang Yanzhi told CNBC.His company started exporting to Switzerland, Japan, Hong Kong and France in small amounts this year, he said, adding that there are plans to enter the U.S. market as well.However, he said he plans to focus on the Chinese market, with exports accounting for just 10% to 20% of production in the long term.China ranks sixth in global wine consumption and tenth in production by liters, according to an annual report released in April by the International Organisation of Vine and Wine.The report noted that China’s wine consumption and production have declined over the last few years, potentially due to difficult climate conditions and low productivity. These issues “are making the Chinese wine industry less competitive compared to imported wines,” the authors wrote.Imports of Australian wine plungeThe central government’s push this year to further develop vineyards in Ningxia comes as China’s relations with Australia deteriorate. The country was China’s largest source of foreign-made wine in 2020, slightly above France, but Chinese tariffs imposed in March have essentially blocked further wine imports from Australia.While Australian producers have found new buyers in the U.K., U.S. and Southeast Asia, it will probably take three or four years to recover losses — and not all the roughly 1,000 China-focused wine exporters will survive, said Tony Battaglene, chief executive of Australian Grape and Wine, an industry interest group.He said Australian businesses still hope to re-enter the Chinese market when the tariffs are set to expire in five years, and that Australian wine experts can help Chinese producers navigate climate-related problems that both face.Rivals at home for Chinese wineIn the domestic Chinese market, local producers still face competition from high quality wine at low prices, Battaglene said.On the international level, Chinese producers have “got a long way to go before they become a big exporter,” he added.Officials at last week’s press conference did not comment on the Australian wine tariffs.As a result of those tariffs, Chinese imports of wine from Chile and France are getting a boost, said Xige’s Zhang, who also attended the event in Beijing. He said the government’s emphasis on Ningxia’s wine industry will likely help vineyards get financing, since they won’t be viewed as merely agriculture businesses.Zhang added that growing attention on the wine industry is helping boost domestic tourism. His 22 guest rooms that run for 1,200 yuan ($188) a night have been sold out every weekend since early May.In addition to the popularity of foreign brands, one of the bigger challenges for China’s wine industry is a local preference for a strong, clear liquor known as baijiu. The alcohol is a staple at Chinese business and government dinners, and one of the main brands, Kweichow Moutai, is one of the largest publicly traded stocks in mainland China.If wine can be as cheap as baijiu, or about 40 yuan ($6.20) for some bottles, then more people will consume it, said the agriculture ministry’s Sui. Chinese need to “drink less baijiu, drink more wine.” More

Moody’s Analytics Mark Zandi has a message for investors: Brace for a significant market correction.The firm’s chief economist expects a more hawkish Federal Reserve will spark a 10% to 20% pullback.And, unlike the sharp drops over the past several years, Zandi anticipates a quick recovery won’t be in the cards particularly because the market is richly valued. He estimates it could take a year to return to break even.”The headwinds are building for the equity market,” Zandi told CNBC’s “Trading Nation” on Friday. “The Federal Reserve has got to switch gears here because the economy is so strong.”He suggests the correction may already be underway because investors are starting to get spooked.The Dow just saw its biggest weekly loss since October 2020, tumbling 3.45%.The broader S&P 500 saw its worst week since late February. The tech-heavy Nasdaq also had a losing week, but it’s just 1.28% off its all-time high.Despite his market warning, Zandi believes the economy will avert a recession because the downturn is more about risk asset prices getting overextended than a serious fundamental issue.Stock picks and investing trends from CNBC Pro:The global bull market will run through 2021 with only small pullbacks, Ned Davis Research predictsEnergy stocks roar toward their best year in three decades amid recovery in oilGoldman believes these quality stocks are cheap”The economy is going to be rip-roaring,” he said. “Unemployment is going to be low. Wage growth is going to be strong.”Zandi has been ringing the alarm on inflation for months.On “Trading Nation” in early March, Zandi asserted inflation was “dead ahead” and investors weren’t fully grasping the risks. According to Zandi, it’s still a problem affecting stock market and bond investors. Zandi sees little chance the benchmark 10-year Treasury Note yield will keep falling.”I wouldn’t count on rates staying at 1.5% for very long given what’s going on,” he added.Stocks and bonds aren’t the only risk assets catching his attention. Zandi also sees more trouble brewing in the commodities and cryptocurrency sell-offs. Plus, he’s worried about the sustainability of a strong housing market amid higher mortgage rates.”Inflation is going to be higher than it was pre-pandemic,” Zandi said. “The Fed has been struggling for at least a quarter of a century to get inflation up, and I think they’ll be able to get that.”Disclaimer More

WHEN THE European Union launched the euro two decades ago, economists wondered if this novel currency might pull off a feat none other had managed in the post-war period: to challenge the mighty American dollar. However, reserve managers at the world’s central banks, as well as business folk the world over, largely stuck with the trusty greenback. Now Europe is having another go at establishing the bona fides of the euro beyond its borders. A significant step was taken on June 15th when $20bn worth of bonds was issued as part of the Next Generation EU (NGEU) scheme to boost European economies. Those bonds could yet rival American Treasury bonds as a safe asset of choice.Currencies exist mainly to facilitate the transactions of people and businesses within the borders of the places that issue them. But having an international presence helps in myriad ways. For firms, having imports and exports denominated in their local currency rather than, say, the dollar, means less disruption when exchange rates inevitably see-saw. Issuing a currency that foreigners want to hold can make it easier for governments to raise money from them at cheap rates. That in turn drives down the cost of borrowing for firms and banks.The euro is widely available outside the 19 countries that formally use it. About two dozen countries link their own currencies to it in some way, albeit mainly former European colonies and close neighbours. Between a third and half of all euro banknotes by value are held outside the euro area, according to the European Central Bank (ECB). Nevertheless, by the conventional measures used to gauge international usage, it is a distant runner-up to the greenback.Around a fifth of all foreign-exchange reserves accumulated by central banks, and a similar percentage of cross-border loans and bonds, are denominated in euros—the share for the dollar is about 60%. The euro’s share of payments for transactions is much closer to that of the dollar (see chart), unsurprisingly given that the EU is the world’s biggest importer and exporter of goods and services. Still, commodities like oil remain mostly priced in dollars.In its first few years the single currency looked as if it might rival the post-war champion. By 2007 the euro even became the most popular currency in which to issue foreign-currency denominated debt (for example by multinationals). It was not to last. The financial crisis that started that year prompted skittish investors to fall back on the dollar as their currency of choice. The euro zone miasma that ensued, during which the very survival of the single currency came into question, seemed to vindicate their decision. Depending on the measure used, the euro has since flatlined or lost importance.Europe now wants to have another crack, if not at overtaking the dollar, at least reducing the latter’s dominance. Two changes in circumstances mean there is a chance the euro could gain ground.The first is America’s changing attitude to international economic policymaking—at least under the presidency of Donald Trump. His brand of jingoist protectionism jarred with the obligations incumbent on the issuer of the world’s reserve currency. Even under the more conciliatory Biden regime, Europe frets that its interests will not always be aligned with America’s. Relying on the dollar is perceived as an even greater potential vulnerability than before.In March, euro zone leaders said that boosting the currency’s international use would help them achieve “strategic autonomy”. The EU has been particularly irked to discover that businesses in the region were in effect forced to abide by American sanctions that Europe opposed, for example on Iran. America has used the need of big banks to have access to dollars to police their behaviour far beyond its shores. Those that have fallen foul of American edicts have incurred large fines.Critics see this extra-territorial prerogative as an undue weaponisation of the dollar. That has encouraged a change of mind among those who have traditionally been resistant to boosting the international role of the euro. In times of crisis, global reserve currencies tend to spike as investors seek a safe haven. Such unpredictable capital flows worried German monetary policymakers in the age of the Deutschmark; their scepticism carried over to the ECB. It has historically sought to “neither hinder nor foster” an international euro, but is now seen as more amenable to the idea.The second change came, unexpectedly, as a result of the pandemic. Whereas the last global recession brought the euro to the precipice, on this occasion the swift actions of the ECB and national governments to support their economies were well received. Such battle-hardening has boosted the credibility of the euro in a crisis—a key attribute of a global currency.Better yet, part of the bloc’s economic response to the crisis has tweaked the architecture of the single currency in ways that should bolster its international attractiveness. A big step was the creation of the NGEU scheme and the subsequent bond issuance. The bonds are effectively backed by the balance-sheet of all EU member states, thus making them roughly akin to America’s Treasury bonds. This is a relative novelty in Europe, where borrowing has mostly been done by national governments, whose creditworthiness vary. The new pan-EU bond creates a way for investors to save in euros without taking credit risk (as they might if they were lending to Italy, say).The absence of such a “safe asset” had been one element hampering the use of the euro internationally. All manner of cross-border operations, from central-bank reserve management to companies borrowing money in a foreign currency, are underpinned by a liquid risk-free benchmark. The bonds of Germany have served as an imperfect proxy until now, but the NGEU issuance “contributes to making the euro a better substitute for the dollar,” says Reza Moghadam of Morgan Stanley, a bank. More

FOR SEVEN months most investors have been singing the same uplifting song. Since Pfizer and BioNTech published the successful results of trials of their covid-19 vaccine last November, the way to make money in markets has been to bet on a roaring rebound in the global economy, as pent-up demand for all the things the pandemic denied people—holidays, dining out, shopping—was unleashed. This “reflation” trade lifted the prices of commodities used in construction, such as copper and lumber, to record heights. It lifted global stocks, especially the share prices of firms hardest hit by the pandemic, such as cruise operators and retailers. The currencies of emerging economies, which tend to benefit more than most from global economic strength, rallied against the dollar and the euro. Bond yields climbed along with expectations of speedy growth and higher inflation.But that changed on June 16th, after the Federal Reserve—hitherto apparently sanguine about rising American inflation—suggested that it may eventually think about raising its policy rate, long anchored at zero. Shorter-dated bonds and shares tumbled, as did those building-boom commodities. After a jittery week, some investors may start this one wondering whether they over-reacted.The enthusiasm of the past few months was underpinned partly by the assumption that the Fed would maintain the same, super-loose monetary policy. Hence the anxiety when Jerome Powell, the Fed’s chairman (pictured), suggested that the central bank might have to consider tightening “somewhat sooner than previously anticipated”. The Fed raised its inflation forecasts and lifted its median estimate for the future of policy rates to include two increases in 2023. Mr Powell also said the Fed would begin discussing when to slow its asset purchases from the current $120bn per month. Any doubt about the change of tone was snuffed out two days later when James Bullard, head of the St Louis Fed, told CNBC that the first rate rise could arrive in late 2022.The Fed had seemed nonchalant even as signs of overheating in the American economy became harder to ignore. The central bank’s target measure of inflation, “core PCE”, jumped to 3%, year on year, at the end of April. Headline inflation, gauged by the consumer-price index, has climbed from less than 2% in February to 5% in May. Anecdotal evidence of overheating abounds, from the piping-hot housing market to spiking grocery bills, gas prices and Uber fares. Yet Fed officials said the acceleration in inflation was “transitory” and that they would look through its effects. Investors believed them.They were accordingly surprised by the change of tone. Many of the trends that have dominated markets since November unwound. Reflecting the prospective rate increases, the yield on two-year Treasury bonds jumped to 0.27%, from 0.16% on June 14th (see chart). The 30-year yield, which tends to follow long-term growth or inflation expectations, tumbled to 2.02% on June 18th, from 2.21% before the Fed’s meeting.The prospect of the Fed putting a brake on inflation and growth hit share and commodity prices. The S&P 500 slipped from near a record high, ending the week about 2% lower. “Value” stocks, which had performed particularly well since November, were hard hit. Copper lost its spark, shedding 8% over the week. Lumber was felled, dropping 15%.The Fed also wrong-footed monetary policymakers elsewhere, several of whom met after the Fed did or are due to convene this week. When the Fed last unwound a post-crisis stimulus, in 2013, setting off a notorious “taper tantrum”, many emerging-market currencies, notably those of Brazil, India, Indonesia, South Africa and Turkey, fell sharply against the dollar. On June 16th the Brazilian central bank raised its interest rates from 3.5% to 4.25%, the third increase since February, despite the damage covid-19 has done to Brazil’s economy (and to Brazilians’ health). The currencies of the other four countries have fallen by between 1% and 4% against the dollar since the Fed’s meeting. An index of the dollar against other leading currencies rose by 1.9% last week.As a new week begins, investors will ask whether the shift signalled by the Fed warranted such strong reactions. It is possible that markets overdid it. When many investors hold the same portfolio of positions, they can be forced to bail out in a hurry if markets move violently against them. This liquidation of positions can exacerbate volatility. In fact, there are reasons to think the great reflation trade has further to run: the full reopening of the American economy is still in its early stages and the end of 2022 is a long way off.But those turning their backs on emerging-market currencies, value stocks and copper will find plenty to convince them that a new phase for markets and the economy has already begun. Lumber prices were already slipping before the Fed meeting, as a frenzy for home improvements cooled. Credit-card spending, an early indicator of economic activity, has been running 20% higher than it was two years ago, but this month the pace has slowed to 16.5%, according to Bank of America.Soon, investors will learn which bet pays off next. But those still eager, after last Wednesday’s surprise, for hints of what the Fed thinks is in store are in luck. Its officials, including Mr Bullard and Mr Powell, will make no fewer than 12 public appearances this week. More