The recent rise in bond yields has finally attracted the attention of Federal Reserve policymakers. Governor Lael Brainard said on Tuesday that “some of these movements last week and their speed have caught my attention”. San Francisco Fed President Mary Daly said the central bank could change the maturity of its bond purchases – or even, as it did before, sell short-term bonds to buy long-term government bonds in a call ” turnaround “.
Steven Blitz, U.S. chief economist and managing director of global macro at the TS Lombard research service, says the Fed’s determination to keep interest rates low through quantitative easing is fueling another problem. The growth in commercial bank lending is slowing, at a time when the economy is accelerating.
By separating mortgages – which banks do not retain on their balance sheets – commercial bank loans are growing at around 5% year on year, according to the most recent weekly data from the Federal Reserve. This fell by 10% in April.
The Fed’s retention of Treasury debt to manage yields is not inflationary because it requires the central bank to hold commercial bank assets, says Blitz. Commercial banks don’t mind, as the Fed pays them interest for what is essentially a risk-free transaction. The Fed now holds 16% of the commercial bank’s assets, up from 6% in 2019.
“This exercise is a reminder that the Fed cannot protect markets forever from the cost of financing Treasury debt that grows faster than nominal GDP. For now, the economy enjoys interest rates below balance, but high reserves and capital constraints more broadly mean that banks are not fully capable of helping others to leverage growth through loans that these low rates suggest ” said Blitz.
Far from predicting an increase in inflation, Blitz says that the basic measure of spending on personal consumption prices will grow only 1.3% in the fourth quarter and 1.7% in the next year. Blitz says the likely $ 1,400 stimulus checks and COVID-19 vaccinations will boost the economy, but to a relatively warm 4.5% annualized rate in the fourth quarter, slowing to 2.8% next year.
The buzz
Texas is ending its masking mandate and removing all restrictions on business. Tour provider, Lyft LYFT,
rose 6% in pre-market trade after saying it has enjoyed its most busy week since March 2020, while lowering its loss estimate.
Rocket Cos. RKT,
will be in the spotlight after the mortgage provider’s shares rose 71% on Tuesday, in a move compared to the tightening that briefly raised the shares of video game retailer GameStop GME,
Rocket’s shares fell 7% at the beginning of Actino.
Hewlett Packard Enterprise Co. HPE server and storage provider,
reported stronger than expected earnings and revenues for the first quarter ended in January.
The economic calendar includes the ADP measure on private sector payrolls, the ISM service report and the Fed’s Beige Book of Economic Anecdotes.
The market
After ending low on Tuesday, US ES00 stock futures,
NQ00,
pointed to a stronger start, with the Dow Industrials YM00,
contract above 200 points.
The yield of the 10-year Treasury TMUBMUSD10Y,
was 1.44%. Bitcoin BTC.1,
futures surpassed the $ 50,000 mark, while GC00 gold,
futures have fallen.
The graph
Fund manager Columbia Threadneedle has developed a return to normal index for the US based on a variety of measures, such as travel, shopping at stores and restaurants. It is not intended to monitor economic indicators such as gross domestic product, but instead focuses on measuring components of daily life. The most recent increase occurred in a return to face-to-face schooling.
Random readings
Singer-songwriter Dolly Parton converted her track from “Jolene” to “Vaccine” upon receiving the first dose of Moderna MRNA,
The inoculation of COVID-19 that she helped to finance.
The cuttlefish, unlike some children, can pass the so-called marshmallow test, which is designed to measure self-control.
Here is great value for you – a small porcelain bowl purchased for $ 35 at a yard sale in Connecticut is going to be auctioned off. Broker Sotheby’s says it can earn up to $ 500,000.
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