Fed might tighten cash coverage this 12 months, inflation dangers low

Federal Reserve chairman Jerome Powell said the central bank could start reversing its monetary policy as early as this year – predicting that inflation, while worrying, is temporary and will ease in the coming months.

At the Kansas City Federal Reserve Bank’s annual symposium, Powell highlighted job growth and economic recovery and said, “It may be appropriate to start slowing asset purchases this year.”

Powell added that the $ 120 billion reduction in monthly bond purchases shouldn’t hurt the economy. “Even after our stock purchases end, our increased holdings of long-term stocks will continue to support accommodative financial conditions,” he said.

Powell did not say when the Fed would hike rates – a topic of discussion at the September 21st Fed meeting – but suggested that it was not imminent. Ahead of a rate hike, Powell said the Fed would try to keep inflation at 2 percent and ensure employment growth is sustained.

The Delta variant turned the Fed’s plans to meet in person in Jackson Hole on its head – and could also undo all plans to hike interest rates.AP

“The timing and pace of the impending reduction in asset purchases is not intended to be a direct signal of the timing of future rate hikes,” added Powell.

Powell’s speech comes as the debate over inflation and bond purchases reaches a climax. On Thursday and Friday, four different Federal Reserve officials called for an end to policies as inflation spikes.

The meeting, which is typically held in Jackson Hole, Wyoming, was held virtually for the second year in a row. Conference organizers announced just last week that they were moving from a face-to-face event to a virtual format for fear of the ultra-contagious Delta variant.

The recent surge in coronavirus cases hampered both the conference and the Fed’s plans to slow the pace of bond purchases and potentially hike rates. Still, Powell said he believed Delta was only a “short-term” risk.

In a Friday morning interview with CNBC, Loretta J. Mester, President and CEO of the Federal Reserve Bank of Cleveland, said, “We just don’t need the same type of accommodation that we needed at the height of the crisis, and I’m comfortable with it we met our conditions. “

Chairman Jerome Powell’s message boosted markets – the Dow won more than 200 points after his speech.AP

Powell spent much of his speech discussing inflationary concerns, noting that responding to inflation can “do more harm than good” because inflation is often “transitory”.

“Inflation at this level is of course worrying. But that concern is mitigated by a number of factors that suggest these elevated levels are likely to prove temporary, ”he said.

Market watchers paid close attention to Powell’s remarks – and appeared largely satisfied with his message. After his speech, the Dow Jones industry average rose more than 227 points to 35,440.50 on Friday.

As Fed nears taper, there’s loads of uncertainty for market, financial system

Die Verjüngung kommt. So viel steht fest. Jüngste Berichte weisen auf die Federal Reserve hin kann schon im September weitergehen.

“Es sieht so aus, als würden sie wahrscheinlich um die Ecke biegen”, sagte Mike Englund, Hauptdirektor und Chefökonom von Action Economics.

Drei Fed-Beamte auf der gesamten US-Karte haben sich in den letzten Wochen über die Ausweitung geäußert. Robert Kaplan, Präsident der Dallas Fed, sagte gegenüber CNBC: Es ist Zeit für die Fed, sich zu verjüngen im Herbst, beginnend mit dem eigentlichen Programmende im Oktober. Der Präsident der Richmond-Fed, Thomas Barkin, sagte, “wir nähern uns der Reduzierung”, obwohl er nicht genauer war. Die Präsidentin der San Francisco Fed, Mary Daly, sagte einige Wochen vor ihren Kollegen, dass die Reduzierung kommen könnte “später in diesem Jahr” oder Anfang 2022.

In einem Interview mit CNBC Anfang dieser Woche sagte der Präsident der Boston Fed, Eric Rosengren, er könne bereit sein, nächsten Monat zu beginnen.

Viele Marktbeobachter sind der Meinung, dass die Fed diesmal so viel kommunikativer war, dass die Verjüngung, wenn sie beginnt, sein wird ein “ho hum”-Event für Investoren, und so verhält sich der Markt bisher. Aktien befinden sich weiterhin in der Nähe von Rekorden, obwohl sie in den letzten Tagen schwach waren, und die Anleiherenditen bleiben gedrückt. Aber es gibt vieles, was die Wirtschaft und die Märkte noch nicht über die Taper-Pläne der Fed und die Welleneffekte wissen. Hier sind einige der wichtigsten Probleme.

1. Die Verbraucherpreise haben möglicherweise die höchste Inflationsrate erreicht, aber das gilt nicht für Wohnungsmieten

Letzte Woche lag der Fokus sehr auf der Verbraucherpreisindex kommt kühler als erwartet und heiße Bereiche wie der bis August rückläufige Gebrauchtwagenpreisindex. Beim jüngsten CPI gab es allerdings Erleichterung.

“Wir hatten gute Nachrichten von CPI in Bezug auf das Topping der volatilsten Komponenten”, sagte Englund.

Aber Wohnungsmieten – und das allgemeinere Thema der Erschwinglichkeit von Wohnungen – bleiben ein großer Schmerzpunkt für den durchschnittlichen Amerikaner. Es spiegelt auch einen Wohnungsmarkt wider, der zwischen Angebot und Nachfrage stark unausgewogen bleibt.

“Die Leute wollen mehr Wohnimmobilien und weniger Gewerbeimmobilien, und das kann man nicht einfach umbauen. Wir haben teilweise Hochhäuser und eine große Anzahl von Menschen, die jetzt von zu Hause aus arbeiten, also ist die Nachfrage nach Wohnraum im Vergleich zu den bestehenden durch die Decke gegangen.” Aktie”, sagte Englund.

Im Juli, Mieten bundesweit gestiegen 7 % gegenüber dem Vorjahr für Einzimmerwohnungen und 8,7 % für Zweizimmerwohnungen. Die Mehrfamilienvermietungsbranche hat im Juli einen Rekord aufgestellt, wobei die Mieten im Jahresvergleich um 8,3% und die Einfamilienhäuser um 12,8% gestiegen sind, laut Yardi Matrix-Daten.

Das Problem bei der Wohnungsvermietung ist nicht durch die Pandemie verursacht und geht zumindest auf die Finanzkrise zurück. Der US-Immobilienmarkt ist es gewohnt, das Angebot jährlich um 1 bis 2 Millionen Einheiten zu erhöhen, und wenn man sich die Zahlen der letzten Wohnungsbaubeginne, hat die Branche Mühe, auf 2 Millionen zu kommen.

“Jetzt mit Lieferengpässen für Tischler und Elektriker und alle anderen sind wir wahrscheinlich an unserer Kapazitätsgrenze, was wir bauen können”, sagte Englund. “Wir haben 100 Millionen Wohnungen, aber man kann nur 1 bis 2 Millionen pro Jahr bauen, und die Menschen brauchen 10-15% mehr Wohnungen.”

Die National Association of Realtors schätzt, dass es sich um eine zweijährige Bauknappheit handelt, weshalb die Mieten in die Höhe getrieben werden.

Die Pandemie hat den Druck auf den Wohnungsmarkt erhöht. Das Räumungsmoratorium ist zwar für die am stärksten betroffenen Amerikaner notwendig, hat aber auch den Effekt, dass das Angebot an verfügbarem Wohnraum auf dem Markt sinkt.

Aber was für die meisten Menschen unerschwinglich ist, kommt den finanziell am besten Gesicherten zugute. „Der Barkauf von Eigenheimen steigt, obwohl wir zweistellige Preissteigerungen bei Eigenheimen verzeichnen“, sagte Englund, angetrieben von Menschen am sehr oberen Ende der Einkommensverteilung.

„Wenn man sich die Daten seit dem Jahreswechsel ansieht, hätte man denken können, dass die Fed vielleicht den Straffungsprozess hätte beschleunigen sollen. Diese Politik verlagert die Ausgaben nicht aus unterverbrauchten Bereichen. Die Leute kaufen mehr von dem, was sie bereits haben. Eine Handvoll von uns die Preise für Häuser nach oben zu bieten”, sagte er. „Es ist nicht klar, wie die mit der Pandemie verbundenen Probleme durch die Erhöhung der Vermögenspreise unterstützt wurden, und fast alles sieht aus wie eine Blase“, fügte er hinzu.

Es ist erwähnenswert, dass die Unterkunft (der VPI-Sprachgebrauch für Wohnen) die größte Komponente des Index nach Gewicht ist, aber es ist ebenso wichtig, dass dies nicht der Inflationsmesswert ist, auf den sich die Fed bei politischen Entscheidungen wahrscheinlich konzentrieren wird, so Experten wie Englund, vor allem im Vergleich zur Lohninflation und dem Arbeitsmarkt. Und auf dem Immobilienmarkt wird keine einzige Fed-Entscheidung über den Taper-Zeitplan die Herausforderung der Angebotsnachfrage lösen.

2. Die Inflation ist bei den Produzenten immer noch sehr heiß

Wenn der VPI sinkt, große Gewinne fortgesetzt letzte Woche im aktuellen Erzeugerpreisindex. Engpässe in den Lieferketten, wie die Chipknappheit, die die Autoproduktion erschüttert, könnten bis Ende des Jahres andauern.

Die jüngsten PPI-Zahlen zeigen, dass die Großhandelsseite der Wirtschaft weiterhin stark unter Druck steht, da die Hersteller immer noch mit breiten Preiserhöhungen konfrontiert sind.

Das ist keine Überraschung. Ökonomen begannen das Jahr mit der Argumentation, dass es Engpässe geben würde, aber selbst solche wie Englund sind überrascht, wie tief die Engpässe sind.

“Diese Knappheit wurde bei Türklinken und allem anderen, was Sie bei Amazon gekauft haben, aufrechterhalten”, sagte er.

Englund sagte, beim Vergleich der neuesten CPI- und PPI-Zahlen seien letztere bemerkenswerter. “Der PPI war aufgrund der Zahlen signifikanter, aufgrund der schieren Größe, auf der Großhandelsebene keine Abkühlung zu sehen war, aber der CPI war ermutigend, um einige Spitzenwerte zu erreichen”, sagte er.

Sam Stovall, Chief Investment Strategist bei CFRA, sagte, dass die PPI-Daten, die heißer als erwartet bleiben, die Inflationssorgen am Leben halten, aber die monatlichen Gewinne werden voraussichtlich gegen Jahresende sinken.

3. Der Aktienmarkt scheint mit der Inflation in Ordnung zu sein

Stovall sagte, dass die CPI-Zahl am Ende ein markttreibendes Ereignis nach oben war, wobei die Inflation immer noch hoch ist, aber der leichte Tick nach unten seit letztem Monat lässt die Anleger davon ausgehen, dass sie zumindest aus Sicht der Verbraucherinflation überschaubar ist, und vielleicht hat die Fed mehr , nicht weniger, Flexibilität, etwas länger zu warten, um bekanntzugeben, wann die Verjüngung stattfinden wird.

“Sie sind sich ziemlich sicher, dass sie bis Ende dieses Jahres eine Drosselung ankündigen und verabschieden werden, und was ihnen etwas weichere CPI-Daten erlauben könnten, im August oder September nicht zu sagen, zu verschieben, wäre eher eine Aussage als eine Absicht und Aktion.”

Laut Stovall sagt der Rekord-Aktienmarkt, dass Inflation gut für Aktien ist. “Es ist ein Hinweis darauf, dass die wirtschaftliche Erholung stattfindet, und da ein Großteil der Inflation wahrscheinlich vorübergehend sein wird, bedeutet dies, dass das Wirtschaftswachstum und die Gewinnverbesserungen die Inflation übertreffen werden”, sagte er. “Mit anderen Worten, am Ende des Monats bleibt mehr Geld übrig.”

4. PPI könnte für die Fed-Falken sprechen, aber vielleicht nicht für Powell

Die anhaltende Inflation in der Lieferkette könnte den Fed-Falken, die sich sofort zurückziehen wollen, ein Argument liefern, aber Powell spricht für die Mitte und er hat nicht viele Anzeichen gezeigt, dass er die Straffung vornehmen möchte, zumindest noch nicht.

“Ob diese Zahlen es ändern, ist unklar”, sagte Englund.

Englund ist nicht davon überzeugt, dass die Taper-Timeline im September offiziell beginnen wird, da Powell das „Zentrum“ repräsentiert.

“Sie haben es wahrscheinlich zu Tode geredet, aber ich glaube nicht, dass sie es uns im September sagen wollen”, sagte er. Und wenn es nicht genug Schwung gibt, um das Zentrum zu bewegen, wird die Fed möglicherweise bei ihrer “Verjüngung” bleiben, die Ballbotschaft vorantreiben, aber nicht so weit gehen, im September einen Zeitplan vorzulegen.

“Wenn Sie sich auf die wirtschaftlichen Probleme der Innenstädte konzentrieren, möchten Sie die Straffung so lange wie möglich hinauszögern, auch wenn Sie wissen, dass Sie ein größeres Inflationsproblem haben werden. Wenn Sie nur einen Hammer haben, sieht alles aus wie ein Nagel”, Englund genannt. “Aber die breite Makroökonomie, eindeutig 80%, platzt aus allen Nähten”, fügte er hinzu.

Die Fed hat derzeit auch “die Deckung” der Delta-Variante als Grund, langsamer vorzugehen, obwohl ihre Auswirkungen auf die Wirtschaft bisher schwer zu erkennen sind, sagte Englund. Aktuelle Verbraucherstimmung und Verkaufszahlen im Einzelhandel erlebte große Rückgänge. Aber sobald die Fed das Gespräch über die Verjüngung beginnt, ist es schwieriger, sie zu stoppen.

“Sie sind möglicherweise über ihre Skier gekommen, als sie den Zeitpunkt der Verjüngung signalisieren, weil es schwer ist, das Gespräch nicht voranzutreiben, wenn sie es einmal begonnen haben”, sagte Englund. „Wenn sie das September-Meeting überstehen können, ohne dem Markt eine Zeitleiste zu geben, die die Zeitleiste auf November verschiebt, wo sie es sowieso gewollt hätten.“

Action Economics geht weiterhin davon aus, dass Powell über die jüngsten Daten hinaus weitere Beweise für „wesentliche weitere Fortschritte“ haben möchte.

“Ich würde sicherlich nicht später als Dezember warten wollen. Meine Präferenz wäre wahrscheinlich eher früher als später”, sagte Rosengren diese Woche gegenüber CNBC.

Der neueste Hinweis der Fed kommt am Mittwochnachmittag, wenn Protokoll für seine FOMC-Sitzung im Juli sind veröffentlicht.

5. Die Versuchsballons der Fed könnten vom Markt falsch interpretiert werden

Stovall sieht die jüngsten Kommentare der Präsidenten der regionalen Zentralbanken als “die schwebenden Versuchsballons der Fed, die versuchen, so transparent wie möglich zu sein und einen potenziellen Taper-Wutanfall, wie wir ihn 2013 gesehen haben, zu zerstreuen”.

Es funktioniert bisher, obwohl nicht alle Anlageexperten davon überzeugt sind, dass es an den Märkten nicht noch mehr Volatilität geben wird. Michael Schumacher, Leiter der Makrostrategie von Wells Fargo Securities, sagte CNBC am Dienstag, dass er ist weiterhin besorgt über einen Markt, der die Verjüngung als ein Ho-Hum-Ereignis behandelt. Er glaubt nicht, dass die Verjüngung vollständig in den Anleihen- und Aktienmärkten verankert ist.

Stovall sagte, je mehr die Fed über die Möglichkeit einer Drosselung spricht, desto mehr wird dieses Gespräch in der September-Sitzung fortgesetzt und eine Ankündigung der Drosselung wird bis Ende dieses Jahres beginnen, was die Wall Street jetzt erwartet, und die Wall Street wird nicht so negativ reagieren wie es könnte anders sein.

„Meine beste Vermutung ist, dass sie es im September ankündigen und die Reduzierung im November ankündigen, aber sie werden möglicherweise nicht einmal bis 2022 warten. Es könnte Dezember sein“, sagte Stovall, als die Fed offiziell mit der Lockerung ihrer Anleihekäufe beginnt.

6. Sobald der Taper festgelegt ist, geht es um den Zeitplan für die Zinserhöhung und die Auswirkungen auf die Aktien

Sobald die Verjüngungszeitlinie klar ist, gibt es die nächste große Fed-Uhr, auf die man übergehen muss, nämlich die erste Zinserhöhung. Stovall sagte, dass sich die Anleger möglicherweise nicht so viele Sorgen machen müssen, wie sie denken.

Historisch gesehen, bis ins Jahr 1945 zurückgehend, in den sechs Monaten, nachdem die Fed mit der Zinserhöhung begonnen hatte, Dow Jones Industriedurchschnitt fiel, aber nur um durchschnittlich 0,2%. Über 12 Monate nach einer ersten Zinserhöhung beträgt der durchschnittliche Anstieg des Dow 2,5%. Es besteht jedoch kein Zweifel, dass ein Zinssenkungszyklus für Aktien besser ist als Zinserhöhungen. In den ersten sechs Monaten nach einer Zinssenkung beträgt der durchschnittliche Anstieg des Dow seit 1945 11% und 17% über ein ganzes Jahr.

Es gibt Grund zu der Annahme, dass eine kommunikativere Fed, wenn sie eine Drosselung vornehmen kann, ohne einen Marktausverkauf zu verursachen, auch das Risiko einer größeren Marktüberraschung bei Zinserhöhungen verringern kann.

Stovall sagte, der aktuelle Aktienmarkt erinnere ihn an die späten 90er Jahre, da der Markt “einfach nicht fallen will”, angetrieben von Large-Cap-Tech- und zyklischen Konsumgütergiganten.

Das bedeutet, dass das Timing der Fed bei der Drosselung und Anhebungen sowie das Tempo dieser politischen Veränderungen, sobald sie begonnen haben, für die Märkte von großer Bedeutung sein wird.

„Zwischen jetzt und Dezember wird sie sich zusammen mit Inflation und Beschäftigung verringern, und wenn wir ins Jahr 2022 gehen, ist es die Geschwindigkeit der Drosselung und der Zeitpunkt der ersten Zinserhöhung, und dann die Anzahl und das Ausmaß dieser Zinserhöhungen“, sagte Stovall genannt.

Fed cash turns RBHS finances deficit into surplus

When the Board of Education of Riverside-Brookfield High School District 208 approved the final budget for fiscal year 2020-21 last September, officials projected a budget deficit of $ 1.6 million.

But thanks to the inflow of federal funds, deputy superintendent Kristin Smetana expects the RBHS to close the year in a slight surplus when the books for fiscal 2020-21 are closed in two weeks.

“It’s difficult to pin down an exact amount, especially this year, but we’ve received a lot of unexpected federal funding as well as several other sources of income,” said Smetana.

Two major federal COVID relief packages that were passed last year resulted in RBHS receiving approximately $ 900,000 in federal aid this year. Almost $ 790,000 of that was left out of the budget approved last September. RBHS also benefited from a federal food grant that was part of pandemic relief.

“We expected to spend over $ 200,000 on food this year, and we ended up participating in this federal program that reimbursed us for much of that,” said Smetana.

The property tax collection went a little better than expected, which also improved the school’s financial situation. Last year, Smetana predicted that the district would collect only 97 percent of its property tax, up from the normal 99 percent because of the economic troubles caused by the pandemic. However, it turned out that the RBHS collected around 97.4 percent of their tax levy.

“We reached this mark in our budget, and we didn’t think we’d make it for a long time because the money was coming in slowly and not following the normal collection plan,” said Smetana.

Smetana said RBHS has also raised approximately $ 50,000 more than expected in interest income from investments managed by the treasurer of the Proviso community school office.

Smetana also expects RBHS to generate a surplus in the next year as well. On June 8, the District 208 School Board unanimously approved a preliminary budget for fiscal year 2021-22 that projects an operating deficit of $ 26,715. But Smetana said budget changes made before the final budget was adopted in September will turn that small deficit into a surplus.

“I fully expect a budget surplus for next year when we start completing the budget in July and August,” said Smetana.

For now, Smetana is again forecasting a 97 percent land tax collection rate, but she’ll likely increase that forecast once she sees exactly how much property tax the district has collected this year.

“We will change that in July or probably in August,” said Smetana. “We want to close this fiscal year in full before we make this decision.”

The budget for 2021-22 will also be topped up by the third round of federal pandemic aid approved at the beginning of this year. As part of the ESSERS III program, RBHS expects to receive approximately $ 1 million in federal reimbursements over the next two years.

The RBHS will use the federal funds in a variety of ways to counter the effects of more than a year of mostly distance learning. It will use $ 250,000 in federal funding to hire four additional paraprofessionals for the next year and $ 84,000 will be used to add 1.4 full-time apprenticeships over budget. The move is to reduce class size, avoid overcrowded classrooms, and encourage social distancing.

The school will also use $ 161,660 in federal funds to hire another psychologist to deal with learning disabilities and promote social and emotional health. Another $ 171,000 in federal funds will go towards purchasing Chromebooks and $ 161,000 towards purchasing educational software.

Approximately $ 40,000 in federal funds will be used to rent additional building security to monitor students at lunchtime and the start and end of the school day to ensure safe practices when entering and exiting the building, while $ 60,000 for new comprehensive social services for general education students.

The budget picture for next year is also brighter because four experienced teachers and one advisor retired at the end of the 2020/21 school year. Smetana says the district saves about $ 70,000 every time a teacher retires and is replaced with a less experienced and less expensive new teacher.

The tentative budget is $ 27,503,480 in operating expenses for the next year. Total spending is expected to increase by 2.85 percent in the coming financial year. The provisional budget is currently available to the public on the district’s website.

The final budget for the 2021/22 financial year is expected to be approved by the school council in September.

Fed Warned Deutsche Financial institution Over Anti-Cash-Laundering Backsliding

The Federal Reserve said

Deutsche Bank AG

DB 0.40%

In recent weeks, according to people familiar with the matter, the lender has not addressed persistent flaws in its anti-money laundering controls.

The Fed’s frustration has escalated to the point where the bank could be fined, people said.

Deutsche Bank has invested tremendous resources in addressing repeated deficiencies and penalties related to authorizing suspicious transactions. The Fed told Deutsche Bank that the German lender with a large presence on Wall Street is not making progress, it is making progress. The regulator has stated that some of the anti-money laundering issues require immediate attention, according to the population.

A spokesman for Deutsche Bank said the bank was not commenting on the dialogue with regulators. A Fed spokesman declined to comment.

The Fed’s harsh words contrast with the bank’s message that it has worked diligently to improve its systems and has brought most of the legal issues into the past.

The Fed’s latest warning comes four years after it classified Deutsche Bank’s US operations as in “restless state”, a rare reprimand for a major bank. In May 2020 it is issued a new admonition through the bank’s money laundering controls.

In 2020, Deutsche Bank also agreed with the New York Treasury Department on the bank’s role as the correspondent bank in one of Europe’s largest money laundering scandals Improper supervision of its business with the late financier and convicted sex offender Jeffrey Epstein.

In 2017 the Fed Deutsche Bank fined $ 41 million for failure to maintain an effective anti-money laundering program.

Deutsche Bank is Germany’s largest lender and, as a US dollar clearing bank regulated by the Fed, an important player in global financial transactions.

Banks need to monitor the way money flows through their networks to protect themselves from the proceeds of criminal activity in the economy. They need to know who their customers are and flag transactions that alert authorities to potentially illegal activity.

Markets

A pre-markets primer full of news, trends and ideas. In addition, current market data.

Deutsche Bank’s financial health has improved after starting an overhaul in 2019 to drastically cut costs and exit some businesses, including US stocks strongest quarter in seven years.

On Thursday, representatives from Deutsche Bank expressed optimism at the bank’s annual general meeting, saying the lender had found its booth and was regaining confidence in the market. She also said she wanted to play an active role in banking consolidation in Europe.

“The way people see our bank has changed fundamentally,” said CEO Christian Sewing in a speech.

Mr Sewing told shareholders that the bank “has significantly strengthened our control systems” but added that “we are also aware of areas where we need to improve”, including its efforts to fight financial crime.

The bank has tried to shake off its reputation for loose controls. In April, the German financial supervisory authority BaFin ordered the bank to take further steps to protect against money laundering. According to BaFin, Deutsche Bank has to comply with due diligence requirements, especially when it comes to regular customer reviews. It expanded the role of a monitor, which it appointed in 2018 to review implementation.

Following the BaFin mandate, Deutsche Bank announced that it had significantly improved its controls, spent around $ 2.4 billion and increased its anti-money laundering team to over 1,600 in the past two years. It admitted it had more work to do.

So Deutsche Bank remains under the supervision of external monitors Appointed by the New York Treasury in 2017 as part of the settlement of a “mirror trade” case in which the bank moved $ 10 billion in Russian customer money out of the country.

The Wall Street Journal reported Last November, observers were alarmed about a possible expansion of the bank’s activities in Russia. In October, they informed the bank that efforts to improve its business were not enough to offset the major risks of doing business with Russian clients and that the bank should stop doing business there instead.

Earlier this month, the bank appointed Joe Salama, its US General Counsel, who was responsible for negotiating the latest regulatory settlements with US authorities Head of the Global Fight Against Financial Crime Division. The move should improve the bank’s relationship with regulators, according to those familiar with the situation.

In contrast to his predecessor, who was based in Frankfurt, Mr. Salama will split his time between Germany and the USA

Problems of the Germans

More WSJ coverage of the controls and penalties selected by the editorial team to combat money laundering by Deutsche Bank.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and Jenny Strasburg jenny.strasburg@wsj.com

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Fed officers mentioned adjusting cash market assist in April, minutes present

By Jonnelle Marte

May 19 (Reuters) – The US Federal Reserve may need to adjust the instruments used to keep its policy rate within the intended range in the coming months if the cost of borrowing continues to fall overnight in the open market, such as an indicator the last central bank meeting signaled on Wednesday.

Policymakers also received a detailed briefing last month on the pros and cons of sustained support to money markets, according to the minutes.

The central bank began to intervene in the overnight lending markets in September 2019 when a lack of reserves led to a spike in short-term lending rates. However, for the past few weeks, the markets have been plagued by the opposite problem: too much cash.

Firms floating in excess reserves flock to the New York Fed facility to enter into reverse repurchase agreements or reverse repo contracts where they can temporarily park their money.

Money market funds and other eligible companies provided the Fed with $ 294 billion in cash overnight on Wednesday, up from around $ 100 billion at the time of the meeting and above levels at the start of the coronavirus pandemic in March 2020 had been achieved.

The Fed may consider adjusting managed rates “in the coming months” if downward pressure on overnight rates continues, Lorie Logan, manager of the System Open Market Account, told policy makers.

The central bank could respond by increasing the interest it pays banks on excess reserves (IOER) from 0.10% or adjusting the overnight reverse repo rate for non-banks, which is currently 0%.

MONETARY MARKET SUPPORT

In an in-depth discussion of the Fed’s efforts to strengthen money markets, policy makers also discussed the potential benefits and risks of having ongoing support from a permanent facility that financial firms can leverage when needed.

“Many participants” noted that a standing repo facility could provide the central bank with a way to automatically respond to market pressures, which can be difficult to predict. Still, a “pair” of participants said the Fed could save money by running repo operations at short notice when needed.

Policy makers previously discussed the durability of the agreement at the October 2019 meeting, but decided to wait and raised questions about what fees should be charged and which companies should be eligible. Some of these questions were also raised last month. (Reporting by Jonnelle Marte; Editing by Jonathan Oatis)

What Occurs to Shares and Cryptocurrencies When the Fed Stops Raining Cash?

To veterans of financial bubbles, there is plenty familiar about the present. Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and cryptocurrency.

This boom has some legitimate explanations, from the advances in digital commerce to fiscally greased growth that will likely be the strongest since 1983.

But there is one driver above all: the Federal Reserve. Easy monetary policy has regularly fueled financial booms, and it is exceptionally easy now. The Fed has kept interest rates near zero for the past year and signaled rates won’t change for at least two more years. It is buying hundreds of billions of dollars of bonds. As a result, the 10-year Treasury bond yield is well below inflation—that is, real yields are deeply negative —for only the second time in 40 years.

There are good reasons why rates are so low. The Fed acted in response to a pandemic that at its most intense threatened even more damage than the 2007-09 financial crisis. Yet in great part thanks to the Fed and Congress, which has passed some $5 trillion in fiscal stimulus, this recovery looks much healthier than the last. That could undermine the reasons for such low rates, threatening the underpinnings of market valuations.

“Equity markets at a minimum are priced to perfection on the assumption rates will be low for a long time,” said Harvard University economist

Jeremy Stein,

who served as a Fed governor alongside now-chairman

Jerome Powell.

“And certainly you get the sense the Fed is trying really hard to say, ‘Everything is fine, we’re in no rush to raise rates.’ But while I don’t think we’re headed for sustained high inflation it’s completely possible we’ll have several quarters of hot readings on inflation.”

Since stocks’ valuations are only justified if interest rates stay extremely low, how do they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise one to 1.5 percentage points, he asked. “You could get a serious correction in asset prices.”

‘A bit frothy’

The Fed has been here before. In the late 1990s its willingness to cut rates in response to the Asian financial crisis and the near collapse of the hedge fund Long-Term Capital Management was seen by some as an implicit market backstop, inflating the ensuing dot-com bubble. Its low-rate policy in the wake of that collapsed bubble was then blamed for driving up housing prices. Both times Fed officials defended their policy, arguing that to raise rates (or not cut them) simply to prevent bubbles would compromise their main goals of low unemployment and inflation, and do more harm than letting the bubble deflate on its own.

As for this year, in a report this week the central bank warned asset “valuations are generally high” and “vulnerable to significant declines should investor risk appetite fall, progress on containing the virus disappoint, or the recovery stall.” On April 28 Mr. Powell acknowledged markets look “a bit frothy” and the Fed might be one of the reasons: “I won’t say it has nothing to do with monetary policy, but it has a tremendous amount to do with vaccination and reopening of the economy.” But he gave no hint the Fed was about to dial back its stimulus: “The economy is a long way from our goals.” A Labor Department report Friday showing that far fewer jobs were created in April than Wall Street expected underlined that.

The Fed’s choices are heavily influenced by the financial crisis. While the Fed cut rates to near zero and bought bonds then as well, it was battling powerful headwinds as households, banks, and governments sought to pay down debts. That held back spending and pushed inflation below the Fed’s 2% target. Deeper-seated forces such as aging populations also held down growth and interest rates, a combination some dubbed “secular stagnation.”

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The pandemic shutdown a year ago triggered a hit to economic output that was initially worse than the financial crisis. But after two months, economic activity began to recover as restrictions eased and businesses adapted to social distancing. The Fed initiated new lending programs and Congress passed the $2.2 trillion Cares Act. Vaccines arrived sooner than expected. The U.S. economy is likely to hit its pre-pandemic size in the current quarter, two years faster than after the financial crisis.

And yet even as the outlook has improved, the fiscal and monetary taps remain wide open. Democrats first proposed an additional $3 trillion in stimulus last May when output was expected to fall 6% last year. It actually fell less than half that, but Democrats, after winning both the White House and Congress, pressed ahead with the same size stimulus.

The Fed began buying bonds in March, 2020 to counter chaotic conditions in markets. In late summer, with markets functioning normally, it extended the program while tilting the rationale toward keeping bond yields low.

At the same time it unveiled a new framework: After years of inflation running below 2%, it would aim to push inflation not just back to 2% but higher, so that over time average and expected inflation would both stabilize at 2%. To that end, it promised not to raise rates until full employment had been restored and inflation was 2% and headed higher. Officials predicted that would not happen before 2024 and have since stuck to that guidance despite a significantly improving outlook.

Running of the bulls

This injection of unprecedented monetary and fiscal stimulus into an economy already rebounding thanks to vaccinations is why Wall Street strategists are their most bullish on stocks since before the last financial crisis, according to a survey by

Bank of America Corp.

While profit forecasts have risen briskly, stocks have risen more. The S&P 500 stock index now trades at about 22 times the coming year’s profits, according to FactSet, a level only exceeded at the peak of the dot-com boom in 2000.

Other asset markets are similarly stretched. Investors are willing to buy the bonds of junk-rated companies at the lowest yields since at least 1995, and the narrowest spread above safe Treasurys since 2007, according to Bloomberg Barclays data. Residential and commercial property prices, adjusted for inflation, are around the peak reached in 2006.

Stock and property valuations are more justifiable today than in 2000 or in 2006 because the returns on riskless Treasury bonds are so much lower. In that sense, the Fed’s policies are working precisely as intended: improving both the economic outlook, which is good for profits, housing demand, and corporate creditworthiness; and the appetite for risk.

Nonetheless, low rates are no longer sufficient to justify some asset valuations. Instead, bulls invoke alternative metrics.

Bank of America recently noted companies with relatively low carbon emissions and higher water efficiency earn higher valuations. These valuations aren’t the result of superior cash flow or profit prospects, but a tidal wave of funds invested according to environmental, social and governance, or ESG, criteria.

Conventional valuation is also useless for cryptocurrencies which earn no interest, rent or dividends. Instead, advocates claim digital currencies will displace the fiat currencies issued by central banks as a transaction medium and store of value. “Crypto has the potential to be as revolutionary and widely adopted as the internet,” claims the prospectus of the initial public offering of crypto exchange

Coinbase Global Inc.,

in language reminiscent of internet-related IPOs more than two decades earlier. Cryptocurrencies as of April 29 were worth more than $2 trillion, according to CoinDesk, an information service, roughly equivalent to all U.S. dollars in circulation.

Financial innovation is also at work, as it has been in past financial booms. Portfolio insurance, a strategy designed to hedge against market losses, amplified selling during the 1987 stock market crash. In the 1990s, internet stockbrokers fueled tech stocks and in the 2000s, subprime mortgage derivatives helped finance housing. The equivalent today are zero commission brokers such as Robinhood Markets Inc., fractional ownership and social media, all of which have empowered individual investors.

Such investors increasingly influence the overall market’s direction, according to a recent report by the Bank for International Settlements, a consortium of the world’s central banks. It found, for example, that since 2017 trading volume in exchange-traded funds that track the S&P 500, a favorite of institutional investors, has flattened while the volume in its component stocks, which individual investors prefer, has climbed. Individuals, it noted, are more likely to buy a company’s shares for reasons unrelated to its underlying business—because, for example, its name is similar to another stock that is on the rise.

While such speculation is often blamed on the Fed, drawing a direct line is difficult. Not so with fiscal stimulus. Jim Bianco, the head of financial research firm Bianco Research, said flows into exchange-traded funds and mutual funds jumped in March as the Treasury distributed $1,400 stimulus checks. “The first thing you do with your check is deposit it in your account and in 2021 that’s your brokerage account,” said Mr. Bianco.

Facing the future

It’s impossible to predict how, or even whether, this all ends. It doesn’t have to: High-priced stocks could eventually earn the profits necessary to justify today’s valuations, especially with the economy’s current head of steam. In he meantime, more extreme pockets of speculation may collapse under their own weight as profits disappoint or competition emerges.

Bitcoin once threatened to displace the dollar; now numerous competitors purport to do the same.

Tesla Inc.

was once about the only stock you could buy to bet on electric vehicles; now there is China’s NIO Inc.,

Nikola Corp.

, and

Fisker Inc.,

not to mention established manufacturers such as Volkswagen AG and

General Motors Co.

that are rolling out ever more electric models.

But for assets across the board to fall would likely involve some sort of macroeconomic event, such as a recession, financial crisis, or inflation.

The Fed report this past week said the virus remains the biggest threat to the economy and thus the financial system. April’s jobs disappointment was a reminder of how unsettled the economic outlook remains. Still, with the virus in retreat, a recession seems unlikely now. A financial crisis linked to some hidden fragility can’t be ruled out. Still, banks have so much capital and mortgage underwriting is so tight that something similar to the 2007-09 financial crisis, which began with defaulting mortgages, seems remote. If junk bonds, cryptocoins or tech stocks are bought primarily with borrowed money, a plunge in their values could precipitate a wave of forced selling, bankruptcies and potentially a crisis. But that doesn’t seem to have happened. The recent collapse of Archegos Capital Management from reversals on derivatives-based stock investments inflicted losses on its lenders. But it didn’t threaten their survival or trigger contagion to similarly situated firms.

“Where’s the second Archegos?” said Mr. Bianco. “There hasn’t been one yet.”

That leaves inflation. Fear of inflation is widespread now with shortages of semiconductors, lumber, and workers all putting upward pressure on prices and costs. Most forecasters, and the Fed, think those pressures will ease once the economy has reopened and normal spending patterns resume. Nonetheless, the difference between yields on regular and inflation-indexed bond yields suggest investors are expecting inflation in coming years to average about 2.5%. That is hardly a repeat of the 1970s, and compatible with the Fed’s new goal of average 2% inflation over the long term. Nonetheless, it would be a clear break from the sub-2% range of the last decade.

Slightly higher inflation would result in the Fed setting short-term interest rates also slightly higher, which need not hurt stock valuations. More worrisome: Long-term bond yields, which are critical to stock values, might rise significantly more. Since the late 1990s, bond and stock prices have tended to move in opposite directions. That is because when inflation isn’t a concern, economic shocks tend to drive both bond yields (which move in the opposite direction to prices) and stock prices down. Bonds thus act as an insurance policy against losses on stocks, for which investors are willing to accept lower yields. If inflation becomes a problem again, then bonds lose that insurance value and their yields will rise. In recent months that stock-bond correlation, in place for most of the last few decades, began to disappear, said

Brian Sack,

a former Fed economist who is now with hedge fund D.E. Shaw & Co. LP. He attributes that, in part, to inflation concerns.

The many years since inflation dominated the financial landscape have led investors to price assets as if inflation never will have that sway again. They may be right. But if the unprecedented combination of monetary and fiscal stimulus succeeds in jolting the economy out of the last decade’s pattern, that complacency could prove quite costly.

Write to Greg Ip at greg.ip@wsj.com

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Why market’s manic strikes on Fed, inflation might not peak till summer time

Last week’s market action was another example of a push-and-pull between stocks, bonds, and the Federal Reserve that investors should expect more of over the course of 2021. Indeed, there is reason to believe that the battle for bond yields and inflation has hit stocks, investors may not peak until the summer.

The Dow Jones industry average hit another new entry last week – and Dow futures were strong on Sunday – as some of the sectors, including financial and industrial sectors, advocated a move away from growth and received further support from the new round of federal incentives, while the latest inflation figure was below estimates. The Nasdaq bounced back sharply and beaten up, great 2020 success stories like Tesla collected. Investors looking for the all-clear signal got no signal, however, as the tech sold out towards the end of the week and ten-year government bond yields hit a one-year high on Friday.

The Fed meeting on Tuesday and Wednesday of this week may Drive action on yields and growth stocksWith Fed chairman Jerome Powell expecting to maintain his cautious stance, some bond and stock market experts look a little further out from May to July to find a key position for investors. One key data point supports this view: inflation is projected to hit a year-long high in May and see a dramatic increase.

Federal Reserve Chairman Jerome Powell speaks during a House Select subcommittee on the coronavirus crisis hearing on September 23, 2020 in Washington, DC, United States.

Stefani Reynolds | Reuters

Action Economics predicts that consumer price index (CPI) gains will peak in May at 3.7% for the headline and 2.3% for core inflation. That shouldn’t come as a surprise. With the US celebrating its one-year anniversary since the pandemic began, it is the May-May comparison that captures the stalemate that hit the country last spring and is now used to add to inflationary pressures in May.

But even if that happens, the steep rise in inflation in the months ahead is likely to heighten investor concerns that the Fed is still underestimating the risks of upward inflation. It is only a matter of time before the economy is fully open and economic expansion occurs at a rate that drives inflation and interest rates high.

A worldly shift in interest rates and inflation

On Wall Street the belief is growing that one The era of low interest rates and low inflation is coming to an endand that a fundamental change is coming.

“We have had a very docile phase of interest and inflation and that is over,” said Lew Altfest of New York-based Altfest Personal Wealth Management. “The bottom has been set, and rates will rise again there, and inflation will rise too, but not as dramatically.”

“Speed ​​is what worries investors most,” said CFRA chief investment strategist Sam Stovall. “There will of course be an increase in inflation and we have been spoiled because it has been below two percent for many years.”

The inflation rate averaged 3.5% since 1950.

This week’s FOMC meeting will focus investors on what is known as the “scatter chart” – members’ prospects of when short-term rates are going to rise, and this may not change much, even if their members do not have as many members Members must switch views in order to move the median. But it’s the summer when the market will push the Fed on a higher inflation rate.

“It’s a pretty good bet that higher inflation, higher GDP and tightening are on the horizon,” said Mike Englund, chief executive officer and chief economist for action economics. “Powell won’t want to talk about it, but this sets the table for this summer discussion as inflation is peaking and the Fed gives no reason.”

Commodities and real estate prices

Action Economics now predicts that inflation growth will be moderate in the third and fourth quarters and that interest rates will average around 1.50% in the third and fourth quarters, taking into account movements in the CPI. But Englund is concerned.

“How reluctant is the Fed really,” he asked. “The Fed hasn’t had to put its money where its mouth is and say interest rates will stay low. … Perhaps the real risk is the second half of this year and a shift in rhetoric.”

Some of the year-over-year comparisons of inflation numbers, such as commodities plummeting last year, are to be expected.

“We know people will try to explain it as a comparative effect,” says Englund.

However, there are signs of sustained gains and a rise in residential property prices across various commodity sectors, which is not measured as part of core inflation but rather an economic impact of inflationary conditions. There are currently a record low supply of existing properties for sale.

These are inflationary pressures that make the June-July FOMC meeting and the biannual Congressional Monetary Policy Testimony on Capitol Hill the potentially more momentous Fed moments for the market.

As housing affordability falls and commodity prices rise, it will be harder to tell the public that there is no inflation problem. “It can fall on deaf ears in the summer when the Fed goes before Congress,” said Englund.

Altfest is reacting to real estate inflation in its investment outlook. His company sets up a residential real estate fund because it benefits from an inflationary environment. “Volatility in stocks will persist in the face of strong pluses and minuses, and hide in the private market, with an emphasis on cash returns rather than prices on a volatile stock market, which is comforting to people,” he said.

Investor sentiment amid impetus

History shows that as rates rise and inflation increases with economic activity, companies can pass price increases on to customers. Last week, investors were delighted to be able to tie four consecutive days of earnings together. According to Stovall, however, stock market investors were also spoiled by the strong performance of the shares. While the trajectory is still higher, the angle of ascent has decreased.

“If there was a guarantee that inflation and interest rates would only rise in the short term, and as we move past the second quarter, which looks drastically stronger than 2020, a guarantee for the second half of the year would bring inflation and interest rates down , investors don’t. ” be concerned, “he said.

However, economic growth could force the Fed to raise short-term interest rates faster than expected.

“That contributes to the agita,” said Stovall.

Altfest customers are split between the manic “Biden cops”, who see a time like the Roaring 20s ahead of them, and the depressed ones, the “Grantham bears”.

He says either can be right. Interest rates can continue to rise and corporate profits rise at the same time. More profits mean a better stock market, while higher interest rates put pressure on value for money and offer more opportunities.

For bonds to be a true competitor to stocks, interest rates must be above 3%, and by the time the market gets close to that, the bond market’s impact on stocks will be dwarfed by economic growth potential and the outlook for corporate earnings, according to Altfest. Value remains much cheaper than growth, even if these stocks and sectors have rallied since the fourth quarter of last year. However, it is more focused on foreign stocks, which are benefiting from increased global economic demand and have not moved as fast as the US market.

Stock sectors that work

For many investors, there may not be enough confidence to add stocks significantly as we near the Wall Street summer period when we sell and go in May. But there will also be more money on the sidelines that could flow into stock prices relatively soon, including stimulus payments to Americans who don’t need the money to cover daily expenses, and this could help prop up stock prices in the short term, said Stovall.

The attraction of reaching many Americans with urgent financial needs and including one of the greatest poverty reduction legislative efforts in decades, it has also reached many Americans with stimulus payments that brought it to market and increased savings. The country’s savings rate is at its highest level since World War II, and disposable income has seen its biggest gain in 14 years at 7%, doubling its 2019 profit. “And that was a boom year,” said Englund.

The “sale in May” theory is a misnomer. According to CFRA data, the average change in the price of stocks over the May to October period is better than the return on World War II cash, and 63% of stocks rose over the period. “If you’ve got a 50:50 chance and the average return is better than cash, why are there tax consequences of selling,” asked Stovall. “That’s why I always say that you are better off turning than pulling back.”

And for now, the stock market has been working through the rotation in value and out of technology for investors, although last week’s Nasdaq gains suggested investors there are looking for signs of stabilization. Industry performance since the S&P 500’s last correction in September 2020 shows that the top performing parts of the market have been energy, finance, materials and industrials.

“The very sectors that do best in a steeper yield curve environment,” said Stovall. “As the Fed continues to try not to hike rates, these are the sectors that are doing well.”

Investors who have already counted this market have proven wrong, and investors rarely give up on a trend that is working. Because of this, Stovall’s view remains “rotate rather than retreat” and make more money in value and out of growth as stock market investors continue to stick with companies operating in steeper yield curve environments.

He also pointed out a technical factor to watch before summer. On average, there is a 283 day period between S&P 500 declines of 5% or more, dating back to World War II. It’s been 190 days as of last week, which means the market isn’t “really due” for another 90 days – or in other words, the beginning of summer.

By the summer, the anecdotal evidence of prices will work against the Fed. A faster pace of recovery overseas, for example in the European economy, which has lagged behind the US, could also accelerate global demand and commodity markets.

For both inflation and the stock outlook, investors face a similar problem in the coming months: “You never know you will be at the top until you start the downward trend,” said Englund.

Editorial: Fed cash goes begging

A recent headline in a major Texan newspaper read: “Medicaid is still pursuing the law.” Sorry, but it’s hard to feel sorry for “haunted” lawmakers who have refused to take federal government money for a decade to expand health care to more than a million of the poorest people in the state.

Texas remains one of twelve states that have not approved Medicaid’s expansion under the 2010 Affordable Care Act. However, with a pandemic and the rising number of uninsured, the political winds seem to be blowing in favor of something. even if it’s not actually called a Medicaid extension.

Uvalde MP Tracy O. King says there is talk of taking action during the current 87th legislature that would allow the state to use the nine-for-one federal game to fill the gaps in health insurance . King said the need and money may finally have leveled out for some reluctant officials.

Medicaid in Texas is currently primarily limited to children, pregnant women, people with disabilities, and low-income seniors. Under the expansion plan, coverage would extend to adults who are up to 138 percent of the poverty line, or around $ 17,600 for an individual and $ 36,200 for a family of four.

According to a report by the Kaiser Family Foundation, most research into Medicaid’s expansion has shown improvements in coverage, sufferers’ financial security, some improved health outcomes, and economic benefits for states and providers.

In addition to the billions of dollars that would flow into the state from Washington for health care, Texas would bring in an estimated $ 1.95 for every dollar it invests in expansion through new tax revenues.

With these numbers staring lawmakers in the face, they should be more than followed to see they can no longer say “no thanks” to Washington aid. And if the look of the Medicaid expansion is too objectionable, then by all means call it something else.

Call it Lone Star Pandemic Care or a free ride from Uncle Sam but get in touch with us. Too many Texans are falling through the cracks in this brutal pandemic, and the hospital emergency rooms can’t be expected to fill the whole gap.