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SPI Management Newsletter 02.12.2022

Fed to Slow Rate-Raise Pace in December, according Jerome Powell

The next meeting of the Federal Reserve will likely see interest rates increased by a half percentage point, according to Federal Reserve Chair Jerome Powell, down from the recent 0.75% hike.

In a speech on Wednesday, Mr. Powell claimed that for the Fed to feel confidence that inflation would fall toward its 2% target, the overheated labor market needed to cool down even more.

He stated at a Brookings Institution event that it would make sense for policymakers to halt rate rises because the Fed has raised rates quickly and it takes time for those actions to have an impact on the economy. “The time for moderating the pace of rate increases may come as soon as the December meeting”, he observed.

Markets jumped after Mr. Powell's comments because investors were looking for evidence that the central bank will decrease the rate of rate increases. The Dow Jones Industrial Average increased by 2.2%, or around 735 points, which was sufficient to re-enter a bull market, which is defined as a climb of 20% from a recent low, for the index.

Mr. Powell assessed indicators of success in the fight against inflation, including a a slowdown in interest rate-sensitive economic sectors like the housing market and better supply-chain conditions. However, he warned that rent decreases and drops in the cost of goods could not be enough if businesses don't cut back on hiring in order to better balance the high demand for labor with the lack of available workers.

EU requests that members set a $60 cap on Russia's Oil Prices

According to officials and diplomats participating in the discussions, the executive arm of the European Union has requested that the price of Russian oil be capped at $60 for all 27 of its member states.

The idea needs to be approved by all 27 EU nations in order to proceed as scheduled on Monday; no other bloc member objected to the proposal on Thursday. Polish and other EU officials said Poland requested more time to review it, adding that a decision wouldn't be made until Friday.

The price cap is a crucial component of the West's strategy to reduce Russia's oil income while maintaining stable global supplies and preventing a rise in prices.

IMF head issues an "exceptional" warning as the Chinese economy weakens

China, the second-largest economy in the world, is expected to expand at its slowest rate in about three decades as Beijing attempts to abandon President Xi Jinping's directive to eradicate all coronavirus cases.

Constant lockdowns and travel restrictions have harmed China's 1.4 billion citizens' sense of security, aggravating a seismic collapse in the real estate market and the effects of slowing global development.

IMF managing director Kristalina Georgieva described the future as "exceptionally uncertain" and "dominated by risks" while speaking at an ASEAN conference in Singapore.

Adapted from WSJ, CNBC, FT, Forbes, Reuters

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