June 10, 2023

A scary prediction about the future of interest rates | CNN Business

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When will central banks stop raising interest rates? This is the multi-trillion dollar question that has Wall Street analysts clutching their wrists while shaking their Magic 8 balls so hard.

Unfortunately, the response they get is “answer unclear, try again.”

What is happening: Last week, European Central Bank officials announced a massive new hike of three-quarters of a percentage point, raising interest rates the fastest in the euro’s history. This week, the Federal Reserve is expected to raise interest rates by 75 basis points for the fourth time in a row. The Bank of England could join the club on Thursday.

For some time it was thought that the year 2023 would bring lower interest rates and a return to irrational monetary policy. But a mountain of mixed data clouds this outlook. Now, some analysts think that central banks would not take policy decisions as quickly, opting instead for sustained, smaller hikes over a longer period of time.

Around the world, central bankers have raised overnight lending rates higher in the hope that they can cool the economy and curb rampant inflation by making it more expensive to borrow money. So far, the impact has been weak.

Annual inflation in the euro area was a record 9.9% in September, compared to 9.1% in August. According to the preliminary estimate for October published on Monday, inflation accelerated to 10.7 percent.

The “unexpected and exceptional” rise in inflation caught policymakers by surprise, ECB President Christine Lagarde told reporters on Thursday. He said rising retail energy prices could push inflation even higher in the medium term.

The US economy, on the other hand, grew by 2.6% in the last quarter, suggesting that the economy is not yet softening (although there are signs of slowing). Friday’s new data on personal consumption expenditures, the Federal Reserve’s primary gauge of inflation, showed that the United States is still struggling with higher prices. Europe also continues to grow.

Will they come or not? Even the Federal Reserve seems confused about when that will come stop interest rate hikes.

That ambiguity A speech by Cleveland Fed President Loretta Mester summed it up perfectly earlier this month:

“It is unlikely that we have seen the impact of our latest rate hikes on households and businesses, and it would not be appropriate to continue raising rates until inflation has fallen back to two percent.” He said: “But it is also the case that, based on the Fed’s communications, financial conditions began to tighten well before our first rate hike in March, and those effects have been passed on to the economy. Yet high inflation continues, indicating that we need to raise rates further.”

Because of the data lag, central bankers are not sure if they have done enough. If they mute interest rate hikes too early, they risk further entrenching inflation in the global economy. If they fix too much, they could plunge their country into recession.

Possible answer: Wall Street favors big events, but the future of central bank policy may be more nuanced. Butcher to TS Elliot: Blackmail doesn’t end with a bang, it ends with a whimper.

“We believe the market is overconfident that 2023 will see both an early Fed break and a big rate hike in Europe and the Antipodes,” Goldman Sachs analysts wrote in a recent note. “If the economy stays out of recession in the coming months, which we think is likely, that adds to the risk of a more gradual but extended Fed cycle through 2023.”

Pending: The Federal Reserve will meet on Tuesday and Wednesday to decide on its next policy. Fed Chairman Jerome Powell will speak to reporters immediately after the decision is announced at 2pm ET on Wednesday. The Bank of England announced its interest rate decision at 8 a.m. ET on Thursday.

After spending months trying to get out of his deal to buy Twitter (TWTR), Elon Musk officially owns the hugely influential platform, says my colleague Clare Duffy.

Now the question is: what does he actually do with it?

Big change to content moderation: Under Musk’s ownership, Twitter could relax measures taken to make the platform more welcoming to its most vulnerable users, typically women, members of the LGBTQ community and people of color, according to security experts.

Musk has said Twitter would have more lenient content moderation policies under his leadership. “When in doubt, let the talk be there,” Musk said in an on-stage interview in April. “If it’s a gray area, I’d say let the tweet exist. But obviously in a case where there’s maybe a lot of controversy, you don’t necessarily want to promote that tweet.

Unblock accounts: The most noticeable early change may come in who is and isn’t allowed on Musk’s Twitter.

Musk has said he thinks Twitter should be “more reluctant to remove things” and “very careful with permanent bans.” This could mean a long list of controversial far-right and conspiracy theorists among others will soon find their way back onto the platform.

Musk, meanwhile, is focused on bringing back one of Twitter’s most prominent former users: Trump.

An owner with a mixed and controversial history on the platform: Musk has a mixed reputation in the tech industry. He is undoubtedly one of the most ambitious and successful inventors and entrepreneurs of this era. But she has also dated controversies, often from her own Twitter profile, where she has more than 100 million followers.

Over the years, he has tweeted misleading claims about Covid-19 and made baseless accusations that the man who helped rescue children from a cave in Thailand was a sexual predator. He has also tweeted (since deleted) a photo comparing Canadian Prime Minister Justin Trudeau to Adolf Hitler and now-ousted Twitter CEO Parag Agrawal to Joseph Stalin.

On Sunday, he gave credence to a conspiracy theory about the attack on Paul Pelosi by tweeting a link to an article full of baseless claims. He later deleted the tweet, but not before racking up 28,000 Retweets and 100,000 Likes.

The relationship between the United States and Saudi Arabia is one of the most important on the planet. And recently it has also been one of the most difficult, says my colleague Matt Egan.

Angry officials in Washington promised “consequences” after OPEC, led by Saudi Arabia, sharply cut oil production earlier this month, raising pump prices just weeks before midterm elections.

US lawmakers are threatening actions not long ago unthinkable, including banning arms sales to Saudi Arabia and freeing up the Justice Department to sue the country and other OPEC members for collusion.

Saudi officials are hinting at a repayment — including dumping of U.S. debt — that could have huge ripple effects in financial markets and the real economy.

What happens next is critical.

If this decades-old relationship turns into a complete breakdown, it could have huge consequences for the global economy, not to mention international security.

“This is a new low. We’ve seen US-Saudi relations deteriorate for years, but this is the worst it’s ever been,” said Clayton Allen, president of Eurasia Group.

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