over 2 years ago • 3 mins
The US Federal Reserve (Fed) said on Wednesday it wouldn’t tweak its interest rates or economic support program, and it’s quite happy doing nothing until 2023.
What does this mean?
It came as no surprise that the Fed didn’t change its short-term policies, even if US inflation has been at record highs for a couple of months. The central bank, after all, thinks this is just a blip: inflation rates compare recent prices to those from the year before, so of course they’re going to look high next to last year’s pandemic-battered environment. And since the Fed reckons things will go back to normal of their own accord, it’s in no hurry to slow those price rises down by hiking interest rates. Besides, its other key measure of US economic health – employment – suggests now’s not the time to withdraw economic support: the country’s still around 7.6 million jobs short of where it was before the pandemic arrived.
Why should I care?
For you personally: Watch out for the signs.
There are a couple of other indicators you can use to stay one step ahead of central bank decisions. First, bond yields, which rise if investors think inflation is high enough to force up interest rates. Second, wages: higher wages suggest, all else equal, consumers have more cash to spend, which might then push prices higher. At the moment, neither of those measures are showing much sign of an uptick – but by 2023, the Fed reckons, some of them might, which is sooner than most investors expected.
The bigger picture: The UK looks at the bigger picture.
As for the UK, fresh data out on Wednesday showed inflation in May came in much higher than expected – up 2.1% from the same time last year, compared to economists’ predicted 1.8%. But no one actually seemed to mind: that 2.1% is only slightly higher than the UK central bank’s long-running target, and it’s not exactly the 5% the US is wrestling with.
Keep reading for our next story...
Two of the most popular US stocks might’ve peaked too early: software giant Oracle and kids’ gaming platform Roblox reported disappointing updates earlier this week.
What does this mean?
Senior tech specialist Oracle actually turned in surprisingly strong quarterly revenue and profit figures. But the company’s forecast for this quarter fell short: it’s expecting to post a lower profit than previously predicted as it ups investment in its priority cloud computing segment.
Newly listed Roblox, meanwhile, followed up a mouth-watering debut earnings report last month with news that May only saw 43 million daily active users. That was 28% higher than this time last year, sure, but it was lower than April’s 43.3 million total – and user spending on preteens’ go-to gaming hub was slightly less than a year ago too.
Why should I care?
For markets: Time to reset some assumptions.
Both stocks initially fell on Wednesday: Oracle by 5% and Roblox by 10%. In Oracle’s case, investors might’ve seen its spending plans as throwing good money after bad, especially since the firm is sacrificing short-term profit. As for Roblox, the combination of lower user figures and lower spending may have negative consequences for the company’s path to profitability. In both cases, investors’ newly adjusted earnings expectations might be why they sold off their shares.
The bigger picture: Don’t believe the homecoming hype.
Oracle’s investors may have got overexcited about its cloud computing prospects. While global cloud revenue is expected to rise 23% this year, most of that will likely be snatched up by rivals Amazon, Alphabet, and Microsoft. Roblox’s backers may likewise have bought into the idea that pandemic-driven growth will keep going, and that kids will stay indoors even if they’re able to leave. But last month’s data suggests that, as the Western world reopens, adults and children alike are reembracing real-life interaction.
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