Daily Brief: The Fed’s Done Teasing Everyone About Interest Rate Hikes

Daily Brief: The Fed’s Done Teasing Everyone About Interest Rate Hikes

over 2 years ago3 mins

The US Federal Reserve (the Fed) announced late on Wednesday that it’d start slowing its bond-buying from November, finally giving investors something to sink their teeth into.

What does this mean?

The Fed’s been working hard to keep the US economy grinding along during the pandemic, not least by buying up $120 billion worth of bonds every month – lowering their yields and, in turn, borrowing costs for households and companies alike. But now that the country’s started to look a little steadier on its feet, the Fed’s decided to start winding that bond-buying program down as soon as November. The central bank said it’ll end the program altogether from the middle of next year, and then – and only then – will get to thinking about upping interest rates…

Why should I care?

For markets: The Fed gives a stay of execution.

Interest rate hikes matter because they make a company’s future earnings worth less today, which could give investors’ stocks a knock. But it’s no secret that they’re on their way: it’s just been hard to know when exactly. So now that the Fed’s said nothing will happen until at least the middle of next year, investors can relax a little. Throw in the fact that the central bank just upped its expectations for US economic growth over the next two years, and it’s no surprise US stocks rallied after the news.

US stocks
Source: The Wall Street Journal

The bigger picture: So much for a blip.

The Bank of England (BoE) made its own announcement on Thursday, saying inflation might stay above 4% well into next year. This, despite having maintained for a while now that this spike in prices is only temporary. The BoE is sticking to its guns, mind you: it’s still not raising rates quite yet, even if it did say it’d think about doing it in the next few months – so long as the UK’s recovery stays on track, of course.

BoE inflation

Keep reading for our next story...

The Chip Shortage Could Cost Automakers $210 Billion

Chips image

Data out on Thursday estimates the ongoing chip shortage will cost global automakers $210 billion this year, but those lost sales must be around here somewhere.

What does this mean?

As if it wasn’t hard enough for carmakers to get their hands on microchips after all the pandemic mayhem, one key supplier in Asia has just been crippled by a major fire, while others have been hit by a new wave of coronavirus outbreaks. The delays are now so bad that it took a record 21 weeks to deliver chip orders in August – six days longer than in July.

That’s left stockpiles of new cars nearly depleted and carmakers reliant solely on almost non-existent production. It’s a problem they’ve warned could go on for years, and an expensive one to have: one research consultancy has just said it thinks the industry will lose $210 billion in sales this year alone – almost double its last estimate in May.

Chipping away

Why should I care?

The bigger picture: Fool carmakers twice...

Carmakers rely just as heavily on lithium and nickel in their electric vehicle production, and they aren’t going to make the same mistake twice. They’ve noticed that China – which controls two-thirds of the supply – is looking to keep more for itself, so they’ve been in talks to secure supplies from a new Australian project that’s looking to cover as much as 10% of global demand.

For markets: This one’s on you.

The supply chain is pushing up costs far and wide, with data out on Thursday showing business costs in the eurozone rose at their fastest pace in more than 20 years. That leaves them with two choices: either grit their teeth and take the hit, or start passing these costs onto you. And if they choose the latter, you won’t be the only one footing the bill: Germany, France, and Spain have all reported a slowdown in economic growth in the last few months, and that won’t pick up anytime soon.

Slowdown
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