Markets retreat on fears the Fed will tighten too much

Dow dropped 230, decliners over advancers 5-2 & NAZ fell 120.  The MLP index stayed near 226 & the REIT index was off 1 to 389.  Junk bond funds were little changed  /& Treasuries saw a little selling, pushing yields higher,  Oil went up 1 to go back over 80 & gold advanced 13 to 1920.

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US economic activity was relatively flat at the start of the year & businesses are pessimistic about growth in the months ahead, the Federal Reserve said.  ½ of the Fed’s 12 regional banks reported no change or slight declines in economic activity in their districts, with several others reporting slight or modest growth & one a significant decline.  Some retailers "noted that high inflation continued to reduce consumers’ purchasing power, particularly among low& moderate-income households," according to the central bank's latest compilation of economic anecdotes from around the country, known as the Beige Book.  The Fed said most regions benefited from a slight increase in consumer spending during the holiday season.  Many business contacts said it had become more difficult to pass higher costs to consumers, "suggesting greater price sensitivity on the part of consumers."  "Selling prices increased at a modest or moderate pace in most districts, though many said that the pace of increases had slowed from that of recent reporting periods," the Fed report added.  The report included information gathered thru Jan 9.

Fed’s Beige Book says businesses expect weak growth in months ahead

The federal gov officially reached its $31.4T debt limit, prompting the Treasury Dept to begin using its "extraordinary measures" to avoid defaulting on the national debt for the next few months.  Treasury Secretary Janet Yellen announced in a letter to Congress last week that the US would reach the debt limit on Jan 19 & that her agency would have to deploy 2 of the 4 extraordinary measures at its disposal to continue to make payments on the debt & avoid default.  "Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligation," she wrote.  Based on the Treasury Dept's projections, Yellen noted that while there is uncertainty over how much time her agency can buy, "it is unlikely that cash and extraordinary measures will be exhausted before early Jun."  With the federal gov now on borrowed time to act on the debt, lawmakers will have to work with the Biden administration to raise or suspend the debt limit to avoid a default later this year.  The US national debt, which now exceeds $31.4T, grew to its current level due to bipartisan spending by presidential administrations & congressional majorities from both sides of the aisle.  Given the composition of Congress, it will take a degree of bipartisan compromise from the Rep House & Dem Senate to deal with the debt limit before the extraordinary measures run out.  Extraordinary measures are accounting & budgetary tools the Treasury Dept may use to avoid defaulting until Congress takes action on the debt limit to let the federal gov resume borrowing.  They don't last forever & their duration depends on how much the gov is spending.  Fderal gov now on borrowed time to act on the debt, lawmakers will have to work with the Biden administration to raise or suspend the debt limit to avoid a default later this year.

US debt ceiling forces Treasury into 'extraordinary measures'

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains tight despite higher interest rates.  Initial claims for state unemployment benefits dropped 15K to a seasonally adjusted 190K last week, the Labor Dept reported.  The forecast called for 214K claims.  Part of the surprise drop in claims likely reflected continuing challenges adjusting the data for seasonal fluctuations at the start of the year.  Thru the seasonal volatility, claims have remained at levels consistent with a tight labor market, even as layoffs have accelerated in the technology industry & interest rate-sensitive sectors like finance & housing.

Fewer Americans file for jobless benefits last week

Nervous investors are in charge.  On the margin, they are selling stocks & buying gold.

Dow Jones Industrials