Dow jumped 292 (near session highs), advancers over decliners an impressive 4-1 & NAZ advanced 238. The MLP index was up in the 238s & the REIT index gained 3+ to the 367s. Junk bond funds traded higher along with stocks & Treasuries saw significant buying, sharply reducing yields. Oil rose 1+ to the 81s & gold climbed 16 to 1963 (more on both below).
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The Federal Reserve could raise interest rates again in order to reduce inflation to its targeted levels, according to Fed Governor Michelle W Bowman. The Federal Open Market Committee (FOMC) meets next in Sep to determine future monetary policy. "Additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2% target," Bowman said during a meeting last weekend. Following its meeting in Jul, the Fed hiked interest rates by another 25 basis points after a brief pause. The Fed's last rate increase marked the 11th time the central bank has raised interest rates since 2022. That brought the federal funds rate to 5.25-5.50%, its highest level in 22 years. But in recent months, inflation has cooled. In Jun inflation slowed to 3%, its lowest level in 2 years. The drop also marked the 12th straight month that inflation eased. But this trend may not be sufficient to force the Fed to loosen its grip on monetary policy. "I will be looking for consistent evidence that inflation is on a meaningful path down toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level," Bowman said. "I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening."
Fed governor warns more interest rate hikes may be coming
US regulators unveiled plans to force regional banks to issue debt & bolster their living wills, steps meant to protect the public in the event of more failures. American banks with at least $100B in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a gov seizure, according to a joint notice from the Treasury Dept, Office of the Comptroller of the Currency, Federal Reserve & Federal Deposit Insurance Corp (FDIC). The steps are part of regulators’ response to the regional banking crisis that flared up in Mar, ultimately claiming 3 institutions & damaging the earnings power of many others. In Jul, the agencies released the first salvo of expected changes, a sweeping set of proposals meant to heighten capital requirements & standardize risk models for the industry. In their latest proposal, impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released by the FDIC. Banks will be discouraged from holding the debt of other lenders to reduce contagion risk, the regulator said. The requirements will create “moderately higher funding costs” for regional banks, the agencies acknowledged. That could add to the industry's earnings pressure after all 3 major ratings agencies have downgraded the credit ratings of some lenders this year. Still, the industry will have 3 years to conform to the new rule once enacted & many banks already hold acceptable forms of debt, according to the regulators. They estimated that regional banks already have roughly 75% of the debt they will ultimately need to hold. The KBW Regional Banking Index, which has suffered deep losses this year, rose less than 1% today.
Regional banks face hit from new debt level requirements
A former White House economist said he thinks the Federal Reserve will hike interest rates again amid rising inflation numbers & energy prices. “The hiking is coming again,” Kevin Hassett, former chairman of the Council of Economic Advisers under then-Pres Trump, said. “The inflation numbers are going to surprise on the upside because gas prices have gone up so much and ... we’re looking probably for a top-line (consumer price index) of 0.8 or so,” he added. Hassett was referencing headline inflation, a measure of the total inflation within the economy including commodities like food & energy. The CPI rose 0.2% for the month in Jul & 3.2% compared to the year prior. Though the annual rate of headline inflation came in below expectations, it marked an increase from 3% in Jun, according to the Bureau of Labor Statistics. Fed Chair Jerome Powell warned last week that interest rates could be raised again to reduce inflation back to its 2% goal. The Fed's Federal Open Market Committee has raised interest rates 11 times since Mar 2022. “We’re going to see kind of a sawtooth inflation cycle,” Hassett said. “It’s going to be kind of like the Covid waves where it feels like Covid’s under control and then there’s a new variety.”
Former White House economic advisor says more Fed hiking is coming
Gold futures marked their highest settlement in about 3 weeks. Prices got a boost from a softer $ & lower Treasury yields on the back of the JOLTs data. The Labor Dept reported that US job openings fell in Jul to a 28-month low of 8.8. Dec gold rose $18 (0.9%) to settle at $1965 an ounce, the highest finish for a most-active contract since Aug 7.
Gold futures settle at a 3-week high
US oil futures gained, settling at their highest in more than a week, as traders continued to monitor Hurricane Idalia's path & its potential impact on energy operations in the Gulf of Mexico. West Texas Intermediate crude for Oct climbed $1.06 (1.3%) to settle at $81.16 a barrel, the highest front-month finish since Aug 18.
U.S. oil prices post highest finish in more than a week
Stock buyers were encouraged by the JOLTS report on job openings. Tomorrow brings the first estimate for Q3 GDP & that is expected to be a strong number. With the rally this week, Dow has cut its loss in Aug to 700+ (still a strong number).Dow Jones Industrials
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