Federal Reserve is switching money to inflation  CNN Business

Federal Reserve is switching money to inflation CNN Business

A version of this story first appeared in the CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.


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The mission of the Federal Reserve is to promote the stability of the American monetary system. That is the reason why the central bank was created in 1913, and that is why it still exists today.

So when inflation threatens to potentially destabilize the dollar, it’s the Fed’s job to take action. They have a number of tools at their disposal, but the most efficient in this situation is cooling the economy by raising interest rates. With U.S. inflation rates now peaking at 40, that’s what the Fed is doing.

Federal Reserve Chairman Jerome Powell announced last week that the Fed would raise interest rates by an aggressive three-quarters of a percentage point, the largest increase in 28 years. But he also had a gloomier tone than in previous meetings, acknowledging that some factors were beyond his control.

The Fed’s goal is to reduce the inflation rate to 2% while keeping the labor market strong, Powell said Wednesday, but “I think what is becoming clearer is that many factors we do not control will play a very important role in deciding whether “It is possible or not,” he said. Commodity prices, the war in Ukraine and the chaos in the supply chain will continue to affect inflation, he said, and no change in monetary policy will alleviate those things.

There is still a way to lower the inflation rate to 2%, he said, but that path is increasingly being overrun by these external forces.

Powell’s speech was largely contrary to the message from the White House, which emphasized that the Fed is the main fighter against inflation in the United States.

Earlier this month, when economic data showed that inflation was still at its peak for 40 years and that consumer sentiment had fallen to a record low, the Biden administration pointed to the role of the Federal Reserve in keeping prices under control.

“The Fed has the tools it needs, and we give them the space it needs to work,” said Brian Deese, director of the National Economic Council.

Last week, however, Powell pushed another story. Those increasing prices of gas and food, he said, are not under his control. Appropriate monetary policy alone can no longer bring us back to a 2 percent inflation rate with a strong labor market, he said.

“So much really doesn’t come down to monetary policy,” Powell said on Wednesday. “The consequences of the war in Ukraine led to a jump in the prices of energy, food, fertilizers, industrial chemicals, as well as a wider supply chain, which were bigger – or longer-lasting than expected.

Mark Zandi, chief economist at Moody’s Analytics, agrees. “The primary culprit [of inflation] “There have been higher energy prices, especially petrol, and much can be traced back to Russia’s invasion of Ukraine, which sparked a jump in global oil prices,” he said in a recent episode of his podcast, Moody’s Talks. Inflation should calm down when the pandemic calms down and the market adjusts to new sanctions against Russia, he added.

It is difficult to say whether raising interest rates will help limit the spread of inflation or is it too late. Powell seems to be guarding. “I think the events of the last few months have raised the level of difficulties, created great challenges,” Powell said. “And now there is a much greater chance that it will depend on factors that we do not control.

Some wealthy Americans like to vacation in Europe. The richest man in Connecticut prefers to bet on billions of dollars against the economic future of the old world.

Bridgewater Associates Ray Dalia is betting nearly $ 6 billion that European stocks will fall. This makes the world’s largest hedge fund the world’s largest seller of Euro shares.

In all, Bridgewater has 18 active short bets against European companies, including a $ 1 billion position against semiconductor company ASML Holding and a $ 752 million position against oil and energy company TotalEnergies SE.

This is not Bridgewater’s first rodeo. Dalio has not been on the side of Europe for some time. In 2020, Bridgewater bet $ 14 billion against stocks there, and in 2018, they built a short position of $ 22 billion in relation to the region.

Why? Bridgewater was rather vague about his strategy for the euro in general, but some clues emerged from an interview Dalio gave to Italian newspaper La Repubblica last week. He explained that Bridgewater stays away from countries that are in danger of domestic conflicts or international war. He also said that he was worried about the attempts of central banks to deal with high inflation, and he expects that the economy will soon deteriorate because of them.

In short, it is short because of the war in Ukraine and the hawks of the policy of European central banks.

But it may be a struggle for world order. One thing Dalio was not ashamed of was sharing his broader view of the world. In a series of posts on the LinkedIn blog, he explained why he thinks the United States is moving fast towards civil war and how the global world order is changing.

“The dynamics of Russia-Ukraine-USA-other countries are part of the dynamics of changing the world order that is underway, which attracts the most attention,” he writes. “But this is essentially only the first battle in a long war for control of the world order.

Perhaps Bridgewater, which has assets worth 151 billion dollars, is betting that Europe will not be able to get out of the war at the top.

So far, that bet has paid off. The company made a profit of 26.2% this year in its leading fund Pure Alpha, while the S&P 500 lost almost 24%.

STOKSKS Europe 600, a broad index measuring the European stock market, has fallen about 17% since the beginning of the year.

Monday: Holidays June 10, markets closed in the United States.

Tuesday: Existing house sale for May.

Wednesday: Federal Reserve Chairman Jerome Powell will testify about the economic prospects in Washington.

Thursday: Initial claims for the unemployed; Crude Oil Inventories of the Energy Information Administration (EIA).

Friday: Sale of new houses for May.

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