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The underlying floor of our coming markets continues to be the Fed and when they might lower interest rates. They have extolled their Quantitative Tightening as a fight with Inflation.
While I have no doubt about the truthfulness of this statement, the flip side of the coin has been borrowing costs, for anything and everything, that have skyrocketed.
CBS reports that Americans now owe a collective $1.13 trillion on their credit cards, with an average balance of $6,360. Both of these numbers, CBS reports, are at historic highs.
The New York Fed data also indicates that credit card delinquencies are worsening. The amount considered seriously delinquent, 90 days or more, increased to 6.36% for the fourth quarter, up from 4.01% in the same period a year earlier.
Many credit cards are now charging interest of over 20 percent. Consider this example: If you only make minimum payments toward $6,360 in credit card debt at an annual rate of 20.75%, you’d be in debt for 218 months, or a bit more than 18 years, and will end up paying $9,542 in interest, according to Ted Rossman, senior industry analyst for CreditCards.com and Bankrate.com. How lovely to pay more interest than your initial debt.
Not!
The Fed’s tightening has also had a major effect on corporate borrowings and mergers and acquisitions, which has derailed some investments, and also had a major effect on many balance sheets, including dividends paid.
While all of this primarily affected the bonds markets, it has also negatively affected many individual stocks, the “Magnificent Seven” excluded, for Artificial Intelligence,” as well as some covered funds with high dividend yields.
From one day to the next, some President or Governor of the Fed speaks and the markets zig and zag as a result.
Yes, there are the wars in the Gaza Strip and in Ukraine, and America’s forthcoming election, but it is my opinion that the moves made by the Fed, and the expectations of those moves, are far more important for the direction of the markets.
Behind the scenes, I surmise, that a great deal of pressure is going to be put on the Fed by the current administration, as lowered rates will help the American economy and so Chairman Powell and Company may come under severe pressure to do something sooner rather than later and I believe that they will. That is my honest opinion.
“I wouldn’t go quite so far as that. What I can say is that inflation has come down really over the past year, and fairly sharply over the past six months. We’re making good progress. The job is not done, and we’re very much committed to making sure that we fully restore price stability for the benefit of the public.”
-Chairman Jerome Powell, February 1, 2024
My point today is that the Fed is commanding the markets and that their primary leadership, for 2024, is going to be the actions of the Fed.
Original Source: Author
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
