Four key pointers to your financial future came with a pre-Christmas rush over less than six hours Thursday.
They kicked off at dawn with Fed head Jerome Powell telling the world what he intends to do with US money printing and interest rates.
In a word, nothing. That’s, nothing meaningful right now.
Oh yes, he’s reducing the money printing, but he’s still going to keep printing some money into the new year. After he finally stops, then and only then, might he begin to think about raising interest rates.
This is supposed to be the Fed getting ‘hawkish’.
A Fed that has left its official interest rate at zero with inflation already near 7 per cent is not being hawkish, but outrageously and utterly disgracefully accommodating.
No wonder Wall St said thank you very much and promptly leapt back to its all-time high.
A rate rise postponed to ‘some time’ in 2022 is a rate rise postponed forever so far as the Street is concerned.
So, the Wall St party – underwriting global share markets – continues for now. But it will end badly, very badly, and much worse than what we would have seen Thursday if Powell had done his job.
That would have been an immediate stop to the money printing and a lift in the Fed’s official rate to 1 per cent.
In contrast, our Reserve Bank governor Philip Lowe – who does not, maybe yet, face a US-like inflation surge - signalled he was likely to stop the RBA’s money printing cold, at its first meeting back at the start of February.
He most definitely will not be raising the RBA’s official rate from the all-but zero 0.1 per cent or indeed even thinking of when he might do that, at the February meeting.
But the RBA’s money-printing – effectively, if indirectly buying the bonds the federal and state governments have to issue to fund their huge budget deficits - has held down yields in the bond market.
The RBA is currently buying $4bn of bonds a week – ‘printing’ the money to buy them via computer key-strokes.
If the RBA follows through and stops the bond-buying completely in mid-February, that would mean governments – and critically, those bond yields – would then be ‘on their own’.
If governments ran deficits, they would have to sell bonds to investors. That would clearly put upward pressure on bond yields.
The RBA would not be there to reduce the pressure.
And run deficits, they most certainly will be doing.
As the mid-year (federal) budget update showed: the deficit is forecast to stay at $100bn this year and next; the NSW and Victoria updates showed similar big deficits.
Maybe, they would all start falling after that - Covid and a football team’s laundry list of other factors permitting.
They include what disasters, plural, Powell visits on the world with his utter failure to do his job.
Beyond the reality of never-ending deficits – and forget about tax cuts, ever – the budget update numbers, both the fiscal one and the economic forecasts , were worth, as usual, four-fifths of five-eighths of copulating all.
Finally we got the ABS jobs numbers, showing a thumping 366,000 leap in jobs from October to November – more than double the 168,000 in the Roy Morgan numbers I discussed a week ago.
However they are not like for like.
The ABS numbers are calculated from the first two weeks of October when both Victoria and NSW were still in lockdown to the first two weeks of November.
The Morgan numbers were later in the two months; with other data from the ABS indicating that jobs growth petered out completely mid-November.
They do point to the stronger economy colliding with worker shortages – and likely higher inflation and wages growth.
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