Steady Course
The Federal Reserve stays on course - and a developing oil crisis
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Disappointment is the gap that exists between expectation and reality - John C. Maxwell
Roger Jones, a professor of Mathematics at DePaul University once commented that “A lottery is a tax on the mathematically challenged”. His assertion seems reasonable given that your chances of winning the Powerball jackpot are 1 in 292 Million. Now, no reasonable person buys a lottery expecting to hit the jackpot. Nevertheless, there is a slight pang of disappointment when you realize that the winning numbers are not the same as the ones on your ticket.
The reaction to the Fed’s recent rate hike was somewhat similar. Despite the Fed making it clear that they will keep raising interest rates until they reach the target inflation level of 2%, many folks were hoping for a pivot - i.e. a change in monetary policy. Unsurprisingly, that wasn’t the case when the Fed announced another rate hike confirming that they are staying the course on increasing interest rates. The disappointment in the markets was clear as the S&P 500 closed nearly 2.5% down on Wednesday.
In other news, the Bank of England announced that they expect the UK to fall into the longest-ever recession since 1920. Also, in case you were planning to pay Twitter an $8 Monthly fee to get a verified blue checkmark account, keep in mind that $8 a month deposited into an S&P 500 index fund will likely net you a cool $120,000 at the end of 45 years.
Let’s get up to speed on what I covered last week.
The Fed Stays on Course
On Wednesday, the federal reserve raised interest rates by another 75 basis points, taking us to the highest interest rates since 2008. The widely expected move was part of the continuing efforts by the Fed to rein in inflation and with reports suggesting that the hike in workers’ wages is not keeping up with inflation, the bitter medicine is likely to continue till inflation reaches pre-pandemic levels.
While all eyes were on the stock market which generally responds quickly to hikes, the housing market is also taking a hit due to the rising interest rates. Recent data suggests that home sales have fallen 31% year over year as mortgage rates have tripled from 2.8% at the start of the year to 7% this month. Unsurprisingly, mortgage demand is also at its lowest level in 25 years.
Let’s take a look into the recent announcement from the Fed, when we can expect these hikes to have an impact on inflation and how specific investments like deposits and bonds can give guaranteed returns even during this uncertain economic environment. Watch it and let me know what you think!
An Evolving Gas Crisis
The US is staring down the barrel (no pun intended) of one of the largest oil crises since 1973 when prices quadrupled in a year and people resorted to hoarding gasoline. The major reason for this is that the Organization of the Petroleum Exporting Countries (OPEC) has decided to cut its production by 2 Million Barrels per day. While the US government believes that the move is an attempt to help the Russian government, Saudi Arabia, the largest member of OPEC argues that they are anticipating a recession in which demand is going to fall and they want to stay ahead of the curve.
We use nearly 20 Million Barrels of Oil every single day making us the largest consumer of oil in the world. Here’s everything you need to know about our oil supply, the history of our strategic petroleum reserve, and how these events could play out in the near future.
So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
See you next week with another bunch of exciting videos!
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The consistency on these is next level.
With the interest rate gradually rising, I don't think we have seen the inflation numbers come down so I am very curious how high they will have to raise the rates! Only time will tell.