FED PAUSES RATE HIKES, BUT ANOTHER LOOMS

The FED has hit the brakes on interest rate hikes but hints at one more before 2022 wraps up. Out of 19 officials, 12 are leaning towards another hike this year.

Jerome Powell's stance on inflation was clear:

“Prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.”

In a candid moment, when asked by Reuters if a "soft landing" was the baseline, Powell responded with a straightforward "No." He acknowledged factors beyond the FED's control, marking a rare moment of transparency.

Powell emphasized the FED's commitment to trimming its balance sheet, which will help temper the economy by withdrawing liquidity.

Factors that might further cool the economy include a 30% rise in oil prices since June, the ongoing UAW strike, potential government shutdown, and the resumption of student loan repayments. Goldman Sachs economists predict these could slow growth to 1.3% from Q3's 3.1%.

By 2024's end, FED officials anticipate the federal funds rate to reach 5.1%, up from June's 4.6% projection. They foresee a drop to 3.9% by 2025's end and 2.9% by 2026.

Economic growth is expected to decelerate to 1.5% in 2024, following a 2.1% growth in 2023.Top of Form

GRIT TAKE: Both the FED and BOE hit the pause button yesterday, signaling they believe they've done enough to temper their economies without pushing them over the edge. The U.S. has seen its swiftest tightening cycle since the 1980s, with rates soaring from zero in March 2022 to over 5%. Jerome Powell's decision to adopt a "wait-and-see" stance is wise. His acknowledgment that "the full effects of our tightening have yet to be felt" was refreshing. Now's the time to hold steady, Jerome!

U.S GOVERNMENT SHUTDOWN POSSIBLE

There is a growing possibility of a government shutdown after Republican leadership scrapped a procedural vote on a funding bill to keep the government running through October. With internal party disputes between moderates and ultra-conservatives. Speaker Kevin McCarthy has until October 1 to rally enough votes for a new spending bill, or most federal agencies will grind to a halt.

In a shutdown:

-Non-essential government functions stop until funding is restored.

-Essential services, like air traffic control, military, and federally funded hospitals, continue.

-Postal Service and programs like Social Security and Medicare remain unaffected.

-Potential disruptions include delayed passport processing, national park closures, and hindered SEC oversight.

-Non-essential employees are furloughed but are guaranteed back pay once the shutdown ends, per a 2019 law.

GRIT TAKE: Remember the December 2018 to January 2019 shutdown? It lasted five weeks, impacted 800,000 employees, and cost the economy $11 billion. While most of that was recouped, $3 billion was lost forever. Goldman Sachs warns that a repeat could shave 0.2% off U.S. economic growth weekly. Such a hit might push the FED to reconsider another rate hike this year. Historically, U.S. stocks have been resilient during shutdowns, with the S&P 500 showing minimal fluctuations. But in these uncertain times, it's anyone's guess.

Coming Up…

TODAY: Initial jobless claims, existing home sales.

Friday: Bank of Japan rate decision, manufacturing PMI.

Headlines You Need To Know:

• Jobless Claims Fall to 201,000, Lowest Level Since January

• Nearly half of young adults live with their mom and dad

• RBC Moves With Job Cuts on US, Canada Capital Markets Desks

• GM & Stellantis just laid off more than 2,000 people

• SpaceX sues the DOJ

• Biden urges UN to back Ukraine in its war against Russia

• US to offer free at-home covid-19 tests again

• Zelensky meets with Ken Griffin, Bill Ackman for funds

• Senate confirms Chairman Joints of Chief of Staff

• America’s biggest landlords can’t find houses to buy

• Ukraine tactics put Russia on the Defensive

• Amazon gives Alexa an AI facelift

• FedEx posts profit that tops estimates

Just for fun…

This Future-Billionaire was denied on Shark Tank

This guy was denied by shark tank, sold his company for $1 billion, and then ended up on the show as a shark. Jamie Siminoff, Ring’s founder, went on Shark Tank in 2013, seeking $700,000 for a 10% stake in his company, then called DoorBot.Kevin O’Leary made an offer to Jamie but it was nowhere close to the original offer while the other Sharks all were all out on the deal. Mark Cuban thought the business would be successful but that it would never be worth over $50 million. Richard Branson watched the episode, called up Siminoff and invested his money into the company. Doorbot would eventually re-brand into Ring doorbell and the company would explode in growth over the next couple of years.In 2018, Amazon purchased Ring doorbell for $1 billion making it the most successful company to ever appear on Shark Tank. After the company was sold, Shark Tank asked Siminoff to come back on the show but as a Shark not as a contestant.

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TWEET OF THE DAY

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*This post is sponsored by Grit Capital

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.