The Federal Open Market Committee agreed to raise the federal funds target rate by 50 basis points and to begin shrinking the Federal Reserve’s balance sheet in June by $47.5 billion, with the runoff pace to reach a maximum of $95 billion per month after three months. The FOMC noted in its statement that “ongoing” increases to the fed funds target rate will be appropriate. The central bank’s quest now is to find some “neutral” rate of interest without tipping the economy into recession. “The last time the Fed made a 50-basis-point move was March 2000,” notes Darius Dale. “The dot-com bubble burst shortly thereafter, with the S&P 500 losing 50% and the Nasdaq Composite shedding 80% from 2000 peak to 2002 trough.” Equity indexes were mixed shortly after the FOMC announcement and shortly ahead of Fed Chair Jerome Powell’s press conference. Dale, founder and CEO of 42 Macro, joins Real Vision’s Maggie Lake for today’s Real Vision Daily Briefing to talk about the Fed, the economy, and how the “smart money” is reacting to quarterly earnings reports. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3y9meHD
What Do New Lockdowns in China Mean for the Global Economy?
Enforcement of a “Zero Covid” policy means approximately 40% of China’s gross domestic product (GDP) is under some form of lockdown right now – 373 million people in Shanghai, home of the world’s largest port, Shenzhen, and other Chinese cities are affected. Major disruptions to factories and global supply chains are sure to result. But the National Bureau of Statistics reported China’s first-quarter gross domestic product (GDP) growth was 4.8%, beating the consensus forecast and up from 4% in the fourth quarter. Because of China’s importance to the global economy, we’ve given special access for Essential subscribers to this compelling conversation between Real Vision’s Maggie Lake and China Beige Book CEO Leland Miller. Miller notes that China’s 2020 recovery was not as steep as outsiders estimated. Nor was its 2021 retreat as sharp as those same outsiders suggested. He offers a data-based analysis of China’s economy, including his assessment of Chinese officials’ expectations, the role of the Chinese consumer, and the continuing impact of the “Zero COVID” policy.
The Federal Reserve’s commitment to cooling inflation remains “unconditional,” said Jerome Powell in a second day of congressional testimony, even as evidence from overseas indicates we’re heading for a slowdown. “Growth down, inflation expectations down, cracks start to appear in commodity momentum,” tweeted Andreas Steno Larsen. S&P Global’s preliminary Eurozone composite purchasing managers index fell to a 16-month low in June on slower demand growth. “We know that the manufacturing cycle is weakening fast,” Andreas noted, “but the service sector was anticipated to have a strong summer. This is now debatable.” Andreas joins Weston Nakamura to talk about Europe, while Weston provides an update on what’s happening in Asia. More broadly, they talk about whether the narrative focus is changing from “inflation” to “recession.” We also hear from Tian Yang about long-term constraints on commodity supplies. Want to submit questions? Drop them right here on the Exchange: https://rvtv.io/3bohJiR. Watch the full conversation featuring Tian Yang here: https://rvtv.io/3xHghji.