Sure enough the hammer dropped on Wednesday. The Fed raised interest rates, as we suspected.

For that reason, we’ve prepped some BLUFs from just before that announcement, each of which provide some insight to what it means for the economy.

The spread between the 3-month Treasury and 10-year Treasury stands at less than 40 basis points. We’re entering times that many bankers in leadership positions haven’t experienced in over a decade. Maintaining a healthy net interest margin can be difficult when dealing with a flattening yield curve. It makes the work of your Bank’s ALCO all the more important when evaluating funding costs and needs, loan pricing, investment decisions, and interest rate risk model forecasts.

If your ALCO needs any help during these challenging times, please don’t hesitate to reach out to us at (918) 791-0699 or by emailing us at info@communitybankadvisors.com.

 

Bond King Jeff Gundlach and his deputy think Fed’s Powell made a mistake by tightening on “autopilot” (source)

  • “Powell sounded like he was on autopilot when it came to quantitative tightening and he talked too much about economic modeling,” Jeffrey Gundlach told CNBCs Scott Wapner.
  • The Fed raised interest rates by a quarter point Wednesday, as expected, and lowered its forecast to two hikes from three for next year.
  • During the post-meeting news conference, Powell said the central bank was satisfied with its program to reduce the balance sheet and has no plans to change it.
  • Stocks plunged Wednesday, with the Dow Jones Industrial Average dropping 351.98 points. It erased a 380-point gain that came before the Fed decision, closing at its lowest level so far this year at 23,323.66.
  • Investors flocked to bonds, sending the yield on the 30-year Treasury to below 3%. The 10-year Treasury dropped to 2.757%.

 

Legendary investor Paul Tudor Jones warns the coming December interest-rate hike “will be the last one for a long time” (source)

  • The Federal Reserve is expected to raise its key interest rate next week for the third time this year, and the legendary investor Paul Tudor Jones says it will be “the last one for a long time.”
  • The market has priced in a 67.5% probability that the Fed will raise its benchmark fed funds rate to a range of 2.25% to 2.5% next week, according to data from Bloomberg.
  • “I don’t think they’re going to hike in 2019,” Jones, the founder of Tudor Investment, told CNBC.
  • Just a few months ago, Fed policymakers had indicated they would probably increase rates three times in 2019. But more recently, they have signaled a potential turning point for its rate-hike path as data has shown a slowing housing market, cooling job gains, and inflation that has shown no signs of rising above the Fed’s 2% target.

 

Janet Yellen warns another financial crisis could be brewing (source)

  • Janet Yellen, former chairwoman of the Federal Reserve, is sounding a warning bell about another financial crisis in the making, saying the loss of authority by banking regulators and the move toward deregulation are worrisome.
  • The warning is a significant course reversal for Yellen, who in 2016 said she wasn’t worried about a recession, and last year said she did not believe there would be another financial crisis in our lifetime because of financial reforms. A continued push for deregulation has made her rethink that.

 

Why the US economy will likely fall into a recession next year (source)

  • The US economy will likely fall into a recession next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab.
  • “Well there’s 100% chance we’re going to get another recession,” she said during an interview on WSJ at Large with Gerry Baker. “In the next year, I do think trade holds the key.”
  • The financial markets have been rocky over the past few weeks, with the Dow Jones Industrial Average falling an estimated 10% from its peak a couple months ago.
  • Investors fret about a number of issues that could potentially derail the economy, most notably US-China trade regulations, rising Federal Reserve interest rates and uncertainty over how Britain will exit the European Union.
  • The US-China trade war began almost a year ago and has culminated in hundreds of millions of dollars’ worth of tariffs.
  • Sonders said the key to the length of the runway between now and the next recession largely relates to whether the US and China manage to strike a trade balance.
  • “I think an earnings recession next year is more likely than an economic recession unless we kind of continue down the rabbit hole towards the full amount of tariffs,” she said.