That much is known, the Federal Reserve will continue to raise interest rates quickly and aggressively. It will be surprising to see how quickly it liquidates the huge bond holdings that it has acquired in the past decade.
Chair Jerome Powell confirmed the fact that there will be a series of 50-point moves after the March increase. A typically reserved figure, Lael Brainard indicated that she was open to rapid action to bring down inflation.
The market-moving portion of Brainard’s comments on Tuesday focused on the Fed’s bond sales or quantitative tightening. She stated that the Fed would begin a rapid reduction of its $9 trillion balance sheets as soon as next month. The minutes will include the views of the committee on the economic impact of unloading these bonds.
The possibility of the central bank flooding markets pushed the yield on 10-year bonds up to its highest level in nearly three years. It also helped it get out of a recession signaling inversion. However, the fear that Fed actions may need to be reversed is not necessarily gone.
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Quantitative tightening is the biggest question at this time. Is it going to continue to increase longer-term yields in the long-term? To what extent will it tighten financial conditions Is it going to help curb inflation or just a sideshow for the interest rate increases?
Since the financial crisis, there have been several big experiments in central banks since then with forwarding guidance and quantitative easing. Another is on the horizon.
U.S. and EU will impose additional sanctions on Russia
After the shocking images of war that were released over the weekend, the U.S. and European Union have decided to impose additional sanctions against Russia. This was in response to international support for increasing pressure on Moscow to stop its aggression in Ukraine.
- The Wall Street Journal reported that the European Commission, which is the EU’s executive arm, proposed broad new sanctions. These included banning Russian coal imports, cutting access by Russian roads and shipping goods carriers to Europe, targeting more oligarchs as well as their families, and blocking certain machinery exports.
- The White House announced Wednesday that the U.S. will announce bans on all new Russian investments. This includes sanctions against Russian financial institutions and state-owned enterprises as well as sanctions against Russian officials and their families.
- According to the Journal, the White House could increase restrictions on Russian banks already sanctioned. This includes Sberbank which is Russia’s largest financial institution.
What’s next: A ban against Russian coal would be the first time that EU member states have agreed to stop imports from Russia. Although EU countries are divided over banning Russian oil and gas imports, the idea of a gradual-in embargo on Russian oil is growing support.
Elon Musk’s Twitter Stake Isn’t ‘Passive.’
Elon Musk, Tesla CEO, has refiled the disclosure of his stake in Tweet to reflect his change from a passive investor to an active investor. This was after he was named to the board at the social media company. The disclosure was made by Musk on Tuesday in a 13D filing with U.S Securities and Exchange Commission. It indicated his intent to become more active in Twitter’s business.
- According to the filing, Musk holds 73,115,000.038 Twitter shares or 9.1% of company stock, making him its largest stockholder.
- Musk announced Monday in a 13G filing that, based on Friday’s closing share prices, he had purchased a 9.2% stake of Twitter. The 13G form can be used by investors who intend to hold their shares passively and not attempt to exert any control over a company.
- He made the change to indicate that he is now an active investor following an announcement from Twitter and Parag Agrawal, its CEO, that it had named Musk to the board.
What’s next: As with most of Musk’s public statements, his disclosures of his Twitter stake have enriched him as well as his fellow shareholders. Let’s hope he is able to continue his free speech goals on Twitter and increase Twitter’s stock.