2023-08-18 02:04:00
Federal Reserve Chairman Jerome Powell participates in a meeting of the Financial Stability Oversight Board, July 28, 2023, in Washington. KEVIN DIETSCH / GETTY IMAGES VIA AFP
Inflation, which is cruising at around 2.4%, is undoubtedly contained in the United States, but not the level of interest rates. These are on the way to breaking records on the markets. Thus, the yield on ten-year US Treasury bonds hit its highest level since 2007 on Thursday, August 17, at 4.329%. This is more than the maximum reached in October 2022, with 4.24%. This trend is hitting American households hard, since the rate of thirty-year mortgage loans reached 7.09%, according to figures published by the mortgage giant Freddie Mac. This level, the highest since 2002, has more than doubled in eighteen months.
This surge was accentuated by the publication, on Wednesday, of the “minutes” (the debates) of the last meeting of the monetary policy committee of the American Federal Reserve. It shows that the central bankers did not rule out an additional hike in the Fed’s key rates at the end of July. These rose from zero to more than 5.25% between March 2022 and July 2023.
“With inflation still well above the long-term target [de 2 %] and a still tight labor market, most participants continued to see significant upside risks to inflation, which may require further monetary policy tightening.”could be read in the minutes, even if “a certain number of participants” called to find a ” balance “ in between “the risk of unintended over-tightening of policy” et “insufficient tightening”.
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Disaffection for stocks
The strong sales of Walmart supermarkets and the good level of employment confirm the inflationary pressures exerted by American consumers. Markets, which thought the rate hike was over, are now betting 30% on another hike in the cost of money at the Fed’s November 1 meeting.
Thus, America is entering a scenario that no one had really envisaged: a sustained high level of interest rates, after the decade of free money which had followed the great financial crisis of 2008, amplified during the pandemic. of Covid-19. This foreseeable development leads to a disaffection for equities: why take risks by taking company shares when you can have returns of more than 4% by investing in risk-free government bonds?
In addition, the rise in the cost of money will weigh on the results of companies that are financed by debt: this is the famous return of financial costs, which is eroding the net results. As a result, since hitting a high in July, the S&P 500 index of large companies has lost 5.16%, while the tech-heavy Nasdaq is down 7.8%.
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