US Interest Rates Expected to Rise Next Year: Find Out What It Means

The Federal Reserve (Fed), the US central bank, has sent a clear signal that the era of rock-bottom interest rates will end in 2022. What’s happening: Rates have been close to zero since March 2020, when government leaders across the world world closed the economy to slow the spread of Covid-19.

But on Wednesday, in addition to announcing a quicker end to its emergency bond-buying program, the Fed projected that its benchmark interest rate could rise to 0.9% by 2022.

The economic policy pivot, which comes with inflation rising at the fastest pace in nearly four decades, could have major ramifications for markets and the economy.

But Paul Donovan, chief economist at UBS Global Wealth Management, said it’s important to sort out what the rate hikes will and won’t do.

Borrowing costs would rise—though they would remain extremely depressed. “If you look at the real cost of capital in the economy as a whole, it will still be very low,” he said.

Before the pandemic, the Fed’s interest rate target was between 1.5% and 1.75%. This was also very low by historical standards. In late 2007, before the financial crisis, interest rates were at 4.25%.

Donovan does not believe the move will have a profound effect on inflation, noting that many of the reasons prices have soared this year — including the surge in energy prices and the cost of used cars — are linked to the effects of the pandemic and little to do with central bank policy.

“The oil market doesn’t care about Jay Powell [o presidente do Fed],” said Donovan. “Used Car Dealers Don’t Care About Jay Powell.”

In short, the Fed wants to ensure that rates aren’t too low once the economic recovery is complete, so it has the ammunition to fight another crisis. This does not mean that prices will continue to rise.

Donovan believes that as Americans deplete their savings from the pandemic, inflation will begin to drop “pretty drastically” on its own. “Even if the Fed doesn’t do anything, inflation falls,” he said.

What does all this mean for markets? Donovan said the situation would be different if the Fed wanted to raise interest rates to rein in economic growth. But that’s not what he sees happening here.

“It’s more about setting the stage for when we get back to a more normal economic cycle,” said Donovan. “The Fed is not on an anti-growth campaign.”
That could minimize disruption to investors — assuming the Ômicron variant, or other pandemic twists, don’t interfere.

“Ômicron definitely has the potential to create distortions in the short term, but I don’t think it gets in the way of the narrative,” said Donovan. “The overall story for 2022 is intact.”

Reddit fueled a market craze. Now it’s going public

Reddit was one of the driving forces behind the stock meme craze that swept financial markets in 2021, sending shares in companies like GameStop up 2700% in a matter of weeks.

Now the social media site wants to raise money on its own.

The latest: Reddit announced on Wednesday that it had confidentially filed paperwork for an initial public offering with the US Securities and Exchange Commission.

It’s not clear how many shares the company wants to list or its proposed price range. When the company announced it was raising money from private sponsors over the summer, it said it was valued at more than $10 billion.

For comparison: Facebook, the largest social network, is valued at over $950 billion, while Twitter has a market value of $35 billion.

The launch of Reddit on Wall Street could attract the attention of investors who have begun to comb the popular WallStreetBets group in search of the next stock target of common investors using apps like Robinhood.

Robinhood itself has had a rough year, with shares now trading at $19.50, well below the $38 IPO price. Dating app Bumble, which also went public in 2021, saw its shares drop to $35.17 after starting at $43 each.

Wall Street fell in love with bowling

Bowling is thriving and the biggest company in the business wants to make a profit.

The latest: Bowlero, the world’s largest bowling center operator and owner of the Professional Bowlers Association, made its debut yesterday following a merger with Isos Acquisition Corporation, a special-purpose acquisition company, or SPAC.

The end of the roadblocks generated an explosion in bowling, reports Paul R. La Monica, from CNN. The company said third-quarter revenue increased more than 20% compared to the same quarter in 2019. Bowlero also returned to profitability.

Bowlero president Brett Parker told Paul there is still plenty of room for growth, noting that there are about 3,500 independent bowling lanes in the United States.

“This industry is still fragmented and ready for roll-ups,” said Parker. He’s also interested in making bowling the next TV phenomenon.

The Thought: The SPAC that brings Bowlero to the public is run by two former World Wrestling Entertainment executives. Parker said the PBA will leverage its expertise to increase the entertainment value of bowling.

“No one is going to come up behind someone who’s getting ready to pitch and hit them with a chair,” Parker said. “The sport needs to maintain its integrity. But we can make it more engaging. And they know how to take something that is more of a niche product and make it popular.”

To follow

Adobe reports the results before the opening of markets in the United States. FedEx (FDX) and Rivian follow after closing.

US housing construction begins, and building permits for November arrive at 8:30 am EDT, along with last week’s initial jobless claims.

The instant readout of Markit Purchasing Managers’ Index IHS, a closely watched indicator of economic health.

Tomorrow: Bank of Japan closes big week of central bank announcements.

*(Translated text. Click here to read the original, in English)