The Fort Worth Press - With Fed set to hike US rates, 'ultra-cheap money' era nears end

USD -
AED 3.673005
AFN 68.386442
ALL 93.021933
AMD 389.349314
ANG 1.803734
AOA 913.000031
ARS 1002.721397
AUD 1.53358
AWG 1.8
AZN 1.702057
BAM 1.854577
BBD 2.020785
BDT 119.602116
BGN 1.858799
BHD 0.376916
BIF 2956.030306
BMD 1
BND 1.344124
BOB 6.930721
BRL 5.790848
BSD 1.000863
BTN 84.433613
BWP 13.672612
BYN 3.275301
BYR 19600
BZD 2.017372
CAD 1.39639
CDF 2864.999911
CHF 0.88374
CLF 0.035265
CLP 973.069559
CNY 7.241401
CNH 7.24719
COP 4396.59
CRC 508.251983
CUC 1
CUP 26.5
CVE 104.558213
CZK 24.0877
DJF 178.22092
DKK 7.087555
DOP 60.364405
DZD 133.750861
EGP 49.678296
ERN 15
ETB 124.782215
EUR 0.950275
FJD 2.269701
FKP 0.789317
GBP 0.791103
GEL 2.740301
GGP 0.789317
GHS 15.887842
GIP 0.789317
GMD 71.000247
GNF 8627.008472
GTQ 7.726299
GYD 209.391416
HKD 7.782965
HNL 25.291226
HRK 7.133259
HTG 131.472895
HUF 390.756993
IDR 15903.25
ILS 3.732285
IMP 0.789317
INR 84.493503
IQD 1311.043259
IRR 42092.505939
ISK 138.290123
JEP 0.789317
JMD 158.639851
JOD 0.709302
JPY 154.656495
KES 129.249619
KGS 86.506766
KHR 4038.536303
KMF 467.499881
KPW 899.999621
KRW 1398.125025
KWD 0.30759
KYD 0.834076
KZT 497.17423
LAK 21976.521459
LBP 89633.50686
LKR 291.187013
LRD 181.150969
LSL 18.152914
LTL 2.95274
LVL 0.60489
LYD 4.883414
MAD 9.998293
MDL 18.214834
MGA 4685.233124
MKD 58.48862
MMK 3247.960992
MNT 3397.999946
MOP 8.024142
MRU 39.785889
MUR 46.412517
MVR 15.460006
MWK 1735.461174
MXN 20.325297
MYR 4.464971
MZN 63.950307
NAD 18.152914
NGN 1680.590024
NIO 36.829479
NOK 11.03348
NPR 135.09167
NZD 1.703345
OMR 0.385001
PAB 1.000778
PEN 3.7981
PGK 4.029035
PHP 59.039501
PKR 278.226704
PLN 4.126669
PYG 7838.117183
QAR 3.649699
RON 4.729799
RSD 111.205995
RUB 101.000437
RWF 1380.157217
SAR 3.754257
SBD 8.355531
SCR 13.619994
SDG 601.497088
SEK 11.030315
SGD 1.343699
SHP 0.789317
SLE 22.575045
SLL 20969.504736
SOS 571.975839
SRD 35.43028
STD 20697.981008
SVC 8.757041
SYP 2512.529858
SZL 18.142596
THB 34.647019
TJS 10.658746
TMT 3.5
TND 3.159078
TOP 2.342102
TRY 34.465475
TTD 6.776157
TWD 32.567494
TZS 2652.359028
UAH 41.269214
UGX 3693.413492
UYU 42.784805
UZS 12854.406494
VES 46.433371
VND 25422.5
VUV 118.722009
WST 2.791591
XAF 622.001915
XAG 0.032192
XAU 0.000375
XCD 2.70255
XDR 0.761528
XOF 622.001915
XPF 113.087675
YER 249.924998
ZAR 18.116198
ZMK 9001.198706
ZMW 27.697968
ZWL 321.999592
  • RYCEF

    0.1900

    6.8

    +2.79%

  • CMSC

    0.1200

    24.64

    +0.49%

  • RBGPF

    -0.5000

    59.69

    -0.84%

  • SCS

    0.0920

    13.162

    +0.7%

  • BCC

    2.2800

    139.69

    +1.63%

  • NGG

    -0.6290

    62.641

    -1%

  • GSK

    -0.0450

    33.305

    -0.14%

  • JRI

    0.0300

    13.26

    +0.23%

  • VOD

    -0.0850

    8.855

    -0.96%

  • BTI

    -0.1650

    36.915

    -0.45%

  • RELX

    0.3650

    45.475

    +0.8%

  • BCE

    -0.4450

    26.555

    -1.68%

  • CMSD

    0.1910

    24.451

    +0.78%

  • BP

    0.2400

    29.32

    +0.82%

  • RIO

    -0.2200

    62.17

    -0.35%

  • AZN

    0.6300

    63.83

    +0.99%

With Fed set to hike US rates, 'ultra-cheap money' era nears end
With Fed set to hike US rates, 'ultra-cheap money' era nears end

With Fed set to hike US rates, 'ultra-cheap money' era nears end

Consumers, companies and financial markets are bound to see borrowing costs rise as the Federal Reserve gets ready to hike rates after two years of loose policy meant to support the US economy during the pandemic.

Text size:

At the conclusion of its policy meeting on Wednesday, Fed Chair Jerome Powell opened the door to raising rates in March, and most analysts expect a total of three hikes this year alone.

But the world's largest economy is showing signs of tighter lending conditions even before the Fed has acted.

Rates on 30-year fixed mortgages have jumped, from 2.77 percent in August to 3.56 percent on average, according to refinancing giant Freddie Mac.

"Borrowers feel that pain, much more so than looking at a broader context where three-and-a-half percent was a record low prior to the pandemic," said Greg McBride, chief financial analyst at Bankrate.com.

Corporations have also taken note, with JPMorgan Chase CFO Jeremy Barnum saying in a recent earning call, "Obviously, with higher rates, we expect things to be weaker next year" for mortgage volume.

On Wall Street, "a recalibration" is at work for "some of the most speculative parts of the market," according to Zachary Hill, strategist at Horizon Investments.

Since March 2020, individuals and institutional investors alike have aggressively bought and traded risky assets to take advantage of almost unlimited access to capital.

The Fed's moves to both raise rates and end its stimulus program of purchasing bonds and securities could take some of the steam out of markets.

- 'Meme stock' slowdown -

Stocks have reacted negatively to this paradigm shift, with pandemic darlings such as trading platform Robinhood down 85 percent from early August, and at-home fitness company Peloton 84 percent lower over the 12 months to January.

"Meme stocks" that saw surges fueled by social media interest are also experiencing a hangover, with video game store GameStop down 59 percent and movie theater chain AMC 78 percent below its high in June.

Cryptocurrencies, another poster child for speculative assets, have seen a severe correction over the last two months. Bitcoin is down nearly 30 percent, and ethereum has lost more than 40 percent.

"Crypto assets are highly sensitive to the fortunes of the stock market and have been propelled higher in this era of ultra-cheap money, so it's no surprise they have been hit with a severe case of the jitters as policy makers ponder their next move," wrote Susannah Streeter, an analyst at Hargreaves Lansdown.

At the opposite end of the risk spectrum, the US government has also been drawn to the mix, offering 1.72 percent on a recent 10-year Treasury note auction, versus 1.33 percent in September.

Credit conditions are already tightening for corporations, through bonds and loans.

"Markets have been quite addicted to zero interest rates and basically zero borrowing costs," said Kim Rupert, the managing director of global fixed income analysis for Action Economics.

However, she predicted demand will remain strong for the debt of companies with strong finances, which "will limit any real increase" in corporate bonds' yields.

- 'Dicey proposition' -

The transition could be tougher for less financially sound companies. So-called "junk bonds," issued by these corporations, "might be the worst asset class for now bond-wise," Rupert said.

With the dollar edging higher against major currencies, which can also be connected to the Fed's shift and could potentially be a drag for US exports, these bonds have become even less attractive, the analyst added.

After a record 2021, IPOs as well as mergers and acquisitions could be "a little bit more of a dicey proposition" until mid-2022, when the Fed will have provided a clearer picture of its time frame to normalization.

Although credit and funding conditions are expected to remain highly favorable in historic standards, economists warn that a miscalibrated tightening could trigger a US economic slowdown.

"I think the modus operandi of the Fed is to be as flexible as possible, given all of the uncertainty and challenges that face them in the coming months," said Bob Schwartz, senior economist at Oxford Economics.

N.Patterson--TFWP