01, Interest Rate Hike to 7%?
Everyone is speculating whether the Federal Reserve will reduce the magnitude of interest rate hikes in December, but St. Louis Fed Chairman Bullard has indicated that to truly restrict inflation, interest rates must be raised to a sufficiently high level.
In the table he presented, the final level of the federal funds rate is expected to reach between 5% and 7%.
Although not long ago, Powell had stated that the highest value of the interest rate would be slightly higher than the 4.6% predicted in September.
However, if it really reaches 7% as Bullard predicts, it will also be beyond the expectations of the vast majority in the market, which would require a doubling of the current interest rate hikes to achieve.
Affected by the Federal Reserve's indecision, the US stocks that rose sharply last Thursday have seen their gains continuously diminish in the following days, and have recently begun to turn downward.
Last night, all three major US stock indices fell, with the Nasdaq's annual decline reaching 28.8% again, slowly approaching a 30% decline.
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The technology, energy, and consumer sectors in the US stock market fell in sync.
In the commodity market, the price of WTI crude oil also fell sharply yesterday, starting at over $85 per barrel at the opening, but falling to a low of $81.4 during the trading day, closing at $82, which is more than 10% lower than the high of $93.74 at the beginning of the month.
02, Sluggish ConsumptionThe recession in the US economy is increasingly reflected in the financial reports of publicly traded companies. Although Walmart's financial report showed good performance a few days ago, another retail giant, Target, had a financial report that was much worse than market expectations.
In the third quarter, Target's revenue slightly increased, but the year-over-year growth of 3.3% was far below market expectations and even lower than the inflation rate over the past year. In other words, with the help of rising prices, the operating income only increased by 3.3%. If the price increase is deducted, the revenue would be negative growth.
What's worse is the profit data. The total profit for the third quarter was $1.03 billion, a 49% decrease from the same period last year.
After this report was released, Target predicted that sales revenue would experience a year-over-year decline in the last quarter of this year. The company plans to cut costs by more than $2 billion in the future. Although the details have not been announced yet, it is believed that Target will be another company joining the wave of layoffs.
Last night, after Target announced its financial report, the stock price plummeted by 13%. This situation is very similar to what happened when the first quarter report was released this year, when the stock price fell by 24% in one day. Now, two quarters have passed, and not only has the stock price not filled the gap, but a new gap has been created.
Analysts, after comparing the financial reports of Walmart and Target, further pointed out that although Walmart's financial report performance is still acceptable, it also shows the unfavorable US consumer market. This is because Walmart's sales revenue growth is more concentrated on grocery income related to essential needs.In the grocery revenue sector, Walmart's share has expanded, and the majority of the new share comes from households with an annual income of over $100,000. This indicates that wealthy Americans are also beginning to enter the grocery market for consumption, marking a significant sign of comprehensive expenditure reduction among American households. Under these circumstances, continuous interest rate hikes will only increase the pressure on ordinary families.
03, Small Business Difficulties
In addition to the severe impact on American family life, small businesses in the United States have also been severely affected, with interest rate hikes significantly increasing financing costs. American media reports that due to the high inflation in the United States, the income of small businesses is continuously being eroded by inflation. In September of this year, small businesses were optimistic about their future income, which also led to the lowest level of rent arrears in recent months. However, just one month later, the situation changed.
Now, small businesses are facing large-scale rent arrears, with more than 40% of small retailers indicating that they may refuse to pay rent this month. Moreover, the problems faced by small businesses are not only high rent but also supply chain issues affected by the pandemic. For those in the automotive repair industry, the inability to supply parts has made it impossible to conduct business normally, and with reduced income, nearly half of the small businesses in this industry have indicated that they cannot afford to pay rent.
Additionally, there is the transportation service industry, where the rent arrears rate reached 46% in October, significantly higher than the 8% in September. With reduced consumer spending and rising gasoline prices, the business of these companies is continuously decreasing.