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Post Market Wrap | Federal Reserve raises interest rate by a quarter of one percent

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Strong wages growth, rising employment and higher energy costs fuelling inflation 
  • Likelihood of 2 percent interest rate by end of calendar year 2022
  • Consensus is for 3 percent interest rate by end of calendar year 2023
  • Announcement widely anticipated and well received by market generally

US Interest Rate Rise  

The U.S. Federal Reserve board decided to raise the Federal Funds Rate by a quarter of a percent overnight to a target range of a quarter to a half percent. The Federal Reserve referred to strong employment growth and elevated inflation levels as the primary reasons for its decision. Reference was also made to the Russian invasion of Ukraine which is creating upward pressure on energy prices.   

The rate rise was widely anticipated by the bond market, which is why long-term bond rates barely moved on the announcement. The bond market has been telling us for months that we have an inflation problem, with long dated bond yields rising steadily in the lead-up to last night’s Federal Reserve announcement. 

The Federal Open Market Committee (FOMC) stated that economic indicators including employment and wages growth reveal that the US economy is strong.  These circumstances, while supporting a rise in economic activity, when accompanied by a tight labour market, call for decisive action on the interest rate front. In the view of FOMC officials, signs of inflation early last year were attributed to supply chain constraints brought about by lockdowns related to the global COVID-19 pandemic. However, their view now is that inflation is more broadly based, and the most appropriate response is higher interest rates.      

Why is the Federal Funds Rate important?

The Federal Funds Rate is the overnight rate at which the Federal Reserve lends to US banks and so is the benchmark rate at which banks lend to and borrow from each other. If this rate rises, US banks pass on this higher interest rate to their customers. This includes consumer and business loans. The ultimate outcome is less borrowing which restrains spending and this reduces inflationary pressures, because the ability to pass on price rises throughout the economy, is diminished.  Once the inflationary pressures ease, interest rates stabilise, enabling the economy to steadily grow at a sustainable rate. This rhythmic pattern is known as the economic cycle.   

Image: File

Market Implications

In its market release accompanying the rate rise, the FOMC stated it intends to continue raising rates so that the Federal Fund Rate reverts to at least the level that prevailed prior the onset of the global pandemic. The target date to achieve this is the end of calendar year 2022. This statement implies that the FOMC plan 6 more rate rises of a quarter of a percent, over the coming 9 months. This will take the Federal Funds Rate to 2 percent.  The bond market appears relaxed at this prospect, because it is widely recognised that the extraordinary decision to cut interest rates to zero at the height of the pandemic was always a temporary measure to deal with a one in a hundred-year event.  

Equity markets around the globe, including Australia, have also responded positively to the FOMC announcement of a sustained period of interest rate rises over the coming 2 years. This was exemplified by a sharp 1.5 percent rise in the Dow Jones Industrial Index and a 2.2 percent rise in the broader S & P 500 Index and a 3.7 percent jump in the technology heavy NASDAQ, as the FOMC decision was released. Australian markets are also higher today, with the ASX200 up 1.05 percent and the broader All Ords Index up 1.16 percent. History shows that equity markets tend to follow the economy, not the interest rate. This has been confirmed by the strong equity markets seen immediately post the FOMC announcement.

What’s Next?

Beyond the 2 percent target interest rate by the end of 2022, market consensus is for a 2.75 to 3 percent interest rate by end of calendar year 2023. Beyond 2023, present market consensus is that rates would not need to be raised above 3 percent. 

This scenario poses little or no threat to the medium-term economic outlook and should support equity and debt markets as well.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

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Trump moves to fast-track removal of Fed governor Lisa Cook

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The White House is set to fast-track a ruling on firing Federal Reserve Governor Lisa Cook, just days before the crucial FOMC meeting.

The move comes as markets reel from surging inflation, weak jobless data, and global currency shifts, raising questions about the Fed’s independence and the stability of policy decisions.

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ANZ job cuts spark banking clash

ANZ plans to cut 3,500 jobs, sparking debate on the future of Australia’s banking sector and employment dynamics.

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ANZ plans to cut 3,500 jobs, sparking debate on the future of Australia’s banking sector and employment dynamics.


ANZ has announced plans to cut 3,500 staff and 1,000 contractors over the next year, triggering a fierce debate between business leaders, unions, and government about the future of Australia’s banking sector.

The decision raises wider questions about the resilience of the business community and the role of politics, productivity, and technology in shaping employment.

#ANZ #Banking #Jobs #Unions #Australia #Economy #TickerNews


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1 in 8 households don’t have the money to buy enough food

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Katherine Kent, University of Wollongong

Around one in eight (1.3 million) Australian households experienced food insecurity in 2023. This means they didn’t always have enough money to buy the amount or quality of food they needed for an active and healthy life.

The data, released on Friday by the Australian Bureau of Statistics (ABS), show food insecurity is now a mainstream public health and equity challenge.

When funds are tight, food budgets suffer

The main driver of food insecurity in Australia is financial pressure.

Housing costs and energy bills expenses consume much of household income, leaving food as the most flexible part of the budget.

When money runs short, families cut back on groceries, buy cheaper but less nutritious food, skip meals, or rely on food charities.

These strategies come at the expense of nutrition, health and wellbeing.

Inflation has added further pressure. The cost of food has risen substantially over the past two years, with groceries for a family of four costing around $1,000 per fortnight.

Who is most affected?

Not all households are affected equally. Single parents face the highest rates of food insecurity, with one in three (34%) struggling to afford enough food.

Families with children are more vulnerable (16%) than those without (8%).

Group households, often made up of students or young workers, are also heavily affected at 28%.

Rates are even higher for Aboriginal and Torres Strait Islander households, where 41% report food insecurity.

Income remains a defining factor. Nearly one in four (23.2% of) households in the lowest income bracket experience food insecurity, compared with just 3.6% in the highest.

These headline numbers are only part of the story. Past research shows higher risks of food insecurity for some other groups:

While the ABS survey can not provide local breakdowns, it will also be important to know which states and territories have higher rates of food insecurity, to better inform state-level responses.

What are the impacts?

Food insecurity is both a symptom and a cause of poor health.

It leads to poorer quality diets, as households cut back on fruit, vegetables and protein-rich foods that spoil quickly. Instead, they may rely on processed items that are cheaper, more filling and keep for longer.

The ongoing stress of worrying about not having enough food takes a toll on mental health and increases social isolation.

Together these pressures increase the risk of chronic diseases including diabetes, heart disease and some cancers.

For children, not having enough food affects concentration, learning and long-term development.

Breaking this cycle means recognising that improving health depends on improving food security. Left unaddressed, food insecurity deepens existing inequalities across generations.

What can we do about it?

We already know the solutions to food insecurity and they are evidence-based.

Strengthening income support by increasing the amount of JobSeeker and other government payments is crucial. This would ensure households have enough money to cover food alongside other essentials.

Investment in universal school meals, such as free lunch programs, can guarantee children at least one nutritious meal a day.

Policies that make healthy food more affordable and available in disadvantaged areas are also important, whether through subsidies, price regulation, or support for local retailers.

Community-based approaches, such as food co-operatives where members share bulk-buying power and social supermarkets that sell donated or surplus food at low cost can help people buy cheaper food. However, they cannot be a substitute for systemic reform.

Finally, ongoing monitoring of food insecurity must be embedded in national health and social policy frameworks so we can track progress over time. The last ABS data on food insecurity was collected ten years ago, and we cannot wait another decade to understand how Australians are faring.

The National Food Security Strategy is being developed by the Department of Agriculture, Fisheries and Forestry with guidance from a new National Food Council. It provides an opportunity to align these actions, set measurable targets and ensure food security is addressed at a national scale.

Food insecurity is widespread and shaped by disadvantage, with serious health consequences. The question is no longer whether food insecurity exists, but whether Australia will act on the solutions.The Conversation

Katherine Kent, Senior Lecturer in Nutrition and Dietetics, University of Wollongong

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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