We live in a time when good news turns into bad news. Despite the Federal Reserve raising interest rates, the economy is still not contracting. In fact, this week’s unemployment numbers were stronger than expected.
What is going on?
You are no doubt aware that interest rate hikes by the Federal Reserve and the European Central Bank are a tough job for financial markets. Bitcoin, Ethereum and practically every other financial asset are currently affected by central bank interest rate hikes. Of course, central banks don’t do this without reason. They raise interest rates to fight inflation, which has spiraled out of control in recent years.
So the market is hoping — and it feels a little strange — that bad economic data is coming. If the economy weakens, that could be a reason for the Federal Reserve to change its policy. That didn’t happen, because the number of jobless claims in the U.S. was 216,000, while the number of claims was 225,000. So unemployment was lower than expected and good for the Federal Reserve as it leaves room to raise interest rates further.
“If the feds say something, I believe it”
David Tepper is a very successful hedge fund manager told CNBC on Thursday He thinks trading against the Federal Reserve is a bad idea. Many people don’t “trust” the Federal Reserve and expect them to dodge rate hikes. They think the economy is going to collapse at any moment, which is why the Federal Reserve needs to rethink its policy.
The US economy grew much faster than expected in the third quarter of 2022. Growth was initially estimated at 2.9 per cent, which has since been revised to 3.2 per cent. In principle, this is good news for the economy, but less good news for financial markets.
More bad news for the markets came from the US GDP Price Index (GDP Price Deflator). It is a way of measuring inflation, which is the decrease in prices for all consumer goods and services. Unlike CBI, it takes only one basket of goods. GDP deflation in the third quarter followed a record high of 4.4 percent, signaling to the Federal Reserve that inflation is still out of control.
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