FDIC’S WARNING
The U.S. Federal Deposit Insurance Corp. (FDIC) has recognized cryptocurrency as a significant risk in its latest annual risk report, as it acknowledged the turbulent nature of the crypto market in 2022 and emphasizes the need for in-depth supervisory discussions with banks involved in cryptocurrency activities. Let’s remember that earlier this year we witnessed the collapses of Silvergate, Signature, and Silicon Valley Bank, which were banks that had initially embraced cryptocurrencies but encountered difficulties that ultimately led to their closure. These events showcase the tangible consequences and potential dangers linked to cryptocurrency activities within the banking industry, and highligh the importance of cautious engagement with cryptocurrencies, as advocated by regulatory bodies like the FDIC. Moreover, although FDIC’s report does not introduce new rules, it aligns with the consistent stance of U.S. banking authorities, like the Office of the Comptroller of the Currency and the Federal Reserve, which suggest that banks should generally be cautious about digital currencies unless they have received approval from federal regulators.
INTEREST RATES SIGNALS
The Federal Reserve’s policy meeting minutes from last month, set to be released later today at 2:00 PM EDT, will give an insight into how many policymakers believe the central bank should continue raising interest rates, and it will reveal if the potential risks to the economy from the aggressive increase in rates have become more concerning. According to expectations, only a minority of officials supported maintaining interest rates at their current levels for the remainder of the year, implying the likelihood of another rate increase in October or November. Nevertheless, the majority of Fed officials have expressed cautious optimism about the U.S. economy, suggesting that they believe it will experience a smooth transition. Moreover, looking ahead, upcoming remarks from Fed Chair Jerome Powell at the Jackson Hole conference might provide additional signals regarding the central bank’s approach, and there are thoughts that there may be a shift towards a more cautious stance taking into account economic data, such as subdued wage growth and limited increases in unit labor costs.
RISING MUNICIPAL BONDS
Municipal debt has become a valuable asset for investors due to states and cities being hesitant to borrow money, issuing $218 billion of long-term debt this year, which is 9% less than the previous year and the lowest sales pace since 2019. This reluctance is partly attributed to the Federal Reserve’s efforts to control inflation by raising interest rates. Consequently, the resulting scarcity of new bonds has driven up the value of existing municipal bonds, outperforming U.S. Treasuries in terms of returns. Moreover, factors like healthy issuer finances, concerns about interest rate volatility, and the usual summer slowdown have contributed to this trend of reduced trading activity among investors as the market contends with fewer new bonds and high demand for existing ones.
MORTGAGE RATES IMPACTS
Rising mortgage rates have had a significant impact on potential homebuyers and the homebuilding market overall as according to the National Association of Home Builders/Wells Fargo Housing Market Index, builder sentiment for newly built homes dropped by 6 points to 50 in August, marking the first decline in seven months and the lowest level since May. Higher mortgage rates, coupled with increased construction costs due to a shortage of workers and available lots, have dampened sentiment among builders. Additionally, there has been a decline in buyer activity, leading builders to reintroduce sales incentives.
INTERNATIONAL NEWS
According to the Office for National Statistics (ONS), the rate of inflation in the U.K. experienced a significant decline in July, reaching a 17-month low. The ONS revealed that the annual inflation rate, as measured by the consumer price index, stood at 6.8% in July. This drop falls in line with economists’ predictions, and it was primarily driven by reduced energy prices and a decrease in food price inflation. However, despite this positive development, the core rate of inflation, which excludes volatile elements like energy and food, remains high, and the U.K. continues to experience the highest inflation rate among G-7 nations. Furthermore, there are still market expectations of an interest rate hike by the Bank of England (BOE) next month, given the strong growth in wages.
