The Fed announced a big change today. And no, we’re not talking about interest rates | CNN Business (2024)

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Wednesday’s Federal Reserve policy decision was fairly boring for investors — officials kept interest rates the same, just as they have since July 2023.

But some savvy traders are excited about another key decision. The Fed announced that it will significantly curtail its quantitative tightening (QT) program — that’s the selling off of its assets to decrease money supply and increase interest rates — beginning in June.

US Treasury yields fell on the news. Yields on the 10-year and 2-year both dropped by .05 percentage points.

What’s happening: The Fed bought a ton of government-backed bonds between 2020 and 2022 to help support economic recovery after the pandemic-induced recession. Those purchases ended up pushing down interest rates in certain parts of the economy, like housing and auto sales.

In mid-2022, as inflation soared higher, the Fed reversed that and began unloading those bonds.

The Fed currently lets up to $60 billion in Treasuries mature each month without replacing them, reducing the amount of money circulating in the economy. The idea is that QT can help exert some downward pressure on prices.

But there’s also some downside to the practice — changing the amount of liquidity in the economy and redirecting that money could have some major consequences.

As JPMorgan Chase CEO Jamie Dimon pointed out in his annual letter to shareholders last month, “we have never truly experienced the full effect of quantitative tightening on this scale.” The current pace of QT is draining more than $900 billion in liquidity from the system annually, he said, adding, “I am more worried [about it] than most.”

QT reduces the amount of money in the banking system, leading to higher interest rates and tighter monetary conditions, but last time the Fed implemented such a program in 2019, some banks fell very short of reserves.

That led to a “repo crisis”, where the interest rates for overnight loans between banks spiked unusually high. The Fed had to intervene and provide liquidity to bring down those repo rates.

Fed Chair Jerome Powell doesn’t want a repeat of 2019 and said at his last press conference that QT would be scaled back soon.

On Wednesday, officials announced that they will lower the rate of QT to $25 billion, more than half of where it currently sits.

What it means: “May 1 is set to be a big day in the bond market,” Evercore ISI’s Krishna Guha and Marco Casiraghi wrote in a recent note.

If the Fed does ease up its tightening policy, “financial markets will likely see the taper of the QT program as bullish for riskier investments like stocks and bonds at the margin,” wrote Bill Adams, chief economist for Comerica Bank, in a note on Tuesday.

That’s because a taper should send bond prices higher, and interest rates lower.

The risk, wrote Bank of America analysts on Tuesday, “is skewed to the upside for stocks, in our view, especially given a potential QT taper announcement.”

Justice Dept plans to reschedule marijuana as a lower-risk drug

The Biden administration moved Tuesday to reclassify marijuana as a lower-risk substance, a person familiar with the plans told CNN, a historic move that acknowledges themedical benefitsof the long-criminalized drug and carries broad implications for cannabis-related research and theindustry at large.

The US Department of Justice recommended that marijuana be rescheduled as a Schedule III controlled substance, a classification shared by prescription drugs such as ketamine and Tylenol with codeine.

“Today, [Attorney General Merrick Garland] circulated a proposal to reclassify marijuana from Schedule I to Schedule III,” Xochitl Hinojosa, the DOJ’s director of public affairs, said in a statement. “Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.”

The formal rulemaking process is lengthy, typically includes a public comment period and could take months to complete.

The rescheduling recommendation, which was first reported Tuesday by the Associated Press, was hailed by lawmakers on both sides of the aisle, including Republican Rep. Nancy Mace of South Carolina, whotouted it on X as“major news for businesses, tax deductions & research barriers.”

Democrat Rep. Earl Blumenauer of Oregon said in a statement that rescheduling is “one step closer to ending the failed war on drugs.”

Read more here.

Binance founder is sentenced to 4 months in prison on money-laundering charges

Changpeng Zhao, the founder of the world’s leading cryptocurrency exchange, was sentenced on Tuesday to four months in prison after pleading guilty tomoney-laundering chargeslast year, reports my colleague Allison Morrow.

The sentence, handed down ina US federal court in Seattle, is far lighter than the three years prosecutors had argued for.

Prior to the sentencing hearing Tuesday, Zhao, who goes by CZ, apologized for mistakes he made as CEO of Binance, the crypto exchange he founded in 2017.

“Words cannot explain how deeply I regret my choices that result in me being before the Court,” he said in a letter to the judge. “Rest assured that it will never happen again.”

Binance agreed to pay more than $4 billion in fines and other penalties as part of acoordinated settlementwith the federal government last fall. The company admitted to engaging in anti-money laundering activities, unlicensed money transmitting and sanctions violations.

Zhao, who is 47 and has a personal fortune of nearly $40 billion, according toBloomberg, agreed to step down as CEO and pay $200 million in fines.

The Fed announced a big change today. And no, we’re not talking about interest rates | CNN Business (2024)


The Fed announced a big change today. And no, we’re not talking about interest rates | CNN Business? ›

The Fed could make a big change today. And no, we're not talking about interest rates. Wednesday's Federal Reserve policy decision will likely be pretty boring for investors — officials are widely expected to keep interest rates the same, just as they have since July 2023.

What is the Fed saying about interest rates? ›

The Fed on Wednesday said it is keeping the federal funds rate in a range of 5.25% to 5.5%, the same level it has held since the central bank's July 2023 meeting, which is its highest level in more than 20 years.

What will happen if Fed raises interest rates today? ›

The Fed raises interest rates to slow the amount of money circulating through the economy and drive down aggregate demand. With higher interest rates, there will be lower demand for goods and services, and the prices for those goods and services should fall.

What does it mean when the Fed rates change? ›

Lower rates give the economy a boost

This makes it less worthwhile to save money, and more worthwhile to borrow money, which encourages people to save less and spend more. So when the economy needs some help, the Fed can lower rates to boost economic activity (aka spending).

Can the Fed change the real interest rate? ›

The Fed can shock rationally expected real interest rates, but only by taking policy actions other than the actions the public supposes they are taking. That is, if Fed policy on a particular day is known by the public on that day, it will have no effect on real rates.

What is happening with interest rates? ›

Interest rates have held steady since July 2023.

At its March 2024 gathering the Fed decided to keep the federal funds target rate at 5.25% to 5.5%, where it has remained since July 2023.

Will CD rates go up in 2024? ›

Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on April 30. If the Fed rate drops, CD rates will likely follow suit, though it's up to each bank and credit union if and when that occurs.

Who benefits from high interest rates? ›

The financial sector generally experiences increased profitability during periods of high-interest rates. This is primarily because banks and financial institutions earn more from the spread between the interest they pay on deposits and the interest they charge on loans.

Do bank stocks go up when interest rates rise? ›

As a general rule, bank stocks tend to increase when interest rates rise, as the banks have potential to bring in more revenue. To understand the relationship between interest rates and the performance of financial institutions, know how banks work. Banks don't simply hold on to the money deposited into their accounts.

Is a high interest rate good for a savings account? ›

High-yield savings accounts can help you grow your savings faster than traditional savings accounts. The best high-yield savings rates currently range from 4.50% APY to 5.35% APY—far higher than the national average savings account rate of 0.46%, according to the Federal Deposit Insurance Corporation (FDIC).

What is the current interest rate in the US? ›

Current mortgage and refinance interest rates
ProductInterest RateAPR
30-Year Fixed Rate7.20%7.24%
20-Year Fixed Rate7.03%7.08%
15-Year Fixed Rate6.70%6.77%
10-Year Fixed Rate6.69%6.77%
5 more rows

What is the current prime rate of interest? ›

The current Bank of America, N.A. prime rate is 8.50% (rate effective as of July 27, 2023).

Does raising interest rates lower inflation? ›

The Federal Reserve seeks to control inflation by influencing interest rates. When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down.

Who really controls interest rates? ›

The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements.

Who has control over interest rates? ›

The Federal Reserve's Federal Open Market Committee (FOMC) sets a target interest rate policy for the federal funds rate. This is the rate at which commercial banks borrow and lend excess reserves to other banks on an overnight basis.

Why do the feds keep raising interest rates? ›

The Fed has repeatedly raised rates in an effort to corral rampant inflation that has reached 40-year highs. Higher interest rates may help curb soaring prices, but they also increase the cost of borrowing for mortgages, personal loans and credit cards.

Are the feds raising interest rates again? ›

The last time the Fed raised rates was at its July 2023 meeting. With only one hike in the past eight meetings, consumers should expect rates to eventually decline, though stubbornly high inflation will dictate the timing of any decrease.

Will the Fed lower interest rates in 2024? ›

A Federal Reserve official on Thursday raised the possibility the central bank may not cut interest rates at all in 2024, deflating Wall Street's expectations that several reductions could be in store later this year.

What has Jerome Powell said about interest rates? ›

WASHINGTON, April 16 (Reuters) - Top U.S. central bank officials including Federal Reserve Chair Jerome Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer and further dashing investors' hopes for meaningful ...

Why would the Fed want to see interest rates go up? ›

Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall. Similarly, to combat the rising inflation in 2022, the Fed has been increasing rates throughout the year.

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