US ECONOMY & POLITICS

Fed Raises Rates by 0.75 Percentage Point, Largest Increase Since 1994 – Wall Street Journal, 6/16/2022

• The Federal Reserve approved the largest interest-rate increase since 1994 and signaled it would continue lifting rates this year at the most rapid pace in decades to fight inflation that is running at a 40-year high.
• Officials agreed to a 0.75-percentage-point rate increase at their two-day policy meeting that concluded Wednesday, which raised the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% on Thursday.
• New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year, with at least half of all officials indicating the fed-funds rate might need to rise to around 3.375% this year.
• “Clearly, today’s 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common,” Mr. Powell said. “From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting” on July 26-27.

US Housing Starts Decline to Lowest Level in More Than a Year – Bloomberg, 6/16/2022

• New US home construction dropped in May, highlighting the impacts of ongoing supply chain challenges and sinking sales as mortgage rates rise.
• Residential starts declined 14.4% last month to a 1.55 million annualized rate, the lowest in more than a year, according to government data released Thursday. The median forecast called for a 1.69 million pace. April construction was revised sharply higher to a 1.81 million rate, which was the strongest since 2006.
• Applications to build, a proxy for future construction, fell to an annualized 1.7 million units, the lowest since September.
• The government’s report showed single-family housing starts declined 9.2% to an annualized 1.05 million rate, the slowest since 2020. Construction of multifamily dwellings plunged 23.7% to a 498,000 rate, the weakest since November.
• The number of total homes authorized for construction but not yet started rose 0.7% in May. The number of single-family properties under construction was unchanged from a month earlier at the highest level since 2006.

US Jobless Claims Edge Lower, Reflecting Tight Labor Market – Bloomberg, 6/16/2022

• Applications for US unemployment insurance were little changed last week, suggesting the labor market remains exceptionally tight.
• Initial unemployment claims decreased by 3,000 to 229,000 in the week ended June 11, Labor Department data showed Thursday. The median estimate in a Bloomberg survey of economists called for 217,000.
• Continuing claims for state benefits were also little changed at 1.31 million in the week ended June 4, hovering near the lowest since 1969.
• On an unadjusted basis, initial claims rose to 204,461 last week. That reflected increases in California, Pennsylvania and Illinois.

US Mortgage Rates Surge to 5.78% in Biggest Jump Since 1987 – Bloomberg, 6/16/2022

• Mortgage rates in the US surged the most in more than three decades, ratcheting up pressure on would-be homebuyers and cooling the housing market.
• The average for a 30-year loan jumped to 5.78%, up from 5.23% last week, Freddie Mac said in a statement Thursday. That was the largest one-week increase since 1987.
• The new average is the highest level since 2008 and is almost double the 2.93% rate on 30-year mortgages last year at this time.
• At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,756 a month, nearly $474 more than at the end of last year.
• A homebuyer with a $600,000 mortgage would pay more than $3,500 a month, an increase of almost $950 from the end of 2021.

Philadelphia Fed manufacturing index goes negative for first time in 2 years – Reuters, 6/16/2022

• Manufacturing activity in the U.S. mid-Atlantic region weakened unexpectedly in June as new orders dropped to a two-year low and goods producers’ near-term outlook sank to the lowest since 2008, a closely followed survey showed on Thursday.
• The Philadelphia Federal Reserve’s manufacturing activity index slid for a third straight month to a reading of minus 3.3, its first negative reading since May 2020 in the early months of the coronavirus pandemic. That is down from positive 2.6 in May.
• The bank’s new orders index contracted to negative 12.4 in June from positive 22.1 a month earlier. The outlook for the next six months – at negative 6.8 – was the lowest since February 2008.
• One bright spot was a moderation in inflation, with the prices paid index declining to the lowest since February 2021 at 64.5 in June from 78.9. A reading of factory employment also improved modestly.

U.S., Allies Pledge New Help to Ukraine Against Russia Amid Growing Strains – Wall Street Journal, 6/16/2022

• The U.S. is sending $1 billion in new military assistance to help Ukraine repulse Russia’s invasion, in response to urgent pleas from Kyiv for better weapons and amid growing strains among Western capitals.
• The package, which includes artillery, ammunition and coastal defense systems, is intended to support badly outgunned Ukrainian forces in the Donbas region and blunt Russia’s naval advantage in the Black Sea.
• President Biden spoke with Ukrainian President Volodymyr Zelensky to spell out the new billion-dollar commitment.
• In addition to the U.S. package, NATO members and other allies pledged new weapons and military systems to Ukraine during the meeting, held at North Atlantic Treaty Organization Headquarters.

EUROPE & WORLD

BOE Raises Rates to Highest Since 2009 and Warns of Bigger Moves – Bloomberg, 6/16/2022

• The Bank of England raised interest rates for a fifth straight meeting and sent its strongest signal yet that it’s prepared to unleash larger moves if needed to tame inflation.
• The nine-member Monetary Policy Committee voted 6-3 to increase the benchmark lending rate by 25 basis points to 1.25%. A minority of officials maintained their push for a move of double that size.
• Policy makers led by Governor Andrew Bailey hinted that they may join a growing global trend for larger hikes if inflation continues to soar, saying “it would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response.”
• Crucially, that language was endorsed by all the BOE’s voters, a departure from May when two declined to sign up to guidance that more hikes were needed.
• The bank also raised its forecast for the peak of inflation this year to “slightly above” 11%, reflecting the planned increase in the energy price cap in October, and said it now expects the economy to contract in the current quarter.

Swiss central bank surprises markets with first rate hike since 2007 – CNBC, 6/16/2022

• The Swiss National Bank raised its policy interest rate for the first time in 15 years on Thursday, joining other central banks in tightening monetary policy to fight resurgent inflation and sending the safe-haven franc sharply higher.
• The central bank increased its policy rate to -0.25% from the -0.75% level it has deployed since 2015. The hike was the first increase by the SNB since September 2007.
• “We see at the moment that inflation has increased in Switzerland — we have close to 3% — and we also observed that we have a certain risk of second-round effects,” SNB Chairman Thomas Jordan told CNBC’s Julianna Tatelbaum on Thursday.
• The SNB raised its inflation forecasts for 2022 to 2.8% from the 2.1% it gave in March. It also expects inflation of 1.9% and 1.6% in 2023 and 2024, up from its previous view for prices rising by 0.9% in both years.
• The SNB still expects the Swiss economy to grow by around 2.5% in 2022.

Prices for New Homes in China Slide Further – Wall Street Journal, 6/16/2022

• A decline in Chinese new-home prices accelerated in May, despite efforts by local governments and banks to increase support for a real-estate sector that has been plagued by developer defaults and weak home-buyer demand.
• Data released on Thursday by China’s National Bureau of Statistics showed that average new-home prices in 70 major Chinese cities declined 0.79% in May from a year earlier.
• That was worse than a 0.11% year-over-year pullback in April, which was the first month in which home prices had fallen by this measure in more than six years.
• Just 23 of the 70 Chinese cities tracked by the government reported yearly growth in average new-home prices, down from 30 cities in April.
• Compared with the previous month, average new-home prices fell 0.17% in May, marking a ninth consecutive monthly decline, according to Wall Street Journal calculations based on statistics bureau data.

Chinese Slowdown Pushes Youth Unemployment to New Highs – Wall Street Journal, 6/16/2022

• In China, an army of college students is set to enter the toughest job market in years, as Covid-19 takes the wind out of the broader economy and Beijing’s regulatory campaigns devastate industries long attractive to the country’s young people.
• In May, youth unemployment hit 18.4%, according to government data released Wednesday, from 13.8% a year ago. The May rate is the highest recorded for youth since 2018, when Chinese officials began releasing the data.
• The outlook is expected to worsen among this group, even as the overall jobless rate in urban China edged down to 5.9% in May from April’s 6.1%.
• A record 10.7 million university graduates will swarm the labor market this year, likely sending the youth jobless rate to 23% in July and August, economists at BofA Securities estimated in a report.
• Competition has intensified. In the first quarter of this year, each fresh graduate was chasing, on average, 0.71 job vacancies—the bleakest outlook by this measure since Zhaopin began recording such data four years ago.

Factmonster – TODAY in HISTORY

• The Battle of Stoke ended the Wars of the Roses. (1487)
• Senate candidate Abraham Lincoln declared, “a house divided against itself cannot stand.” (1858)
• President Franklin D. Roosevelt signed the National Industrial Recovery Act. (1933)
• Valentina Tereshkova of the USSR became the first woman in space. (1963)
• Russia voted in its first independent presidential election. Boris Yeltsin eventually won in a runoff. (1996)
• The 9/11 Commission determined that Saddam Hussein had no strong links to al-Qaeda, contradicting White House beliefs. (2004)