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The Fed is expected to maintain peak rates for longer, dashing hopes of 2023 cuts

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(Bloomberg) — The Federal Reserve is set to disappoint Wall Street as it keeps interest rates at their peak throughout 2023, dashing hopes markets had pinned for a rate cut in the second half and making a recession all the more likely.

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These are the expectations of economists polled by Bloomberg ahead of a decision and forecast from the Federal Open Market Committee on Wednesday. The survey found that policymakers will raise interest rates by 50 basis points next week, after four consecutive hikes of 75 basis points, and by a quarter point at the next two meetings. Decision makers will announce their decision and expectations at 2 pm in Washington.

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The FOMC median forecast is expected to show that the policy benchmark will peak at 4.9% in 2023 – reflecting a target range of 4.75% -5% – compared to 4.6% in September. That would present a hawkish surprise to investors, who are currently betting interest rates will fall by half a percentage point in the second half of next year, even though they also see rates peaking around 4.9%.

The poll saw the Fed cut interest rates to 4% by June 2024 and to 3.5% by the end of that year.

Chairman Jerome Powell said he’s willing to see the economy take some pain to bring down inflation near 40-year highs, and that should be more evident in the new projections.

The Fed’s summary of economic outlook is likely to show that policymakers are looking for weaker growth in the US and slightly higher unemployment rates than they expected in September. They may lower the growth estimate for 2023 to 0.8% from 1.2% in September while seeing the unemployment rate rise to 4.6%. The unemployment rate in the United States was 3.7% last month.

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What Bloomberg Economics says

“The Fed has indicated that the final interest rate will likely be around 5% – we think an upper limit of 5% – is reached in early 2023. To get there, the central bank will likely raise interest rates by 50 basis points in Its meeting in December 2022, followed by two additional increases of 25 basis points in 2023. Then we note that it continues by 5% throughout the year.

—Anna Wong and Eliza Winger (economists)

The poll was conducted among 44 economists from Dec. 2-7, ahead of the Dec. 13-14 meeting.

Data released on Friday showed that short-term inflation expectations in the United States unexpectedly fell to the lowest level in more than a year while producer prices rose in November more than expected.

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Kathy Bostancic, chief economist for Nationwide Life Insurance Co. “The resilience of consumer spending and the labor market puts upward pressure on inflation, and as a result increases the upside risk to our final interest rate forecast” of 5%-5.25%.

Less than half of economists are looking for rate cuts in 2023. Those looking for the unemployment rate to jump to 5% from 3.7%, most see rising unemployment and recession as the main reason for the reversal.

Powell argued that higher rates are necessary for a longer period, even in the midst of economic weakness, to drive down price pressures and that he does not want to make the mistake of prematurely backing off in the battle for inflation. This is the mistake made in the 1970s and early 1980s that fueled persistently high inflation and that prompted the Fed to trigger a severe recession to bring it back down.

The Fed chair said on November 30 that a rate hike could be moderate at the next meeting, indicating a downward shift to a half-point move, but that this is “much less important” than the peak rates have reached and how long they stay there.

“This is going to be a very challenging period for policymakers at all levels,” said Hugh Johnson, President of Hugh Johnson Economics LLC. While the Fed clearly wants to hold rates at peaks throughout the year, “these decisions are clearly data dependent and will be challenged, we believe, if economic contracts and inflation rates continue to moderate through the first half of 2023.”

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The committee is likely to see in its forecasts inflation somewhat higher than in September at 5.6% in 2022 and 2.9% next year. The Fed is targeting an inflation rate of 2% as measured by the personal consumption expenditures price index, which rose less than expected in October, although it was higher and more steadily than expected for most of the year.

While Fed officials see a narrow path for a soft landing, 81% of economists see a US recession as likely. Most of the rest see a hard landing with a period of contraction or zero growth just below the officially announced contraction. And 76% of economists see a global recession as likely.

There is a “high risk of monetary policy going wrong,” said Thomas Kosterge, chief US economist at Pictet Wealth Management. “Given the delays, while they are explicit in the Fed statement, they still seem to take a back seat when it comes to actual decision making. The idea of ​​a soft landing becomes less likely.”

The FOMC statement is expected to retain its language providing guidance on interest rates pledging continued increases to a level that is “constrained enough” to bring inflation back to target. This was revised at the last meeting in early November to recognize the cumulative effect of tightening and the time lag that monetary policy has on the real economy.

A quarter of economists expect opposition at the meeting, which will be the third of 2022. Kansas City Bank President Esther George objected in June in favor of a smaller increase, warning that too abrupt changes in interest rates could undermine the Fed’s ability to achieve its planned rate path. St. Louis Federal Reserve Bank President James Bullard defected in March as a hawk.

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(Updates with PPI and UMich data in eighth paragraph.)

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MicroStrategy is at its lowest level since 2020 after the sales were revealed

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(Bloomberg) — Shares of MicroStrategy touched their lowest level since August 2020 after the enterprise software company, which in recent years has been known as the largest buyer of bitcoin, revealed its first sale of the token.

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The stock fell 1.1 percent to $136.63 on Thursday, down 75 percent this year. Bitcoin rose less than 1% to around $16,590 and is believed to have fallen 64% since the start of the year.

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In a filing on Wednesday, MicroStrategy said it acquired approximately 2,395 Bitcoin between the beginning of November and December 21 through its subsidiary MacroStrategy, and paid out approximately $42.8 million in cash. It then sold 704 of the tokens on Dec. 22 for a total of about $11.8 million, citing tax purposes, before buying another 810 of them two days later.

Matt Malley, chief market strategist for Miller Tabak + Co. Step down as CEO. This news means they don’t seem to want to do that anytime soon.”

Overall, MicroStrategy held about 132,500 bitcoins worth over $4 billion USD as of December 27th. The company paid an average purchase price of $30,397 per bitcoin.

“Given MicroStrategy’s $2.4 billion in leverage, we believe the company may have a lot of leverage over Bitcoin, and may face some liquidity risk,” Jefferies analyst Brent Thiel wrote in a note on Wednesday. Thill has an “underperform” rating on the stock and a price target of $110.

Over the years of the pandemic, MicroStrategy has become well known for its Bitcoin takeovers, largely led by Saylor. Earlier this year, Saylor stepped down from that role and now serves as CEO at the company and continues to lead its bitcoin strategy.

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MicroStrategy was trading around $120 before Saylor first announced the company’s Bitcoin purchases in 2020. The stock reached an all-time high of $1,315 in February 2021.

(Updates to include the stock’s closing price in the second paragraph.)

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Bankman-Fried May File Petition in New York Federal Court Next Week Before Judge Louis Kaplan By Cointelegraph

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Former FTX CEO Sam Bankman-Fried is set to appear in court on the afternoon of January 3 to enter a lawsuit over two counts of wire fraud and six counts of conspiracy against him related to the collapse of cryptocurrency exchange FTX, according to Reuters. mentioned on December 28, citing court records. Bankman-Fried will appear before District Judge Lewis Kaplan in Manhattan.

Judge Kaplan was appointed to hear the case on December 27 after the original judge in the case, Ronnie Abrams, Resigned herself because of connections between FTX and the law firm Davis Polk & Wardwell, where her husband is a partner. The company provided advisory services to FTX in 2021.