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On October 23rd, the overnight Shibor was at 1.3180%, unchanged from the previous trading day. The 7-day Shibor was at 1.4170%, down 0.50 basis points; the 14-day Shibor was at 1.5120%, up 6.00 basis points; the January Shibor was at 1.5560%, down 0.10 basis points; and the March Shibor was at 1.5940%, up 0.20 basis points.The Hang Seng Index rose in the short term, and the Hang Seng Tech Index narrowed its losses to 0.5%.According to Investopedia, a financial website, forecasters predict that U.S. inflation may have risen to a 17-month high in September as tariffs push up prices. A Wall Street Journal survey of economists indicates that the CPI report, due this Friday, is likely to show a 3.1% annual increase in overall prices in December. Rising inflation would highlight the impact of Trumps tariffs, which have risen almost every month since the tariffs were announced in April. Despite rising prices, lower rent increases may prevent overall inflation from rising too much. Core inflation is expected to rise 3.1% in September, unchanged from August. Overall, the increase in inflation may not be large enough to prevent the Federal Reserve from cutting interest rates in late October. Having already cut rates by 25 basis points in September to support the sluggish job market, the Fed is now more focused on the job market than on combating inflation. Wells Fargo economists Sarah House and Nicole Cervi said, "We expect goods inflation to remain elevated due to the continued pass-through of tariffs, while easing primary housing costs should help mitigate services inflation."On October 23rd, Goldman Sachs economists said in a report that the Bank of Japan is likely to keep its policy rate unchanged next week from a risk management perspective amid high uncertainty. They said: "After assessing that uncertainty in its baseline outlook is high, the Bank of Japan is likely to judge that while downside risks to the economic outlook are substantial, upside risks to the price outlook are also substantial." They pointed out that the Bank of Japan is likely to maintain its stance of gradual rate hikes.The South Korean won fell to its lowest level against the dollar since mid-May.

Powell Got One Thing Right, “high interest rates … will bring pain”

Alice Wang

Oct 17, 2022 16:29

Bonds, currencies, stocks, and precious metals will all see exceptionally high volatility as a result of the recent string of very significant rate rises.

Correlation between Bond Yields, Rate Increases, and Inflation

The September CPI inflation data, which was published by the BLS yesterday, revealed a 0.4% rise in inflation for the month of September. According to the data, the CPI inflation index decreased by 0.1% from the previous month's year-over-year of 8.3% to 8.2% in September. The core CPI, however, attracted the most interest. September saw an increase in the core CPI from 6.3% YoY in August to 6.6% YoY.


The temporal lag between interest rate increases and actual inflation is inherent, and the Federal Reserve prefers to base its monetary policy on the core level of inflation. In spite of this, a rise in core inflation after the Federal Reserve aggressively increased interest rates from near zero to between 300 and 325 basis points over the course of the last five consecutive FOMC meetings this year—including three consecutive rate hikes of 75 basis points each in June, July, and September—clearly indicates that the recent rate hikes are having a nominal effect on reducing inflation.


However, they have significantly impacted the United States' growing debt instrument yields. After accounting for today's 1.68% rise, the 10-year Treasury note yield has now above 4% and is sitting at 4.02%. Thirty-year U.S. bond yields are not far behind, at 3.997%.

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