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Fed Chair Jay Powell said Wednesday that central bank officials discussed a strategy for how to slow the shrinking of the Fed’s balance sheet, a lesser-known policy tool it has been using to tighten financial conditions.
The Fed’s Federal Open Market Committee did not make a final decision while meeting in Washington, D.C., Powell added.
But he expects it will be appropriate to start that slowdown “fairly soon.”
Over the last two years, the Fed has shed roughly $1.5 trillion in Treasury and mortgage bonds that it accumulated while trying to stimulate the economy during the early parts of the pandemic — letting the securities run off at a pace of roughly $95 billion every month.
The strategy is known as “quantitative tightening,” or QT, and it is a key tool in the Fed’s arsenal to cool financial conditions — along with hikes to the Fed’s benchmark federal funds rate.
Allowing those bonds to mature acts to push up long-term interest rates as more bonds have to be snapped up by other investors.
In discussing a slowing of that runoff, policymakers hope to avoid the sort of messy upheaval in financial markets that happened the last time the Fed tried to wind down its balance sheet at the end of last decade.
“The decision to slow the pace of runoff does not mean our balance sheet will shrink, but allows us to approach that ultimate level more gradually,” Powell said. “In particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility of money markets experiencing stress.”
The Fed tried QT once before, starting in 2017, when Janet Yellen was in charge of the central bank.
That shrinking of its portfolio drained bank reserves held at the central bank and led to some unexpected turbulence in 2019 after Powell had taken over.
It created a cash crunch that caused rates to jump on short-term “repo” loans banks make to each other. The upheaval forced the Fed to begin buying again, which calmed markets.
“We want to avoid any kind of that turbulence,” Powell said Wednesday.
To avoid such upheaval, Powell said the Fed will carefully monitor money market conditions and ask what that tells the central bank about the level of reserves in the banking system.
Right now, Powell said he would characterize the level of reserves as “ample” and the Fed is aiming for “abundant,” which he said is a little less than ample.
The Fed’s securities holdings topped out at $9 trillion in 2022 — the year it decided to pivot and act aggressively to tamp down rising inflation.
Since QT began roughly two years ago, the Fed’s balance sheet has shrunk to around $7.5 trillion.
Powell on Wednesday declined to say by how much the runoff could be slowed exactly, but he did say that the “longer-run goal” is to get to a point where the balance sheet is “mostly” Treasurys — as opposed to mortgage-backed securities.
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There’s one aspect of 401(k) plans that makes them really effective — the automation aspect. Employer-sponsored 401(k)s are funded through payroll deductions. That takes human behavior out of the equation and helps savers stay on track.
When you have a long-term savings plan that you’re actively funding, such as an IRA you must transfer money to month after month, you might fail to meet your savings goals when unexpected events or impulse purchases get in your way. With a 401(k) plan, you’re committed to those contributions, and they’re taken out of your paycheck before you even get a chance to spend that money elsewhere.
Image source: Getty Images.
But while it’s possible to build up quite a large nest egg by funding a 401(k), you may be feeling less than happy about your plan’s progress. If your 401(k) has been slow to grow, these could be some of the reasons why.
1. You’re invested too conservatively
Many people invest their 401(k)s in target date funds because, frankly, that’s an easy option. In fact, in many cases, a target date fund will be your plan’s default option, so that if you don’t even want to be bothered with picking funds, your money will just land there.
Target date funds are good for people who want to take a “set it and forget it” approach to retirement. But if you adopt that attitude and fall back on a target date fund, you might end up with sluggish growth, since these funds are known to err on the side of investing conservatively.
Plus, you may be looking at hefty fees with a target date fund. Those can eat away at your returns. So rather than settling for a target date fund, explore your 401(k) plan’s options. You may want to land on a mix of low-fee index funds that invest in benchmarks like the S&P 500.
2. You’re not getting all of your free money
Many employers that sponsor 401(k)s also match worker contributions to some degree. But if you’re not putting in enough money to claim your full match, then a slower-growing 401(k) shouldn’t necessarily come as a shock.
Remember, when you give up, say, a $1,000 match, you’re not just down $1,000. You’re down whatever amount that $1,000 could’ve grown into via savvy investments. So always make a point of contributing enough to your 401(k) to get your full match — even if it means having to take on a side hustle to come up with the extra cash.
3. You’re not saving your annual raises
It may not be realistic to increase your 401(k) contributions from one month to the next. But if you get a raise every year, you have a prime opportunity to build up your savings by banking all of it, or as much of it as you can afford to part with.
It’s true that some people’s expenses rise from one year to the next. So if you’re in line for, say, a $3,000 raise, you may not be able to part with every last cent of it for 401(k) savings purposes. But if you need to withhold $50 a month for a rent increase, so be it. In that case, increase your contributions by $2,400 and be proud that you did.
Your 401(k) will, ideally, allow you to achieve the retirement you want. So if you’re not happy with the progress you’re making on the savings front, it’s time to take action. That means choosing smart investments, snagging your full employer match, and doing your very best to make sure you’re boosting your savings rate from one year to the next.
By Yuvraj Malik
(Reuters) -Apple is likely to report a dip in iPhone sales in the April-June quarter as shoppers held out for a new model in a slow economy, making it important for the company to detail how it is using artificial intelligence to augment growth, analysts said.
The world’s most valuable firm will wrap up Big Tech earnings on Thursday, with a likely 1.6% drop in total quarterly revenue, according to Refinitiv – its steepest drop in third-quarter revenue since 2016.
IPhone sales likely fell more than 2% in the period, according to 24 analysts polled by Visible Alpha, compared with a near 3% increase a year earlier and a 1.5% rise in the quarter ended March.
The quarterly report could mark a break from an upbeat earnings season for the likes of Meta Platforms, Alphabet and Microsoft that have shown resilience in their cloud businesses and an uptick in digital ad sales.
“Apple is not immune to general macroeconomic trends and will continue to set the pace (for the smartphone industry) for quite some time,” said Bob O’Donnell, founder of TECHnalysis Research.
With details about the new iPhone 15 expected next month – which could sport the more universally accepted USB-C port on some models – iPhone sales could get a small nudge in the July-September quarter, said analysts, who predicted a mixed bag of results for the period.
Apple traditionally does not provide quarterly outlook, but analysts expect the company may elaborate how it is using AI to improve its upcoming products.
The company has so far avoided buzzwords like AI at its events, in a contrast with tech giants including Alphabet and Microsoft. Last month, Bloomberg News reported Apple has quietly built its own framework to create large language models known as “Ajax”.
“We expect Apple’s updated comments on its AI aspirations to be a focus,” analysts at Well Fargo wrote in a research note, adding that any commentary around the technology could boost the stock.
Apple’s shares have gained more than 50% so far this year, compared with a nearly 37% increase in the tech-heavy Nasdaq Composite.
IPHONE SLOWDOWN
Much of the weakness in iPhone sales is expected to come from the Americas, where revenue is set to fall 6%, analysts said. Sales from China – Apple’s third-largest market – are expected to be flat due to an uneven economic recovery, though the company has fared better than Android rivals in the country.
Overall smartphone shipments to China declined 2.1% in the second quarter, according to market research firm International Data Corp.
“Most investors feel a soft China could pose a risk to the numbers and further commentary, but Apple’s position in China is on a solid footing and the company is likely to see only a small, if any, decline in iPhone sales,” Piper Sandler analysts said.
“If there is any sales weakness from China, it is likely to be easily offset by strong sales momentum in India,” they added.
Mac and iPad sales are expected to fall by 10.6% and 11.2%, respectively, according to Refinitiv data.
But the services business – home to Apple’s App Store and audio and video streaming services – could be a bright spot thanks to an uptick in the ad market, some analysts said.
The business, which accounts for roughly a quarter of Apple’s total revenue, is expected to grow 5.7% as it also benefits from price increases for iCloud subscriptions, though the pace is broadly similar to that in the preceding three quarters.
(Reporting by Yuvraj Malik in Bengaluru; Editing by Sayantani Ghosh and Maju Samuel)
Amid a major slowdown in the semiconductor market, Samsung’s operating profits for the April-June quarter could be the lowest since 2008. Samsung is focusing on expanding its presence in the field of artificial intelligence (AI).
Samsung Electronics could see a major dip in its profits likely to tank as much as 96% on a year-on-year basis. It means that the profits for the company will be the lowest this quarter, in the last 14 years.
The major dent in the company’s bottom line comes as the tech giant’s cash cow business of chip sales is seeing a major slowdown. Samsung is the world’s largest chip manufacturer currently and the slowdown in the chips business has been eating majorly into the company’s profits.
Analysts at Refinitiv SmartEstimate note that the in the April-June quarter, the operating profit for Samsung shall drop to 555 billion won ($427 million). This would be a significant drop in the operating profits of 14.1 trillion won during the same quarter last year.
This is because the chip division, which has historically been the company’s main source of profit, is likely to experience losses of approximately 3 to 4 trillion won in the quarter. These losses can be attributed to the declining prices of memory chips and the reduction in inventory values.
If so, it would mean that Samsung will be recording the lowest quarterly profit since the fourth quarter of 2008. Back in that year, Samsung Electronics had reported a consolidated profit of 740 billion won.
Samsung Faces Brunt of Falling Chip Prices
During the last quarter, the price of DRAM memory chips – widely used in PCs, smartphones, and servers – continued to drop by 13-18%, as per TrendForce. This is because chip buyers refrained from purchasing new chips as well as used-up inventories, reports Reuters.
However, the decrease in prices of memory chips has slowed down compared to previous quarters. Experts predict that the prices will reach the lowest point around the third quarter and a significant recovery might not happen until 2024.
Despite the challenging market conditions, Samsung is focusing on expanding its presence in the field of artificial intelligence (AI). This includes areas like high bandwidth memory (HBM) and chip contract manufacturing.
In terms of its mobile business, Samsung is expected to report an operating profit of around 3.3 trillion won. This is because cost-cutting measures have offset a slight decline in smartphone shipments compared to the first quarter when Samsung released its latest flagship model.
Later this month in July, Samsung will be unveiling its latest foldable smartphone in Seoul. Analysts expect it to dominate the premium smartphone market at least until Apple releases its next iPhone version.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.