Latest news with #centralbanks
Telegraph
12 hours ago
- Business
- Telegraph
Politicians got used to cheap money. Now they're paying the price
Almost without exception, governments in advanced economies face an uneasy combination of high public debt and growth rates that are far too slow to fund rising public spending without resorting to even more borrowing or further anti-growth tax increases. Set against these serious policy challenges, it is no wonder that the surge in government borrowing costs that followed the gas-related inflation spike in 2022 has become a major source of concern for financial markets. In the UK and the US, 10-year government borrowing costs – a key market benchmark – have fluctuated in the 4pc-5pc range since the start of the year. Whenever borrowing costs edge towards 5pc, genuine panic seems to take hold. The commonly held view is that higher benchmark interest rates are a temporary issue that will disappear once inflation is under control, or that they are mostly a symptom of fiscal sustainability worries and can be resolved with sufficient budget discipline. But this is wrong. I am not arguing that governments and central banks should not take serious measures to improve policy discipline. Quite the opposite – this matters more than ever. Instead, my point is that even if we achieved both monetary and fiscal sustainability across the advanced world, my guess is that interest rates would fall only slightly. Why? Because the global economic forces that pushed interest rates to rock-bottom levels for more than a decade after the global financial crisis have gone into reverse. First, the global balance of savings and investment has shifted to a state that more closely resembles the pre-2008 era. In the wake of the crisis, demand for borrowing in Western economies collapsed. Along with a global rush to safety and excess savings in places like China, Japan and Germany, lower interest rates were required to balance global saving and investment. But Western debt demand is less depressed today, and the global savings glut is shrinking. In turn, the interest rates that balance these markets have risen. Second, global trade is flowing less freely as trade barriers increase and the geopolitical order fragments. US isolationism, the war in Ukraine and trouble in the Middle East put upward pressure on goods prices and increase the threat of conflict-related commodity price shocks. These inflation fears are reflected in interest rates. Third, a decades-long global demographic tailwind has turned into a headwind that will only worsen over time. As societies age, labour shortages push up wage costs and structural inflationary pressures. Fourth, with the return of inflation and the rise in global interest rates, central banks have ended their massive purchases of government debt — or quantitative easing (QE). In some cases, including the UK, central banks have been actively selling off their government debt portfolios. During the financial crisis, the argument against bailing out institutions was that it would foster moral hazard. Banks, betting on future bailouts, would take on much more risk than they otherwise would if they had to bear responsibility for their decisions. This rationale was partly behind the tragic decision to allow Lehman Brothers to fail. But, in a strange twist of fate, it was governments themselves that fell prey to moral hazard. We knew back in 2008 that government debt was at risk of spiralling out of control and that excessive deficits needed to be curtailed. That is why the UK and US both embarked on belt-tightening once the recession ended, and why parts of peripheral Europe were forced to endure excruciating austerity. But after a while, those fears about fiscal sustainability faded as structural forces drove down government borrowing costs and QE tranquillised bond investors. By the time Covid hit in 2020 – when borrowing costs reached their nadir and governments had convinced themselves that inflation would never return, and that interest rates would stay low forever – they had no misgivings whatsoever about ramping up borrowing. A German economist named Rüdiger Dornbusch, who spent most of his career in the US, said: 'Crises take longer to arrive than you can possibly imagine, but when they do come, they happen faster than you can possibly imagine.' This roughly captures the story of fiscal policy in advanced economies over the past two decades. After interest rates stayed low for much longer than anyone imagined, they normalised faster than anyone thought they could. The maths behind massive debt-financed green transitions, generous welfare states and rising defence spending – all while financing rising state pension costs and increased public healthcare demands – never really added up. But the era of ultra-low interest rates allowed policymakers to kick any hard policy choices into the long grass. Not any more.
Globe and Mail
20 hours ago
- Business
- Globe and Mail
3 Different Ways to Add Gold to Your Portfolio
Gold has been on a tremendously strong run since 2024. That momentum has accelerated in 2025 with the yellow metal cracking the $3,000 per troy ounce level. It hasn't stopped there. Recently, the price of gold touched $3,500 before falling back. Many investors may wonder if they should buy gold at these prices. The short answer is yes, and it's because of the reason why the price of gold is rising so sharply. Even though consumers can buy gold bars at Costco Wholesale Corp. (NASDAQ: COST), retail investors haven't turned into wide-eyed gold bugs. The driving force behind gold's strong move is central banks around the world. They're gobbling up as much gold as they can. Demand is down from its peak levels between 2022 and 2024, but it's still at historically high levels. This modern-day gold rush started as a hedge against inflation and geopolitical uncertainty brought on by Russia's invasion of Ukraine. However, in 2025, the move to gold is a calculated move by central banks against a devalued U.S. dollar. In fact, some governments may be hedging for a world in which the dollar may not be the world's reserve currency. Many technical signals show that the spot price of gold may be in a consolidation phase. That could be setting the stage for a jump higher. That's leaving some investors in a quandary. They may want exposure to gold, but they don't want to own the physical metal. Here are three ways to capture some upside in gold without dealing with the logistics of owning physical gold. Gold Miners Still Look Undervalued [content-module:CompanyOverview|NYSEARCA:GDX] Gold prices have gone up, but prior to 2025, gold mining stocks have lagged behind other basic materials stocks. That's because, much like oil companies, gold miners need gold to be at a certain price to make extracting it a profitable activity. This is showing up in the VanEck Gold Miners ETF (NYSEARCA: GDX), which is up 46.7% year-to-date. That's one way to play mining stocks. Another approach is to buy the best, which can lead investors to Newmont Corporation (NYSE: NEM). Newmont is one of the world's largest gold miners. In fact, it's a top holding of the GDX fund with a weighting of 11.5%. In its most recent earnings report in April 2025, Newmont's revenue came in 24% higher year-over-year (YoY). However, it was the earnings growth that really got investors' attention. Newmont beat analysts' estimates by 37% and the $1.25 in earnings per share (EPS) was 127% higher YoY. As of this writing, NEM stock was within 5% of the analysts' consensus price. However, at least two analysts have raised their price target on NEM stock with a price target of over $60 per share. Own Gold and Trade It Like a Stock [content-module:CompanyOverview|NYSEARCA:IAU] Fund investors have several options that give them exposure to gold. The GDX fund is one way. Another is the iShares Gold Trust (NYSEARCA: IAU). The fund owns gold that is transferred to the Trust in exchange for shares issued by the Trust. It's a way to own the right to physical gold without any of the logistics that come from owning the metal (i.e., storage and insurance). Another obstacle to owning physical gold is what happens when investors want to sell. Owning shares of the IAU makes accessing your 'gold' as easy as selling shares. As you might expect, the performance of the IAU fund closely approximates the performance of gold (it's up about 25% in 2025 as of May 28). Investors also benefit from an expense ratio of just 0.25%. That means less money taken out by fees and a better total return over time. A Strategic Way to Make Gold Even More of an Inflation Hedge [content-module:CompanyOverview|NYSEARCA:GOLY] One of the most cited reasons to own gold is that it works as an inflation hedge. If you believe that, the Strategy Shares Gold-Hedged Bond ETF (NYSEARCA: GOLY) deserves close attention. This is a fund that tracks an index that provides broad exposure to investment-grade corporate bonds (in U.S. dollars) while using near-term gold futures to hedge inflation risk. The mix is about 90% investment-grade corporate bonds with 10% in Treasury bills. Fund manager David Miller explains the benefit of the fund in this way: "The idea behind this is we think we could make gold better by adding a yield, or we think we can make bonds better by making them inflation protected." The GOLY fund is up about 18.75% in 2025, which lags gold slightly. Still, the fund is up 27.75% in the last 12 months and could be headed much higher if inflation does ratchet higher. Where Should You Invest $1,000 Right Now? Before you make your next trade, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.
Bloomberg
3 days ago
- Business
- Bloomberg
Traders See More Bad News for US Treasury Market
It's going to get worse. That's the takeaway from traders already rattled by the rout in long-dated US Treasuries as yields continue to linger near the psychologically fraught 5% threshold. The US 30-year yield is currently hovering at 4.97% after having soared last week to 5.15%—the highest since October 2023. A JPMorgan survey released on Wednesday added emphasis to growing fears in the $29 trillion Treasury market. The poll's all-client category for outright short positions —which includes central banks, sovereign wealth funds, real money and speculative traders—has climbed to the most since around mid-February. Fueling that doubt is the US losing its last top credit score, passage in the House of a spending bill that would add trillions more to an almost $37 trillion national debt, and a steep selloff in Japan's super-long bonds (more on that below).
Zawya
4 days ago
- Business
- Zawya
Fed's Williams calls for strong response if inflation deviates from target
TOKYO: New York Federal Reserve President John Williams said on Wednesday central banks must "respond relatively strongly" when inflation begins to deviate from their target. Given high uncertainty around the economic impact of U.S. tariffs and trade policy, central banks should focus on avoiding taking steps where the "cost of getting it wrong far outweighs the benefits," rather than aiming for the perfect solution to the problem, he said. Among the costly risks central banks must avoid are to allow inflation expectations to deviate from their targets, Williams said in a fireside chat with BOJ Deputy Governor Ryozo Himino at the central bank's conference held in Tokyo. "You want to avoid inflation becoming highly persistent because that could become permanent," Williams said. "And the way to do that is to respond relatively strongly" when inflation begins to deviate from the central bank's target, he added. Williams said shocks typically do not have long-lasting effects on inflation as long as inflation expectations are well anchored. But he warned there was always uncertainty on how supply-side shocks, such as those caused by the COVID-19 pandemic, could affect public perceptions on future price moves. "Uncertainty has risen pretty significantly," he said "We have to be very aware that inflation expectations could shift in any way that could be detrimental." Given such uncertainties, central banks must strive to not just anchor long-term inflation expectations, but ensure shorter-term expectations are "well behaved" so that public perceptions of future price moves emerge back towards central bank targets "within several years," Williams said. U.S. President Donald Trump's sweeping tariffs and erratic trade policies have complicated central bankers' task of keeping inflationary pressure in check, without cooling too much economies already facing the damage from higher levies. The Fed has kept its policy rate unchanged at 4.25%-4.50% since December, as officials pause for more clarity on the economic and price impact of Trump's tariffs. Policymakers are also having to grapple with volatile market moves caused by Trump's on-and-off comments on U.S. trade negotiations with other countries. While global financial markets experienced "huge shocks" and volatility in April after Trump's announcement of sweeping reciprocal tariffs, they did not see a "dissolution," Williams said. "One of the things you definitely saw in April was a lot of flow between buyers and sellers," which was a sign markets were functioning, he added. The level of reserves in the U.S. is "clearly abundant" judging by many metrics the New York Fed monitors, and serves as a buffer against unforeseen shocks, Williams said. "When you get big shocks and you're seeing unanticipated shocks, it's really nice that there's a buffer" that absorb the market ramifications, he added.
Reuters
4 days ago
- Business
- Reuters
Fed's Williams calls for strong response if inflation deviates from target
TOKYO, May 28 (Reuters) - New York Federal Reserve President John Williams said on Wednesday central banks must "respond relatively strongly" when inflation begins to deviate from their target. Given high uncertainty around the economic impact of U.S. tariffs and trade policy, central banks should focus on avoiding taking steps where the "cost of getting it wrong far outweighs the benefits," rather than aiming for the perfect solution to the problem, he said. Among the costly risks central banks must avoid are to allow inflation expectations to deviate from their targets, Williams said in a fireside chat with BOJ Deputy Governor Ryozo Himino at the central bank's conference held in Tokyo. "You want to avoid inflation becoming highly persistent because that could become permanent," Williams said. "And the way to do that is to respond relatively strongly" when inflation begins to deviate from the central bank's target, he added. "We have to be very aware that inflation expectations could shift in any way that could be detrimental," he said.
