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Economics

The Fed has set out on a ‘recalibration’ of policy. Here’s what Powell’s new buzzword means

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4 months ago

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Fed Chair Powell: We know it's time to recalibrate our policy

Federal Reserve Chair Jerome Powell has unveiled his latest buzzword to describe monetary policy, with a “recalibration” of policy at a pivotal moment for the central bank.

At his news conference following Wednesday’s open market committee meeting, Powell used variations of the word no fewer than eight times as he sought to explain why the central bank took the unusual step of a half percentage point rate cut absent an obvious economic weakening.

“This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we begin the process of moving forward a more neutral stance,” Powell said.

Financial markets weren’t quite sure what to make of the chair’s messaging in the meeting’s immediate aftermath.

However, asset prices soared Thursday as investors took Powell at his word that the unusually outsized move wasn’t in response to a substantial slowing of the economy. Rather, it was an opportunity to “recalibrate” Fed policy away from a rigid focus on inflation to a broader effort to make sure a recent weakening of the labor market didn’t get out of hand.

The Dow Jones Industrial Average and S&P 500 jumped to new highs in trading Thursday after swinging violently Wednesday.

“Policy had been calibrated for meaningfully higher inflation. With the inflation rate now drifting close to target, the Fed can remove some of that aggressive tightening that they put into place,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income.

“It really allows him to push this narrative that this easing cycle is not about us being in recession, it is about extending the economic expansion,” he added. “I think it’s a really powerful idea. It’s something we had been hoping that he would do.”

Powell’s buzzwords

Several of Powell’s previous efforts to provide buzzy descriptions of Fed policy or its views on the economy haven’t worked out so well.

In 2018, his characterizations of the efforts to reduce its bond holdings as being on “autopilot,” as well as his assessment that a string of rate hikes the same year had brought the Fed “a long way” from a neutral interest rate spurred blowback from markets.

More famously, his insistence that an inflation surge in 2021 would prove “transitory” ended up causing the Fed to be slow-footed on policy to the point where it had to enact a series of three-quarter percentage point rate hikes to pull down inflation.

But markets expressed confidence in Powell’s latest assessment, despite this track record and some signs of cracks in the economy.

The Fed has underestimated the extent of their 'new language' in cutting, says Narayana Kocherlakota

“In other contexts, a larger move may convey greater concern about growth, but Powell repeatedly stressed this was basically a joyous cut as ebbing inflation allows the Fed to act to preserve a strong labor market,” Michael Feroli, chief U.S. economist at JPMorgan Chase, said in a client note. “Moreover, if policy is set optimally, it should return the economy to a favorable place over time.”

Still Feroli expects the Fed will have to follow up Wednesday’s action with a similar-sized move at the Nov. 6-7 meeting unless the labor market reverses a slowing pattern that began in April.

There was some good news on the jobs front Thursday, as the Labor Department reported that weekly claims for unemployment benefits slid to 219,000, the lowest since May.

An unusual move lower

The half percentage point — or 50 basis point — cut was remarkable in that it’s the first time the Fed has gone beyond its traditional quarter-point moves absent a looming recession or crisis.

Though Powell did not give credence to the notion that the move was a make-up call for not cutting at the July meeting, speculation on Wall Street was that the central bank indeed was playing catch-up to some degree.

“This is a matter of maybe he felt like they were getting a little bit behind,” said Dan North, senior economist or North America at Allianz Trade. “A 50 basis point cut is pretty unusual. It’s been a long time, and I think it was maybe the last labor market report that gave him pause.”

Indeed, Powell has made no secret of his concerns about the labor market, and stated Wednesday that getting in front of a potential weakening was an important motivator behind the recalibration.

“The Fed still sees the economy as healthy and the labor market as solid, but Powell noted that it is time to recalibrate policy,” wrote Seth Carpenter, chief global economist at Morgan Stanley. “Powell has stressed and proven with this rate cut that the FOMC is willing to move gradually or make bigger moves depending on the incoming data and evolution of risks.”

Fundstrat's Tom Lee: Fed cuts set up strong markets next few months but election uncertainty remains

Carpenter is among the group that expects the Fed now can dial down its accommodation back to quarter-point increments through the rest of this year and into the first half of 2025.

Futures markets traders, though, are pricing in a more aggressive pace that would entail a quarter-point cut in November but back to a half-point move in December, according to the CME Group’s FedWatch gauge.

Bank of America economist Aditya Bhave noted a change in the Fed’s post-meeting statement that included a reference to seeking “maximum employment,” a mention he took to indicate that the central bank is ready to stay aggressive if the jobs picture continues to deteriorate.

That also means the recalibration could get tricky.

“We think the Fed will end up front-loading rate cuts more than it has indicated,” Bhave said in a note. “The labor market is likely to remain tepid, and we think markets will push to do another super-sized cut in 4Q.”

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Accounting

Business Transaction Recording For Financial Success

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2 hours ago

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January 18, 2025

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Business Transaction Recording For Financial Success

In the world of financial management, accurate transaction recording is much more than a routine task—it is the foundation of fiscal integrity, operational transparency, and informed decision-making. By maintaining meticulous records, businesses ensure their financial ecosystem remains robust and reliable. This article explores the essential practices for precise transaction recording and its critical role in driving business success.

The Importance of Detailed Transaction Recording
At the heart of accurate financial management is detailed transaction recording. Each transaction must include not only the monetary amount but also its nature, the parties involved, and the exact date and time. This level of detail creates a comprehensive audit trail that supports financial analysis, regulatory compliance, and future decision-making. Proper documentation also ensures that stakeholders have a clear and trustworthy view of an organization’s financial health.

Establishing a Robust Chart of Accounts
A well-organized chart of accounts is fundamental to accurate transaction recording. This structured framework categorizes financial activities into meaningful groups, enabling businesses to track income, expenses, assets, and liabilities consistently. Regularly reviewing and updating the chart of accounts ensures it stays relevant as the business evolves, allowing for meaningful comparisons and trend analysis over time.

Leveraging Modern Accounting Software
Advanced accounting software has revolutionized how businesses handle transaction recording. These tools automate repetitive tasks like data entry, synchronize transactions in real-time with bank feeds, and perform validation checks to minimize errors. Features such as cloud integration and customizable reports make these platforms invaluable for maintaining accurate, accessible, and up-to-date financial records.

The Power of Double-Entry Bookkeeping
Double-entry bookkeeping remains a cornerstone of precise transaction management. By ensuring every transaction affects at least two accounts, this system inherently checks for errors and maintains balance within the financial records. For example, recording both a debit and a credit ensures that discrepancies are caught early, providing a reliable framework for accurate reporting.

The Role of Timely Documentation
Prompt transaction recording is another critical factor in financial accuracy. Delays in documentation can lead to missing or incorrect entries, which may skew financial reports and complicate decision-making. A culture that prioritizes timely and accurate record-keeping ensures that a company always has real-time insights into its financial position, helping it adapt to changing conditions quickly.

Regular Reconciliation for Financial Integrity
Periodic reconciliations act as a vital checkpoint in transaction recording. Whether conducted daily, weekly, or monthly, these reviews compare recorded transactions with external records, such as bank statements, to identify discrepancies. Early detection of errors ensures that records remain accurate and that the company’s financial statements are trustworthy.

Conclusion
Mastering the art of accurate transaction recording is far more than a compliance requirement—it is a strategic necessity. By implementing detailed recording practices, leveraging advanced technology, and adhering to time-tested principles like double-entry bookkeeping, businesses can ensure financial transparency and operational efficiency. For finance professionals and business leaders, precise transaction recording is the bedrock of informed decision-making, stakeholder confidence, and long-term success.

With these strategies, businesses can build a reliable financial foundation that supports growth, resilience, and the ability to navigate an ever-changing economic landscape.

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Economics

A protest against America’s TikTok ban is mired in contradiction

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8 hours ago

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January 17, 2025

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AS A SHUTDOWN looms, TikTok in America has the air of the last day of school. The Brits are saying goodbye to the Americans. Australians are waiting in the wings to replace banished American influencers. And American users are bidding farewell to their fictional Chinese spies—a joke referencing the American government’s accusation that China is using the app (which is owned by ByteDance, a Chinese tech giant) to surveil American citizens.

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Economics

Home insurance costs soar as climate events surge, Treasury Dept. says

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1 day ago

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January 16, 2025

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Firefighters battle flames during the Eaton Fire in Pasadena, California, U.S., Jan. 7, 2025.

Mario Anzuoni | Reuters

Climate-related natural disasters are driving up insurance costs for homeowners in the most-affected regions, according to a Treasury Department report released Thursday.

In a voluminous study covering 2018-22 and including some data beyond that, the department found that there were 84 disasters costing $1 billion or more, excluding floods, and that they caused a combined $609 billion in damages. Floods are not covered under homeowner policies.

During the period, costs for policies across all categories rose 8.7% faster than the rate of inflation. However, the burden went largely to those living in areas most hit by climate-related events.

For consumers living in the 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, or 82% more than those living in the 20% of lowest-risk zip codes.

“Homeowners insurance is becoming more costly and less accessible for consumers as the costs of climate-related events pose growing challenges to both homeowners and insurers alike,” said Nellie Liang, undersecretary of the Treasury for domestic finance.

The report comes as rescue workers continue to battle raging wildfires in the Los Angeles area. At least 25 people have been killed and 180,000 homeowners have been displaced.

Treasury Secretary Janet Yellen said the costs from the fires are still unknown, but noted that the report reflected an ongoing serious problem. During the period studied, there was nearly double the annual total of disasters declared for climate-related events as in the period of 1960-2010 combined.

“Moreover, this [wildfire disaster] does not stand alone as evidence of this impact, with other climate-related events leading to challenges for Americans in finding affordable insurance coverage – from severe storms in the Great Plans to hurricanes in the Southeast,” Yellen said in a statement. “This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families.”

Both homeowners and insurers in the most-affected areas were paying in other ways as well.

Nonrenewal rates in the highest-risk areas were about 80% higher than those in less-risky areas, while insurers paid average claims of $24,000 in higher-risk areas compared to $19,000 in lowest-risk regions.

In the Southeast, which includes states such as Florida and Louisiana that frequently are slammed by hurricanes, the claim frequency was 20% higher than the national average.

In the Southwest, which includes California, wildfires tore through 3.3 million acres during the time period, with five events causing more than $100 million in damages. The average loss claim was nearly $27,000, or nearly 50% higher than the national average. Nonrenewal rates for insurance were 23.5% higher than the national average.

The Treasury Department released its findings with just three days left in the current administration. Treasury officials said they hope the administration under President-elect Donald Trump uses the report as a springboard for action.

“We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it,” an official said.

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