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Economics

‘What is it they’re looking for?’

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6 months ago

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Federal Reserve Chairman Jerome Powell arrives to speak at a news conference following a Federal Open Market Committee meeting at the William McChesney Martin Jr. Federal Reserve Board Building on July 31, 2024 in Washington, DC. 

Andrew Harnik | Getty Images

If the Federal Reserve is starting to set the table for interest rate reductions, some parts of the market are getting impatient for dinner to be served.

“What is it they’re looking for?” Claudia Sahm, chief economist at New Century Advisors, said on CNBC just after the Fed concluded its meeting Wednesday. “The bar is getting set pretty high and that really doesn’t make a lot of sense. The Fed needs to start that process back gradually to normal, which means gradually reducing interest rates.”

Known for formulating the Sahm Rule that uses changes in the inflation rate to gauge when recessions occur, Sahm has been clamoring for the central bank to start easing monetary policy so it doesn’t drag the economy into recession. The rule states that when the three-month average of the unemployment rate is half a percentage point above its 12-month low, the economy is in recession.

The 4.1% jobless level is only a short distance from triggering the rule, and Sahm said the Fed’s insistence on holding short-term interest rates at their highest level in 23 years is endangering the economy.

“We don’t need a weak economy to get that last little bit out of inflation,” she said. “We do not have to be afraid of a good economy. If the inflation job is done, or we’re on that glide path, it’s OK, the Fed can start stepping aside.”

Asked about the Sahm Rule during his post-meeting news conference, Fed Chair Jerome Powell called it a “statistical regularity” that doesn’t necessarily hold true this time around as the jobs picture remains strong and the pace of wage gains decelerates.

“What it looks like is a normalizing labor market, job creation and a pretty decent level of wages going up at a strong level but coming down gradually,” he said. “If it turns out to … show something more than that, then we’re well positioned to respond.”

Cautious approach

Markets, though, are pricing in an aggressive path for rate cuts starting in September with a quarter percentage point reduction, which would be the first since the early days of the Covid crisis.

After that, markets expect cuts in November and December, with an about 11% probability assigned to the equivalent of a full percentage point lopped off the fed funds rate by year-end, according to the CME Group’s FedWatch gauge of 30-day fed funds futures contracts.

Instead of starting to take its foot off the brake, the Fed on Wednesday said it is keeping its overnight borrowing rate in a range between 5.25%-5.50%. The post-meeting statement did note progress made on inflation, but also reiterated that policymakers on the rate-setting Federal Open Market Committee need “greater confidence” that inflation is heading back to 2% before they will be ready to lower rates.

DoubleLine CEO Jeffrey Gundlach also thinks the Fed is risking recession by holding a hard line on rates.

“That’s exactly what I think because I’ve been at this game for over 40 years, and it seems to happen every single time,” Gundlach said, speaking to CNBC’s Scott Wapner on “Closing Bell” on Wednesday. “All the other underlying aspects of employment data are not improving. They’re deteriorating. And so once it starts to get to that upper level, where they have to start cutting rates, it is going to be more than they think.”

In fact, he thinks the Fed could end up slashing rates by 1.5 percentage points over the next year, a pace that’s more aggressive than the policymakers charted when they last updated the “dot plot” of individual projections.

Gundlach figures that the consumer price index will be below 3% soon, making real rates, or the difference with the fed funds rate, particularly high.

“If you have a positive real interest rate that’s even one and a half percent, that would suggest you have 150 basis points of room to cut rates without even thinking that you’re being excessive about it,” he said. “I think they should have cut today, quite frankly.”

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Accounting

Business Transaction Recording For Financial Success

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15 minutes 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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7 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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