Interest rates are expected to rise next year. This is what it means

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By Julia Horowitz, CNN Business

The Federal Reserve has sent a clear signal that the era of lowest interest rates will end in 2022.

What’s Happening: Rates have been close to zero since March 2020, when heads of government around the world shut down the economy to slow the spread of Covid-19. But on Wednesday, the Fed – in addition to announcing an earlier end to its emergency bond buying program – predicted that its benchmark interest rate could rise to 0.9% in 2022.

But Paul Donovan, chief economist at UBS Global Wealth Management, told me it’s important to distinguish what rate hikes will and won’t do.

Borrowing costs would rise – while remaining extremely depressed.

“If you look at the real cost of capital in the economy at large, it will remain very low,” he said.

Before the pandemic, the Fed’s target interest rate was between 1.5% and 1.75%. It was also very low by historical standards. At the end of 2007, before the financial crisis, interest rates were at 4.25%.

Donovan doesn’t think the move will have a profound effect on inflation, noting that many of the reasons prices have skyrocketed this year – including rising energy prices and the cost of cars. occasion – relate to the effects of the pandemic and have little to do with central bank policy.

“The oil market doesn’t care about [Fed Chair] Jay Powell, “Donovan said.” Used car dealers don’t care about Jay Powell. “

In short, the Fed wants to make sure rates aren’t too low when the economic recovery is over so they have ammunition to fight another crisis.

This does not mean that prices will continue to rise, however. Donovan believes that as Americans deplete their savings from the pandemic, inflation will begin to drop “quite sharply” on its own.

“[Even if] the Fed is doing nothing, inflation is going down, “he said.

What does all this mean for the markets? Donovan said the situation would be different if the Fed wanted to raise interest rates to dampen economic growth. But that’s not what he sees happening here.

“It’s more about setting the stage for a return to a more normal business cycle,” Donovan said. “The Fed is not in an anti-growth campaign.”

This could minimize disruption for investors – assuming the Omicron variant, or other pandemic twists, don’t spoil the party.

“Omicron certainly has the potential to create short-term distortions, but I don’t think that disrupts the narrative,” Donovan said. “The general story for 2022 is intact.”

Reddit has fueled a market craze. Now it’s going public

Reddit was one of the driving forces behind the memes stock craze that took financial markets by storm in 2021, causing stocks of companies like GameStop to jump 2,700% in a matter of weeks.

The latest: Reddit said on Wednesday it had confidentially filed documents for an initial public offering with the United States Securities and Exchange Commission.

It’s unclear exactly how many shares the company wants to list, or its proposed price range. When the company announced it was raising funds from private funders over the summer, it said it was valued at over $ 10 billion.

For comparison: Facebook, the largest social network, is valued at over $ 950 billion, while Twitter has a market value of $ 35 billion.

Reddit’s launch on Wall Street could grab the attention of investors who have started scouring the popular WallStreetBets group in search of the next stock target from daily investors who use apps like Robinhood.

Robinhood itself has had a rough year, with stocks now trading at $ 19.50, well below their IPO price of $ 38. The Bumble dating app, which also went public in 2021, saw its shares drop to $ 35.17 after starting at $ 43 apiece.

Wall Street fell in love with bowling

Bowling is booming and the biggest business in the business wants to make money from it.

The latest: Bowlero, which is the world’s largest operator of bowling centers and owner of the Professional Bowlers Association, debuts on Wall Street Thursday following a merger with Isos Acquisition Corporation, an ad hoc acquisition company, or SPAC.

The lifting of the blockages led to a bowling boom, reports my CNN Business colleague Paul R. La Monica. The company said third quarter revenue increased by more than 20% from the same quarter of 2019. Bowlero has also returned to profitability.

Bowlero president Brett Parker told Paul there is still plenty of room for growth, noting that there are around 3,500 independent bowling alleys in the United States.

“This industry is still fragmented and ripe for roll-ups,” Parker said.

He also wants to make bowling the next TV phenomenon.

Reflection: The SPAC that takes Bowlero public is run by two former executives from World Wrestling Entertainment. Parker said the PBA would leverage its expertise to increase the entertainment value of bowling – without overdoing it.

“Nobody is going to walk behind someone who is going to play and hit them with a chair,” Parker said. “The sport has to maintain its integrity. But we can make it more engaging. And they know how to take something that’s more of a niche product and generalize it.”

Adobe publishes its results before the US markets open. FedEx and Rivian follow after the close.

  • U.S. housing starts and building permits for November arrive at 8:30 a.m. ET, along with the first jobless claims for last week.
  • The flash reading of the IHS Markit Purchasing Managers Index, a closely watched indicator of economic health, follows at 9:45 a.m. ET.

Coming tomorrow: The Bank of Japan closes a big week of central bank announcements.

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