The Federal Reserve unveiled a significant shift today, not relating to interest rates.
Some clever market players are eager about a momentous resolution. The Federal Reserve disclosed that it will substantially cut its quantitative tightening (QT) program—which involhes selling offits holdings to reduce money circulation and boost interest rates—beginning in June.
US Treasury yields fell due to this news. The yields on the 10-year and 2-year both plummeted by 0.05 percentage points.
Here's the gist: Throughout 2020 and 2022, the Fed acquired loads of government-backed debentures to promote the economic rejuvenation following the post-pandemic recession. This caused interest rates to drop significantly in certain areas, for instance, housing and motor sales.
In mid-2022, as inflation was spiraling uncontrollably, the Fed started to cast off those debentures.
The Fed presently permits up to $60 billion in Treasuries to mature monthly without replacing them, which lessens the quantity of money in the market. This aim is to exert some downward pressure on prices.
However, cutting back on the liquidity in the economy and shifting that money can have significant repercussions. As Jamie Dimon, CEO of JPMorgan Chase, mentioned in his shareholder letter last month, "we have never truly experienced the entire effect of quantitative tightening on this scale". At the current rate, the Fed is extracting more than $900 billion from the system yearly, which has the (orange_1)boss of Chase concerned. He stated,"I am more worried ([about it]) than most."
Quantitative tightening shrinks the cash supply in the banking system, resulting in higher interest rates and tougher monetary conditions, yet when the Fed launched a similar program in 2019, certain banks struggled with having insufficient reserves. This brought on a "repo crisis", with overnight loans between banks surging uncommonly. The Fed had to intervene and inject more liqudity to bring down those repo rates.
Fed Chair Jerome Powell aims to prevent a rerun of 2019, with him stating at his last news conference that QT will soon be tapered.
On Wednesday, officers (or_1) erlannouced that they'll cut the rate of QT to $25 billion, far more than half of its current amount.
What it means: "May 1 is set to be a major day in the bond market," Evercore ISI's Krishna Guha and Marco Casiraghi wrote in a recent note.
If the Fed relents on tightening policies, "financial markets are likely to view the taper of the QT program as supportive for riskier assets such as stocks and bonds," wrote Bill Adams, the top economist for Comerica Bank, in a note on Tuesday.
In essence, a taper would increase bond prices and decrease interest rates.
The risk, claimed Bank of America analysts on Tuesday, "is skewed to upward gains for stocks, in our opinion, namely given a probable QT taper announcement."
The Justice Dept pans to relabel marijuana as a lower-risk drug
On Tuesday, the Biden administration announced its intentions to reclassify cannabis as a less hazardous substance, a person informed cited CNN. This significant change acknowledges the therapeutic advantages of the illicit medication and carries considerable implications for cannabis-associated research and the entire cannabis market.
The US Department of Justice proposed that marijuana be categorized as a Schedule III controlled substance, a demarcation shared by prescription drugs like ketamine and Tylenol with codeine.
"Today, Attorney General Merrick Garland circulated a proposition to reclassify marijuana from Schedule I to Schedule III," Xochitl Hinojosa, the DOJ's executive of public relations, disclosed in a statement. "When published in the Federal Register, it will launch a formal rulemaking process as outlined by Congress in the Controlled Substances Act."
The official rulemaking process is lengthy, normally includes a public comment period and might require several months to conclude.
Citizens on both sides of the fence revered the move, with Republican US Representative Nancy Mace of South Carolina base(ORCE)it was "significant news for companies, tax deductions, and barriers for research."
Marijuana's rescheduling proposal, first reported by the Associated Press, elicited acclaim from elected officials, including Democratic Representative Earl Blumenauer of(OREGON) Oregon, who lauded , "a step closer to ending the failed war on drugs."
Binance's founder faces a 4-month prison sentence for money-laundering charges
The chief executive of the world's premier cryptocurrency exchange, Binance, Changpeng Zhao, received a 4-month prison sentence on Tuesday after admitting to money-laundering charges last year, as reported by my fellow writer Allison Morrow.
The sentence is noticeably lighter than the 3 years legal counselors had advocated for.
Ahead of the sentencing hearing on Tuesday, Zhao, who uses the alias CZ, expressed remorse for his conduct while heading up Binance, the cryptocurrency exchange he established in 2017.
"Words cannot express how regretful I am about my choices that lande me before the court," he said in a letter to the judge. "Rest assured that it will never happen again."
Last year, Binance reached an agreement with the federal government to pay over $4 billion in fines and other penalties as part of a joint settlement. The company confessed to engaging in illegal anti-money laundering practices, unlicensed money transmitting, and violating sanctions. The CEO, a 47-year-old man who boasts a net worth of about $40 billion, according to Bloomberg, decided to part ways with the company and fork over $200 million in fines.
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Some investors are eagerly anticipating the potential impact of the Fed's decision. The reduction in the Quantitative Tightening program could provide opportunities for investing in certain sectors.
In light of the Justice Department's proposal, the cannabis industry could see increased investment and research in medical applications.
Source: edition.cnn.com
