The Federal Reserve may not cut interest rates just yet. Here’s what that means for your money

Economists expect the Federal Reserve to leave interest rates unchanged at the end of its two-day meeting this week, even though many experts anticipate the central bank is preparing to start cutting rates in the months ahead.

In prepared remarks earlier this month, Federal Reserve Chair Jerome Powell said policymakers don’t want to ease up too quickly.

Powell noted that lowering rates rapidly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

But in the meantime, consumers won’t see much relief from sky-high borrowing costs.

More from Personal Finance:
Here’s when the Fed is likely to start cutting interest rates
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Deflation: Here’s where prices fell

In 2022 and the first half of 2023, the Fed raised rates 11 times, causing consumer borrowing rates to skyrocket while inflation remained elevated, and putting households under pressure.

With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” said Silvio Tavares, CEO of credit scoring company VantageScore.

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

Even once the central bank does cut rates — which some now expect could happen in June — the pace that they trim is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.

“Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.

Here’s a breakdown of where consumer rates stand now and where they may be headed:

Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, McBride said.

“If the Fed cuts rates twice by a quarter point, your credit card rate will fall by half a percent,” he said.

Mortgage rates

Fifteen- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. But anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

Rates are already significantly lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is around 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”

Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate, and those rates remain high.

“The reality of it is, a lot of borrowers are paying double-digit interest rates on those right now,” McBride said. “That is not a low cost of borrowing and that’s not going to change.”

Auto loans

Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

Federal student loans

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments

Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

Savings rates

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Powell reinforces position that the Fed is not ready to start cutting interest rates

Federal Reserve Chair Jerome Powell on Wednesday reiterated that he expects interest rates to start coming down this year, but is not ready yet to say when.

In prepared remarks for congressionally mandated appearances on Capitol Hill Wednesday and Thursday, Powell said policymakers remain attentive to the risks that inflation poses and don’t want to ease up too quickly.

“In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks,” he said. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Those remarks were taken verbatim from the Federal Open Market Committee’s statement following its most recent meeting, which concluded Jan. 31.

During the question-and-answer session with House Financial Services Committee members, Powell said he needs “see a little bit more data” before moving on rates.

“We think because of the strength in the economy and the strength in the labor market and the progress we’ve made, we can approach that step carefully and thoughtfully and with greater confidence,” he said. “When we reach that confidence, the expectation is we will do so sometime this year. We can then begin dialing back that restriction on our policy.”

Stocks posted gains as Powell spoke, with the Dow Jones Industrial Average up more than 250 points heading into midday. Treasurys yields mostly moved lower as the benchmark 10-year note was off about 0.3 percentage point to 4.11%.

Rates likely at peak

In total, the speech broke no new ground on monetary policy or the Fed’s economic outlook. However, the comments indicated that officials remain concerned about not losing the progress made against inflation and will make decisions based on incoming data rather than a preset course.

“We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in the comments. “But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured.”

He noted again that lowering rates too quickly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

Markets had been widely expecting the Fed to ease up aggressively following 11 interest rate hikes totaling 5.25 percentage points that spanned March 2022 to July 2023.

In recent weeks, though, those expectations have changed following multiple cautionary statements from Fed officials. The January meeting helped cement the Fed’s cautious approach, with the statement explicitly saying rate cuts aren’t coming yet despite the market’s outlook.

As things stand, futures market pricing points to the first cut coming in June, part of four reductions this year totaling a full percentage point. That’s slightly more aggressive than the Fed’s outlook in December for three cuts.

Inflation easing

Despite the resistance to move forward on cuts, Powell noted the movement the Fed has made toward its goal of 2% inflation without tipping over the labor market and broader economy.

“The economy has made considerable progress toward these objectives over the past year,” Powell said. He noted that inflation has “eased substantially” as “the risks to achieving our employment and inflation goals have been moving into better balance.”

Inflation as judged by the Fed’s preferred gauge is currently running at a 2.4% annual rate — 2.8% when stripping out food and energy in the core reading that the Fed prefers to focus on. The numbers reflect “a notable slowing from 2022 that was widespread across both goods and services prices.”

“Longer-term inflation expectations appear to have remained well anchored, as reflected by a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets,” he added.

Powell is likely to face a variety of questions during his two-day visit to Capitol Hill, which started with an appearance Wednesday before the House Financial Services Committee and concludes Thursday before the Senate Banking Committee.

Questioning largely centered around Powell’s views on inflation and rates.

Republicans on the committee also grilled Powell on the so-called Basel III Endgame revisions to bank capital requirements. Powell said he is part of a group on the Board of Governors that has “real concerns, very specific concerns” about the proposals and said the withdrawal of the plan “is a live option.” Some of the earlier market gains Wednesday faded following reports that New York Community Bank is looking to raise equity capital, raising fresh concerns about the state of midsize U.S. banks.

Though the Fed tries to stay out of politics, the presidential election year poses particular challenges.

Former President Donald Trump, the likely Republican nominee, was a fierce critic of Powell and his colleagues while in office. Some congressional Democrats, led by Sen. Elizabeth Warren of Massachusetts, have called on the Fed to reduce rates as pressure builds on lower-income families to make ends meet.

Rep. Ayanna Pressley, D-Mass., joined the Democrats in calling for lower rates. During his term, Democrats frequently criticized Trump for trying to cajole the Fed into cutting.

“Housing inflation and housing affordability [is] the No. 1 issue I’m hearing about from my constituents,” Pressley said. “Families in my district and throughout this country need relief now. I truly hope the Fed will listen to them and cut interest rates.”

Correction: Ayanna Pressley is a Democratic representative from Massachusetts. An earlier version misidentified the state.

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Stock rally, rate-cut forecasts face test from Powell testimony and jobs report

A four-month-long U.S. stock market rally, partly fueled by investors’ expectations for interest rate cuts in 2024 by the Federal Reserve, faces a test posed by pair of big events in the week ahead.

The first is Federal Reserve Chairman Jerome Powell’s semiannual testimony to Congress on Wednesday and Thursday, followed by Friday’s official jobs report for February.

Of the two, the nonfarm payrolls data has the potential to move markets more, given what it could signal about the risk that inflation may keep running hot if job gains come in above the 190,000 consensus expectation, according to analysts and investors.

“Inflation has bottomed out, but is still above the Fed’s objective and it seems like more labor-market weakness is going to be needed,” said John Luke Tyner, a portfolio manager at Alabama-based Aptus Capital Advisors, which manages $5.5 billion in assets. “The headlines we’ve been seeing on technology-related layoffs are missing the mark because there’s a resurgence of employment and wage growth in Middle America.”

January’s data proves the point. The month of February began with the release of January nonfarm payrolls, which showed 353,000 jobs created and a sharp 0.6% rise in average hourly earnings for all employees, despite the highest interest rates in more than two decades.

Then came a round of inflation data. Consumer- and producer-price readings were both above expectations for January, followed by last Thursday’s release of the Fed’s preferred inflation measure, known as the PCE, which showed the monthly pace of underlying price gains rising at the fastest pace in almost a year. Meanwhile, personal income grew at a monthly rate of 1% in January.

Fed-funds futures traders have since pared back their expectations for as many as six or seven quarter-percentage point rate cuts by December, and moved closer in line with the three reductions that the Fed signaled would likely be appropriate. However, this has still been enough to hand the Dow Jones Industrial Average
DJIA
and S&P 500
SPX
their best start to a year since 2019, and fueled a four-month rally in all three major indexes. For the week, the S&P 500 rose 1% and the Nasdaq Composite gained 1.7%, but the Dow Jones slipped 0.1%, based on FactSet data.

Broadly speaking, Powell is expected to stick to his script by emphasizing the need for greater confidence that inflation is falling toward the Fed’s 2% objective, before policymakers can cut the fed-funds rate target from its current range of 5.25% to 5.5%, analysts said. He’s seen as loath to say anything just yet that could move markets or rate expectations.

“Powell needs to avoid doing what he did in November and December, which was to juice the market with a very bullish message suggesting that policymakers might be done with hiking rates and that the next moves would be rate cuts,” Tyner said via phone. “The Fed needs to remain unified about the need to be patient, with no rush to cut rates, and about being data dependent, with the current data pointing toward not cutting until later this year.”

Read: No Fed rate cuts in 2024, Wall Street economist warns investors

Aptus Capital’s strategies rely on the use of options overlays to improve results, and the firm is “well-positioned” to capture both upside and downside moves in the market because of a “disciplined approach on hedges in both directions,” the portfolio manager said.

Others see some possibility that Powell’s testimony to the House Financial Services Committee and Senate Banking Committee produces one of two non-base-case results: He could either push back on expectations around the timing or extent of Fed rate cuts this year, or, on the flip side, hint at the need for maintenance rate cuts because of prospects for softer inflation and economic readings going forward.

The rates market is the mechanism by which financial markets would likely react one way or another to Powell’s testimony and Friday’s nonfarm payrolls report — specifically with trading in fed-funds futures and Secured Overnight Financing Rate futures. Any reaction in the futures market would simultaneously impact longer-term Treasurys and risk assets, according to Mike Sanders, head of fixed income at Wisconsin-based Madison Investments, which manages $23 billion in assets.

Fed officials are not likely to have enough confidence that they’ve won the battle against inflation by June, raising the question of whether markets are overestimating policymakers’ ability to start cutting rates by that month, Sanders said via phone.

“Fed officials are more or less committed to cutting rates when appropriate, but are concerned that if they cut too soon they’ll have sticky inflation,” he said.

“The services side continues to be higher than the Fed wants, with much of the disinflation coming from the goods side,” Sanders said. Inflation dynamics are “still not in balance from the Fed’s perspective, and the services side has to be concerning to policymakers, especially in the face of the personal-income growth we’ve seen. It’s going to be status quo until the Fed knows whether the higher inflation prints seen in January were a one-off or if this continues.’’

Analysts said they are particularly worried about supercore inflation, a measure of core services that excludes housing, which is still running at levels which suggest that the services side of the U.S. economy is firing on all cylinders.

No major U.S. data is scheduled for release on Monday. Tuesday brings January factory orders and ISM service sector activity figures for February.

On Wednesday, data releases include ADP’s private-sector employment report, January readings on wholesale inventories and job openings, and the Fed’s Beige Book report. San Francisco Fed President Mary Daly is also set to speak that day.

Thursday’s data batch includes weekly initial jobless benefit claims, a revision on fourth-quarter productivity, the U.S. trade balance, and consumer-credit figures. Cleveland Fed President Loretta Mester is also scheduled to make an appearance. Friday brings an appearance by New York Fed President John Williams and final consumer-sentiment data for February.

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Fed officials expressed caution about lowering rates too quickly at last meeting, minutes show

WASHINGTON – Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation, according to minutes from the session released Wednesday.

The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.

“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent,” the minutes stated.

The meeting summary did indicate a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.

However, officials noted that they wanted to see more before starting to ease policy, while saying that rate hikes are likely over.

“In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes stated. But, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”

Before the meeting, a string of reports showed that inflation, while still elevated, was moving back toward the Fed’s 2% target. While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” and possibly due to factors that won’t last.

Consequently, members said they will “carefully assess” incoming data to judge where inflation is heading over the longer term. Officials noted both upside and downside risks and worried about lowering rates too quickly.

Questions over how quickly to move

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the summary said.

Officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices,” the minutes said. “While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.”

The minutes reflected an internal debate over how quickly the Fed will want to move considering the uncertainty about the outlook.

Since the Jan. 30-31 meeting, the cautionary approach has borne out as separate readings on consumer and producer prices showed inflation running hotter than expected and still well ahead of the Fed’s 2% 12-month target.

Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy. A stable economy, which grew at a 2.5% annualized pace in 2023, has encouraged FOMC members that the succession of 11 interest rate hikes implemented in 2022 and 2023 have not substantially hampered growth.

To the contrary, the U.S. labor market has continued to expand at a brisk pace, adding 353,000 nonfarm payroll positions in January. First-quarter economic data thus far is pointing to GDP growth of 2.9%, according to the Atlanta Fed.

Along with the discussion on rates, members also brought up the bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasurys and mortgage-backed securities to roll off rather than reinvesting proceeds as usual.

‘Ample level of reserves’

The minutes indicated that a more in-depth discussion will take place at the March meeting. Policymakers also indicated at the January meeting that they are likely to take a go-slow approach on a process nicknamed “quantitative tightening.” The pertinent question is how high reserve holdings will need to be to satisfy banks’ needs. The Fed characterizes the current level as “ample.”

“Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer,” the minutes said. “In addition, a few participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate.”

Fed officials consider current policy to be restrictive, so the big question going forward will be how much it will need to be relaxed both to support growth and control inflation.

There is some concern that growth continues to be too fast.

The consumer price index rose 3.1% on a 12-month basis in January – 3.9% when excluding food and energy, the latter of which posted a big decline during the month. So-called sticky CPI, which weighs toward housing and other prices that don’t fluctuate as much, rose 4.6%, according to the Atlanta Fed. Producer prices increased 0.3% on a monthly basis, well above Wall Street expectations.

In an interview on CBS’ “60 Minutes” that aired just a few days after the FOMC meeting, Chair Jerome Powell said, “With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.” He added that he is looking for “more evidence that inflation is moving sustainably down to 2%.”

Markets have since had to recalibrate their expectations for rate cuts.

Where traders in the fed funds futures market had been pricing in a near lock for a March cut, that has been pushed out to June. The expected level of cuts for the full year had been reduced to four from six. FOMC officials in December projected three.

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S&P 500, Dow Jones Hit All-Time Highs Again; Tech Stocks Back in the Spotlight

KEY

TAKEAWAYS

  • The S&P 500, Dow Jones Industrial Average, and Nasdaq 100 closed at all-time highs
  • Tech stocks are back in focus as mega-tech companies wrap up their Q4 earnings
  • Investors should take advantage of pullbacks if they want to add positions to their portfolios

What a week! Mega-cap tech stocks, the Fed meeting, and January’s nonfarm payrolls made headlines this week, creating an exhilarating week for investors. Friday’s stock market price action was an unexpected, but optimistic end to the trading week.

Jobs, Jobs, Jobs

The January jobs report came in way better than expected, and you’d think that would lead to a selloff after Fed Chairman Powell’s comments on Wednesday. Yet investor optimism prevailed, and the broader stock market indices closed higher, with the S&P 500 ($SPX), Dow Jones Industrial Average ($INDU), and Nasdaq 100 ($NDX) closing at an all-time high. It’s beginning to sound like a broken record, almost as if the stock market is waiting for the Nasdaq Composite to catch up and notch a new record high.

The blowout jobs report from the Bureau of Labor Statistics showed that the US economy added 353,000 jobs, well above the 185,000 estimate. The unemployment rate was 3.7%, slightly lower than the expected 3.8%. Wage growth also rose.

Thus, a combination of more jobs and higher wages buries even the slightest probability of a March rate cut. May is still a ways away, and plenty of data will come out before then, but it would be surprising if anything moves the needle enough to warrant a rate cut in March.

A strong labor market is great for the economy. The question is whether it aligns with what the FOMC wants to see—a rebalancing of the labor market. It’s possible that a rebalance between supply and demand of jobs will occur, given that hours worked per week fell to 34.1. If that continues to fall, and companies start cutting jobs, that would indicate a rebalancing. Another data point to focus on is the number of people working or available for work. If that also declines, it would be further confirmation that the supply and demand forces of the labor market are coming more into equilibrium. But we won’t know that for a while, and investors seem to have shifted their focus to the present.

Tech Stocks Back In Focus

The stock market didn’t seem worried about the stellar jobs report, and Chairman Powell’s comments are now in the rearview mirror. The broader market indices closed higher, with big tech stocks in the spotlight. Earnings from Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), and Meta Platforms (META) were mixed, but that didn’t stop tech stocks from being the stars at the tail end of the trading week. AI is still the buzzword that fuels this market.

Consumer demand is strong, as reflected by Amazon’s earnings on Thursday. And META, which reported strong Q4 earnings and positive Q1 guidance, soared after Thursday’s close. But that wasn’t all; META will be issuing a quarterly dividend of $0.50 per share for the first time. This news boosted the stock price higher, and META closed at $474.99 per share, up 20.32%, hitting an all-time high. That’s a $197 billion addition to its market cap.

CHART 1. META STOCK SOARS ON EARNINGS AND DIVIDENDS. Meta notches an all-time high on strong earnings, guidance, and news of dividends to shareholders.Chart source: StockCharts.com. For educational purposes.

One area of the market that struggles to keep up with the broad indices is small caps. Small-cap stocks tend to perform better in a lower interest rate environment, and since rate cuts aren’t on the Fed’s radar at the moment, the S&P 600 Small Cap Index ($SML) was one of the few reds in the Market Overview panel in the StockCharts dashboard.

Speaking of interest rates, the  10-year US Treasury yield chart paints a good picture (see below). The 10-year yield is back above 4% after sharply falling and hitting a low of 3.817%.

CHART 2. 10-YEAR TREASURY YIELD SPIKES. The strong January jobs report sent the benchmark 10-year US Treasury Yield Index spiking. In spite of the big jump, the yield closed lower for the week.Chart source: StockCharts.com. For educational purposes.

Today’s move in yields didn’t help bond prices. The iShares 20+ Year Treasury Bond ETF (TLT) was down 2.21%.

The Bottom Line

Overall, 2024 has started positively, which is good for stocks. Hearing some of the takeaways from the Fed speeches next week will be interesting. After this week’s performance, maybe the market won’t be impacted by rate cut delays. This stock market just keeps going and going; if delaying rate cuts isn’t going to stop it, what will?

Next week is another week. If you’re considering adding positions to your portfolio, take advantage of any pullbacks while the market trends higher. Only if there’s a drastic turn of events should you think otherwise.

End-of-Week Wrap-Up

  • S&P 500 closes up 1.07% at 4,958.61, Dow Jones Industrial Average up 0.35% at 38,654.42; Nasdaq Composite up 1.74% at 15,628.95
  • $VIX down 0.22% at 13.85
  • Best performing sector for the week: Consumer Discretionary
  • Worst performing sector for the week: Energy
  • Top 5 Large Cap SCTR stocks: Super Micro Computer, Inc. (SMCI); Affirm Holdings (AFRM); CrowdStrike Holdings (CRWD); Veritiv Holdings, LLC (VRT); Nutanix Inc. (NTNX)

On the Radar Next Week

  • Earnings week continues with Walt Disney Co. (DIS), Gilead Sciences (GILD), Alibaba Group Holding (BABA), Eli Lilly (LLY), and Snap Inc. (SNAP) reporting.
  • January PMI and ISM
  • Fed speeches
  • November S&P/Case-Shiller Home Price
  • Fed Interest Rate Decision

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Silver’s window of opportunity is closing, with prices poised for an ‘explosive move’ in 2024

Silver prices could be headed for an “explosive” rise in 2024 if global supplies continue to fall short of demand, and the Federal Reserve makes good on its plans to pivot to interest rate cuts in the coming months, according to metal-markets analysts.

While silver this year has underperformed gold, which saw prices touch record highs this year, the opportunity to snap up silver at bargain prices may be brief.

“The window for buying silver in the low- to mid-$20s is ending,” said Peter Spina, president of silver news and information provider SilverSeek.com.

It is likely that silver prices next year will be pushing up toward the major $30-an-ounce technical resistance, he told MarketWatch, adding that he “fully” believes that the price barrier will fall. 

On Thursday, the most-active March contract for silver futures
SIH24,
-0.95%

SI00,
-0.95%

settled at $24.39 an ounce on Comex, with prices up 6.4% for the session to erase what had been a loss for the year. It traded 1.4% higher year to date, according to Dow Jones Market Data.

Gold futures
GCG24,
-0.43%

GC00,
-0.43%
,
on the other hand, settled at $2.044.90 Thursday, up 2.4% for the session, up 12% for the year so far, and trading close to its record finish of $2,089.70 from Dec. 1.

Silver’s underperformance

Generally, silver moves with gold much more than with other commodities such as copper or oil, and silver’s moves tend to be bigger than gold’s as a percentage, said Keith Weiner, chief executive officer of Monetary Metals.

That’s what happened with silver’s recent move lower, he said. Silver, on Wednesday, tallied an eighth consecutive session loss, marking the longest streak of losses in just over a year and a half.

Both gold and silver had experienced similar trends in terms of “lack of investment demand” due to rising interest rates, said Chris Mancini, research analyst at Gabelli Funds. This has primarily manifested in outflows from both gold- and silver-backed exchange-traded funds, he said.

The iShares Silver Trust
SLV,
which holds 441.47 million ounces of silver, has seen a year-to-date net asset value return of negative 0.3% as of Thursday.

Gold, however, has benefited from a surge in demand this year from central banks, which are buying gold to “diversify out of the U.S. dollar,” said Mancini.

Read: Global central-bank gold purchases reach a record high for the first 9 months of the year

Also see: Gold just hit a record high. Is it too late for investors to add it to portfolios?

Solid economic performance this year around the world, and specifically in the U.S., led to higher short-term rates from the Fed and other central banks, and the “subsequent decline in investor demand for gold and silver,” Mancini said.

Global physical investment demand for silver is forecast at 263 million ounces this year, down 21% from 333 million ounces in 2022, the Silver Institute reported in mid-November, citing data from Metals Focus.

Change of course

Silver prices rallied by late Wednesday afternoon, after the Federal Reserve penciled in three interest-rate cuts in 2024, instead of the two that were projected in September. 

That marked quite a change, as prices for silver had been trading lower for the year before that rally.

Prospects for an end to the Fed’s rate-hiking cycle weakened the U.S. dollar and Treasury yields, providing support for dollar-denominated gold prices — and silver along with them.

Read: Gold futures leap closer to record highs in one fell swoop

The Fed decision “put a reversal on industrial demand fears,” so the temporary pressure brought on by those fears has been removed, said Spina.

Fed Chairman Jerome Powell on Wednesday had said officials from the central bank were starting to discuss when to cut interest rates.

New York Federal Reserve President John Williams appeared to walk back on those comments, telling CNBC Friday that Fed officials weren’t really talking about cutting rates right now.

At some point, the Fed is going to have to reverse course on interest rates, said Monetary Metals’ Weiner.

“When they do, it will be a catalyst for higher gold and silver prices, “perhaps much higher,” he said. “We are in a secular bull market now — this is not the bear market of 2012-2018.”

Bullish fundamentals

Global supply of silver, meanwhile, is expected to fall short of demand this year, for a third year in a row.

The “fundamentals for the silver market are extremely bullish,” Spina said, particularly with a structural deficit continuing for silver.

The report from the Silver Institute showed that global industrial demand for silver is expected to grow by 8% to a record 632 million ounces this year, buoyed by investment in photovoltaics — used in solar technology — power grid and 5G networks, growth in consumer electronics, and rising vehicle output.

The report showed 2023 global silver supply estimated at about 1 billion ounces, while total demand is seen at a larger 1.143 billion ounces. Metals Focus said it believes the deficit will “persist in the silver market for the foreseeable future.”

“The only last big driver missing for silver prices to explode is investor interest,” said Spina.

Keep in mind that silver is a “precious green metal,” he said. It benefits from strong growth in mandated green energy demand, which will continue to “push industrial demand to fresh records.”

Meanwhile, silver inventory stocks are being “drained,” as a structural deficit for physical silver competes for remaining inventories, said Spina.

“If the gold price is moving to record price highs in the coming weeks, silver is in the perfect set-up to test $30, with a likely breakout to $50…coming in 2024.”


— Peter Spina, SilverSeek.com

He expects silver prices to “re-challenge” $30 an ounce within the coming months, “if not sooner.”

Watch gold prices for the initial direction, he said. “If the gold price is moving to record price highs in the coming weeks, silver is in the perfect set-up to test $30, with a likely breakout to $50 [and ounce] coming in 2024.”

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Jim Cramer’s top 10 things to watch in the stock market Thursday

My top 10 things to watch Thursday, Dec. 14

1. U.S. stocks are higher in premarket trading Thursday, with S&P 500 futures up 0.46%. Equities rallied Wednesday after the Federal Reserve held interest rates steady, while indicating it would cut rates three times in 2024 — a decision more dovish than I expected. Meanwhile, bond prices are also strengthening, with the yield on the 10-year Treasury falling below 4%.

2. Toll Brothers announces a new $20 million share-buyback program — and there are only 100 million shares. But CEO Doug Yearley thinks it’s ridiculous that his stock sells at eight-times earnings when it’s more of a secular grower, despite changes in the housing industry.

3. UBS upgrades Club holding Coterra Energy to buy from neutral, citing its strong balance sheet strength and oil diversification. But the firm lowered its price target to $31 a share, down from $33.

4. Piper Sandler raises its price target on Club name Amazon to $185 a share, up from $170, while maintaining an overweight rating on the stock. The firm cites improving retail margins and an expected acceleration at cloud unit Amazon Web Services. Amazon is Piper’s top large cap pick.

5. Stifel raises its price target on Lululemon Athletica to $596 a share, up from $529, while reiterating a buy rating on the stock. The firm argues that “still sound” U.S. consumer balance sheets and wage growth should support margin expansion for companies like Lululemon with “brand specific drivers.”

6. Nike is back. Baird raises its price target on the sneaker company to $140 a share, up from $125, while keeping an outperform rating on the stock. Nike’s “quality growth profile plus margin recovery potential support a continued favorable outlook,” the firm contends.

7. Mid-stage trial data shows that Merck and Moderna‘s experimental cancer vaccine, used in conjunction with Merck’s Keytruda therapy, reduces the risk of death or relapse in patients with melanoma skin cancer after three years.

8. JPMorgan raises its price target on L3Harris Technologies to $240 a share, up from $213, while maintaining a neutral rating on the stock. The firm has “high confidence” in the aerospace-and-defense-technology company’s targets for sales and cash flow.

9. Piper Sandler upgrades Club holding Foot Locker to overweight from neutral, while raising its price target to $33 a share, up from $24. The firm cites Foot Locker’s margin expansion opportunity in 2024, arguing the company is best positioned among the athletic-and-footwear group over the next year.

10. Bernstein raises its price target on FedEx to $340 a share, up from $305, while reiterating an outperform rating on the stock. FedEx, which Bernstein expects to benefit from cost cuts and improved international market conditions, is set to report quarterly results on Dec. 19.

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How lending-based climate finance is pushing poor countries deeper into debt

After more than a decade of disappointment, the world’s wealthiest countries may have finally fulfilled their 2009 promise to mobilise $100 billion a year to help developing countries face the climate crisis. But the harsh truth is that developing nations are going to have to pay most of that money back – with interest.

When the world’s wealthiest economies pledged in 2009 to mobilise $100 billion a year towards climate action for developing countries by 2020, few present at the COP15 questioned the urgency of the task before them. Certainly not then-UK prime minister Gordon Brown, the first person to propose the figure in a speech delivered in the months leading up to that year’s climate summit in Copenhagen.

In his “manifesto”, the sombre Scot listed an almost Biblical litany of disaster sweeping across the developing world: 325 million people “seriously affected” by drought, dearth, deluge or disease; a further half a billion souls at extreme risk; and 300,000 lives lost, every year, to the effects of climate change.

“In the developing world, climate change is already devastating lives,” he said.

According to the best estimates of the OECD, 2022 may have finally marked the first year the wealthiest economies finally kept their promise in delivering the funds desperately needed by developing nations to adapt to a warming world and to mitigate the impacts on populations most vulnerable to the climate crisis. But behind the rhetoric of first-world reparations for the global harm caused by a century and a half of fossil-fuel-led industrial development squats an uglier reality: most of the money that makes its way to developing nations in public climate finance is going to have to be paid back – with interest.

Market-level interest rates

OECD data from 2016-2020, the most recent we have, shows that loans made up 72 percent of international climate finance. Of that number, three-quarters of the loans from multilateral development banks (MDBs) such as the World Bank were non-concessional, or loans issued with interest rates set at market levels. Just one quarter of international climate finance over the same period took the form of grants.

More worryingly, Oxfam estimates that the proportion of non-concessional finance is growing. In their Climate Finance Shadow Report released in June 2023, the organisation estimated that the annual average of non-concessional instruments in climate finance had reached $28 billion – 42 percent – in 2019-20, while concessional lending remained largely on the same level as the previous two years.

Although MDBs accounted for much of this market-rate lending, a small number of wealthy countries continue to use loans as their main form of climate finance. Of all the bilateral providers, France leads the pack in lending, with a massive 92 percent of its bilateral public climate finance taking the form of loans.

And while a large share of that lending is made up of concessional or “soft” loans, which are offered at more favourable interest rates or longer repayment schedules, an alarming 17 percent of its bilateral climate finance is non-concessional. For Spain, that number is a staggering 85 percent. More than half of Austria’s climate financing is non-concessional, according to Oxfam’s analysis, as is almost a third of the United States’ climate financing.

Paying back billions – with interest

Put together, this adds up to tens of billions of dollars every year that countries of the Global South will one day be forced to pay back to the world’s wealthiest nations and development banks – with interest. And with global interest rates rising steeply, the cost of servicing those debts year after year will eat into the already-stretched budgets of countries buckling under the weight of debts that are getting harder to pay back.

Danielle Koh, policy analyst at the NGO Reclaim Finance, said that the problem partly arises from the sheer magnitude of the challenge of raising funds to tackle the climate crisis.

“The scale of climate funding required is enormous,” she said. “To rely only on public financing would not be sufficient to meet 1.5°C pathway-aligned targets, and loans at market rates could attract and mobilise private capital.”

By including loans at their full face value, Koh said, wealthy countries are also able to claim credit for meeting their climate pledges far beyond what they are actually giving away. Of the more than $83 billion that was claimed to have been raised in 2020, Oxfam estimates the actual value for developing countries to be between just $21 and $24 billion. And while non-concessional finance is not counted towards countries’ official development assistance spending more broadly, this distinction has yet to be made when it comes to funding climate action.

“In providing financing to developing countries, loans at market rates could be favoured because developed countries can count such loans towards being able to fulfil climate financing commitments while at the same time avoiding giving direct grants or other concessional types of financing, which would be more costly,” said Koh.

Counting non-concessional loans as climate finance may not just be disingenuous, but dangerous. Sixty percent of low-income countries are already either in or on the verge of debt distress, forced to spend five times more every year on servicing their debts than they do on climate adaptation.

Counterproductive debt burden

Safa’ Al Jayoussi, climate justice adviser at Oxfam Middle East and North Africa, said that adding to low-income countries’ debt burden would make them more vulnerable, rather than more resilient, to the ravages of the climate crisis. 

“It’s a big risk, because countries are already distressed,” she said. “Developing countries are dealing with a lot of loans from the World Bank and other institutions that are causing more austerity. Adding more pressure to the countries … will impact those most vulnerable to climate change. This kind of funding is making adaptation and mitigation to climate change more difficult.”

According to the United Nations Conference on Trade and Development (UNCTAD), public debt has been growing faster in developing nations than in their developed counterparts over the past decade. Faced with compounding crises of Covid-19, climate change and the cost-of-living crisis, the number of countries facing high levels of debt has increased dramatically, from just 22 countries in 2011 to 59 countries in 2022.

And debt is costing developing nations dearly. On average, African countries pay interest rates four times higher than those of the US, and eight times higher than Germany. To service those debts year after year, countries have little choice other than to redirect funds that may otherwise have gone to badly underfunded sectors such as health or education. In the ten years between 2010 and 2020, the number of countries where interest spending accounted for 10 percent or more of their public revenues rose from 29 to 55.

More debt, then, seems to be the last thing the developing world needs.

“There is a real danger that this could lead to high debt burdens in developing countries,” Koh said. “With global rising interest rates, the cost of servicing debt for developing nations will rise substantially. Loans in foreign currencies could expose developing countries to soaring costs over servicing their debt in the case of exchange rate fluctuations or depreciations over time. In the long term, repaying climate debt not only diverts financial resources away from developing other sectors, but could lead to economic and fiscal instability.”

Hans Peter Dejgaard, senior consultant at INKA Consult and a specialist in climate finance, said that while it made sense to finance some renewable energy infrastructure in middle-income developing countries through loans as commercially viable projects, too much reliance on loan-based financing would put poor countries in an impossible position if interest rates continued to rise.

He cited a World Bank loan of $400 million to the Philippines in early 2022 aimed at accelerating climate-related objectives. After the US Federal Reserve raised interest rates to just under 6 percent in April 2023 to fight rising inflation, he said, the total repayments that the Philippine government would have to make over a period of 20 years had potentially risen from $482 million to $686 million – a 42 percent increase.

“This will affect their social and education budget,” he said.

Reclaim Finance’s Koh said that the cost for financing climate action should not be borne by the countries least able to afford it.

“There is no ‘one model fits all’ when it comes to funding climate finance, but there are certain principles that we can rely on to guide our approach,” she said. “For example, that concessional financing and grants should be favoured over market-rate loans, whether through initiatives like the Loss and Damage Fund or others, to help developing countries build resources for climate adaptation and mitigation while avoiding increasing their debt burden.”

For Al Jayoussi, that very burden should instead be borne by the countries most responsible for fuelling the worsening climate crisis. 

“Developing countries didn’t even cause climate change,” she said. “We need to revamp and change the finance structure that caused climate change in the first place. We need grants and grant mechanisms for the most vulnerable countries, developing countries, to overcome climate change.”

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Fed holds rates steady, upgrades assessment of economic growth

The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

Powell added that the FOMC is not considering or even discussing rate reductions at this time.

He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.

“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Economy has ‘moderated’

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

Gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

Surging bond yields

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the fourth quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”

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It’s time to hang up on the old telecoms rulebook

Joakim Reiter | via Vodafone

Around 120 years ago, Guglielmo Marconi planted the seeds of a communications revolution, sending the first message via a wireless link over open water. “Are you ready? Can you hear me?”, he said. Now, the telecommunications industry in Europe needs policymakers to heed that call, to realize the vision set by its 19th-century pioneers.

Next-generation telecommunications are catalyzing a transformation on par with the industrial revolution. Mobile networks are becoming programmable platforms — supercomputers that will fundamentally underpin European industrial productivity, growth and competitiveness. Combined with cloud, AI and the internet of things, the era of industrial internet will transform our economy and way of life, bringing smarter cities, energy grids and health care, as well as autonomous transport systems, factories and more to the real world.

5G is already connecting smarter, autonomous factory technologies | via Vodafone

Europe should be at the center of this revolution, just as it was in the early days of modern communications.

Next-generation telecommunications are catalyzing a transformation on par with the industrial revolution.

Even without looking at future applications, the benefits of a healthy telecoms industry for society are clear to see. Mobile technologies and services generated 5 percent of global GDP, equivalent to €4.3 trillion, in 2021. More than five billion people around the world are connected to mobile services — more people today have access to mobile communications than they do to safely-managed sanitation services. And with the combination of satellite solutions, the prospect of ensuring every person on the planet is connected may soon be within reach.

Satellite solutions, combined with mobile communications, could eliminate coverage gaps | via Vodafone

In our recent past, when COVID-19 spread across the world and societies went into lockdown, connectivity became critical for people to work from home, and for enabling schools and hospitals to offer services online.  And with Russia’s invasion of Ukraine, when millions were forced to flee the safety of their homes, European network operators provided heavily discounted roaming and calling to ensure refugees stayed connected with loved ones.

A perfect storm of rising investment costs, inflationary pressures, interest rate hikes and intensifying competition from adjacent industries is bearing down on telecoms businesses across Europe.

These are all outcomes and opportunities, depending on the continuous investment of telecoms’ private companies.

And yet, a perfect storm of rising investment costs, inflationary pressures, interest rate hikes and intensifying competition from adjacent industries is bearing down on telecoms businesses across Europe. The war on our continent triggered a 15-fold increase in wholesale energy prices and rapid inflation. EU telecoms operators have been under pressure ever since to keep consumer prices low during a cost-of-living crisis, while confronting rapidly growing operational costs as a result. At the same time, operators also face the threat of billions of euros of extra, unforeseen costs as governments change their operating requirements in light of growing geopolitical concerns.

Telecoms operators may be resilient. But they are not invincible.

The odds are dangerously stacked against the long-term sustainability of our industry and, as a result, Europe’s own digital ambitions. Telecoms operators may be resilient. But they are not invincible.

The signs of Europe’s decline are obvious for those willing to take a closer look. European countries are lagging behind in 5G mobile connectivity, while other parts of the world — including Thailand, India and the Philippines — race ahead. Independent research by OpenSignal shows that mobile users in South Korea have an active 5G connection three times more often than those in Germany, and more than 10 times their counterparts in Belgium.

Europe needs a joined-up regulatory, policy and investment approach that restores the failing investment climate and puts the telecoms sector back to stable footing.

Average 5G connectivity in Brazil is more than three times faster than in Czechia or Poland. A recent report from the European Commission — State of the Digital Decade (europa.eu) shows just how far Europe needs to go to reach the EU’s connectivity targets for 2030.

To arrest this decline, and successfully meet EU’s digital ambitions, something has got to give. Europe needs a joined-up regulatory, policy and investment approach that restores the failing investment climate and puts the telecoms sector back to stable footing.

Competition, innovation and efficient investment are the driving forces for the telecoms sector today. It’s time to unleash these powers — not blindly perpetuate old rules. We agree with Commissioner Breton’s recent assessment: Europe needs to redefine the DNA of its telecoms regulation. It needs a new rulebook that encourages innovation and investment, and embraces the logic of a true single market. It must reduce barriers to growth and scale in the sector and ensure spectrum — the lifeblood of our industry — is managed more efficiently. And it must find faster, futureproofed ways to level the playing field for all business operating in the wider digital sector.  

But Europe is already behind, and we are running out of time. It is critical that the EU finds a balance between urgent, short-term measures and longer-term reforms. It cannot wait until 2025 to implement change.

Europeans deserve better communications technology | via Vodafone

When Marconi sent that message back in 1897, the answer to his question was, “loud and clear”. As Europe’s telecoms ministers convene this month in León, Spain, their message must be loud and clear too. European citizens and businesses deserve better communications. They deserve a telecoms rulebook that ensures networks can deliver the next revolution in digital connectivity and services.



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