The Fed seems to be on track to hit its 2% inflation target, following a declining inflation rate and a weakening dollar. But the same cannot be said for its Canadian counterpart, which hiked interest rates further.
The Canadian interest rate currently stands at 5% amidst rising household debt in the country, which has surpassed the country’s GDP.
The crypto world experienced a high-profile arrest even as Ripple ripped the crypto market.
Here is a rundown of some of the financial news that made headlines this week.
US Inflation falls to multi-year lows
The Labor Department said that the producer-price index went up in June, but not as fast as experts thought it would. That came after a report on Wednesday showed that consumer inflation had dropped to its lowest level in years.
After reaching a high of more than 9% last year, the average rate of inflation has been moving closer to the Fed’s goal of 2%. The yearly rise in the consumer price index slowed from 4% in May to 3% in June. This is the slowest rate of inflation since March 2021, when it was 3.1%.
But core inflation, which takes out the more volatile costs of food and energy, has been more stable, making people think that the US central bank will have to raise interest rates even more.
The core CPI dropped less, from 5.3% to 4.8%, as of June.
Canadian interest rate hits 5%
On Wednesday, the Bank of Canada increased its benchmark interest rate by 25 basis points, making it the highest it has been since April 2001.
The Royal Bank of Canada, CIBC, Bank of Montreal, and TD Bank, four of the country’s five largest financial institutions, have all declared that they will raise their rates on Thursday in tandem with the Bank of Canada. This is the tenth time since March of 2022 that the central bank has raised rates.
The Bank of Canada put rate hikes on hold in January until they could tell if the economy had calmed down enough. In June, it restarted its campaign.
Dollar falls to its lowest point in two months
The dollar had its worst week in eight months as traders stopped betting on the Federal Reserve raising interest rates further. The dollar fell by 2% against other major currencies this week.
This is the biggest drop since the currency fell 4.1% in a week in November.
Canadian household debt is higher than the country’s GDP
Canadian household debt has risen to a level higher than any other G7 country and is now greater than the worth of the Canadian economy as a whole.
Canada’s household debt has increased from 80% of GDP in 2008 to its current level of 107%. U.S. household debt, on the other hand, decreased from 100% to 75% of GDP during the same time period.
Household debt also fell in Europe, in countries like the United Kingdom and Germany. 75% of Canada’s household debt is tied to mortgages due to rising home prices.
Consumers cut back on back-to-school budgets
Inflation is putting pressure on discretionary spending in the world’s biggest economy, as consumers plan to cut their budgets for back-to-school supplies by more than 10%.
Deloitte said that the average family will spend 10% less on each student this summer than in 2022. This will be a test of how well a strained retail sector can deal with a more cautious customer mood.
Deloitte found from a survey of 1,212 parents that shoppers will spend $31.2 billion, or $597 per child, during the time when parents usually buy clothes and school supplies for their kids.
That is only a small part of how much people are likely to spend during the holiday season, which lasts from November to January. However, back-to-school sales have generally been a good indicator of how much people will spend during the holiday season.
Celsius CEO arrested and charged with fraud
US authorities have detained Alex Mashinsky, the founder of the bankrupt cryptocurrency lender Celsius Network, and charged him with fraud and market manipulation.
Prosecutors say that Mashinsky misled investors into putting billions of dollars into Celsius by saying that it was, “a modern bank where customers could safely deposit crypto assets and earn interest.”
An indictment released shortly after Mashinsky’s arrest on Thursday said that the cryptocurrency platform had been run “like a risky investment fund” that was much less profitable than Celsius had led investors to think.
The Securities and Exchange Commission filed a lawsuit in a federal court in Manhattan on Thursday, saying that Celsius and Mashinksy “falsely promised investors a safe investment with high returns and fraudulently manipulated the price of Celsius’s own crypto asset security, called CEL token.”
Mashinsky pleaded not guilty to the charges levelled against him.
Elon Musk launches new AI Start-up
Elon Musk has launched a new AI startup, xAI, which he says its goal is to “understand the universe.”
In a 90-minute Twitter Spaces audio chat that went in many different directions, the billionaire talked for the first time about his vision for xAI. He also talked about the evolution of the Earth and how fragile society is.
Elon Musk, the CEO of Tesla, said that his new business will work with Tesla on both the “silicon front” and the “AI software front.” xAI will also use Twitter data to train the “maximally curious” AI systems and goods that the founder wants to build there.
Musk did not say if Twitter will charge xAI or any of his other companies for its data or how much it will cost.
Ripple rips
Altcoins ended the week with a profit after a court ruling Thursday sparked a sharp, broad crypto market rally.
Bitcoin, on the other hand, had its third losing week in a row.
Ripple’s XRP led the rally after a judge in the Southern District of New York decided that it’s a security in some cases but not in others. By the week’s end, XRP had increased by more than 49%.
For the week, the Solana token went up about 19%, Cardano’s ADA token went up about 13%, and the Matic token for Polygon went up about 10%.
Bitcoin finished the week at $30,126.40, which is 0.28% less than where it started.
Photo by Simona Sergi on Unsplash