The Fed signalled no change in interest rates in 2020. The FOMC intends to hold benchmark rates between 1.5%-1.75%, until inflation rears its head. Inflation has remained stubbornly below the 2% symmetrical target rate post-crisis.
The central bank has become increasingly concerned about the low rate of inflation despite a 50-year low unemployment rate. The risk of the U.S. entering the low-rate, low-inflation, and low-growth trap that has enmeshed Europe and Japan, is something that it wants to avoid.
Below we show the latest FOMC ‘dot plot’ showing the dramatic reversal from the Fed’s tightening in 2018.
Source: PeerIQ, The Terminal
The Financial Stability Board released a report concluding that BigTech firms “may” pose risks to financial stability. The risks identified are a generic list of risks that banks face – liquidity mismatch, maturity transformation, and leverage.
The report is a head-scratcher. U.S. Big Tech firms have loan portfolios that are measured in the < $10B range. Nothing close to multiple trillions in loan derivative exposures at big banks. Also, the Big Tech firms — all of them to a name — are better capitalized and have low or no leverage as compared to banks (which run 12 to 15x leverage on average).
Other regulators, notably the OCC and SEC, are also concerned that U.S. financial services risk a decline in international competitiveness. See developments in Eurozone and Asia for instance (E.g., open banking, peer-to-peer payments with instant settlement, the rise in IPOs offshore, etc.).
The FT reports that Goldman plans to bring wealth management to the masses. Goldman will offer digital wealth management services via a robo-advisor to customers with as little as $5,000 in 2020. The technology will be deployed by a business that GS acquired earlier this year – United Capital Wealth Management. The press release from GS is seen as a “shot across the bow,” in response to the Schwab-TD Ameritrade announcement.
Score an additional point for the “convergence” theme. Robinhood re-launched its cash management service a year after a widely reported botched launch. The product will sweep the money customers don’t currently have in stocks into a separate account with 1.8% interest. The offering will provide bank-like services such as debit cards and FDIC coverage on deposits — through a partnership with Sutton bank.
In financing news, FinTech startup Qwil raised $24.4 million in equity and $200 million in debt financing. Qwil provides financing to freelancers and small businesses. The equity round was led by venture firm PeakSpan with participation by Mosaik Partners, Reciprocal Ventures, Silicon Valley Bank, Cantos, Sam Hodges, and Ron Suber.
- Fed signals no change in interest rates in 2020 in more upbeat view of the economy (CNBC, 12/11/2019) The Fed has decided to keep its benchmark rate between 1.5%-1.75%.
- U.S. government posts $209 billion deficit in November (Reuters, 12/11/2019) The U.S. federal government recorded a $209 billion deficit in November, which is a $4 billion increase from the same month last year.
- U.S. Hiring Strengthened in November, Fueling Expansion (Wall Street Journal, 12/06/2019) With 266,000 jobs added in November, unemployment drops to a 50-year low.
- Paul Adolph Volcker – The Fed Chairman who broke inflation dies at age 92 (Wall Street Journal, 12/09/2019) Legendary Fed Chairman, Paul Volcker, passes away.
- Big tech banking plans may pose risk to financial stability: FSB (American Banker, 12/09/2019) The Financial Stability Board cites BigTech as a source of systemic risk.
- Goldman plans to bring wealth management to the masses (Financial Times, 12/08/2019) Goldman will offer digital wealth management services to customers with as little as $5,000 in 2020.
- Robinhood Launches Its Cash Management Service, a Year After Botched Launch (Yahoo Finance, 12/11/2019) Robinhood released Cash Management, offering bank-like services to users.
- Figure’s Mike Cagney On How Blockchain Is Reinventing Lending (PYMNTS, 12/10/2019) Figure CEO, Mike Cagney, believes that banks and other financial institutions are beginning to adopt blockchain for processing transactions.
- Nubank is leading the fintech gold rush in Latin America (Quartz, 12/09/2019) Nubank takes charge in the LatAm FinTech boom.
- Brex Signs $200M Debt Capital Raise (Business Wire, 12/11/2019) San Francisco-based FinTech startup, Brex, announced a $200 million debt capital raise funded by Credit Suisse.
- ProducePay nabs $190 million debt financing for its purchasing program for farmers (Tech Crunch, 12/10/2019) FinTech offering farmers cash advances, inked a $190 million debt facility by CoVenture and TCM Capital.
- Fintech startup Qwil raises $24.4 million in equity and $200 million in debt (Reuters, 12/11/2019) San Francisco-based FinTech startup, Qwil, raised $24.4 million in equity and $200 million in debt to hire more employees and increase the pipeline of individuals and small businesses it lends to.
- Beyond Physicalism – Scientific American Op-Ed argues that cosmos is consciousness (Scientific American, 12/09/2019), Is quantum mechanics evidence that the material universe is not so real?