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  • Writer's pictureThe San Juan Daily Star

Wall St Bonuses May Drop 16% as Higher Rates Threaten Businesses

Wall Street bonuses could fall 16% this year as interest rates possibly staying higher for longer threatens the performance of financial companies, according to New York State Comptroller Thomas DiNapoli.

The drop, however, would be less sharp than last year’s 26% decline that shrank bonuses to $176,700 on average.

The Federal Reserve is tiptoeing towards the end of its tightening cycle, though rate cuts in 2024 are expected to be fewer than previously expected as the central bank seeks to rein in inflation closer to its 2% target.

While higher-for-longer rates could impede business activity, some experts have predicted the central bank would manage to guide the economy to a soft landing.

Securities firms in New York City are on pace to add 4,300 jobs in 2023 to take the total to 195,100, climbing 2% from last year and to the highest in over 20 years, DiNapoli said, while cautioning it “remains to be seen” whether the companies would retain staff as profits normalize following the pandemic-era boom.

Banking heavyweights including Goldman Sachs and Morgan Stanley have announced a string of layoffs this year as they race to cut costs.

Pretax profits for the securities industry totaled $13 billion in the first half of the year, declining 4.3% from a year earlier, the report said.

A look at the day ahead in U.S. and global markets by Samuel Indyk

The minutes from the Federal Reserve’s September policy meeting on Wednesday confirmed the central bank is watching the data closely, making today’s consumer prices report all the more important.

“Participants stressed that they would need to see more data indicating that inflation pressures were abating,” the minutes from the September confab of the Federal Open Market Committee - the Fed’s rate setting body - showed.

The Bureau of Labor Statistics’ consumer prices report is expected to show inflation pressures were abating in September, if only marginally.

Headline CPI is seen rising 0.3% on the month, down from 0.6% in August, which would take the annual rate to 3.6%.

Core inflation, which strips out volatile energy and food prices, is expected to have also risen 0.3% in September. On an annual basis that would leave core CPI at 4.1%, its lowest level in two years.

That would be welcome news for the U.S. central bank, but the path to lower inflation, and a return to the 2% target, looks trickier from here.

The threat of higher energy prices following the outbreak of a war between Israel and Palestinian militants is all too real, even if the immediate market reaction has been relatively muted.

Oil rose by as much as 4% at one point on Monday, but has since returned to levels it was at before Hamas militants crossed the Israeli border on Saturday.

Natural gas prices in Europe and the U.S. are both holding near multi-month highs as there is already evidence that supply could be affected, after the Israeli energy ministry instructed Chevron to shut-in production at its Tamar facility.

Policymakers around the globe are likely to signal they will look through any short-term boost to inflation if the conflict were to escalate, but the path back to 2% could still take longer than previously thought.

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