THE FEDERAL RESERVE

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REUTERS

"Biden says Fed should 'recalibrate' policy as prices rise"


Reuters

January 19, 2022

WASHINGTON, Jan 19 (Reuters) - U.S. President Joe Biden on Wednesday said it was appropriate for the Federal Reserve to recalibrate the support it provides to the U.S. economy, in light of fast-rising prices and the strength of recovery.

"Given the strength of our economy and recent price increases, it's appropriate, as ... Fed Chairman (Jerome) Powell has indicated, to recalibrate the support that is now necessary," Biden told a news conference.

"The critical job of making sure that the elevated prices don't become entrenched rests with the Federal Reserve, which has a dual mandate: full employment and stable prices," the president said.

At the same time, he said, the White House and Congress could help contain inflation by moving to fix supply chain failures, encourage competition, and pass his Build Back Better spending bill that he says would cut childcare and other costs for families.

Fed policymakers have signaled they will raise interest rates several times this year, likely starting in March, to try to rein in inflation that's rising at its fastest pace in nearly 40 years.

A reduction in the Fed's $8 trillion balance sheet could soon follow.

At his renomination hearing earlier this month, Powell told lawmakers that he would not allow inflation to become "entrenched," and said a tighter policy stance was necessary to keep the economy growing.

Biden also called on the U.S. Senate to confirm his recent nominations for key roles on the Federal Reserve Board "without any further delay."

Biden earlier this month nominated former Fed Governor Sarah Bloom Raskin for the Fed's top regulatory post and two Black economists, Lisa Cook and Philip Jefferson, to round out the Fed's seven-member Board.

Late last year Biden renominated Powell to lead the Fed for another four years, and nominated Fed Governor Lael Brainard to serve as Fed Vice Chair.

The picks would remake the Fed Board to be the most diverse in the central bank's 108-year history.

Reporting by Alexandra Alper; writing by Andrea Shalal; editing by Cynthia Osterman and Richard Pullin

https://www.reuters.com/business/biden- ... 022-01-19/
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REUTERS

"Fed nominees draw sharp criticism from a top Republican senator"


By Ann Saphir

JANUARY 25, 2022

(Reuters) - Signaling U.S. President Joe Biden’s picks for the Federal Reserve may face a tough confirmation process in the closely divided Senate, Republican Senator Pat Toomey told the president he doesn’t think his choices fairly represent the nation for which they will help set monetary policy.

“I write to express my concerns with the significant lack of diversity in geography and professional experience in your recent slate of nominees to serve on the Board of Governors of the Federal Reserve System,” Toomey, the top Republican on the Senate Banking Committee, told Biden in a letter Tuesday and made public by his office.


Biden earlier this month nominated former Federal Reserve Governor Sarah Bloom Raskin to be the central bank’s vice chair for supervision and two Black economists, Lisa Cook and Philip Jefferson, to serve on its board of governors.

Those choices would help make the seven-member Fed Board the most diverse it has ever been, by race and gender.

Late last year Biden renominated Fed Chair Jerome Powell and picked current Governor Lael Brainard to be Fed vice chair, both of whom had confirmation hearings earlier this month.

All nominees but Michigan State University’s Cook are from the Richmond Fed’s district, just one of 12 Fed regions across the country, Toomey said in the letter.

Toomey reserved his sharpest comments for Raskin, saying she has “demonstrated hostility” toward the oil and gas sector, making her “unacceptable.”

The banking committee must approve Fed nominees before they are considered by the full Senate.

Senator objections over lack of geographical diversity have sunk at least one Fed nominee, Nobel Prize laureate Peter Diamond, in 2011.

Reporting by Ann Saphir; Editing by Richard Chang and Andrea Ricci

https://www.reuters.com/article/usa-fed ... SL1N2U52DG
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REUTERS

"Fed likely to hike rates in March as Powell vows sustained inflation fight"


By Howard Schneider, Ann Saphir

JANUARY 26, 2022

WASHINGTON (Reuters) - The Federal Reserve on Wednesday said it is likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what U.S. central bank chief Jerome Powell pledged will be a sustained battle to tame inflation.

“The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so,” Powell said in a news conference, pinning down a policy statement from the central bank’s Federal Open Market Committee that only said rates would rise “soon.”

Subsequent interest rate increases and an eventual reduction in the Fed’s asset holdings would follow as needed, Powell said, while officials monitor how quickly inflation falls from current multi-decade highs back to the central bank’s 2% target.

Much was left undecided, he told reporters after the end of the Fed’s latest two-day policy meeting, including the pace of subsequent rate hikes or how quickly officials will let its massive balance sheet decline.

But Powell was explicit on one key point: that with inflation high and for now apparently getting worse, the Fed this year plans to steadily clamp down on credit and end the extraordinary support it has provided to the U.S. economy during the coronavirus pandemic.

Since the Fed’s last policy meeting in December, Powell said, inflation “has not gotten better. It has probably gotten a bit worse ..."

"To the extent that situation deteriorates further, our policy will have to reflect that.”


“This is going to be a year in which we move steadily away from the very highly accommodative monetary policy we put in place to deal with the economic effects of the pandemic,” he added.

STOCKS FALL AGAIN

U.S. stocks, pummeled to start the year on worries about how fast the Fed may move to contain inflation, slid as Powell repeatedly emphasized the economy’s underlying strength and inflation’s persistence, and refused to rule out more aggressive tightening as needed.

The S&P 500 index, at one point in the day up by more than 2%, sold off sharply through the course of Powell’s news conference to close 0.15% lower.

The Nasdaq Composite, which had taken a hard blow in this month’s sell-off, ended the day little changed.

Yields on longer-dated Treasury securities, sensitive to the Fed’s balance sheet policy, rose as Powell signaled that a decision would be made soon on when to start shrinking the central bank’s more than $8 trillion portfolio of U.S. government bonds and mortgage-backed securities (MBS).

The dollar surged 0.5% to its highest level in a month against a basket of key trading partners’ currencies.

Powell was “trying to balance the fear factor but at the same time he’s talking about inflation might get worse, he’s talking about the Fed might have to use more tools, he’s talking about the balance sheet reduction,” said Peter Cardillo, chief market economist with Spartan Capital Securities in New York.

“The bottom line is his response is causing the market to fear the uncertainty.”


The extent of the Fed’s policy pivot away from battling the economic fallout from the pandemic and towards an inflation fight will take more shape in coming weeks.

It will be contingent on how inflation itself behaves, and Powell said officials still hope much of the improvement will come as the aftershocks of the pandemic ease, perhaps allowing them to do less of the work through tighter monetary policy.

A myriad of risks remain, from a pandemic that is still underway to a potential Russia-Ukraine military conflict.

But Powell said policymakers at this point feel they have “quite a bit of room to raise interest rates” without threatening progress on jobs or slowing an economic recovery they want to keep underway.

In a refrain that has become common, he noted “the economy is quite different” than when the Fed last began raising interest rates in 2015, with higher inflation, lower unemployment, and what Powell regards as enough momentum to make its way without the Fed’s help.

In that shift to tighter policy the Fed moved at an initially glacial pace, with one quarter-percentage-point rate increase in 2015 and only an additional one in 2016.

Investors are expecting much more this time, with pricing in federal funds future contracts anticipating four rate increases this year.

The Fed’s benchmark overnight interest rate is currently set at the near-zero level.

FOMC members also agreed at this week’s meeting on a set of principles for “significantly reducing” the size of the Fed’s asset holdings.

Officials said they will shrink holdings “primarily” by limiting how much of the principal from maturing bonds the Fed would reinvest each month.

That plan would start after the liftoff in interest rates, the central bank said, without yet setting a specific date, pace or final size.

Over time the Fed’s balance sheet would not only be pared down, but shifted away from MBS and weighted towards U.S. Treasuries, “thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy,” the central bank said.

The Fed’s statement, in moving ahead with a plan to tighten monetary policy, cited “solid” recent job gains that continued even as the outbreak of the Omicron variant of the coronavirus pushed daily case numbers to record levels.

While the Fed has stopped trying to assess when inflation might ease, the statement said officials continue to expect improvements in global supply chains will ease the pace of price increases.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the Fed said, with consumer prices increasing at a 7% annual rate, the highest level since the 1980s.

Policymakers did not release new economic and interest rate projections on Wednesday.

Reporting by Howard Schneider and Jonnelle Marte; Editing by Paul Simao

https://www.reuters.com/article/usa-fed ... SL1N2U51RB
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CNBC

"GDP grew at a 6.9% pace to close out 2021, stronger than expected despite omicron spread"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED THU, JAN 27 2022

KEY POINTS

* Gross domestic product accelerated at a 6.9% annualized pace in the fourth quarter, well ahead of the 5.5% estimate.

* Consumer activity and business spending led the gains, which propelled the U.S. economy to its strongest full year since 1984.

* Jobless claims remained elevated at 260,000 while orders for long-lasting goods hit their lowest point since April 2020, signaling an end-of-year slowdown.


The U.S. economy grew at a much better-than-expected pace to end 2021 from sizeable boosts in inventories and consumer spending, and despite signs that the acceleration likely tailed off toward the end of the year.

Gross domestic product, the sum of all goods and services produced during the October-through-December period, increased at a 6.9% annualized pace, the Commerce Department reported Thursday.

Economists surveyed by Dow Jones had been looking for a gain of 5.5%.

The increase was well above the unrevised 2.3% growth in the third quarter and came despite a surge in Covid omicron cases that likely slowed hiring and output as businesses dealt with large numbers of sick workers.

Gains came from increases in private inventory investment, strong consumer activity as reflected in personal consumption expenditures, exports, and business spending as measured by nonresidential fixed investment.

Across-the-board decreases in the pace of government spending subtracted from GDP, as did imports, which are measured as a drag on output.

The quarter brought an end to a 2021 that saw a 5.7% increase in annualized GDP, the strongest pace since 1984 as the U.S. tried to pull away from the unprecedented drop in activity during the early days of the coronavirus pandemic.

Markets reacted positively to the news, with stock futures posting gains while government bond yields were mixed.

“The strength of the economy last year stood in stark contrast to the collapse in activity in early 2020, but also speaks to the success of both the public and private sector in quickly adapting to the unprecedented challenges created by the pandemic,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

“That being said, potential headwinds still exist, as the global risks associated with the COVID-19 pandemic persist.”

In other economic news Thursday, jobless claims totaled 260,000 for the week ended Jan. 22, slightly less than the 265,000 estimate and a decline of 30,000 from the previous week.

Also, orders for long-lasting goods declined 0.9% for December, worse than the estimate for a 0.6% drop.

Orders for durables hit their lowest point since April 2020, reflecting an end-of-year slowdown as omicron cases skyrocketed.

The decline was driven largely by a 3.9% slump in transportation orders.


The GDP report, though, reflected an overall solid period for the economy after output had slowed considerably over the summer.

Supply chain issues tied to the pandemic coupled with robust demand spurred by unprecedented stimulus from Congress and the Federal Reserve led to imbalances across the economic spectrum.

Consumer activity, which accounts for more than two-thirds of GDP, rose 3.3% for the quarter.

Gross private domestic investment, a gauge of business spending and inventory build, soared 32%.

Inventories added 4.9 percentage points to the headline growth, boosted in particular by motor vehicle dealers, the Bureau of Economic Analysis said.

Impact on policy

Economic growth came as inflation surged in 2021, particularly in the second half of the year, as supply couldn’t keep up with strong demand, particularly for goods over services.

The U.S. heads into 2022 on uncertain footing, with Fed Chairman Jerome Powell warning Wednesday that growth in the early part of the year is slowing, though he views the economy overall as strong.

To that measure, the Fed telegraphed a March interest rate hike, the first since 2018.

Central bankers also expect to end their monthly asset purchases the same month and to start unwinding their bond holdings shortly after.

Those tightening moves come in response to inflation running at its highest pace in nearly 40 years.

Data on the Fed’s preferred inflation gauge, the personal consumption expenditures price index, will be released Friday morning.

The fourth-quarter data reflected those price pressures as well, with the price index for gross domestic purchases up 6.9% in the fourth quarter and 3.9% for the full year.

The Fed considers 2% a healthy level for inflation, though a new policy approach adopted in 2020 allows for higher levels over a short period of time in the interest of generating full employment.

Powell said Wednesday that Fed officials believe they have largely achieved both ends of their employment/inflation mandate and are ready to start raising rates and otherwise tightening monetary policy.

https://www.cnbc.com/2022/01/27/gdp-gre ... pread.html
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REUTERS

"Fiscal stimulus powers U.S. economy in 2021 to its best performance since 1984"


By Lucia Mutikani

January 27, 2022

Summary

* Fourth-quarter GDP increases at 6.9% rate

* Inventory investment accounts for bulk of growth

* Economy grows 5.7% in 2021

* Weekly jobless claims fall 30,000 to 260,000


WASHINGTON, Jan 27 (Reuters) - The U.S. economy notched its strongest growth in nearly four decades in 2021 after the government pumped trillions of dollars in COVID-19 relief, and is seen forging ahead despite headwinds from the pandemic, strained supply chains as well as inflation.

A surge in gross domestic product in the fourth quarter as businesses replenished depleted inventories to meet strong demand for goods was the final push.

Last year's robust growth reported by the Commerce Department on Thursday supports the Federal Reserve's pivot towards raising interest rates in March.

Fed Chair Jerome Powell told reporters on Wednesday after a two-day policy meeting that "the economy no longer needs sustained high levels of monetary policy support," and that "it will soon be appropriate to raise" rates.

"While Omicron will lead to weaker growth in the first quarter, activity is expected to rebound nicely once the latest pandemic wave abates and supply-chain glitches ease," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

"The Fed will need to be 'humble and nimble' as it navigates underlying economic strength, worsening labor shortages, and stubbornly high inflation."

The economy grew 5.7% in 2021, the strongest since 1984, as the government provided nearly $6 trillion in pandemic relief.

It contracted 3.4% in 2020, the biggest drop in 74 years.

It was the first time in 20 years that the U.S. economy grew faster than the Chinese economy.

President Joe Biden quickly took credit for the stunning performance, which he said was "no accident."

Biden's popularity is falling amid a stalled domestic economic agenda after Congress failed to pass his signature $1.75 trillion Build Back Better legislation.

"We are finally building an American economy for the 21st Century, and I urge Congress to continue this momentum by passing legislation to make America more competitive, bolster our supply chains, strengthen our manufacturing and innovation, invest in our families and clean energy, and lower kitchen table costs," Biden said in a statement.

Gross domestic product increased at a 6.9% annualized rate in the fourth quarter, the government said in its advance GDP estimate.

That followed a 2.3% growth pace in the third quarter.

Growth is 3.1% above its pre-pandemic level.

Economists polled by Reuters had forecast GDP growth rising at a 5.5% rate.

The momentum, however, faded by December amid an onslaught of COVID-19 infections, fueled by the Omicron variant, which contributed to undercutting spending as well as disrupting activity at factories and services businesses.

But there are, signs that infections have peaked, which could lead to increased demand for services by spring.

Inventory investment increased at a $173.5 billion rate, contributing 4.90 percentage points to GDP growth, the most since the third quarter of 2020.

Businesses had been drawing down inventories since the first quarter of 2021.

Spending shifted during the pandemic to goods from services, a demand boom that pressured supply chains.

Excluding inventories, GDP grew at a moderate 1.9% rate.

Stocks on Wall Street were trading higher.

The dollar gained versus a basket of currencies.

U.S. Treasury yields fell.

BALANCING ACT

Some economists viewed the modest growth in the so-called final sales as a sign that the economy was set to slow down significantly, especially if not all the inventory accumulation was planned.

They also worried that rate hikes as well as reduced government aid, especially the loss of the childcare tax credit, could hurt demand.

So far inventory-to-sales ratios remain low by historical standards.


"Fed policymakers will have to be extremely careful at threading the needle when they raise interest rates as every other Federal Reserve in history has raised interest rates too high and brought the economy crashing back down," said Christopher Rupkey, chief economist at FWDBONDS in New York.

Growth last quarter was also lifted by a jump in consumer spending in October before retreating considerably as Omicron raged.

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 3.3% rate after rising at a 2.0% pace in the third quarter.

A decrease in purchases of motor vehicles, which are scarce because of a global chip shortage, was offset by increases in spending on healthcare as well as at membership clubs, sports centers, parks, theaters and museums.

Inflation increased at a 6.9% rate, the fastest since the second quarter of 1981, way above the Fed's 2% target.

That resulted in income at the disposal of households dropping at a 5.8% rate, which also limited consumer spending.

Still, households remained cushioned by huge savings, which were at $1.34 trillion.


Wages surged at an 8.9% rate before adjustment for inflation, reflecting a labor market that is experiencing an acute shortage of workers, with 10.6 million job openings at the end of November.

Though the labor market took a step back in early January as Omicron surged, it is at or near maximum employment.

A separate report from the Labor Department on Thursday showed initial claims for jobless benefits dropped 30,000 to a seasonally adjusted 260,000 during the week ended Jan. 22.

There were sharp declines in claims in Illinois, Kentucky, Texas, New Jersey, New York as well as Pennsylvania.

Support to GDP growth last quarter also came from a rebound in business spending on equipment.

But government spending fell at both the federal and state and local levels.

Trade made no contribution after being a drag on GDP growth for five straight quarters, while investment in homebuilding contracted for a third consecutive quarter.

The sector is being constrained by expensive building materials, which has resulted in a record backlog of homes yet to be built.

Despite the economy's struggles at the start of the year, most economists believe the run of good fortunes will prevail.

Growth estimates for this year top 4%.

"This year may well be an even better year for the economy," said Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

"Growth will slow and monthly job gains will lag last year's lofty rates."

"Nonetheless, the economy should be near full employment and inflation near the Fed's target by year's end."

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

https://www.reuters.com/world/us/us-eco ... 022-01-27/
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CNBC

"Key Fed inflation gauge rises 4.9% from a year ago, fastest gain since 1983"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JAN 28 2022

KEY POINTS

* The core personal consumption expenditures price index, a closely watched inflation gauge at the Federal Reserve, rose 4.9% from a year ago in December.

* That was the fastest gain since September 1983 and a touch above the Wall Street estimate.

* Employment costs increased 4% from a year ago, the fastest in the 20-year data history, though the quarterly rise of 1% was less than expected.


A gauge the Federal Reserve prefers to measure inflation rose 4.9% from a year ago, the biggest gain going back to September 1983, the Commerce Department reported Friday.

The core personal consumption expenditures price index excluding food and energy was slightly more than the 4.8% Dow Jones estimate and ahead of the 4.7% pace in November.

The monthly gain of 0.5% was in line with expectations.

Along with the inflation numbers, personal income rose 0.3% for the month, a touch lower than the 0.4% estimate.

Consumer spending declined 0.6%, less than the 0.7% estimate.

A separate Labor Department data point that Fed officials also watch closely showed that total compensation costs for civilian workers increased 4% over the past 12 months.

That is the fastest pace in history for the employment cost index, a data set that goes back to the beginning of 2002.


However, the seasonally adjusted quarterly increase of 1% was less than the 1.2% forecast, putting some balm on fears of a wage price inflationary spiral.

The numbers come as rampant inflation is pushing the Fed into an aggressive pace of policy tightening.

Earlier this week, central bank officials indicated they are likely to begin raising interest rates as soon as March.


Market pricing is pointing to five quarter-percentage point increases this year for benchmark short-term borrowing rates, which have been anchored near zero since the beginning of the Covid pandemic in early 2020.

Headline inflation rose at a 5.8% pace as measured by the PCE index, tied for the fastest pace since June 1982.

Markets viewed the data releases as positive, with stock market futures well off their morning lows.

Fed officials are worried about inflation pressures they had characterized through much of last year as “transitory.”

While factors tied to the supply chain bottlenecks and powerful demand for goods over services have been a core cause of price increases, inflation has proven stronger and longer lasting than policymakers had figured.

One area of specific concern is wages and the possibility of a spiral where increases in pay push up prices and in turn drive inflation expectations higher.

“One quarter’s data prove nothing, but with labor participation creeping higher, and measures of excess demand flattening in recent months, it is reasonable to think that wage growth is unlikely to re-accelerate dramatically,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“In the meantime, this report eases the immediate pressure on the [Federal Open Market Committee] to act aggressively; the sighs of relief from Fed Towers should be audible on Wall Street.”

The 4% employment cost index annual increase, though missing estimates for the quarter and below the 1.3% gain from the previous quarter, still represented a sharp gain from the 2.5% rise from a year ago.

Compensation for private industry workers jumped 4.4%, which included a 5% increase in wages and salaries.

Benefits costs rose 2.9%.


Compensation grew fastest for service occupations, which saw a 6.1% surge in 2021.

Nursing and residential care compensation increased 5.7%.

Despite the gain in wages, consumer spending tailed off, falling 0.6% after gaining 0.4% in November.

The decline in spending came despite a 6.9% increase in gross domestic product in the fourth quarter, which closed out a year in which the economy accelerated at its fastest pace since 1984.

https://www.cnbc.com/2022/01/28/key-fed ... -1983.html
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REUTERS

"Weaker U.S consumer spending, rising inflation pose dilemma for Fed"


By Lucia Mutikani

January 28, 2022

Summary

* Consumer spending falls 0.6% in December

* Core PCE price index rises 0.5%; up 4.9% year-on-year

* Wages gain 1.1% in Q4; surge 4.5% year-on-year


WASHINGTON, Jan 28 (Reuters) - U.S. consumer spending fell in December, suggesting the economy lost speed heading into the new year amid snarled supply chains and raging COVID-19 infections, while annual inflation increased at a pace last seen nearly 40 years ago.

Wage inflation is also building up amid an acute shortage of workers.

Private industry wages rose strongly in the fourth quarter, posting their largest annual gain since the mid-1980s, other data showed on Friday.

Mounting inflation pressures could force the Federal Reserve to aggressively hike interest rates, stifling growth, economists warned.

"No one wants to go back to the 80s, but the economy is."

"Can stagflation from an overly aggressive Fed be next?" said Christopher Rupkey, chief economist at FWDBONDS in New York.

"The Fed let its guard down and now they risk it all by saying they might have to move faster and higher on interest rates."


Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped 0.6% last month after gaining 0.4% in November, the Commerce Department said.

The decline was in line with economists' expectations.

The data was included in the advance gross domestic product report for the fourth quarter published on Thursday.

The economy grew at a 6.9% annualized rate last quarter, accelerating from the July-September quarter's 2.3% pace.

That helped to boost growth in 2021 to 5.7%, the strongest since 1984.

The economy contracted 3.4% in 2020.

Consumer spending dropped in December likely as the result of Americans starting their holiday shopping in October for fear of empty shelves at stores because of rampant shortages of goods, including motor vehicles.

Spending on goods fell 2.6%, led by automobiles.

Outlays on services gained 0.5%, lifted by healthcare.

Sky-rocketing coronavirus infections driven by the Omicron variant slowed the improvement in supply chains, with workers calling in sick.

Worsening shortages kept inflation elevated last month.

The personal consumption expenditures (PCE) price index excluding the volatile food and energy components, rose 0.5% after a similar gain in November.

The so-called core PCE price index accelerated 4.9% year-on-year in December, the biggest rise since September 1983.

The core PCE price index increased 4.7% in the 12 months through November.

Stocks on Wall Street were lower.

The dollar was steady against a basket of currencies.

U.S. Treasury prices rose.

WAGE PRESSURES GROWING

Inflation is running way above the Fed's flexible 2% target.

The U.S. central bank on Wednesday said it was likely to raise interest rates in March.

Bank of America Securities is predicting seven rate hikes this year.

JPMorgan on Friday raised its forecast to five rate increases from four.

"The challenge now is to tamp down inflation without allowing the flame on the overall economy to go out," said Diane Swonk, chief economist at Grant Thornton in Chicago.

"There is no road map for doing this after inflation has surged."


Signs that inflation could remain stubbornly high were reinforced by a separate report from the Labor Department on Friday showing the Employment Cost Index, the broadest measure of labor costs, rose 1.0% in the fourth quarter after increasing 1.3% in the July-September period.

Labor costs surged 4.0% on a year-on-year basis, the largest rise since the fourth quarter of 2001, after increasing 3.7% in the third quarter.

The ECI is widely viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes.

The labor market is viewed as being at or near maximum employment.

There were 10.6 million job openings at the end of November.

Wages and salaries rose 1.1% last quarter after increasing 1.5% in the third quarter.

They were up 4.5% year-on-year, the largest increase since the second quarter of 1990.

Private industry wages rose 1.2% and shot up 5.0% year-on-year, the most since the first quarter of 1984.

Benefits for all workers rose 0.9% after a similar gain in the July-September quarter.

But high inflation is cutting into wage gains, eroding consumers' purchasing power.

The rising cost of living and pandemic fatigue pushed consumer sentiment back to a 10-year low in January.


The report from the Commerce Department showed consumer spending adjusted for inflation dropped 1.0% in December after slipping 0.2% in November.

The decline in the so-called real consumer spending set consumption on a slower growth trajectory heading into the first quarter, which could pull overall economic growth lower.

Consumer spending rose at a 3.3% rate last quarter.

Growth forecasts for the first quarter are so far below a 2% rate, with some economists predicting an outright decline in output.

Still, growth is expected to rebound by the second quarter as the current Omicron wave of infections subsides and supply constraints ease.

Consumers are sitting on more than $2 trillion in excess savings accumulated during the pandemic.

It is, however, unclear when and how much of these savings will be spent.

Economists also note that the bulk of the savings are by higher income households, who tend to be savers and some of the money could go towards retirement.

"To our minds, despite the strength of price and wage inflation, it is disappointingly weak real economic growth that will prevent the Fed from delivering a full-blown Ratemaggedon this year," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama

https://www.reuters.com/world/us/us-con ... 022-01-28/
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CNBC

"Federal Reserve’s Barkin says businesses would welcome higher interest rates"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED MON, JAN 31 2022

KEY POINTS

* Richmond Federal Reserve President Thomas Barkin said it’s been his experience that at least for those in the business community, interest rate increases will be welcomed.

* “They’d like us to get back to at least a normal interest-rate posture and not be simulating more demand on top of normal levels,” he told CNBC’s “Closing Bell.”

* He was one of several Fed speakers Monday. Kansas City Fed President Esther George suggested that a faster runoff of the balance sheet could ease the amount of rate hikes needed.


The U.S. economy is ready for interest rate increases to control rampant inflation, Richmond Federal Reserve President Thomas Barkin said Monday.

With the Fed poised to start hiking rates in March and beyond, Barkin told CNBC in a live interview that tighter monetary policy is appropriate.

However, he didn’t commit to how aggressive the central bank might be.

“I’d like the Fed to get better positioned."

"I think we’ve got a good part of the year to get there,” he said on “Closing Bell.”

“I think how fast we go just depends on how the economy develops.”

Financial markets, however, are expecting the Fed to move quickly.

Current futures pricing indicates a strong possibility of five 0.25% increases in the benchmark short-term borrowing rate.

There’s even about a one-in-three chance that the Fed could hike six times, according to CME calculations through its FedWatch Tool.

Bank of America economists said Friday they forecast seven increases this year.

Those expectations come with inflation running at its highest level in nearly 40 years.

The Fed uses interest rates to raise the cost of money and slow the pace of the economy, which had its fastest single-year growth spurt since 1984 a year ago.

Barkin said it’s been his experience that at least for those in the business community, the rate increases will be welcomed.

“As I talk to participants in the economy, what I hear is they actually want us to do something now about inflation."

"They’d like us to get back to at least a normal interest-rate posture and not be simulating more demand on top of normal levels,” he said.

“So, I don’t hear much resistance to that.”

He spoke the same day as two of his fellow regional presidents, Mary Daly of San Francisco and Esther George of Kansas City, also voiced support for tighter policy.

Part of that tightening is interest rates.

The other part deals with the Fed’s monthly bond purchases, which are set to end in March, and the holdings of those bonds, which have eclipsed $8 trillion.

Following their meeting last week, Fed officials said they expect to run down the assets on their balance sheet aggressively.

In a speech she delivered earlier in the day to The Economic Club of Indiana, George said running off the balance sheet more quickly might allow the Fed to enact fewer rate hikes.

“What we do on the balance sheet will likely affect the path of policy rates and vice versa,” George said.

“For example, more aggressive action on the balance sheet could allow for a shallower path for the policy rate.”

Daly said during a Reuters forum that the Fed is “not behind the curve at all” when it comes to fighting inflation.

However, she also said it’s time to start easing the throttle on the most accommodative monetary policy in the central bank’s history.

“If the economy progresses like I see it progressing, then it is clear that it can stand on its own two feet, that we do not need to be providing the same level of extraordinary … accommodation that we provided during the pandemic and have provided for the last two years,” she said.


None of the Fed officials would commit to a schedule, though many on Wall Street think each of the Fed’s seven remaining meetings this year will be “live,” or subject to policy moves.

https://www.cnbc.com/2022/01/31/feds-ba ... rates.html
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Re: THE FEDERAL RESERVE

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REUTERS

"Fed's Barkin says pace of U.S. rate hikes depends on inflation"


By Ann Saphir

JANUARY 31, 2022

(Reuters) - How fast and far the U.S. Federal Reserve will raise interest rates once it begins doing so in March will depend on what happens with the economy and, more specifically, with inflation, Richmond Fed President Thomas Barkin said on Monday.

“I’d like the Fed to get better positioned, and I think we’ve got a good part of the year to get there,” Barkin told CNBC in an interview.

“I think how fast we get there just depends on how the economy develops."

"... I am just going to be looking to see how inflation develops through the year.”

Reporting by Ann Saphir; editing by Jonathan Oatis

https://www.reuters.com/article/usa-fed ... SS0N2RG00U
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Re: THE FEDERAL RESERVE

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REUTERS

"Fed's Bullard does not think a half-point rate hike 'really helps us' - Reuters interview"


By Reuters Staff

FEBRUARY 1, 2022

(Reuters) - St. Louis Federal Reserve President James Bullard on Tuesday said he favors lifting rates at the U.S. central bank’s meeting in March and likely again in May, but he pushed back against the idea of kicking off the coming tightening cycle with a half-percentage point hike.

"I don't think a 50-basis point hike really helps us right now," Bullard said in an interview with Reuters carried on Twitter Spaces here.

Reporting By Dan Burns; Editing by Chris Reese

https://www.reuters.com/article/usa-fed ... SW1N2SF019
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