THE FEDERAL RESERVE

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CNBC

"Job openings set record of 9.3 million as labor market booms"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED TUE, JUN 8 2021

KEY POINTS

* Job openings roared higher in April, hitting a record 9.3 million, according to the Labor Department’s JOLTS report.

* Markets had been expecting 8.18 million after the March total also hit a new standard.


Job openings in April soared to a record 9.3 million as the economy rapidly recovered from its pandemic depths.

The standard set in April was well above the 8.3 million in March that itself was a new high going back to 2000 for the Labor Department’s Job Openings and Labor Turnover Survey.

Federal Reserve policymakers closely watch the JOLTS numbers for indications of labor market slack, though they run a month behind the more widely publicized nonfarm payrolls count.

Markets had been looking for a JOLTS number around 8.18 million, according to FactSet.

The total openings for the month was just below the total considered unemployed.

Job availability surged 32.7% in leisure and hospitality, the sector hurt most by the pandemic lockdowns.

The big jump in job openings came during a month when hiring disappointed.

Payrolls increased by just 278,000 at a time when economists had been looking for growth of around 1 million.

However, the Labor Department has struggled with seasonal adjustments compounded by the uniqueness of the virus situation, and the JOLTS numbers indicated that the jobs market is poised for continued strong growth.

One big challenge for employers is finding available labor.

Child-care issues, ongoing fears about the pandemic and the lure of enhanced unemployment benefits have kept the unemployment rolls at 9.8 million, about 3.6 million higher than before the pandemic.

That level fell to 9.3 million in May, about in line with the job openings.

The hire rate for April remained subdued at 69,000, or an unchanged 4.2% from the previous month.

Quits, which are seen as a gauge of worker confidence that they can find other employment, rose considerably, to 3.95 million.

That represented growth of 384,000, an increase of 10.8% that took the quits rate as a share of the labor force up to a record 2.7% from 2.5%.

Retail saw a particularly sharp rise in quits up to 4.3% from 3.6%.

Total separations increased to 5.76 million, a gain of 324,000 that took the rate up to 4% from 3.8%.

Layoffs and discharges edged lower to 1%, also a JOLTS low.

https://www.cnbc.com/2021/06/08/job-ope ... ening.html
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Re: THE FEDERAL RESERVE

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CNBC

"The Fed could be facing a jobs headache in its inflation fight"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JUN 11 2021

KEY POINTS

* If the Federal Reserve’s benign view on inflation prevails, employment will be key.

* The longer it takes to get people back to work, the more employers will have to pay.

* The Fed wants higher inflation but not so high that it will have to tighten policy early.

* Consumer prices rose 5% in May, but the Fed believes inflationary pressures will ease in the months ahead.


If the Federal Reserve’s view on inflation prevails, a few key things have to go right, particularly when it comes to getting people back to work.

Solving the jobs puzzle has been the most vexing task for policymakers in the coronavirus pandemic era, with nearly 10 million potential workers still considered unemployed even though the number of open positions available hit a record of 9.3 million in April, according to the latest data from the U.S. Labor Department.

There’s a fairly simple inflation dynamic at play: The longer it takes to get people back to work, the more employers will have to pay.

Those higher salaries in turn will trigger higher prices and could lead to the kinds of longer-term inflationary above-normal pressures that the Fed is trying to avoid.

“Unfortunately, we see good reasons to think that labor participation might not return quickly to its pre-Covid level,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.

“Whatever is happening here, the Fed needs large numbers of these people to return to the labor force in the fall.”


The pace of inflation is of critical importance for economic trajectory.

Inflation that runs too high could force the Fed to tighten monetary policy quicker than it wants, causing cascading impacts to an economy dependent on debt and thus critically tied to low interest rates.

Consumer prices increased at a 5% pace year over year in May, the fastest since the financial crisis.

Economists, though, generally agreed that much of what is driving the rapid inflation surge is due to temporary factors that will ease up as the recovery continues and the economy returns to normal following the unprecedented pandemic shock.

That’s far from certain, though.

The Atlanta Fed’s gauge of “sticky” inflation, or price of goods that tend not to fluctuate greatly over time, rose 2.7% year over year in May for the strongest growth since April 2009.

A separate measure of “flexible” CPI, or prices that do tend to move frequently, increased a stunning 12.4%, the fastest since December 1980.

In their most recent forecast, Fed officials put core inflation at 2.2% for all of 2021; Shepherdson said the current numbers suggest something closer to 3.5%.

“That’s a huge miss, and it potentially poses a serious threat to the Fed’s benign view of medium-term inflation because of its potential impact of the labor market,” Shepherdson said.


What’s keeping workers home

Surveys show a variety of factors keeping workers from taking jobs: Ongoing pandemic concerns, child-care issues, particularly for women, and enhanced unemployment benefits that are being withdrawn in about half the states and will expire entirely in September.

From the employer perspective, worries over skill mismatches have persisted for several years and have worsened during the pandemic.

For instance, a survey from online learning company Coursera showed that the U.S. has fallen to 29th in the world in digital skills needed for high-demand entry-level jobs.

The dilemma is a pervasive one in American business nowadays.

David Wilkinson, president of NCR Retail, the cash register maker that now provides a variety of products and services to the industry, said he sees “a bit of a labor crisis” unfolding.

“As labor gets harder to come by, as labor gets more expensive, the other side of the inflationary worry is that as prices go up, the cost of living goes up and you have to pay people more as they demand more,” Wilkinson said.

“All of my customers are struggling to staff at levels that they need staff to really get to the other side of this surge.”

While he thinks inflation eventually will come down from its current level, he expects it will be higher than the sub-2% that prevailed during most of the post-financial crisis era.

The implementation of technology accelerated during the Covid era.

While that will continue, Wilkinson said he also expects to see retailers paying higher wages to fill the demand for staff.

“We’re seeing an increased focus on the worker in retail, and part of that is both the experience, the technology they need to do the job, and part of that is the willingness to pay,” he said.

“This brought that back to the forefront.”

Managing its way through the various dynamics could prove difficult for the Fed.

Previous attempts to normalize policy over the years have largely failed, with the central bank having to revert back to the zero-interest money-printing world that arose during the financial crisis.

“The Fed is trapped,” wrote Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council.


While LaVorgna sees inflation as staying relatively under control, he thinks the Fed could face problems from deflationary pressures.

The central bank doesn’t like inflation that’s too low, as it creates a low-expectation cycle that constricts monetary policy during downturns.

“The political pressure to do nothing will be intense” as government debt increases, LaVorgna said.

“If the Fed cannot (or will not) remove excessive policy accommodation when the economy is booming, how can policymakers do it when growth invariably slows?”


Markets betting on the Fed

Indeed, markets aren’t expecting much movement at all in policy.

Treasury yields actually have dropped since Thursday’s hotter-than-expected consumer price index report, and market pricing now points to no rate hikes until about September 2022 and a fed funds rate of just 1% through May 2026.

A report Friday from the University of Michigan also showed consumers are lowering their inflation expectations, with the year-ahead outlook at 4%, down from 4.6% in the last survey, and at 2.8% over five years, down from 3% though still well above the Fed’s 2% target.

“For all the fears that the Fed will be prompted to tighten policy early to curb inflation, we suspect officials will be just as worried about a slowdown in the recovery in real activity,” wrote Michael Pearce, senior U.S. economist at Capital Economics.

Fed officials likely will talk next week about which way the risks are tilted in the current scenario.

They’ve been lukewarm about the recovery, continuing to emphasize the role, albeit diminishing, of the pandemic and encouraging a full-throated policy response.

However, if inflation readings persist to the upside, the pressure at least to tap the brakes on the monthly asset purchases will build.

“There’s been this debate about whether inflation is different this time,” said Quincy Krosby, chief market strategist at Prudential Financial.

“If inflation rises in a more material and less transitory way, consumers are going to need higher wages.”


The Fed is betting that a return to the labor market, particularly by women, will help hold down wage pressures and keep inflation in check.

The current labor force participation rate for women is 56.2%, up from the pandemic lows but otherwise the worst since May 1987.

Regardless of the inflation pressures, the Fed last year changed its mission statement to keep policy accommodative until the economy sees inclusive labor gains, meaning across gender, income and race.

“They are going to make sure that the glide path to [policy] liftoff is long,” Krosby said.

“The question is, if inflation picks up in a more meaningful way and is stickier, what does the Fed do?"

"That’s the concern the market has.”


Data also provided by Reuters

https://www.cnbc.com/2021/06/11/the-fed ... fight.html
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Re: THE FEDERAL RESERVE

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CNBC

"The Fed moves up its timeline for rate hikes as inflation rises"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED WED, JUN 16 2021

The Federal Reserve on Wednesday considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates.

However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program, though Fed Chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.

“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said in a phrase that recalled a statement he made a year ago that the Fed wasn’t “thinking about thinking about raising rates.”

As expected, the policymaking Federal Open Market Committee unanimously left its benchmark short-term borrowing rate anchored near zero.

But officials indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024.

The so-called dot plot of individual member expectations pointed to two hikes in 2023.

Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, the post-meeting statement continued to say that inflation pressures are “transitory.”

The raised expectations come amid the biggest rise in consumer prices in about 13 years.

“This is not what the market expected,” said James McCann, deputy chief economist at Aberdeen Standard Investments.


“The Fed is now signaling that rates will need to rise sooner and faster, with their forecast suggesting two hikes in 2023."

"This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.”

Markets reacted to the Fed news, with stocks falling and government bond yields higher as investors anticipated tighter Fed policy ahead, including the likelihood that the bond purchases will slow as soon as this year.

“If you’re going to get two rate hikes in 2023, you have to start tapering fairly soon to reach that goal,” said Kathy Jones, head of fixed income at Charles Schwab.

“It takes maybe 10 months to a year to taper at a moderate pace."

"Then you’re looking at we need to start tapering maybe later this year, and if the economy continues to run a little bit hot, rate hikes sooner rather than later.”

Even with the raised forecast for this year, the committee still sees inflation trending to its 2% goal over the long run.

“Our expectation is these high inflation readings now will abate,” Powell said at his post-meeting news conference.

Powell also cautioned about reading too much into the dot-plot, saying it is “not a great forecaster of future rate moves.

“Lift-off is well into the future,” he said.

Powell did note that some of the dynamics associated with the reopening are “raising the possibility that inflation could turn out to be higher and more persistent than we anticipate.”

Powell said progress toward the Fed’s dual employment and inflation goals was happening somewhat faster than anticipated.


He particularly noted the sharp rebound in growth that now has the Fed seeing GDP 7% in 2021.

“Much of this rapid growth reflect the continued bounceback in activity from depressed levels, and the factors more affected by the pandemic remain weak but have shown improvement,” he said.

Officials raised their GDP expectations for this year to 7% from 6.5% previously.

The unemployment estimate remained unchanged at 4.5%.

The statement tempered some of the language of previous statements since the Covid-19 crisis.

Since last year, the FOMC had said the pandemic was “causing tremendous human and economic hardship across the United States and around the world.”

Wednesday’s statement instead noted the progress vaccinations had made against the disease, noting that “indicators of economic activity and employment have strengthened."

"The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

Investors were watching the meeting closely for statements about how Fed officials see an economy undergoing rapid expansion since the depths of the pandemic crisis in 2020.

Recent indicators show that in some respects the U.S. is expanding at the fastest rate since World War II.

But that growth also has come with inflation, and the central bank has faced pressure from various sources to at least start curtailing the at least $120 billion in bond purchases it is making each month.


At his post-meeting news conference Chairman Jerome Powell noted that Fed officials “had discussions” on the progress made toward the inflation and employment goals relative to the asset purchases, and will continue do do so in the months ahead.

Markets had been looking for the possibility that the committee would address its open-market operations where it provides short-term funding for financial institutions.

The so-called overnight repo operations, where banks exchange high-end collateral for reserves, have been seeing record demand lately as institutions look for any yield above the negative rates they are seeing in some markets.

The committee did raise the interest it pays on excess reserves by 5 basis points to 0.15%.

In a separate matter, the FOMC announced that it would extend dollar-swap lines with global central banks through the end of the year.

The currency program is one of the last remaining Covid-era initiatives the Fed took to keep global markets flowing.

https://www.cnbc.com/2021/06/16/fed-hol ... taper.html
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Re: THE FEDERAL RESERVE

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REUTERS

"Fed signals higher rates in 2023, bond-buying taper talks as virus fades"


By Howard Schneider, Ann Saphir, Jonnelle Marte

JUNE 16, 2021

WASHINGTON (Reuters) - The Federal Reserve on Wednesday began closing the door on its pandemic-driven monetary policy as officials projected an accelerated timetable for interest rate increases, opened talks on how to end crisis-era bond-buying, and said the 15-month-old health emergency was no longer a core constraint on U.S. commerce.

Signaling that broad changes in policy may happen sooner than expected, U.S. central bank officials moved their first projected rate increases from 2024 into 2023, with 13 of 18 policymakers foreseeing a “liftoff” in borrowing costs that year and 11 seeing two quarter-percentage-point rate increases.

Seven of the officials see rates moving higher next year, opening the possibility of even more aggressive action.

Fed Chair Jerome Powell, who spoke to reporters after the release of the central bank’s latest policy statement and economic projections, said there had also been initial discussions about when to pull back on the Fed’s $120 billion in monthly bond purchases, a conversation that would be completed in coming months as the economy continues to heal.

All told, Powell’s comments and the new Fed policy statement marked a strong vote of confidence that the U.S. recovery is on track, with even the pandemic - an ever-present fact of life that has conditioned monetary policy since March of 2020 - of diminishing concern.

The policy statement dropped longstanding language that the health crisis “continues to weigh” on the economy.

Instead, Fed officials said the influence of COVID-19 vaccinations would “continue to reduce the effects” of the pandemic - a sentiment offered a day after New York state and California lifted most of their remaining pandemic-related restrictions.

“It is so great to see the re-opening of the economy ... and to see people out living their lives again."

"Who doesn’t want to see that?,” Powell said in a news briefing after the end of the two-day policy meeting, though he noted central bankers would “drag our feet” in declaring any final victory over the virus.

Still, this week’s meeting will be noted as a distinct turn away from the crisis policies the Fed has pursued since the onset of the pandemic, at times crossing into uncharted territory with its broad and open provision of credit to an economy reeling towards a potential depression.

Instead of that dour outcome, Powell said on Wednesday that the talks on the fate of the Fed’s asset-purchase program and the rate increases, whenever they occur, should be seen as a sign of confidence in an economic recovery that has proceeded faster than imagined.

The Fed now expects the economy to grow 7% this year.

“Reaching the conditions for liftoff will mainly signal that the recovery is strong and no longer requires holding rates near zero,” Powell.

U.S. stocks fell after the release of the statement and the economic projections before paring losses, with the S&P 500 index closing down about 0.5%.

The yield on the benchmark 10-year U.S. Treasury note rose to 1.58%, from 1.49% before the release, while the two-year U.S. Treasury yield saw its biggest one-day move since February, climbing to its highest level in about a year at about 0.21%.

‘SETTING HARES RUNNING’

The new language does not mean a change in policy is imminent: The Fed on Wednesday held its benchmark short-term interest rate near zero and said it will continue for now to buy $80 billion in Treasury securities and $40 billion in mortgage-backed securities each month to fuel the recovery.

It’s commitment to further healing of the job market remained unchanged.

The Fed reiterated it wanted to see “substantial further progress” in employment before making any policy shift.

The economy remains about 7.5 million jobs short of where it stood at the onset of the pandemic.

Fed officials still describe that level as “far” from their goal of restoring maximum employment.

Powell declined to offer guidance on the timing for any future policy shift, emphasizing that more economic data needs to be in hand.

But new economic projections appeared to add some urgency to the Fed’s planning.

Alongside higher growth, prices are also rising.

Inflation is now on track to exceed the Fed’s 2% target by a wide margin of 3.5% this year and remain slightly elevated for the next two years, the projections showed.


Overall, Powell said he continued to believe that recent higher-than-expected price increases were driven by the peculiarities of trying to reopen the $20 trillion-a-year machine that is the U.S. economy.

Supply bottlenecks were jamming up the production of goods, and a variety of dynamics were keeping some workers out of the job market and pushing wages up for others, he said.

A lesson of the recovery and reopening, he added, is that it is “easier to create demand than bring supply up to snuff,” though markets for products and labor would eventually normalize.

But he also acknowledged the rising risk that higher inflation may persist, a possibility apparent in the relative rush, by Fed standards at least, of policymakers toward an earlier rate increase.

Together, the projections were indicative of a recovery moving faster than anticipated, and justifying discussions about the next phase of policy for the Fed.

“This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary,” said James McCann, deputy chief economist at Aberdeen Standard Investments.

“The pressure is on to explain the change in stance without setting hares running.”


Reporting by Howard Schneider, Ann Saphir and Jonnelle Marte; Editing by Paul Simao

https://www.reuters.com/article/usa-fed ... SL2N2NX1EJ
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Re: THE FEDERAL RESERVE

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CNBC

"Fed’s Kashkari opposed to rate hikes at least through 2023"


Reuters

PUBLISHED FRI, JUN 18 2021

KEY POINTS

* Minneapolis Federal Reserve President Neel Kashkari said on Friday he wants to keep the U.S. central bank’s benchmark short-term interest rate near zero at least through the end of 2023 to allow the labor market to return to its pre-pandemic strength.

* Kashkari’s remarks show he’s in a decided minority in an increasingly hawkish Fed, which on Wednesday wrapped up a two-day meeting with an unexpected result: with inflation on the rise, most Fed policymakers now see a case for starting interest rate hikes sooner.

* Kashkari said he believes higher prices are being driven by a reopening economy and will subside as supply constraints recede.


Minneapolis Federal Reserve President Neel Kashkari said on Friday he wants to keep the U.S. central bank’s benchmark short-term interest rate near zero at least through the end of 2023 to allow the labor market to return to its pre-pandemic strength.

“The vast majority of Americans want to work, and I am not ready to write them off – and I want to give them the chance to work,” Kashkari told Reuters in his first public comments since the end of the Fed’s policy meeting earlier this week.

“As long as inflation expectations remain anchored ... let’s be patient and let’s really achieve maximum employment.”


Kashkari’s remarks show he’s in a decided minority in an increasingly hawkish Fed, which on Wednesday wrapped up a two-day meeting with an unexpected result: with inflation on the rise, most Fed policymakers now see a case for starting interest rate hikes sooner.

Just three months earlier the clear majority of policymakers favored no change to the current level of borrowing costs; on Wednesday, the central bank’s quarterly summary of economic projections (SEP) showed 11 of 18 Fed policymakers penciling in at least two quarter-percentage-point rate increases by the end of 2023.

“I still have no hikes in the SEP forecast horizon because I think it’s going to take time for us really to really achieve maximum employment, and I do believe that these higher inflation readings are going to be transitory,” Kashkari said in an interview with Reuters.

In the interview, Kashkari said he believes higher prices are being driven by a reopening economy and will subside as supply constraints recede.

With employment still short of its pre-pandemic level by at least 7 million jobs, he said, “the labor market is still in a deep hole,” adding that he believes full employment means a return to at least pre-pandemic labor market strength, if not beyond.

‘Very Orderly Way’

Kashkari, however, showed little discomfort with the Fed’s decision this week to open a discussion on when and how to reduce its $120 billion in monthly purchases of Treasuries and mortgage-backed securities (MBS), the first step in moving away from the extraordinary support for the economy that Kashkari feels is still needed.

“I think that (Fed Chair Jerome Powell) is leading us on a path in a very orderly way to have the discussion and look at the data and to make these adjustments prudently,” he said.

Once the Fed does determine it’s time to taper its asset-buying program, Kashkari said, he expects to follow the same blueprint as in 2014, when the Fed trimmed its purchases of MBS and Treasuries at a steady, predictable pace; reducing MBS purchases more quickly, as some have proposed, would have only a modest cooling effect on the hot housing market, he said.

But, at least for Kashkari, it will probably take beyond September to have enough data to make a judgment on whether there’s been sufficient labor market progress to merit any change.

By the fall, he said, schools will be open again, the risk of Covid-19 infection will hopefully have receded, and special pandemic unemployment benefits will have run out.

While that should set the stage for more Americans to return to the workforce, it could take longer to see a difference in wages and labor force participation, both critical gauges for the strength of the labor market.

His assessment of the labor market, he said, will color his evaluation of inflation data.

Should there be less improvement in the labor supply than he expects, Kashkari said, he may need to reevaluate his assessment of full employment and, therefore, of how close the labor market is to reaching that goal, and whether the rise in inflation will stop short of becoming persistent.

“The bar for me is very high to reach such a conclusion,” he said.

At least some of Kashkari’s colleagues may already be there, though, if the “dot plot” of Fed rate-hike expectations, published as part of the SEP, are any guide.

They show at least seven policymakers expect a liftoff in rates next year, a number that includes St. Louis Fed President James Bullard.

“It was meant to be a tool providing dovish forward guidance,” Kashkari said of the “dot plot.”

“It ended up being a tool that provided hawkish forward guidance ... I continue to think we ought to just kill the ‘dot plot.’”

https://www.cnbc.com/2021/06/18/feds-ka ... -2023.html
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Re: THE FEDERAL RESERVE

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CNBC

"Fed’s Jim Bullard sees first interest rate hike coming as soon as 2022"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JUN 18 2021

KEY POINTS

* St. Louis Fed President James Bullard told CNBC he sees an initial interest rate increase happening in 2022 as inflation picks up.

* That’s even faster than the consensus expectation for the first increase to happen in 2023.

* “You love to have an economy growing as fast as this one, you love to have a labor market improving the way this one has improved,” he said of current conditions.


St. Louis Federal Reserve President James Bullard told CNBC on Friday that he sees an initial interest rate increase happening in late-2022 as inflation picks up faster than previous forecasts had anticipated.

That estimate is even quicker than the outlook the broader Federal Open Market Committee released Wednesday that caused a hit to financial markets.

The committee’s median outlook was for up to two hikes in 2023, after indicating in March that saw no increases on the horizon.

Bullard at several points described the Fed’s moves this week as “hawkish,” or in favor of tighter monetary policy than what has prevailed since the onset of the Covid-19 pandemic.

“We’re expecting a good year, a good reopening."

"But this is a bigger year than we were expecting, more inflation than we were expecting,” the central bank official said on “Squawk Box.”

“I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.”


The FOMC’s revised forecasts reflect that sentiment.

For 2021, the committee raised its expectations for core inflation as measured by the personal consumption expenditures price index to 3% from the March estimate of 2.2%.

It also brought its median estimate for inflation including food and energy prices up to 3.4%, a full percentage point jump from the prior outlook.

Along with that, the committee hiked its outlook for GDP growth to 7% from 6.5%.

As recently as December the committee had been looking for growth of just 4.2%.

“Overall, it’s very good news,” Bullard said of the economic trajectory during the reopening.

“You love to have an economy growing as fast as this one, you love to have a labor market improving the way this one has improved.”

However, he cautioned that the growth is bringing faster-than-expected inflation, adding that “you could even see some upside risks” to price pressures that by some measures are running at their highest levels since the early 1980s.

That’s why he thinks it would be prudent to start raising interest rates as soon as next year.

The Fed dropped its key overnight lending rate to near zero at the outset of the pandemic and has kept it there since.

Bullard said he sees inflation running at 3% this year and 2.5% in 2022 before drifting back down to the Fed’s 2% target.

“If that’s what you think is going to happen, then by the time you get to the end of 2022, you’d already have two years of two-and-a-half to 3% inflation,” he said.

“To me, that would meet our new framework where we said we’re going to allow inflation to run above target for some time, and from there we could bring inflation down to 2% over the subsequent horizon.”


Bullard is not a voting member this year on the committee but will get a vote next year.

Stock market futures briefly added to losses while the 10-year Treasury yield ticked higher as Bullard spoke.

The other dynamic of the Fed’s policy is its $120 billion minimum of asset purchases.

Bullard said he thinks it will take several months of discussion before the central bank decides how to begin reducing that pace.

He also cautioned that with the economic dynamics uncertain ahead, that also will mean monetary policy will remain in flux.

“These are things far in the future in an environment where we’ve got a lot of volatility, so it’s not at all clear any of this will pan out the way anybody is talking about."

"So we’re going to have to go meeting by meeting to see what happens,” he said.


https://www.cnbc.com/2021/06/18/feds-ji ... -2022.html
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REUTERS

"Fed's Powell sees 'sustained improvement' in economy, notable rise in inflation"


By Reuters Staff

JUNE 21, 2021

WASHINGTON (Reuters) - The U.S. economy continues to show “sustained improvement” from the impact of the coronavirus pandemic and ongoing job market gains, but inflation has “increased notably in recent months,” Federal Reserve Chair Jerome Powell said in prepared testimony for a congressional hearing on Tuesday.

Powell did not go into detail in his prepared remarks on current monetary policy, or on the possibility the U.S. central bank may have to speed up its plans to pull back on some support for the economy because of the faster rise in prices.

In his remarks, which were released by the Fed late Monday afternoon, Powell said he regards the current jump in inflation, in fact, as likely to fade.

He also restated his concern that the recovery remained uneven, with joblessness still hitting lower-wage workers, Blacks and Hispanics the hardest.

“We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery,” Powell said.

Powell is scheduled to testify on Tuesday before the U.S. House of Representatives Select Subcommittee on the Coronavirus Crisis.

Its chairman, South Carolina Democrat James Clyburn, chided Powell last year for not more closely tuning Fed emergency programs to workers.

Powell in his remarks said he felt that jobs gains “should pick up in coming months” as COVID-19 vaccinations continue and the reopening of the economy proceeds.

Still “the pandemic continues to pose risks,” he said.

Reporting by Howard Schneider; Editing by Paul Simao

https://www.reuters.com/article/usa-fed ... SN9N2M1016
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REUTERS

"NY Fed's Williams says recovery may be 'choppy' as U.S. economy returns to full strength"


Reuters

June 21, 2021

June 21 (Reuters) - Some shifts in the labor market, including early retirements or people changing jobs, may lead to bumps in the recovery as the U.S. economy continues to heal from the coronavirus crisis, New York Federal Reserve Bank President John Williams said on Monday.

"We're going to get to full strength, I'm not doubting that," Williams said during a virtual event with the Midsize Bank Coalition of America.

"It's just that this process is going to be choppy."

Some parents with younger children may be able to return to work as more schools reopen in the fall and any effects stemming from enhanced unemployment benefits will fade over the next several weeks and months as the $300 weekly supplement is phased out, Williams said.

Reporting by Jonnelle Marte, Editing by Rosalba O'Brien

https://www.reuters.com/business/ny-fed ... 021-06-21/
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REUTERS

"Analysis: Fed's 'big tent' framework may fray under inflation surge"


By Howard Schneider

JUNE 21, 2021

WASHINGTON (Reuters) - The U.S. Federal Reserve’s carefully crafted move last year to a jobs-first monetary policy, touted as giving workers their best chance after the pandemic, is being tested by a potentially table-turning rebound of inflation and what’s become a relative rush of policymakers determined not to let it get out of hand.

When the Fed unveiled its new framework just 10 months ago, with a view that employment could expand as much as possible as long as prices did not rise too fast, the language was kept vague on key points in order to maintain unanimous support.

The limits to that “big tent” approach are now becoming clear.


Three months ago a clear majority of policymakers saw no rate increases for at least three years.

Projections out last week showed fewer than a third remain in that camp, with a larger block who see liftoff by the end of next year on the basis of two months of strong inflation.

With a promised “broad and inclusive” jobs recovery still elusive, analysts parsing that large and fast shift wondered if the new framework was giving way to an old-school Fed debate over sacrificing more extensive job growth to keep inflation at bay - a tradeoff the central bank has acknowledged it too hastily accepted in the past.

The faster inflation and slower-than-expected employment rebound have taken officials “in a direction they were not expecting,” said Nathan Sheets, a former Treasury official and chief economist at PGIM Fixed Income.

“Their framework is not designed so much to manage through episodes of high inflation” as to boost inflation that had been too low.

“It will be a more divided Federal Reserve than we have seen during the pandemic."

"Being true to the framework and balancing the risks is going to be a heavy lift.”


Fed Chair Jerome Powell has said it’s a feat that can be pulled off.

Whether he and the Fed’s other core policymakers remain convinced they can support a robust jobs recovery and control inflation will be the subject of intense interest in coming weeks, beginning on Tuesday when Powell testifies before Congress.

TESTING THE COMMITMENT

The new framework has made one clear break with the past.

Across the board, policymakers say they’ll accept a period of inflation above the Fed’s 2% target before raising short-term interest rates from their near-zero level.

That aims both to allow more people to work - employment tends to grow when rates are lower and consumers spend more freely - and to offset a decade of inflation shortfalls.

Those anticipating earlier and faster interest rate hikes merely see inflation moving at a faster pace to, and for a time slightly above, the 2% threshold, St. Louis Fed president James Bullard said on Friday, counting himself among the seven officials anticipating rate increases in 2022.

Bullard sees a preferred measure of inflation at 3% in 2021 and 2.5% in 2022, and “that would meet our new framework..."

"Other members have other forecasts” that warrant later rate increases.

“This is very much a debate about what is going to happen in 2022” with inflation, he said.

But it is also a debate that will measure how deep the commitment to the new framework runs, what magnitude of inflation “overshoot” different officials will tolerate, and how quickly the Fed reacts if higher inflation persists.

The framework is silent on those and other issues critical to key industries like autos and home building where sales are sensitive to interest rates, and for households wondering how long prices may keep surging.


Those increases have been “salient” already for households, yet the median of policymakers’ projections sees three years of above-target price increases, noted Randall Kroszner, a University of Chicago Booth School of Business professor and former Fed governor.

While last week’s shift in tone did not upend the new framework, he said, it did show the risks and limits of its application at a complex point in the economy’s reopening.

Can the Fed “tolerate three years?” of higher inflation, he said.

“They have not been explicit…"

"Nothing like this has happened before.”


THE PHILLIPS CURVE RETURNS?

It’s a debate that is also beginning to reflect what has not changed at the Fed under the new framework.

Powell and others say that in order not to act prematurely they are responding to realized data rather than forecasts.

Yet the meeting last week put forecasting - particularly inflation forecasting - back at center stage.

In the battle to shape market and household expectations, the inflation forecasts of the likes of Bullard are now pulling against the likes of Neel Kashkari, the Minneapolis Fed president who thinks inflation will fade to the point where rates can be left at zero until 2024 at least.

“For me, the framework means, we really have to achieve maximum employment and we have to sustainably achieve 2% on average over time, and a few transitory high inflation readings do not meet the test for me,” Kashkari told Reuters on Friday.

Sixteen others are in the mix, too, with the framework silent on any agreed-upon definition of critical concepts like “maximum employment” to ground them.

Moreover, some aspects of the economy the new framework was meant to downplay seem to still be at work.

The Fed’s strategic shift deemphasized the so-called Phillips Curve, a longstanding tenet that unemployment and inflation are closely related and when one drops the other rises.

Yet at his press conference last week Powell spoke as if that was alive and well, and that if inflation persists, it’s because the labor market has gone as far as it can go.

Asked why inflation might remain above target in coming years, Powell said that “by 2023, those increases are really about...rising resource utilization, or to put it a different way, low unemployment.”


In navigating its new approach, it’s now a race over how fast and fully the sometimes competing aims of maximum employment and stable prices arrive where the Fed wants them, and whether they get desperately out of sync along the way.

Reporting by Howard Schneider; Additional reporting by Ann Saphir in San Francisco; Editing by Dan Burns and Andrea Ricci

https://www.reuters.com/article/us-usa- ... SKCN2DX0XE
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CNBC

"Powell notes economic improvement, but says the pandemic remains a risk"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED MON, JUN 21 2021

KEY POINTS

* Fed Chairman Jerome Powell said in testimony prepared for delivery to Congress that the economy is growing but faces continued threats from the Covid pandemic.

* He said inflation has risen “notably” but repeated his position that the price pressures are transitory.


Federal Reserve Chairman Jerome Powell said in testimony prepared for delivery to Congress this week that the economy is growing but faces continued threats from the coronavirus pandemic.

The central bank leader also highlighted rising inflation pressures that he expects to lessen over time.


As the economy recovers from the pandemic, he also pledged continued support from policies the Fed put into place in the early days of the Covid-19 threat.

“Since we last met, the economy has shown sustained improvement,” Powell said in remarks he will deliver Tuesday to the House Select Subcommittee on the Coronavirus Crisis.

“Widespread vaccinations have joined unprecedented monetary and fiscal policy actions in providing strong support to the recovery."

"Indicators of economic activity and employment have continued to strengthen, and real GDP this year appears to be on track to post its fastest rate of increase in decades,” he added.

“Much of this rapid growth reflects the continued bounce back in activity from depressed levels.”

Though vaccines have dramatically slowed the pace at which the virus has spread through the nation, he said threats remain.

“The pandemic continues to pose risks to the economic outlook,” he said.

“Progress on vaccinations has limited the spread of COVID-19 and will likely continue to reduce the effects of the public health crisis on the economy."

"However, the pace of vaccinations has slowed and new strains of the virus remain a risk.”

The Fed has kept its benchmark short-term lending rate anchored near zero and is buying at least $120 billion of bonds each month.

But last week’s Federal Open Market Committee meeting indicated that members are looking ahead to when they will start pulling back on policy accommodation.

One worry is that inflation is rising at its fastest pace since the financial crisis and might force the Fed into raising interest rates faster than it wants.

Powell said price pressures have increased “notably,” but repeated his belief that after special factors ease, inflation will drift back to the Fed’s longer-term 2% target.


https://www.cnbc.com/2021/06/21/powell- ... -risk.html
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