THE FEDERAL RESERVE

thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

REUTERS

"Fed's Daly: let's get U.S. interest rates to 2.5% as quickly as we can"


By Reuters Staff

JUNE 1, 2022

(Reuters) - The Federal Reserve should get interest rates up to a level that no longer stimulates the economy as quickly as possible including 50-basis-point hikes at the central bank’s next two meetings, San Francisco Federal Reserve Bank President Mary Daly said on Wednesday.

“I see a couple of 50-basis-point hikes immediately in the next couple of meetings to get there."

"And then we need to look around and see what else is going on,” Daly said in a CNBC interview.

“Let’s get there as quickly as we can,” Daly added on getting to a neutral rate - a level which neither revs up nor restricts economic growth - which she estimates at 2.5%.

The central bank is under pressure to begin to decisively curb overly high inflation, which is running at more than three times its 2% goal and has included a surge in the cost of everyday items such as food and gasoline.

Fifty-basis-point hikes at each of the Fed’s next two meetings in June and July are all but confirmed, and debate has shifted to the rate hikes required for the rest of the year.

Most policymakers have said they want to wait and see how much inflation comes down over the summer before deciding whether they need to increase or reduce the size of a rate hike in September.

Fed Chair Jerome Powell has said only that the central bank will continue to raise rates until inflation come down in a “clear and convincing” way.

Daly cautioned that the path ahead on inflation once the Fed gets rates up to a neutral level also depends on other factors besides U.S. consumers’ willingness to spend, such as the war in Ukraine and lockdowns in China to restrict the spread of COVID-19, which have exacerbated existing supply chain issues.

“I’m looking for both supply to recover somewhat and demand to come back down a little bit."

"If neither of those things cooperate, then we need to go into restrictive territory,” Daly said, although she noted that policymakers had to be equally open to stopping rate raises if inflation comes down on its own.

Daly said she does not see a recession as the Fed’s tightening actions take hold due to the strength of the economy.

“I see restaurants full, airports full."

"... People recognize it’s hard to afford things and yet they’re still spending, so we have to wait for all this to play out."

"The summer’s going to tell us a lot.”

Reporting by Ann Saphir and Lindsay Dusmuir; Editing by Chizu Nomiyama and Jonathan Oatis

https://www.reuters.com/article/usa-fed ... SL1N2XO1HO
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

REUTERS

"U.S. firms show first hints of impact of Fed's policy tightening, survey shows"


By Lindsay Dunsmuir

June 1, 2022

June 1 (Reuters) - The economy in the majority of regions in the United States expanded at a modest or moderate growth pace in April through late May and there were some tentative signs that the Federal Reserve's actions to cool demand were beginning to be felt, a Fed report showed on Wednesday.

The latest temperature check on the health of the economy comes at a critical time for the U.S. central bank as it more aggressively tightens financial conditions in its quest to bring down inflation that remains at a 40-year high.

But the latest survey also revealed a muddied picture marked by waning business optimism and rising fears of a recession and little end in sight soon for price pressures or the tightness in the labor market to markedly ease.

"Retail contacts noted some softening as consumers faced higher prices, and residential real estate contacts observed weakness as buyers faced high prices and rising interest rates," the Fed said in its survey, known as the "Beige Book," which was conducted across its 12 districts through May 23.

Overall though, firms reported labor shortages as still being their biggest challenge followed by a litany of other top concerns that are also making the Fed's task so difficult, including tangled supply chains, general inflation, the Russian invasion of Ukraine and disruptions caused by COVID-19.

The Fed raised its benchmark overnight lending rate by half a percentage point last month, to a target range of between 0.75% and 1%, and plans further increases of the same size at its next two meetings in June and July.

Fed Chair Jerome Powell has said that policymakers will continue to ratchet up rates until inflation, running at more than three times the central bank's 2% target, comes down in a "clear and convincing" way.

The Fed faces a difficult task in dampening demand in the economy enough to curb the soaring cost of living while not causing a recession.

Already, the survey showed, firms are getting wary.

Eight Fed districts said that expectations of future growth among their business contacts had diminished while contacts in three others specifically expressed concerns about a recession.

COOLING DEMAND WITHOUT THROTTLING GROWTH

Some of that anxiety is an inevitable byproduct of the Fed's actions to take the heat out of an economy that has seen strong wage gains and robust spending despite high inflation.

In a sign consumers are beginning to pull back, more than half of districts cited some customer pushback to cost increases.

In Cleveland, for example, one large grocery chain said customers were starting to reduce costs.

"They’ve shifted from national brands to cheaper store brands."

"They are also doing things such as purchasing half a gallon of milk instead of a gallon," the contact reported.

The St. Louis Fed district said one luxury car dealership in Northern Mississippi had started to sell fewer large cars and more small, fuel-efficient ones.

And in the New York district, one upstate staffing agency suggested that the labor market there, while still quite strong, "had become less frothy."

But overall the jobs market still appeared very tight with a majority of districts reporting strong wage growth although in a few regions, firms said that wage rate increases were leveling off or edging down.

U.S. job openings fell in April, but still remained at considerably high levels, a Labor Department report showed earlier on Wednesday.

Elsewhere though there were few signs for too much optimism on the inflation factors outside the Fed's control, chiefly ongoing supply chain issues, exacerbated by recent lockdowns in China to restrict the spread of COVID-19 and a spike in food and energy costs due to Russia's invasion of Ukraine.

In Boston, most manufacturers implemented above-average price increases "to defray inflation in the prices of a variety of inputs, including semiconductor chips, plastics, glass, energy, logistics, and labor."

Reporting by Lindsay Dunsmuir and Ann Saphir; Additional reporting by Howard Schneider; Editing by Andrea Ricci

https://www.reuters.com/markets/us/us-f ... 022-06-01/
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

CNBC

"Fed Vice Chair Lael Brainard says it’s ‘very hard to see the case’ for the Fed pausing rate hikes"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED THU, JUN 2 2022

KEY POINTS

* Federal Reserve Vice Chair Lael Brainard told CNBC on Thursday that she doesn’t see the central bank taking a break anytime soon from its rate-hiking cycle.

* “We’ve still got a lot of work to do to get inflation down to our 2% target,” she said.

* Despite worries over inflation, Brainard expressed confidence otherwise in the economy.


Federal Reserve Vice Chair Lael Brainard said Thursday that it’s unlikely the central bank will be taking a break from its current rate-hiking cycle anytime soon.

Though she stressed that Fed policymakers will remain data-dependent, Brainard said the most likely path will be that the increases will continue until inflation is tamed.


“Right now, it’s very hard to see the case for a pause,” she told CNBC’s Sara Eisen during a live “Squawk on the Street” interview that was her first since being confirmed to the vice chair position.

“We’ve still got a lot of work to do to get inflation down to our 2% target.”

The idea of implementing two more 50 basis point rate increases over the summer then taking a step back in September has been floated by a few officials, most notably Atlanta Fed President Raphael Bostic.

Minutes from the May Federal Open Market Committee meeting indicated some support for the idea of evaluating where things stand in the fall, but there were no commitments.

In recent days, however, policymakers including San Francisco Fed President Mary Daly and Governor Christopher Waller have stressed the importance of using the central bank’s policy tools aggressively to bring down inflation running around its fastest pace since the early 1980s.

“We’re certainly going to do what is necessary to bring inflation back down,” Brainard said.

“That’s our No. 1 challenge right now."

"We are starting from a position of strength."

"The economy has a lot of momentum.”

Economic data lately, though, has been mixed.

ADP reported Thursday that private payrolls increased by just 128,000 in May, the slowest month yet for a jobs recovery that started in May 2020.

Labor productivity in the first quarter contracted at the fastest pace since 1947, and the Atlanta Fed is tracking an anemic 1.3% growth rate for second-quarter GDP, which contracted 1.5% in the first quarter.

Brainard said, however, that bringing inflation down remains the top priority and shouldn’t significantly harm an economy where household and corporate balance sheets are strong.

Markets already are pricing in two 50 basis point increases at the next meetings, which Brainard called “a reasonable kind of path.”

Beyond that, though, “it’s a little hard to say,” she added, noting both upside and downside risks to growth.

In separate remarks, Cleveland Fed President Loretta Mester also said she sees consecutive 50 basis point moves ahead.

While she noted that the Fed then can evaluate the progress made towards bringing down inflation, she said additional rate increases probably will be needed.

“In my view, with inflation as elevated as it is, the funds rate will probably need to go above its longer-run neutral level to rein in inflation,” Mester said in remarks to the Philadelphia Council for Business Economics.

“But we cannot make that call today because it will depend on how much demand moderates and what happens on the supply side of the economy.”

In addition to the rate increases, the Fed in June has begun reducing the asset holdings on its nearly $9 trillion balance sheet.

The process will entail allowing a capped level of proceeds from maturing bonds to roll off each month and reinvesting the rest.

By September, the balance sheet reduction will be as much as $95 billion a month, which Brainard said will equate to two or three more rate hikes by the time the process is finished.

https://www.cnbc.com/2022/06/02/fed-vic ... ikes-.html
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

REUTERS

"Fed's Mester: reluctant to declare victory too soon on inflation"


By Reuters Staff

JUNE 2, 2022

June 2 (Reuters) - Cleveland Federal Reserve Bank President Loretta Mester said on Thursday it could be “some time” before the central bank is convinced that inflation is cooling and it’s time to slow interest rate hikes.

“It’s going to take some time for us to be convinced that inflation is on a downward path,” Mester said, noting that rising rents are feeding into higher inflation readings, as are higher commodity prices.

“I will be reluctant to declare victory too soon.”

Reporting by Ann Saphir

https://www.reuters.com/article/usa-fed ... SS0N2UR083
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

REUTERS

"Fed's Mester: more rate hikes ahead in 'painful' battle with inflation"


By Reuters Staff

JUNE 2, 2022

(Reuters) - The Federal Reserve needs to raise rates by a half-of-a-percentage point at each of its next two meetings, and then assess if inflation has moderated enough to slow the pace of rate hikes or if it needs to jack them up further, Cleveland Federal Reserve Bank President Loretta Mester said on Thursday.

And while that process could be “painful” for households and businesses, she said, it would be worse to allow inflation - now running at a 40-year high and more than three times the Fed’s 2% goal - to continue to sap buying power and undermine economic momentum.

“Financial markets could remain very volatile as financial conditions tighten further; growth could slow somewhat more than expected for a couple of quarters; and the unemployment rate could temporarily move above estimates of its longer-run level,” Mester said in remarks prepared for delivery to the Philadelphia Council for Business Economics.

“This will be painful but so is high inflation.”

Fed policymakers this year have lifted the policy rate to a range of 0.75%-1%, and starting this month to trim its nearly $9 trillion balance sheet to put further upward pressure on borrowing costs.

Most Fed policymakers, like Mester, back raising rates another full percentage point over the next two Fed meetings, in June and July.

The outlook for September and beyond is less certain, and at least one policymaker, Atlanta Fed President Raphael Bostic, has said he could see pausing policy tightening at that point to take stock of the economy and not overshoot.

Mester’s remarks and those of Vice Chair Lael Brainard earlier Thursday suggest, however, that the choice will more likely be around the pace of rate hikes, and not whether to continue them or not.

Indeed, critics say the central bank has moved too slowly and warn that steeper rate hikes will be needed to slow price pressures, likely throwing the U.S. economy into a recession.

Mester said she did not see the current situation as requiring the Fed to sacrifice a strong labor market for the sake of bringing down inflation.

But she did make it clear that she takes recent surveys showing rising inflation expectations as a serious concern, and she is not convinced that inflation has peaked.

“The risk of recession has risen, but because underlying aggregate demand momentum and the demand for labor are so strong, a good case can still be made that as demand and supply come into better balance, a sharp slowdown can be avoided, with growth slowing to a trend pace this year, labor market conditions remaining healthy, and inflation moving down to a 4‑1/2 to 5‑1/2 percent range this year and declining further next year,” Mester said.

Reporting by Ann Saphir; Editing by Chizu Nomiyama

https://www.reuters.com/article/usa-fed ... SL1N2XP1DB
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

CNBC

"Fed’s Mester says inflation hasn’t peaked and multiple half-point rate hikes are needed"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JUN 3 2022

KEY POINTS

* Cleveland Fed President Loretta Mester said Friday that she doesn’t see enough evidence that inflation has peaked and is on board with multiple interest rate increases in coming months.

* She also doesn’t expect the central bank to pause after multiple 50 basis point increases this summer, though she said the magnitude of the moves could be reduced if inflation falls.


Cleveland Federal Reserve President Loretta Mester said Friday that she doesn’t see ample evidence that inflation has peaked and thus is on board with a series of aggressive interest rate increases ahead.

“I think the Fed has shown that we’re in the process of recalibrating our policy to get inflation back down to our 2% goal."

"That’s the job before us,” Mester said in a live interview on CNBC’s “The Exchange.”

“I don’t want to declare victory on inflation before I see really compelling evidence that our actions are beginning to do the work in bringing down demand in better balance with aggregate supply,” she added.

Mester spoke the same day the Bureau of Labor Statistics reported that nonfarm payrolls rose by 390,000 in May, and, importantly, that average hourly earnings had increased 0.3% from a month ago, a bit lower than the Dow Jones estimate.

While other recent data points have shown that at least the rate of inflation increases has diminished, Mester said she will need to see multiple months in that trend before she’ll feel comfortable.

“It’s too soon to say that that’s going to change our outlook or my outlook on policy,” she said.

“The No. 1 problem in the economy remains very, very high inflation, well above acceptable levels, and that’s got to be our focus going forward.”

Recent statements from the rate-setting Federal Open Market Committee indicate that 50 basis point — or half-point — rate increases are likely at the June and July meetings.

Officials are likely then to evaluate the progress that the policy tightening and other factors have had on the inflation picture.

But Mester said any type of pause in rate hikes is unlikely, though the magnitude of the increases could be reduced.

“I’m going to come into the September meeting, if I don’t see compelling evidence [that inflation is cooling], I could easily be at 50 basis points in that meeting as well,” she said.

“There’s no reason we have to make the decision today."

"But my starting point will be do we need to do another 50 or not, have I seen compelling evidence that inflation is on the downward trajectory."

"Then maybe we can go 25."

"I’m not in that camp that we thinks we stop in September.”

Mester’s comments were similar to statements Thursday from Fed Vice Chair Lael Brainard, who told CNBC that “it’s very hard to see the case” for pausing rate hikes in September.

She also stressed that quashing inflation, with is running near 40-year highs, is the Fed’s top priority.

https://www.cnbc.com/2022/06/03/feds-me ... eeded.html
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

FORTUNE

"‘The numbers are catastrophically bad.’ Top economists are sounding the alarm on inflation"


Colin Lodewick

10 JUNE 2022

For nearly a year, inflation has been hammering Americans.

Every month when the consumer price index report gets released detailing the trend of consumer prices, they’ve stayed high or gone higher.


Hopes that elevated prices were beginning to settle were dashed Friday morning when the Bureau of Labor Statistics (BLS) released data showing that the CPI, its broad measure for prices of goods and services, reached 8.6% for the month of May.

The number represents the highest level of inflation in the U.S. since 1981, and it has top economists starting to get worried, like, really worried.

“The overall reality for the Fed is that inflation is not under control,” Charlie Ripley, a senior investment strategist for Allianz Investment Management, told Fortune.

He said he sees Friday’s CPI release as proof that the central bank needs to be more aggressive in its approach to inflation and institute greater interest rate hikes throughout this year.


The Fed has already increased its baseline interest rate twice this year in an attempt to rein in inflation.

The first hike came in March with a 25 basis point hike — its first in two years.

Another 50bps hike came in May.

A Bank of America Research team led by Aditya Bhave wrote on Friday that the market is pricing in another 50bps hike, even though the Fed is on course to hike by 25bps.

In other words, it’s pessimistic.

The April CPI report showed that inflation had dropped to 8.3% following a previous peak of 8.5% in March, offering a faint glimmer of hope.

Friday’s report, however, proves that inflation will be a more difficult puzzle to solve, especially as geopolitical events like Russia’s invasion of Ukraine continue to impact the global economy in unpredictable ways.

“The numbers are catastrophically bad for Americans and the policy makers in Washington,” says Nancy Tengler, CEO and chief investment officer of Laffer Tangler Investments, a Nashville, Tenn.-based firm, echoing comments she previously made to MarketWatch.

Though housing, airline fares, and used and new vehicles saw the highest price increases last month, almost all other areas saw increases of some sort, according to the BLS report.

Price indexes for markets as varied as medical care, home goods, recreation, and apparel all showed increases in May.

“We now have clear evidence that inflation is broadening and accelerating,” says Peter Earle, research fellow at the nonprofit think tank The American Institute for Economic Research.

Can the Fed even fix it?

The Federal Open Market Committee (FOMC), which establishes interest rates, is set to meet next week to decide how much more to hike.

Some experts, however, doubt the efficacy of those hikes at all, and wonder if inflation is already too far gone from the Fed’s control.

“The Fed is bluffing,” said Greenlight Capital’s David Einhorn at the 2022 Sohn Investment Conference on Thursday.

“Inflation ain’t going away so fast."

"The Fed doesn’t really have the tools to stop the inflation.”


Continuing to increase interest rates could impact the U.S. Treasury’s ability to fund itself, said Einhorn in his remarks at the conference.

“When the Fed has to choose between fighting the inflation and supporting the Treasury, I think it has to pick the Treasury,” he said.

As a result, inflation will ultimately end not through action from the Federal Reserve, said Einhorn, but when consumers lose so much buying power that they stop spending altogether.

“All the work to curtail inflation will have to come from the demand side,” he said.

“As a result, prices will have to go much higher to dissuade substantial consumption, as such inflation is likely to be much more persistent.”


Throughout this year, the bank has endured criticism for not taking action soon enough.

Before the initial rate hike in March, Fed chair Jerome Powell admitted to Congress: “Hindsight says we should have moved earlier.”

Friday’s report also highlights the difficulty of the bank’s goal of achieving a “soft landing” for inflation, in which the U.S. avoids a recession while getting prices under control.

“The Fed is now between a rock and a very hard place,” says Earle.

“Acting more aggressively to stem the rise in prices heightens the likelihood of causing a recession.”

Nancy Davis, founder of Quadratic Capital Management, agrees.

Even if the Fed does take drastic action by increasing rates until it gets a handle on inflation, she says, there’s little clarity as to how quickly those increases would work considering the impact of factors outside of the Fed’s control.


“It’s still unclear how effective tighter monetary policy will be in pushing inflation down, which is largely being driven by supply chain disruptions, which have only worsened since the war in Ukraine that is showing no signs of ending,” she says.

https://www.msn.com/en-us/money/savinga ... c242a70802
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

REUTERS

"U.S. consumer short-term inflation outlook worsens - NY Fed survey"


Reuters

June 13, 2022

June 13 (Reuters) - U.S. consumers' inflation expectations one year from now worsened in May but there they were still generally bullish about the strength of the labor market, underscoring the imbalances facing the U.S. Federal Reserve this week as it grapples with how to rein in price pressures.

Median expectations for where inflation will be in one year rose 0.3 percentage point to 6.6%, while they remained unchanged at 3.9% over a three-year outlook, the survey released by the Federal Reserve Bank of New York on Monday showed.

Uncertainty on where inflation will end up over that medium term rose to a series high.


A worse-than-expected key inflation reading last Friday, which detailed broadening price pressures, has caused investors to up their bets the U.S. central bank will have to be more aggressive to crush inflation that has remained around a 40-year high for months.

Fed policymakers are expected on Wednesday to raise borrowing costs by half a percentage point to a range of between 1.25% and 1.50% as it seeks to cool demand across the economy without causing a spike in unemployment.

Americans are already changing their spending habits and there are increasing fears of either an outright recession or period of very slow growth as the Fed is forced to raise interest rates more quickly and higher than expected.

Median household spending growth expectations jumped to 9.0%, a rise of one percentage point and a record high for the series while the average perceived probability of missing a minimum debt repayment over the next three months rose by 0.4 percentage point to 11.1% in May.

However, while unemployment expectations increased for the third consecutive month in May to their highest level since February 2021, the mean perceived probability of losing one's job remained well below last year's average and the mean probability of quitting one's job over the next year rose to 20.3% in May from 19.0% the prior month to the highest level since September 2020.

A high quits rate is seen as reflecting worker confidence in the labor market.

Indeed, the mean perceived probability of finding a new job rose to its highest level in more than two years.

The increase was driven by those over 40, those without a college education and those with household incomes of less than $50,000.

The internet-based survey taps a rotating panel of 1,300 households and is structured so that a roughly equal amount of data are collected every week of the month.

Reporting by Lindsay Dunsmuir; Editing by Lisa Shumaker

https://www.reuters.com/business/us-con ... 022-06-13/
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

CNBC

"Fed hikes its benchmark interest rate by 0.75 percentage point, the biggest increase since 1994"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED WED, JUN 15 2022

KEY POINTS

* The Federal Reserve raised its benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994.

* According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5 percentage points from the March estimate.

* Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.


The Federal Reserve on Wednesday launched its biggest broadside yet against inflation, raising benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994.

Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the Covid pandemic began in March 2020.

Stocks were volatile after the decision but turned higher as Fed Chairman Jerome Powell spoke in his post-meeting news conference.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said.

He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points.

He said decisions will be made “meeting by meeting” and the Fed will “continue to communicate our intentions as clearly as we can.”

“We want to see progress."

"Inflation can’t go down until it flattens out,” Powell said.

“If we don’t see progress ... that could cause us to react."

"Soon enough, we will be seeing some progress.”

FOMC members indicated a much stronger path of rate increases ahead to arrest inflation moving at its fastest pace going back to December 1981, according to one commonly cited measure.

The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations.

That compares with an upward revision of 1.5 percentage points from the March estimate.

The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was expected in March.

2022 growth outlook cut

Officials also significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March.

The inflation projection as gauged by personal consumption expenditures also rose to 5.2% this year from 4.3%, though core inflation, which excludes rapidly rising food and energy costs, is indicated at 4.3%, up just 0.2 percentage point from the previous projection.

Core PCE inflation ran at 4.9% in April, so the projections Wednesday anticipate an easing of price pressures in coming months.

The committee’s statement painted a largely optimistic picture of the economy even with higher inflation.

“Overall economic activity appears to have picked up after edging down in the first quarter,” the statement said.

“Job gains have been robust in recent months, and the unemployment rate has remained low."

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.“

Indeed, the estimates as expressed through the committee’s summary of economic projections see inflation moving sharply lower in 2023, down to 2.6% headline and 2.7% core, expectations little changed from March.

Longer term, the committee’s outlook for policy largely matches market projections which see a series of increases ahead that would take the funds rate to about 3.8%, its highest level since late 2007.

The statement was approved by all FOMC members except for Kansas City Fed President Esther George, who preferred a smaller half-point increase.

Banks use the rate as a benchmark for what they charge each other for short-term borrowing.

However, it feeds directly through to a multitude of consumer debt products, such as adjustable-rate mortgages, credit cards and auto loans.

The funds rate also can drive rates on savings accounts and CDs higher, though the feed-through on that generally takes longer.

‘Strongly committed’ to 2% inflation goal

The Fed’s move comes with inflation running at its fastest pace in more than 40 years.

Central bank officials use the funds rate to try to slow down the economy – in this case to tamp down demand so that supply can catch up.

However, the post-meeting statement removed a long-used phrase indicating that the FOMC “expects inflation to return to its 2 percent objective and the labor market to remain strong.”

The statement only noted that the Fed “is strongly committed” to the goal.

The policy tightening is happening with economic growth already tailing off while prices still rise, a condition known as stagflation.

First-quarter growth declined at a 1.5% annualized pace, and an updated estimate Wednesday from the Atlanta Fed, through its GDPNow tracker, put the second quarter as flat.

Two consecutive quarters of negative growth is a widely used rule of thumb to delineate a recession.

Fed officials engaged in a public bout of hand-wringing heading into Wednesday’s decision.

For weeks, policymakers had been insisting that half-point – or 50 basis point – increases could help arrest inflation.

In recent days, though, CNBC and other media outlets reported that conditions were ripe for the Fed to go beyond that.

The changed approach came even though Powell in May had insisted that hiking by 75 basis points was not being considered.

However, a recent series of alarming signals triggered the more aggressive action.

Inflation as measured by the consumer price index rose 8.6% on a yearly basis in May.

The University of Michigan consumer sentiment survey hit an all-time low that included sharply higher inflation expectations.

Also, retail sales numbers released Wednesday confirmed that the all-important consumer is weakening, with sales dropping 0.3% for a month in which inflation rose 1%.

The jobs market has been a point of strength for the economy, though May’s 390,000 gain was the lowest since April 2021.

Average hourly earnings have been rising in nominal terms, but when adjusted for inflation have fallen 3% over the past year.

The committee projections released Wednesday see the unemployment rate, currently at 3.6%, moving up to 4.1% by 2024.

All of those factors have combined to complicate Powell’s hopes for a “soft or softish” landing that he expressed in May.

Rate-tightening cycles in the past often have resulted in recessions.

https://www.cnbc.com/2022/06/15/fed-hik ... -1994.html
thelivyjr
Site Admin
Posts: 73429
Joined: Thu Aug 30, 2018 1:40 p

Re: THE FEDERAL RESERVE

Post by thelivyjr »

CNBC

"Powell vows that the Fed is ‘acutely focused’ on bringing down inflation"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JUN 17 2022

KEY POINTS

* Federal Reserve Chairman Jerome Powell on Friday reiterated the central bank’s commitment to bringing down inflation.

* In remarks to a conference on the U.S. dollar, he stressed that the Fed is “acutely focused on returning inflation to our 2 percent objective.”

* Earlier this week, the Fed raised rates three-quarters of a percentage point in an effort to bring down surging inflation.


Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to bringing down inflation, saying Friday it’s essential for the global financial system.

“The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value."

"To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said in introductory remarks for a Fed-sponsored conference on the global role of the U.S. currency.


Those comments come two days after the Federal Open Market Committee voted to raise the benchmark interest rate by three-quarters of a percentage point to a targeted range of 1.5%-1.75%.

Banks use the rate to set borrowing costs for short-term loans they provide to each other, but it also feeds through to a multitude of consumer products like credit cards, home equity loans and auto financing.

Inflation has been soaring over the past year, with the consumer price index in May posting an 8.6% increase over the past year.

Fed officials target 2% inflation as healthy for a growing economy and have said they will continue raising rates until prices return to that range.

While inflation hurts consumers through the prices they pay at the grocery store and gas pump as well as a multitude of other activities, Powell’s Friday remarks focused on its global financial importance.

“Meeting our dual mandate also depends on maintaining financial stability,” Powell said.

“The Fed’s commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”

In a addition to price stability, the Fed is charged with maintaining full employment.

Powell cited the importance of the dollar in global financing, noting in particular the significance of vehicles such as the one the Fed put in place during the Covid pandemic that loaned greenbacks to global central banks in need of liquidity.

He also noted coming changes to the global financial system, including the use of digital currencies and payments systems like FedNow, a service expected to come online in 2023.

A digital currency, as has been discussed by Fed officials, could help support the dollar as the world’s reserve currency, he said.

“Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future,” Powell added.

Data also provided by Reuters

https://www.cnbc.com/2022/06/17/powell- ... tion-.html
Post Reply