THE FEDERAL RESERVE

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Re: THE FEDERAL RESERVE

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CNBC

"Fed Chief Powell, other officials owned securities central bank bought during Covid pandemic"


Steve Liesman @STEVELIESMAN

PUBLISHED FRI, SEP 17 2021

KEY POINTS

* Federal Reserve Chairman Jerome Powell has ordered a review of ethics rules for the central bank after an outcry over officials owning individual securities.

* CNBC found Powell owned municipal bonds of the same type bought by the Fed during the Covid-19 pandemic in 2020.

* Two regional Fed presidents likewise owned assets of the same type the Fed was buying as the coronavirus threatened the U.S. economy’s health.

* The central bank’s code of conduct says officials “should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest.”


Amid an outcry about Federal Reserve officials owning and trading individual securities, an in-depth look by CNBC at officials’ financial disclosures found three who last year held assets of the same type the Fed itself was buying, including Chairman Jerome Powell.

None of these holdings or transactions appeared to violate the Fed’s code of conduct.

But they raise further questions about the Fed’s conflict of interest policies and the oversight of central bank officials.

Powell held between $1.25 million and $2.5 million of municipal bonds in family trusts over which he is said to have no control.

They were just a small portion of his total reported assets.

While the bonds were purchased before 2019, they were held while the Fed last year bought more than $5 billion in munis, including one from the state of Illinois purchased by his family trust in 2016.


Boston Fed President Eric Rosengren held between $151,000 and $800,000 worth of real estate investment trusts that owned mortgage-backed securities.

He made as many as 37 separate trades in the four REITS while the Fed purchased almost $700 billion in MBS.

Richmond Fed President Thomas Barkin held $1.35 million to $3 million in individual corporate bonds purchased before 2020.

They include bonds of Pepsi, Home Depot and Eli Lilly.

The Fed last year opened a corporate bond-buying facility and purchased $46.5 billion of corporate bonds.

Among those questions: Should the Fed have banned officials from holding, buying and selling the same assets the Fed itself was buying last year when it dramatically widened the types of assets it would purchase in response to the pandemic?

The Fed’s own code of conduct says officials “should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest.”

In response to CNBC questions asked in the process of our research, a Fed spokesperson released a statement Thursday saying Powell ordered a review last week of the Fed’s ethics rules surrounding “permissible financial holdings and activities by senior Fed officials.”

A Fed spokesperson told CNBC that Powell had no say over the central bank’s individual municipal bond purchases and no say over the investments in his family’s trusts.

A Fed ethics officer determined that the holdings did not violate government rules.

Barkin declined to comment but he did not appear to have any say over the individual corporate bonds purchased by the Fed.

Rosengren has announced he would sell his individual positions and stop trading while he is president.

Dallas Fed President Robert Kaplan, who actively traded millions of dollars of individual stocks, also said he would no longer trade and would sell his individual positions.

But he said his trade did not violate Fed ethics rules.

A spokesman for Rosengren told CNBC that he “made sure his personal saving and investment transactions complied with what was permissible under Fed ethics rules.”

But Dennis Kelleher, CEO of the nonprofit Better Markets, said if some of these Fed actions are not against the rules, the rules need to change.

“To think that such trading is acceptable because it is supposedly allowed by Fed’s current policies only highlights that the Fed’s policies are woefully deficient,” Kelleher told CNBC.


While trading by Rosengren and Kaplan was not conducted during the so-called blackout period, when Fed officials are not allowed to talk publicly about monetary policy or trade, Kelleher said during a crisis like last year, “the whole year should be considered a blackout period” because Fed officials are constantly talking and crafting policy in response to fast-moving events.

Correction: The Fed itself bought $5 billion to $6 billion in municipal securities last year. The previous figure used in the story incorrectly included money that came from the Treasury used to buffer against losses.

Data also provided by Reuters

https://www.cnbc.com/2021/09/17/fed-off ... licts.html
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Re: THE FEDERAL RESERVE

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CNBC

"After years of being ‘squeaky clean,’ the Federal Reserve is surrounded by controversy"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, SEP 17 2021

KEY POINTS

* The Federal Reserve has a big meeting on tap next week, one that will be held under the cloud of an ethical dilemma.

* Reports in recent days indicate that Fed officials have been trading stocks and bonds that could be influenced at least indirectly by their decisions.

* The Fed lives on its credibility, and some of the recent problems could dent that.


The Federal Reserve has a big meeting on tap next week, one that will be held under the cloud of an ethical dilemma and a policymaking committee that finds itself with fairly pronounced divisions about the path ahead.

Markets largely expect the Fed to follow the two-day session with no major decisions, but rather just the first but significant nods that the historically easy-money pandemic-era accommodation is coming to an end soon if slowly.

“Tapering” will be the word of the day when the post-meeting statement is issued Wednesday, at which time individual officials also will release their forecasts on the future arc of interest rates as well as economic growth and inflation.

All of that will be set against a backdrop of controversy: News reports in recent days indicate that Fed officials have been trading stocks and bonds that could be influenced at least indirectly by their policy decisions.

At the same time, speeches over the past several weeks indicate a schism between those who say the time is now to start tightening policy and those who’d rather wait.


For the normally staid Fed, the present circumstances are unusual and could yield some interesting dynamics.

“I think it’s embarrassing for the Fed."

"It had such a squeaky-clean reputation,” Greg Valliere, chief U.S. policy strategist at AGF Investments, said of the trading controversy that largely involved regional presidents Robert Kaplan of Dallas and Eric Rosengren of Boston.


“But I don’t think it’s going to change policy in any regard at all."

"I think it will be rearview mirror pretty soon, assuming there’s no other shoe to drop.”

Valliere did note that the issue will help fuel Fed critics such as Sen. Elizabeth Warren, D-Mass., who had been a vocal critic of the Fed’s looser regulatory approach in the years since the 2008-09 financial crisis.

A matter of credibility

More than that, though, the Fed lives on its credibility, and some of the recent problems could dent that.

There’s the market credibility issue – Wall Street and investors need to believe that the Fed is at least mostly unified in its monetary policy approach to setting interest rates and associated moves that have market impact.

Then there’s the public credibility – at a time when faith in Washington’s institutions has plunged, ethical missteps only add to that and can have repercussions, especially at such a delicate time.

“The ethics here look bad."

"They should have known better,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist of the National Economic Council during the Trump administration.

“Once you lose that moral authority, it’s a problem.”


Rosengren, Kaplan and any other Fed officials who traded stocks didn’t violate any laws or policies.

In fact, that’s become part of the criticism leveled in some circles – that following the financial crisis the Fed didn’t do a housecleaning when it came to internal rules to make sure it avoided the kinds of conflicts that came to light during the financial crisis.

“Keep in mind, they already have [trading] rules they imposed on banks, for example, and yet the Fed’s governors don’t live by those same rules,” said Christopher Whalen, a Fed veteran and now chairman of Whalen Global Advisors.

“After Dodd-Frank [the post-crisis banking reforms], every agency in Washington tightened up little conflicts like insider trading."

"And yet the Fed is somehow exempt from those rules?"

"They look ridiculous.”


For its part, the Fed has noted that it is following rules for other government agencies and has supplemental rules as well.

Still, a spokesman for the central bank said Thursday that Chairman Jerome Powell has directed Fed staff “to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a spokesman said.

“This review will assist in identifying ways to further tighten those rules and standards."

"The Board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct,” the official added.

The controversy comes against a delicate backdrop for the Fed.

The central bank is preparing to take its first steps to normalize policy again, after slashing benchmark interest rates to zero and doubling the size of its balance sheet through more than $4 trillion in bond purchases.

Fed officials are divided on policy: By Goldman Sachs’ count, six officials who have spoken publicly on the issue of tapering asset purchases are for it and six are against.

On inflation, while Powell has said he expects price pressures to recede fairly soon, at least six Fed officials, including Governor Christopher Waller, have said they expect inflation to remain above the central bank’s 2% target beyond 2021.

One more complication thrown into the mix is that Powell’s term is set to expire in February, and President Joe Biden is expected to announce soon his preferred choice to lead the bank ahead.

Most on Wall Street expect Powell to be nominated again, but there’s growing sentiment that Biden will move out Randal Quarles as vice chairman in charge of bank supervision and replace him with Governor Lael Brainard, who likely would use a heavier hand in bank regulation.

Amid all those pressures, Powell will have to make sure the Fed gets policy right and is able to clear away some of the contentiousness of late.

“It’s not a fait accompli that Jerome Powell is reappointed,” said LaVorgna, the Natixis economist.

“The administration is understandably going to wait and see how the Fed handles the taper and what the markets do."

"That could be the determining factor in whether he’s reappointed.”

https://www.cnbc.com/2021/09/17/after-y ... versy.html
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Re: THE FEDERAL RESERVE

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CNBC

"Federal Reserve holds interest rates steady, says tapering of bond buying coming ‘soon’"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED WED, SEP 22 2021

KEY POINTS

* The Fed kept benchmark interest rates anchored near zero.

* Officials indicated they expect to begin reducing monthly asset purchases “soon,” but did not say when.

* Economic projections pointed to slower overall growth this year but higher inflation than previously projected.


The Federal Reserve on Wednesday held benchmark interest rates near zero but indicated that rate hikes could be coming sooner than expected, and it significantly cut its economic outlook for this year.

Along with those largely expected moves, officials on the policymaking Federal Open Market Committee indicated they will start pulling back on some of the stimulus the central bank has been providing during the financial crisis.

There was no specific indication, though, as to when that might happen.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC’s post-meeting statement said.

Respondents to a recent CNBC survey said they expect tapering of bond purchases to be announced in November and begin in December.

Fed Chairman Jerome Powell, at his post-meeting news conference, said the committee is ready to move.

“While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate,” he said.

For now, the committee voted unanimously to keep short-term rates anchored near zero.

However, more members now see the first rate hike happening in 2022.

In June, when members last released their economic projections, a slight majority put that increase into 2023.

Powell said the Fed is getting closer to achieving its goals on “substantial further progress” on inflation and employment.

“For inflation, we appear to have achieved more than significant progress, substantial further progress."


"That part of the test is achieved in my view and the view of many others,” he said.

“My own view is the test for substantial further progress on employment is all but met,” Powell added.

Markets shaved some of their gains following the Fed news initially, with major stock averages still showing strong gains and government bond yields mixed.

There were some substantial changes in the Fed’s economic forecasts, with a decrease in the growth outlook and higher inflation expectations.

The committee now sees GDP rising just 5.9% this year, compared with a 7% forecast in June.


However, 2023 growth is now set at 3.8%, compared with 3.3% previously, and 2.5% in 2023, up one-tenth of a percentage point.

Projections also signaled that FOMC members see inflation stronger than projections in June.

Core inflation is projected to increase 3.7% this year, compared with the 3% forecast the last time members gave their expectations.


Officials then see inflation at 2.3% in 2022, compared with the previous projection of 2.1%, and 2.2% in 2023, one-tenth of a percentage point higher than the June forecast.

Including food and energy, officials expect inflation to run at 4.2% this year, up from 3.4% in June.

The subsequent two years are expected to fall back to 2.2%, little changed from the June outlook.

In another move, the Fed said it would double the level of repurchase of its daily market operations to $160 billion from $80 billion.

Markets had been expecting little in the way of major decisions from the meeting but have been on edge in part over when the Fed will begin reducing the pace of its monthly bond purchases.

Powell said during the Fed’s annual August symposium in Jackson Hole, Wyoming, that he and others were of the position that the central bank had met its inflation target and could start reducing the minimum $120 billion a month in buying of Treasurys and mortgage-backed securities.

Investors also were looking to the meeting to see where Fed officials stand on the inflation outlook.

The Fed’s preferred inflation measure — the personal consumption expenditures index less food and energy prices — accelerated by 3.6% in July, the highest level in 30 years.


However, Powell has said repeatedly that he expects price pressures to subside as supply chain factors, goods shortages and unusually high levels of demand return to pre-pandemic levels.

Projections for unemployment were a bit more pessimistic, with the end-year unemployment rate now at 4.8%, from the current 5.2% and the June estimate of 4.5%.

That comes on the heels of a disappointing August payrolls report that showed job growth of just 235,000.

However, Powell said it would not require blockbuster jobs numbers to get the Fed to begin removing policy accommodation.

“For me it wouldn’t take a knockout, great, super strong employment report."

"It would take a reasonably good employment report for me to feel like that test is met."

"Others on the committee, many on the committee, feel the test is already met."

"Others want to see more progress,” he said.

https://www.cnbc.com/2021/09/22/federal ... -soon.html
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Re: THE FEDERAL RESERVE

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BLOOMBERG

"Powell Draws Scorn From Key GOP Senator Over Politicized Fed"


Steven T. Dennis

20 SEPTEMBER 2021

(Bloomberg) -- The Senate Banking Committee’s top Republican sharply criticized Federal Reserve Chairman Jerome Powell Tuesday for tolerating what he considers to be the politicization of the nation’s central bank.

In an interview with Bloomberg News, Senator Pat Toomey of Pennsylvania, unlike many other Republicans, did not endorse Powell for another term as Fed chair.

His criticism comes as President Joe Biden deliberates over whether to renominate Powell, or pick someone like Democratic Fed Governor Lael Brainard, the favorite of some outside liberal groups.

Powell, a Republican, was nominated to the Fed Board by President Barack Obama and elevated to chair by President Donald Trump.

“I think he has tolerated a politicization of the Fed, generally, that is very detrimental to the Fed, and in the long run, jeopardizes the independence of the Fed, because people ask themselves, ‘Well, maybe they shouldn’t have this independence if they’re going to use it to become a political body,’” said Toomey, who has criticized the central bank for weighing in on issues like climate change or racial justice.

“I don’t think he’s been by any means, you know, leading the effort, but I think he’s tolerated a politicization -- the Fed wandering into the social and cultural areas where the Fed doesn’t belong.”


A number of prominent Democrats as well as liberal advocacy groups have said they want the Fed to more aggressively counter the financial risks of climate change, pursue racial justice issues and the like, which Toomey called “anti-democratic” and “even somewhat authoritarian.”

“I wonder if the left would just kind of shrug if Republicans took complete control of the elected government and said, O.K., now the purpose of the Fed is to advance the pro-life agenda, make sure that we are staunchly pro-Second Amendment,” Toomey said.

“Their heads would explode, and rightly so."

"That would make no sense."

"But they are doing exactly the equivalent with their preferred issues.”


Toomey also warned that the Fed’s bold actions to support the economy during the pandemic had fanned bubbles in some corners of the financial market.

“I have been very clear, I think we should have normalized a long time ago,” Toomey said.

“And the idea that to this day, we’re still buying $120 billion of securities per month, and maintaining negative real interest rates is a very dangerous experiment that I’m really concerned is already going badly.”

The central bank slashed interest rates to nearly zero as the pandemic spread in March 2020 and aggressively bought bonds to calm panicked markets.

Some Praise

Fed officials began a two-day meeting on Tuesday.

Economists expect they will signal a plan to start scaling back those purchases later this year in their policy statement to be issued Wednesday afternoon.

Toomey praised Powell, however, for regulation of the financial markets -- an area where he has faced intense criticism from Democratic senators Sherrod Brown, chairman of the Banking Committee, and Elizabeth Warren.

“I will say he is accessible and he’s responsive,” Toomey said.

Asked about possible endorsements, Toomey said he doesn’t plan to comment on potential Fed picks until Biden makes them.

Powell’s term as chair expires in February.

White House advisers are considering recommending to Biden that he renominate Powell, who has broad bipartisan support, as chair and naming Brainard the vice chair for supervision.

https://www.msn.com/en-us/money/markets ... hp&pc=U531
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Re: THE FEDERAL RESERVE

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REUTERS

"Fed's Powell 'not happy' with fellow policymakers' trading"


By Reuters Staff

SEPTEMBER 22, 2021

(Reuters) - U.S. Federal Reserve Chair Jerome Powell said on Wednesday he was displeased with the active investing carried out by two Fed regional bank presidents and pledged the central bank’s ethics rules will be tightened after a thorough review.

“We need to make changes and we are going to do that,” Powell said at a televised press conference after the Fed’s latest policy meeting.

Though rules limiting the trading activities of Fed policymakers are somewhat stricter than those for government employees generally, the current framework is “now clearly seen as not adequate to the task of really sustaining the public’s trust.”

Asked if he still trusted Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren to do their jobs, Powell said, “In terms of having confidence and that sort of thing, I think, no one is happy."

"No one on the (Federal Open Market Committee) is happy to have these questions raised.”

His comments come amid criticism of the two officials and public calls for their resignation following revelations they traded actively in stocks and other investments last year, when millions of Americans lost their jobs and the Fed was taking historic steps to bolster financial markets and the economy.

Both Kaplan and Rosengren have said their ethics officers had signed off on their trading, but have since pledged to divest their holdings by the end of this month to avoid the appearance of a conflict of interest.

Powell said he had not been aware of their trading activities before they were reported earlier this month by the Wall Street Journal and others.

Powell was also asked about his own holdings, which include municipal securities like those the Fed bought last year as part of efforts to stave off a financial market collapse.

Powell said that he had owned them for years and was not an active trader.

“Munis were always thought to be a pretty safe place for a Fed person to invest because as you know the lore was that the Fed would never buy municipal securities,” he said.

But then the crisis hit and the Fed began backstopping vast swaths of the financial markets.

Powell said he checked with the office of government ethics which found he did not have a conflict.


Powell said he was “reluctant to get ahead of the process” and signal what changes might be ahead.

“When we have things to announce we will go ahead and do that,” he said.

Reporting By Dan Burns, Howard Schneider, Lindsay Dunsmuir, Ann Saphir; Editing by Chris Reese and Andrea Ricci

https://www.reuters.com/article/usa-fed ... SL1N2QO2FC
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REUTERS

"Evergrande debt troubles seem particular to China -U.S. Fed's Powell"


By Reuters Staff

SEPTEMBER 22, 2021

(Reuters) -U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the debt problems of property developer Evergrande seem particular to China and that he did not see a parallel with the U.S. corporate sector.

A potential default by Evergrande, Asia’s biggest junk-bond issuer, drove a steep selloff on Wall Street and widened spreads on U.S. high-yield bonds on Monday, although markets have steadied since then.

“In terms of the implications for us, there’s not a lot of direct United States exposure."

"The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing,” Powell told reporters after the Fed’s policy meeting.

“But I wouldn’t draw a parallel to the United States corporate sector.”

He added that with the onset of the coronavirus pandemic last year, the Fed was concerned about a wave of defaults by highly leveraged companies, noting that did not materialize to a significant extent because of the U.S. CARES Act and action by the central bank.

Currently, corporate default rates are “very, very low,” he said.

As for Evergrande, Powell said China has very high debt for an emerging market economy and that its government put new strictures in place for highly leveraged companies.

Evergrande on Wednesday said it agreed to settle interest payments on a domestic bond, while the Chinese central bank injected cash into the banking system, temporarily soothing investors’ fears of imminent contagion that had pressured equities and other riskier assets at the start of the week.

Reporting by Karen Pierog; Editing by Leslie Adler and Marguerita Choy

https://www.reuters.com/article/usa-fed ... SL1N2QO2K3
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REUTERS

"Fed signals bond-buying taper coming 'soon,' rate hike next year"


By Howard Schneider, Jonnelle Marte

SEPTEMBER 22, 2021

WASHINGTON (Reuters) -The Federal Reserve said on Wednesday it will likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases may follow more quickly than expected as the U.S. central bank’s turn from pandemic crisis policies gains momentum.

The slight hawkish tilt was signaled in a new policy statement and economic projections that showed nine of 18 Fed officials ready to raise interest rates next year in response to inflation that the central bank now expects to run at 4.2% this year, more than double its 2% target rate.


A drawdown of the central bank’s $120 billion in monthly bond purchases could begin after the Nov. 2-3 policy meeting as long as U.S. job growth through September is “reasonably strong, Fed Chair Jerome Powell said in a news conference following the central bank’s latest two-day session.

The U.S. nonfarm payrolls report for September will be released in early October, the last such report before Fed policymakers gather again in November.

“It wouldn’t take a knockout or super-strong employment report,” to start the “taper” of the bond-buying program, with the process expected to wind down by the middle of next year, Powell said.

That timetable has taken on added significance.

The Fed wants its purchases of Treasuries and mortgage-backed securities to end before it starts lifting borrowing costs, and new projections showed officials poised for that to happen in 2022.

The Fed now projects inflation will run above its target for four consecutive years.

Even though the overshoot is slight, at 2.2% in 2022 and 2023 and 2.1% in 2024, it has begun to shift views among policymakers who have been divided over whether the biggest risk is the pandemic’s ongoing impact on the economy, marked by relatively high joblessness, or the threat of breakout inflation.


For the time being, the Fed still anticipates being able to spur employment while keeping a lid on inflation, which it views as the result of “transitory” forces that will ebb on their own.

Indeed, the interest rate increases are expected to proceed slowly, pushing the Fed’s benchmark overnight lending rate to 1% in 2023 and then to 1.8% in 2024 - still considered a loose monetary policy stance that will allow the unemployment rate to fall to its pre-pandemic level of around 3.5%.

Policymakers, however, downgraded their expectations for economic growth this year, with gross domestic product expected to grow 5.9% compared to the 7.0% projected in June, largely as a result of the new wave of coronavirus cases.

Overall, the Fed’s statement and projections are “probably a little bit more hawkish than many would have anticipated, basically acknowledging that should the economy continue to grow as we have seen, it would warrant a tapering to occur,” said Sam Stovall, chief investment strategist for CFRA Research in New York.

“You could say it’s a tentative tapering announcement even though they did lower their 2021 GDP forecast.”

Powell told reporters financial conditions would remain accommodative even after the Fed stops its asset purchases and emphasized that the decision on the bond-buying program was separate from any actions regarding interest rates.

The Fed on Wednesday held its current target interest rate steady in a range of 0% to 0.25%.

U.S. stocks extended gains after the release of the statement before retreating later in the afternoon, with the S&P 500 index closing up about 1%.

U.S. Treasury yields see-sawed, with the yield on the benchmark U.S. 10-year note edging lower.

SLOWING RECOVERY

The Fed’s September policy statement had been widely expected to point to the coming end of the bond purchases it has been making to blunt the economic impact of the pandemic.

Fed officials said last December that they would continue purchasing bonds at the current pace until there was “substantial further progress” on the central bank’s goals for maximum employment and inflation.

The inflation benchmark has been cleared, Powell said on Wednesday, and the employment standard “all but met.”

But it was in their broader economic outlook that Fed policymakers made a less anticipated change.

Their outlook for inflation jumped 0.8 percentage point for 2021 and the expected end-of-year unemployment rate rose over policymakers’ previous forecast in June.


In turn, two officials brought forward into 2022 their projected timeline for slightly lifting the Fed’s benchmark overnight interest rate from the current level, enough to raise the median projection to 0.3% for next year.

The move to lower GDP growth expectations for 2021 reflected concerns that the coronavirus is weighing on the economy.

Projected growth for next year was increased from 3.3% to 3.8%, with spending merely shifted into future months when the virus is expected to recede.

“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery,” the Fed said in its policy statement.

Reporting by Howard Schneider; Additional reporting by Jonnelle Marte and U.S. Finance and Markets Breaking News team; Editing by Paul Simao

https://www.reuters.com/article/usa-fed ... SKBN2GI0BQ
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Re: THE FEDERAL RESERVE

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REUTERS

""Reasonably good" September jobs starts Fed taper. Is another dud coming?"


By Howard Schneider

September 23, 2021

WASHINGTON, Sept 23 (Reuters) - U.S. Federal Reserve Chair Jerome Powell has tied the initial wind down of the central bank's bondbuying program to "decent" job growth in September, but high frequency payroll data so far show the pandemic may still be holding back hiring.

Among them, a report this week from payroll management firm UKG showed shift work across a variety of industries, measured during the week when a federal jobs survey is conducted, "was effectively flat month over month" from August to September, said UKG vice president Dave Gilbertson.

"We will likely see one more month go by without the job creation acceleration that economists have been predicting," said Gilbertson, noting that job openings remain strong but "people remain unwilling to jump back into the market, whether that be due to family and childcare obligations, salary and benefit requirements, changing job paths, or the surging Delta variant.”

Powell said Wednesday the Fed intends to begin reducing its $120 billion in monthly bond purchases as soon as November, and, absent a significant change in the direction of the U.S. recovery, certainly by the end of the year.

Yet he did set a condition around the government report, to be released on Oct. 8, that will detail September job creation.

It will be the last official jobs report the Fed will receive before its November meeting, and while Powell said it needn't be "a knock-out, great, super-strong" report, it would need to be "reasonably good."

In normal times that would mean one thing.

Over the decade from 2010 to the start of the pandemic monthly job growth averaged 186,000.

For the pandemic era, with millions of jobs still missing, that probably sets the bar at several hundred thousand.

Average monthly job creation has averaged 487,000 since the Fed said in December it would need to see "substantial further progress" in the labor market before starting to reduce its bond purchases.

It would take around 365,000 new jobs in September for the United States to have regained half the payroll positions "missing" at the point the Fed adopted that language, a benchmark some officials have mentioned as their marker for "substantial" progress.

The Fed may be disappointed.

A recent J.P. Morgan analysis of alternative, higher frequency data projected firms will add 330,000 jobs in September.

Payroll data from Homebase shows a steady decline in employment at a sample of around 50,000 small businesses, many of them restaurants and other service sector firms most likely to feel the impact if consumers shy away from in-person activities again given the new surge of coronavirus cases.

An Oxford Economics recovery tracker fell for the week of Sept. 10, led by 2 a percentage point drop in its measures of employment.

The Fed acknowledged a fresh pandemic hit to the most beleaguered parts of the economy in the policy statement released Wednesday, and Powell amplified the message in his press conference.

"We have...a unique situation where by many measures the labor market is tight," with record job openings, rising wages and other conditions that would let the Fed start to turn away from pandemic support and begin reducing its monthly bond purchases, Powell said.

Policymakers, moreover, anticipated a surge of new jobs in the fall as schools reopened, unemployment benefits expired, and other changes "would come together...so we’d get out of this strange world where there are lots of unemployed people and a high unemployment rate but a labor shortage."

Instead "Delta happened," Powell said, referring to the more virulent strain of the coronavirus, and employers added a disappointing 235,000 jobs in August.

There have been other dud job reports in recent months.

The number of jobs actually declined in December, and at the peak of the spring vaccine rollout the number of jobs created in April was a disappointing 269,000.

But September has now taken on added significance as the Fed looks ahead to its November policy meeting and a possible start to the bond taper.

"If the economy continues to progress broadly in line with expectations, then I think...we could easily move ahead at the next meeting," Powell said, "or not."

Reporting by Howard Schneider; Editing by Andrea Ricci

https://www.reuters.com/business/financ ... 021-09-23/
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REUTERS

"Two Fed policymakers say bar for taper met, nod to next debates"


By Ann Saphir, Howard Schneider

SEPTEMBER 24, 2021

(Reuters) -A pair of Federal Reserve policymakers on Friday said they felt the U.S. economy is already in good enough shape for the central bank to begin to withdraw support for the economy, setting up for the next big Fed debates: when to raise interest rates and what to do with the Fed’s massive balance sheet.

In separate appearances, Cleveland Federal Reserve Bank President Loretta Mester and Kansas City Fed President Esther George both said that the economy had made “substantial further progress” toward the Fed’s maximum employment and 2% inflation goal.

That’s the bar the Fed has set for beginning to taper its current $120 billion in monthly asset purchases, aimed at pushing down longer-term interest rates.

The remarks came days after Fed Chair Powell said the economy is one “decent” monthly jobs report short of meeting that threshold, allowing the Fed to begin to reduce its monthly asset purchases by the Fed’s next meeting Nov. 2-3.

“I support starting to dial back our purchases in November and concluding them over the first half of next year,” Mester said during an event organized by the Ohio Bankers League.

“The rationale for continuing to add to our asset holdings each month has waned,” George told the American Enterprise Institute.

Both appearances took place online, underscoring the continued scourge of the coronavirus pandemic that plunged the economy into its sharpest and shortest recession last year and is still keeping labor and materials short of what’s needed to sate the rising demand for both as the economy recovers.

That’s led to inflation above the Fed’s 2% goal that policymakers like Mester and George worry could become persistent.

UNVEILING THE DEBATE

The comments from the two hawkish policymakers begin to unveil some contours of the debate that took place behind closed doors at this week’s Fed policy meeting.

More Fed policymakers are due to address the issue next week, including Chicago Fed President Charles Evans and Fed Governor Lael Brainard on Monday, who have had a more dovish stance on policy, as well as New York Fed President John Williams.

Fed policymakers do not believe the bar for raising the short-term policy rate has yet been met, but half - including Mester - believe it will have been by the end of next year.

Those conditions include that inflation is durably at the central bank’s 2% target and that maximum employment has been reached.

Mester said monetary policy will remain accommodative even after the Fed trims its bond buying because it will still be adding to the balance sheet.

George, for her part, flagged the complications the $8.5 trillion balance sheet poses for the path of interest rates.

The accommodation from those massive asset holdings “will persist even when tapering is complete,” George said.

Noting her longstanding worry that keeping interest rates near zero risks both inflation and financial instability, she said, “I don’t want to be lower any longer than we need to be.”


After the 2007 to 2009 financial crisis, the Fed waited a year between the end of its bond “taper” and the first increase of its policy interest rate.

It was two more years before the Fed began allowing the balance sheet - at the time about half its current size - to shrink.

The process may happen faster this time, with the taper not expected to end until the middle of next year and policymakers now pointing to a rate hike later that year.

Finding the right level for the policy rate given the continued stimulative effects of the balance sheet will be a challenge, George said.

“Where along the yield curve would we prefer the most policy space?” George said, conjecturing the Fed might want to keep longer-term rates low by keeping its balance sheet large, but counter that stimulus with a higher short-term policy rate.

That, however, might raise the risk of an inverted yield curve, she said, an argument for shrinking the balance sheet “or at least shifting toward one with shorter-maturity assets, with a lower neutral policy rate.”

“As the economy recovers from this pandemic shock, its path is likely to confound our assumptions about what a return to normal might look like,” George said.

“The same is true for the monetary policy normalization process."

"Both point to a long and difficult process ahead.”

Reporting by Ann Saphir, Jonnelle Marte and Howard Schneider; Editing by Chizu Nomiyama, Matthew Lewis and Andrea Ricci

https://www.reuters.com/article/usa-fed ... SL1N2QQ1I6
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CNBC

"Fed Chair Powell to warn Congress that inflation pressures could last longer than expected"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED MON, SEP 27 2021

KEY POINTS

* Fed Chairman Jerome Powell cautioned that the causes of the recent rise in inflation may last longer than anticipated.

* The remarks are part of mandated testimony Powell must give to Congress regarding the Fed’s economic response to the Covid-19 pandemic.


Federal Reserve Chairman Jerome Powell, in remarks to be delivered Tuesday, cautioned Washington legislators that the causes of the recent rise in inflation may last longer than anticipated.

In a speech that he will deliver to the Senate banking committee, the central bank chair said economic growth has “continued to strengthen” but has been met with upward price pressures caused by supply chain bottlenecks and other factors.

“Inflation is elevated and will likely remain so in coming months before moderating,” Powell said.

“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors."

"These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”

The remarks are part of mandated testimony Powell must give to Congress regarding the Fed’s economic response to the Covid-19 pandemic.

He will speak Wednesday to the House Financial Services Committee.

Following its meeting last week, the Fed indicated it soon will start pulling back on some of the stimulus it has provided during the crisis.

However, officials have stressed that the reduction of monthly asset purchases is not tantamount to looming interest rate hike.

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

https://www.cnbc.com/2021/09/27/fed-cha ... ected.html
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