CNBC
"Fed members ready to raise interest rates if inflation continues to run high, meeting minutes show"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, NOV 24 2021
KEY POINTS
* Minutes from the November Fed meeting show members concerned about inflation and willing to tighten policy should it continue to run hot.
* The meeting summary noted that the officials would be willing to raise interest rates “sooner than participants currently anticipated.”
* They also indicated at the meeting that they feel conditions warrant a reduction in monthly asset purchases, with some members pushing for a more aggressive tapering.
Federal Reserve officials at their meeting earlier this month expressed concern about inflation and said they would be willing to raise interest rates if prices keep rising.
The committee that sets interest rates for the Fed on Wednesday released the minutes from the November session where it first signaled that it could be dialing back all the economic help it’s been providing during the pandemic.
The meeting summary indicates a lively discussion about inflation, with members stressing the willingness to act if conditions continue to heat up.
“Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives,” the minutes stated.
Officials stressed a “patient” approach regarding incoming data, which has shown inflation running at its highest pace in more than 30 years.
But they also said they would “not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives.”
Following the two-day session that concluded Nov. 3, the Federal Open Market Committee indicated it will begin cutting back on the monthly bond-buying program that had seen it purchasing at least $120 billion in Treasurys and mortgage-backed securities.
The goal of the program was to keep money flowing in those markets while maintaining broader interest rates at low levels to boost economic activity.
In its post-meeting statement, the FOMC said “substantial further progress” in the economy would allow a $15 billion a month reduction in purchases -- $10 billion in Treasurys and $5 billion in MBS.
The statement said that schedule would be maintained through at least December and probably continue going forward until the program wound down – likely by late spring or early summer 2022.
The minutes noted that some FOMC members wanted an even faster pace to give the Fed leeway to raise rates sooner.
“Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted so that the Committee would be in a better position to make adjustments to the target range for the federal funds rate, particularly in light of inflation pressures,” the minutes said.
That’s important because inflation has gotten even hotter since the November meeting.
In previous cycles, the Fed has raised interest rates to cool the economy, but officials have said they are willing to allow inflation to run hotter than normal to let the employment picture improve.
Markets, though, are anticipating a more aggressive Fed.
Traders in contracts that bet on the future of short-term rates are indicating the Fed will raise its benchmark rate three times in 2022 in25 basis point intervals, though current official projections are for no more than one hike next year.
However, those markets are volatile and can change quickly depending on the signals the Fed sends.
FOMC members expressed concern at the meeting that the continued high inflation readings could influence public perception and “expectations were becoming less well anchored” to the Fed’s 2% longer-run target.
https://www.cnbc.com/2021/11/24/federal ... eting.html
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"More Fed officials open to speeding up bond-buying taper, rates liftoff"
By Lindsay Dunsmuir
November 24, 2021
Nov 24 (Reuters) - A growing number of Federal Reserve policymakers indicated they would be open to speeding up the elimination of their bond-buying program if high inflation held and move more quickly to raise interest rates, minutes of the U.S. central bank's last policy meeting showed.
The readout released on Wednesday was the latest indication that anxiety about rising inflation at the Fed has now taken root, with many officials at the Nov. 2-3 meeting also suggesting elevated price pressures could prove more persistent.
The durability and broadening in price pressures has taken the White House and the central bank by surprise and prompted both to respond.
U.S. President Joe Biden and Fed Chair Jerome Powell stressed earlier this week that they would take steps to tackle the rising costs of everyday items, including food, gasoline and rent.
Although the surge in inflation in late spring and over the summer was portrayed as transitory, concern within the Fed has mounted as readings have continued to remain elevated into the fall.
"Various participants noted that the (policy-setting) Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee's objectives," the Fed said in the minutes.
Fed policymakers unanimously decided at last month's meeting to begin reducing the central bank's $120 billion in monthly purchases of Treasuries and mortgage-backed securities, a program introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
A number outright favored a faster taper of the bond-buying program during those deliberations, the minutes showed.
The original pace would see the asset purchases tapered completely by next June.
Since then, however, there have been increasing calls by some policymakers to accelerate the timeline in the face of the continued high inflation readings and stronger job gains, in order to give the Fed greater flexibility to raise its benchmark overnight interest rate from the current near-zero level earlier next year if needed.
Investors' reaction to the release of the minutes was largely muted, with the S&P 500 index up about 0.2% in late afternoon trading.
Yields on the shorter-dated Treasuries most sensitive to Fed policy expectations held steady at slightly higher levels, while the dollar remained near its highest mark since July 2020 against a basket of major trading partners' currencies.
"The (policy committee) has clearly woken up to the realisation that, even if it falls back somewhat, inflation is likely to remain above target for some considerable time," said Paul Ashworth, chief U.S. economist at Capital Economics.
'WOULD NOT HESITATE'
A number of other policymakers at the Fed's November meeting, however, still advocated for a more patient approach, wanting more data in hand, although all agreed the Fed "would not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives."
But with further robust economic data released over the past three weeks, all signs point to an acceleration of the bond-buying taper now being firmly on the table at the Fed's next policy meeting on Dec. 14-15.
Data released on Wednesday showed the number of Americans filing new claims for unemployment benefits fell to the lowest level since 1969 last week, while the Fed's preferred measure of inflation continued to run at more than twice the central bank's 2% flexible average goal in October.
San Francisco Fed President Mary Daly, one of the central bank's most cautious policymakers, also said on Wednesday she is open to a quicker wind-down of the bond-buying program if jobs and inflation data remain steady and that she could see the Fed's policy-setting committee raising rates once or twice next year.
Investors currently see a 53% probability that the Fed's overnight lending rate will rise in May of 2022, up from 45% on Tuesday, according to CME Group's FedWatch program.
Inflation in October rose at its fastest annual pace in 31 years, testing the Fed's working assumption for most of the year that the pandemic-induced burst would be temporary as supply bottlenecks eased and demand rotated from goods to services.
Some other policymakers have said recently they too are now more comfortable with an interest rate hike earlier next year than previously anticipated, noting that the current pace of job gains would put the Fed on track to be near or at its maximum employment goal by the middle of 2022.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/with ... 021-11-24/
"More Fed officials open to speeding up bond-buying taper, rates liftoff"
By Lindsay Dunsmuir
November 24, 2021
Nov 24 (Reuters) - A growing number of Federal Reserve policymakers indicated they would be open to speeding up the elimination of their bond-buying program if high inflation held and move more quickly to raise interest rates, minutes of the U.S. central bank's last policy meeting showed.
The readout released on Wednesday was the latest indication that anxiety about rising inflation at the Fed has now taken root, with many officials at the Nov. 2-3 meeting also suggesting elevated price pressures could prove more persistent.
The durability and broadening in price pressures has taken the White House and the central bank by surprise and prompted both to respond.
U.S. President Joe Biden and Fed Chair Jerome Powell stressed earlier this week that they would take steps to tackle the rising costs of everyday items, including food, gasoline and rent.
Although the surge in inflation in late spring and over the summer was portrayed as transitory, concern within the Fed has mounted as readings have continued to remain elevated into the fall.
"Various participants noted that the (policy-setting) Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee's objectives," the Fed said in the minutes.
Fed policymakers unanimously decided at last month's meeting to begin reducing the central bank's $120 billion in monthly purchases of Treasuries and mortgage-backed securities, a program introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
A number outright favored a faster taper of the bond-buying program during those deliberations, the minutes showed.
The original pace would see the asset purchases tapered completely by next June.
Since then, however, there have been increasing calls by some policymakers to accelerate the timeline in the face of the continued high inflation readings and stronger job gains, in order to give the Fed greater flexibility to raise its benchmark overnight interest rate from the current near-zero level earlier next year if needed.
Investors' reaction to the release of the minutes was largely muted, with the S&P 500 index up about 0.2% in late afternoon trading.
Yields on the shorter-dated Treasuries most sensitive to Fed policy expectations held steady at slightly higher levels, while the dollar remained near its highest mark since July 2020 against a basket of major trading partners' currencies.
"The (policy committee) has clearly woken up to the realisation that, even if it falls back somewhat, inflation is likely to remain above target for some considerable time," said Paul Ashworth, chief U.S. economist at Capital Economics.
'WOULD NOT HESITATE'
A number of other policymakers at the Fed's November meeting, however, still advocated for a more patient approach, wanting more data in hand, although all agreed the Fed "would not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives."
But with further robust economic data released over the past three weeks, all signs point to an acceleration of the bond-buying taper now being firmly on the table at the Fed's next policy meeting on Dec. 14-15.
Data released on Wednesday showed the number of Americans filing new claims for unemployment benefits fell to the lowest level since 1969 last week, while the Fed's preferred measure of inflation continued to run at more than twice the central bank's 2% flexible average goal in October.
San Francisco Fed President Mary Daly, one of the central bank's most cautious policymakers, also said on Wednesday she is open to a quicker wind-down of the bond-buying program if jobs and inflation data remain steady and that she could see the Fed's policy-setting committee raising rates once or twice next year.
Investors currently see a 53% probability that the Fed's overnight lending rate will rise in May of 2022, up from 45% on Tuesday, according to CME Group's FedWatch program.
Inflation in October rose at its fastest annual pace in 31 years, testing the Fed's working assumption for most of the year that the pandemic-induced burst would be temporary as supply bottlenecks eased and demand rotated from goods to services.
Some other policymakers have said recently they too are now more comfortable with an interest rate hike earlier next year than previously anticipated, noting that the current pace of job gains would put the Fed on track to be near or at its maximum employment goal by the middle of 2022.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/with ... 021-11-24/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bostic says he is hopeful momentum will carry economy through new COVID variant"
Reuters
November 26, 2021
Nov 26 (Reuters) - Each successive variant of COVID-19 has had a weaker effect on the economy, and if the new Omicron variant discovered in South Africa follows that pattern, it should cause less of a slowdown than what was seen after the Delta variant, Atlanta Federal Reserve Bank President Raphael Bostic said on Friday.
"If this new variant has a similar type of trajectory as the Delta variant did, then we'll see some slowing but it should not be as much as what we've seen during Delta," Bostic said during an interview with Fox News.
"We have a lot of momentum in the economy right now ... and that momentum I'm hopeful will be able to carry us through this next wave, however it turns out."
Reporting by Jonnelle Marte; Additional reporting by Lucia Mutikani; Editing by Chris Reese
https://www.reuters.com/markets/us/feds ... 021-11-26/
"Fed's Bostic says he is hopeful momentum will carry economy through new COVID variant"
Reuters
November 26, 2021
Nov 26 (Reuters) - Each successive variant of COVID-19 has had a weaker effect on the economy, and if the new Omicron variant discovered in South Africa follows that pattern, it should cause less of a slowdown than what was seen after the Delta variant, Atlanta Federal Reserve Bank President Raphael Bostic said on Friday.
"If this new variant has a similar type of trajectory as the Delta variant did, then we'll see some slowing but it should not be as much as what we've seen during Delta," Bostic said during an interview with Fox News.
"We have a lot of momentum in the economy right now ... and that momentum I'm hopeful will be able to carry us through this next wave, however it turns out."
Reporting by Jonnelle Marte; Additional reporting by Lucia Mutikani; Editing by Chris Reese
https://www.reuters.com/markets/us/feds ... 021-11-26/
Re: THE FEDERAL RESERVE
REUTERS
"U.S. consumer credit demand back to pre-pandemic levels - NY Fed survey"
By Jonnelle Marte
November 22, 2021
Nov 22 (Reuters) - U.S. consumers showed stronger demand for credit this year and applications for credit overall rebounded to 2019 levels after falling significantly during the pandemic, according to a survey released on Monday by the New York Federal Reserve.
The rise in demand was broad-based across credit scores and age groups, but strongest for consumers with lower credit scores, as well as those younger than age 40 or above age 60, according to the latest Survey of Consumer Expectations Credit Access Survey.
The average application rate for credit was 45.6% in 2021, comparable to the 2019 rate of 45.8%, the report found.
The share of respondents saying they are likely to apply for at least one type of credit over the next year also rose slightly to 29.5% for 2021 from 26.3% for 2020.
Consumers also reported feeling more concerned about their ability to handle unexpected costs.
The average probability of needing $2,000 for a surprise expense in the next month rose to 33.2% in 2021 from 31.8% in 2020.
Meanwhile the perceived odds of being able to come up with the $2,000 decreased to 68.2% in 2021 from 69.4% in 2020.
Reporting by Jonnelle Marte Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/us-c ... 021-11-22/
"U.S. consumer credit demand back to pre-pandemic levels - NY Fed survey"
By Jonnelle Marte
November 22, 2021
Nov 22 (Reuters) - U.S. consumers showed stronger demand for credit this year and applications for credit overall rebounded to 2019 levels after falling significantly during the pandemic, according to a survey released on Monday by the New York Federal Reserve.
The rise in demand was broad-based across credit scores and age groups, but strongest for consumers with lower credit scores, as well as those younger than age 40 or above age 60, according to the latest Survey of Consumer Expectations Credit Access Survey.
The average application rate for credit was 45.6% in 2021, comparable to the 2019 rate of 45.8%, the report found.
The share of respondents saying they are likely to apply for at least one type of credit over the next year also rose slightly to 29.5% for 2021 from 26.3% for 2020.
Consumers also reported feeling more concerned about their ability to handle unexpected costs.
The average probability of needing $2,000 for a surprise expense in the next month rose to 33.2% in 2021 from 31.8% in 2020.
Meanwhile the perceived odds of being able to come up with the $2,000 decreased to 68.2% in 2021 from 69.4% in 2020.
Reporting by Jonnelle Marte Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/us-c ... 021-11-22/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Powell sees inflation lingering, risks from COVID"
By Ann Saphir
November 29, 2021
Nov 29 (Reuters) - U.S. Federal Reserve Chair Jerome Powell on Monday said he continues to expect inflation to recede over the next year as supply and demand come into better balance, but warned that the new strain of COVID-19 muddies the outlook, and prices could continue to rise for longer than earlier thought.
"It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year," Powell said in testimony prepared for delivery Tuesday at the U.S. Senate Banking Committee, and released Monday by the Fed.
The economy continues to strengthen, and the labor market to improve, pushing up wages, he said.
But the recent rise in COVID-19 cases and the emergence of the new Omicron variant "pose downside risks to employment and economic activity and increased uncertainty for inflation," he said, noting that health-related concerns could "reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions."
The Fed this month began reducing its support for the economy by gradually decreasing its asset purchases at a pace that would end them by next June.
But with inflation registering more than double the Fed's 2% target, Fed officials have increasingly said they are open to potentially speeding up the taper to clear the way for earlier interest rate hikes if needed.
Powell did not mention the taper timeline in his prepared remarks, though he did say the labor market has "ground to cover" before reaching full employment, one of the conditions the Fed has set before it will consider raising interest rates from their current near-zero levels.
The Fed, Powell promised, "is committed to our price-stability goal" and will use its tools both to support the economy and the labor market and to "prevent higher inflation from becoming entrenched."
Reporting by Ann Saphir; Editing by Dan Burns and Rosalba O'Brien
https://www.reuters.com/business/feds-p ... 021-11-29/
"Fed's Powell sees inflation lingering, risks from COVID"
By Ann Saphir
November 29, 2021
Nov 29 (Reuters) - U.S. Federal Reserve Chair Jerome Powell on Monday said he continues to expect inflation to recede over the next year as supply and demand come into better balance, but warned that the new strain of COVID-19 muddies the outlook, and prices could continue to rise for longer than earlier thought.
"It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year," Powell said in testimony prepared for delivery Tuesday at the U.S. Senate Banking Committee, and released Monday by the Fed.
The economy continues to strengthen, and the labor market to improve, pushing up wages, he said.
But the recent rise in COVID-19 cases and the emergence of the new Omicron variant "pose downside risks to employment and economic activity and increased uncertainty for inflation," he said, noting that health-related concerns could "reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions."
The Fed this month began reducing its support for the economy by gradually decreasing its asset purchases at a pace that would end them by next June.
But with inflation registering more than double the Fed's 2% target, Fed officials have increasingly said they are open to potentially speeding up the taper to clear the way for earlier interest rate hikes if needed.
Powell did not mention the taper timeline in his prepared remarks, though he did say the labor market has "ground to cover" before reaching full employment, one of the conditions the Fed has set before it will consider raising interest rates from their current near-zero levels.
The Fed, Powell promised, "is committed to our price-stability goal" and will use its tools both to support the economy and the labor market and to "prevent higher inflation from becoming entrenched."
Reporting by Ann Saphir; Editing by Dan Burns and Rosalba O'Brien
https://www.reuters.com/business/feds-p ... 021-11-29/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Clarida says 'no one' is happy with inflation running above 2% target"
By Reuters Staff
NOVEMBER 30, 2021
NEW YORK, Nov 30 (Reuters) - Federal Reserve officials are not happy with elevated inflation running above the central bank’s 2% target and bringing actual inflation down will be important to keeping inflation expectations anchored near the central bank’s goal, Fed Vice Chair Richard Clarida said on Tuesday.
“No one is happy when inflation is running at 4% or 5% when our goal is 2%,” Clarida said during a conversation with Cleveland Fed President Loretta Mester.
“This is not a success, this year, and I wouldn’t consider a repeat next year of inflation at this level a success.”
Several Fed officials, including Fed chair Jerome Powell, have said inflation is likely to persist for longer than they initially expected.
Policymakers will discuss in December whether it might be appropriate to end their bond purchases a few months earlier than they are currently on pace for, Powell said during a Senate hearing earlier on Tuesday.
Clarida, who did not comment on the Fed's taper plans on Tuesday, said the central bank has met its inflation target and noted that bringing down inflation will be key to keeping inflation expectations anchored.
He said the Fed will also need to achieve its maximum employment mandate before raising interest rates.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/business/feds-c ... 021-11-30/
"Fed's Clarida says 'no one' is happy with inflation running above 2% target"
By Reuters Staff
NOVEMBER 30, 2021
NEW YORK, Nov 30 (Reuters) - Federal Reserve officials are not happy with elevated inflation running above the central bank’s 2% target and bringing actual inflation down will be important to keeping inflation expectations anchored near the central bank’s goal, Fed Vice Chair Richard Clarida said on Tuesday.
“No one is happy when inflation is running at 4% or 5% when our goal is 2%,” Clarida said during a conversation with Cleveland Fed President Loretta Mester.
“This is not a success, this year, and I wouldn’t consider a repeat next year of inflation at this level a success.”
Several Fed officials, including Fed chair Jerome Powell, have said inflation is likely to persist for longer than they initially expected.
Policymakers will discuss in December whether it might be appropriate to end their bond purchases a few months earlier than they are currently on pace for, Powell said during a Senate hearing earlier on Tuesday.
Clarida, who did not comment on the Fed's taper plans on Tuesday, said the central bank has met its inflation target and noted that bringing down inflation will be key to keeping inflation expectations anchored.
He said the Fed will also need to achieve its maximum employment mandate before raising interest rates.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/business/feds-c ... 021-11-30/
Re: THE FEDERAL RESERVE
REUTERS
"Powell places faster bond-buying taper on Fed's Christmas table"
By Lindsay Dunsmuir and Ann Saphir
November 30, 2021
Nov 30 (Reuters) - U.S. central bankers in December will discuss whether to end their bond purchases a few months earlier than had been anticipated, Federal Reserve Chair Jerome Powell said on Tuesday, pointing to a strong economy, stalled workforce growth, and high inflation that is expected to last into mid-2022.
Powell twinned his remarks, whose hawkish tone took some analysts by surprise, with an observation that the economic risk from an emergent variant of COVID-19 will be better understood by the Fed's Dec. 14-15 policy meeting but will in any case be far less than in the spring of 2020 when the pandemic erupted.
"Since the last meeting, we've seen basically elevated inflation pressures, we've seen very strong labor market data without any improvement in labor supply, we’ve seen strong spending data too," the Fed chief told members of the Senate Banking Committee.
High inflation, now running at more than twice the Fed's flexible target of 2% annually but which the central bank has for months characterized as "transitory," is only expected to ease in the second half of 2022, Powell said.
Given how long it has lasted, Powell said: "I think it's probably a good time to retire that word."
Earlier this month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to complete the wind-down by mid-2022.
The program was introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
In his testimony, Powell said "we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months."
His comments follow those of a number of Fed officials who in recent weeks have advocated for, or at least signaled an openness to, ending asset purchases sometime in the spring to allow for an earlier start of interest rate increases should they be needed to rein in inflation.
In recent days, the emergence of the Omicron variant has unnerved global financial markets, amid fears that it could spread faster, pierce vaccination protections, and be more severe than the current dominant Delta strain.
Powell's remarks helped drive U.S. stocks lower, with the S&P 500 index shedding 1.3%, and cooled a rally in U.S. Treasuries.
Interest-rate futures traders returned to pricing in a June start to Fed interest rate hikes and at least one more increase in borrowing costs before the end of 2022
"It now looks like it will take a deterioration in the public health situation over the next two weeks to prevent the FOMC (Federal Open Market Committee) from deciding to quicken the pace of tapering at the next meeting," Michael Feroli, an economist at JP Morgan, wrote in a note.
OMICRON RISKS
Health officials are racing to determine how transmissible and deadly the new Omicron variant is and to what extent current vaccines remain protective.
The United States has imposed a travel ban on some southern African nations where the strain is prevalent.
The Delta variant dented the U.S. economy over the summer, slowing employment gains amid workers' fears of contracting the virus and exacerbating supply chain snags that have driven up inflation.
"It's really about transmissibility, it's about the ability of the vaccines to address any new variant, it's about the severity of the disease once it's contracted ... I am told by experts we'll know quite a bit about those answers within about a month," Powell said in his testimony.
"We'll know something, though, within a week to 10 days."
"Then and only then can we make an assessment of what the impact would be on the economy ..."
"For now, it's a risk to the baseline, it’s not really baked into our forecast."
Nonetheless, Powell acknowledged that Omicron is elevating the uncertainty around the outlook for the economy - and potentially adding to inflation risks - though he said he does not think its effects will be "remotely comparable" to March 2020 when the pandemic cast the economy into a short but historically deep recession.
Powell is scheduled to testify on Wednesday before the U.S. House of Representatives Financial Services Committee.
Additional reporting by Jonnelle Marte in New York and Karen Pierog in Chicago; Writing by Dan Burns; Editing by Richard Pullin and Paul Simao
https://www.reuters.com/markets/us/powe ... 021-11-30/
"Powell places faster bond-buying taper on Fed's Christmas table"
By Lindsay Dunsmuir and Ann Saphir
November 30, 2021
Nov 30 (Reuters) - U.S. central bankers in December will discuss whether to end their bond purchases a few months earlier than had been anticipated, Federal Reserve Chair Jerome Powell said on Tuesday, pointing to a strong economy, stalled workforce growth, and high inflation that is expected to last into mid-2022.
Powell twinned his remarks, whose hawkish tone took some analysts by surprise, with an observation that the economic risk from an emergent variant of COVID-19 will be better understood by the Fed's Dec. 14-15 policy meeting but will in any case be far less than in the spring of 2020 when the pandemic erupted.
"Since the last meeting, we've seen basically elevated inflation pressures, we've seen very strong labor market data without any improvement in labor supply, we’ve seen strong spending data too," the Fed chief told members of the Senate Banking Committee.
High inflation, now running at more than twice the Fed's flexible target of 2% annually but which the central bank has for months characterized as "transitory," is only expected to ease in the second half of 2022, Powell said.
Given how long it has lasted, Powell said: "I think it's probably a good time to retire that word."
Earlier this month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to complete the wind-down by mid-2022.
The program was introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
In his testimony, Powell said "we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months."
His comments follow those of a number of Fed officials who in recent weeks have advocated for, or at least signaled an openness to, ending asset purchases sometime in the spring to allow for an earlier start of interest rate increases should they be needed to rein in inflation.
In recent days, the emergence of the Omicron variant has unnerved global financial markets, amid fears that it could spread faster, pierce vaccination protections, and be more severe than the current dominant Delta strain.
Powell's remarks helped drive U.S. stocks lower, with the S&P 500 index shedding 1.3%, and cooled a rally in U.S. Treasuries.
Interest-rate futures traders returned to pricing in a June start to Fed interest rate hikes and at least one more increase in borrowing costs before the end of 2022
"It now looks like it will take a deterioration in the public health situation over the next two weeks to prevent the FOMC (Federal Open Market Committee) from deciding to quicken the pace of tapering at the next meeting," Michael Feroli, an economist at JP Morgan, wrote in a note.
OMICRON RISKS
Health officials are racing to determine how transmissible and deadly the new Omicron variant is and to what extent current vaccines remain protective.
The United States has imposed a travel ban on some southern African nations where the strain is prevalent.
The Delta variant dented the U.S. economy over the summer, slowing employment gains amid workers' fears of contracting the virus and exacerbating supply chain snags that have driven up inflation.
"It's really about transmissibility, it's about the ability of the vaccines to address any new variant, it's about the severity of the disease once it's contracted ... I am told by experts we'll know quite a bit about those answers within about a month," Powell said in his testimony.
"We'll know something, though, within a week to 10 days."
"Then and only then can we make an assessment of what the impact would be on the economy ..."
"For now, it's a risk to the baseline, it’s not really baked into our forecast."
Nonetheless, Powell acknowledged that Omicron is elevating the uncertainty around the outlook for the economy - and potentially adding to inflation risks - though he said he does not think its effects will be "remotely comparable" to March 2020 when the pandemic cast the economy into a short but historically deep recession.
Powell is scheduled to testify on Wednesday before the U.S. House of Representatives Financial Services Committee.
Additional reporting by Jonnelle Marte in New York and Karen Pierog in Chicago; Writing by Dan Burns; Editing by Richard Pullin and Paul Simao
https://www.reuters.com/markets/us/powe ... 021-11-30/
Re: THE FEDERAL RESERVE
REUTERS
"Transitory inflation blues: Don't ask Jay and the band to play that one again"
By Reuters Staff
NOVEMBER 30, 2021
(Reuters) - It was the Federal Reserve’s word du jour for most of 2021, but “transitory” looks like it will soon be set out at the curb along with the rest of the year-end holiday scraps.
“Transitory” has been the U.S. central bank’s - and most notably Fed Chair Jerome Powell’s - preferred adjective for describing the nature of this year’s run of high inflation.
It was meant to convey the expectation that it was rooted in factors such as pandemic-related supply-chain kinks rather than those that would lead the rapid pace of price increases to become entrenched.
It appears to have first popped into Powell’s lexicon as “transient” at his final news conference of 2020 and transitioned to “transitory” in early 2021 as he discussed what was then expected to be a short-lived run of higher year-over-year inflation readings driven by “base effects” - or the comparison with pandemic-suppressed data in the previous year.
“I would note that a transitory rise in inflation above 2%, as seems likely to occur this year, would not meet this standard,” Powell said on March 17 when discussing whether the coming wave of inflation would be sufficient to meet the central bank’s three-part test for an eventual increase in interest rates.
By April, the term had become enshrined in the statement issued at the end of each of the Fed’s two-day policy meetings, and it has remained there since, although a number of Powell’s colleagues have grown disdainful of its usage in recent months.
Now, though, with inflation at the highest level in three decades and running at least twice the Fed’s targeted rate for six straight months, even Powell says it is time to show the house guest the door.
“I think the word ‘transitory’ has different meanings to different people,” Powell told the U.S. Senate Banking Committee on Tuesday when asked about his persistent use of the word.
“To many it carries a sense of short-lived."
"We tended to use it to mean that it won’t leave a permanent mark in the form of higher inflation.”
“I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
Reporting by Dan Burns; Editing by Chizu Nomiyama and Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2SL2PP
"Transitory inflation blues: Don't ask Jay and the band to play that one again"
By Reuters Staff
NOVEMBER 30, 2021
(Reuters) - It was the Federal Reserve’s word du jour for most of 2021, but “transitory” looks like it will soon be set out at the curb along with the rest of the year-end holiday scraps.
“Transitory” has been the U.S. central bank’s - and most notably Fed Chair Jerome Powell’s - preferred adjective for describing the nature of this year’s run of high inflation.
It was meant to convey the expectation that it was rooted in factors such as pandemic-related supply-chain kinks rather than those that would lead the rapid pace of price increases to become entrenched.
It appears to have first popped into Powell’s lexicon as “transient” at his final news conference of 2020 and transitioned to “transitory” in early 2021 as he discussed what was then expected to be a short-lived run of higher year-over-year inflation readings driven by “base effects” - or the comparison with pandemic-suppressed data in the previous year.
“I would note that a transitory rise in inflation above 2%, as seems likely to occur this year, would not meet this standard,” Powell said on March 17 when discussing whether the coming wave of inflation would be sufficient to meet the central bank’s three-part test for an eventual increase in interest rates.
By April, the term had become enshrined in the statement issued at the end of each of the Fed’s two-day policy meetings, and it has remained there since, although a number of Powell’s colleagues have grown disdainful of its usage in recent months.
Now, though, with inflation at the highest level in three decades and running at least twice the Fed’s targeted rate for six straight months, even Powell says it is time to show the house guest the door.
“I think the word ‘transitory’ has different meanings to different people,” Powell told the U.S. Senate Banking Committee on Tuesday when asked about his persistent use of the word.
“To many it carries a sense of short-lived."
"We tended to use it to mean that it won’t leave a permanent mark in the form of higher inflation.”
“I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
Reporting by Dan Burns; Editing by Chizu Nomiyama and Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2SL2PP
Re: THE FEDERAL RESERVE
REUTERS
With inflation risks rising, Fed's Powell prepares for possible pivot"
By Jonnelle Marte and Lindsay Dunsmuir
December 1, 2021
NEW YORK, Dec 1 (Reuters) - The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Federal Reserve Chair Jerome Powell said on Wednesday.
In his second day of testimony in Congress, Powell reiterated that he and fellow policymakers will consider at their upcoming meeting a faster wind-down to the Fed's bond-buying program, a move widely seen as opening the door to earlier interest rates hikes.
With very strong consumer demand colliding with persistent supply chain problems, the Fed may be nearing the time when it must choose between aiming for full employment and keeping inflation in check.
On Tuesday, Powell said he thinks it's likely that inflation will come down "meaningfully" in the second half of next year as supply chains get fixed, but "the risks of higher inflation have moved up."
"We have to use our policy to address the range of plausible outcomes, not just the most likely one," he told the U.S. House of Representatives Financial Services Committee.
As if to underscore those concerns, a survey published Wednesday by the Federal Reserve showed firms across the country are increasingly grappling with higher prices and scrambling to fill jobs amid labor shortages, though they are able in many cases to pass on higher costs to customers, with little resistance.
"Nearly all Districts reported robust wage growth," according to the Fed's Beige Book, an anecdotal survey of businesses in the Fed's 12 districts. read more
Soon after Powell's appearance in Congress alongside Treasury Secretary Janet Yellen, public health officials announced the first known U.S. case of a patient with the Omicron COVID-19 variant, suspected of being more infectious than prior strains of the coronavirus.
Though lawmakers asked Powell no questions about how the new variant might change the economic outlook or the Fed's policy response, New York Fed President John Williams told the New York Times in an interview published Wednesday that it could both slow economic activity and exacerbate inflationary pressures.
That daunting combination could add to the challenges Fed policymakers face as they calibrate their response to the good news from a strengthening economy, the bad news of a possible new COVID-19 surge, and inflation that is persisting longer and staying higher than expected.
Last month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to end purchases by mid-2022.
The program was introduced in early 2020 to help nurse the economy through the pandemic.
Powell repeated Tuesday that policymakers would discuss at their Dec. 14-15 meeting whether to end that program a few months earlier in light of the strength of the economy.
TENSION
Powell said the U.S. recovery is stronger than those of other major economies, thanks in part to more robust fiscal support.
U.S. consumer spending surged in October and first-time applications for unemployment benefits are at a 52-year low, leading economists to raise their GDP growth estimates for the fourth quarter.
Still, consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue.
The Omicron variant is also creating more uncertainty for households and businesses.
Powell said Fed officials are monitoring the evolving economic landscape and acknowledged they might face "tension" as they pursue the U.S. central bank's dual mandate of achieving maximum employment and price stability.
"We have to balance those two goals when they are in tension, as they are right now," Powell said.
"But I assure you we will use our tools to make sure that this high inflation we are experiencing does not become entrenched."
Powell noted that wages have been rising, particularly for low-wage workers, and said the Fed is tracking the increases.
"We have seen wages moving up significantly," Powell said.
"We don’t see them moving up at a troubling rate that would tend to spark higher inflation, but that’s something we’re watching very carefully."
Reporting by Jonnelle Marte and Lindsay Dunsmuir; Additional reporting by Ann Saphir and Lucia Mutikani Editing by Leslie Adler
https://www.reuters.com/world/us/feds-p ... 021-12-01/
With inflation risks rising, Fed's Powell prepares for possible pivot"
By Jonnelle Marte and Lindsay Dunsmuir
December 1, 2021
NEW YORK, Dec 1 (Reuters) - The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Federal Reserve Chair Jerome Powell said on Wednesday.
In his second day of testimony in Congress, Powell reiterated that he and fellow policymakers will consider at their upcoming meeting a faster wind-down to the Fed's bond-buying program, a move widely seen as opening the door to earlier interest rates hikes.
With very strong consumer demand colliding with persistent supply chain problems, the Fed may be nearing the time when it must choose between aiming for full employment and keeping inflation in check.
On Tuesday, Powell said he thinks it's likely that inflation will come down "meaningfully" in the second half of next year as supply chains get fixed, but "the risks of higher inflation have moved up."
"We have to use our policy to address the range of plausible outcomes, not just the most likely one," he told the U.S. House of Representatives Financial Services Committee.
As if to underscore those concerns, a survey published Wednesday by the Federal Reserve showed firms across the country are increasingly grappling with higher prices and scrambling to fill jobs amid labor shortages, though they are able in many cases to pass on higher costs to customers, with little resistance.
"Nearly all Districts reported robust wage growth," according to the Fed's Beige Book, an anecdotal survey of businesses in the Fed's 12 districts. read more
Soon after Powell's appearance in Congress alongside Treasury Secretary Janet Yellen, public health officials announced the first known U.S. case of a patient with the Omicron COVID-19 variant, suspected of being more infectious than prior strains of the coronavirus.
Though lawmakers asked Powell no questions about how the new variant might change the economic outlook or the Fed's policy response, New York Fed President John Williams told the New York Times in an interview published Wednesday that it could both slow economic activity and exacerbate inflationary pressures.
That daunting combination could add to the challenges Fed policymakers face as they calibrate their response to the good news from a strengthening economy, the bad news of a possible new COVID-19 surge, and inflation that is persisting longer and staying higher than expected.
Last month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to end purchases by mid-2022.
The program was introduced in early 2020 to help nurse the economy through the pandemic.
Powell repeated Tuesday that policymakers would discuss at their Dec. 14-15 meeting whether to end that program a few months earlier in light of the strength of the economy.
TENSION
Powell said the U.S. recovery is stronger than those of other major economies, thanks in part to more robust fiscal support.
U.S. consumer spending surged in October and first-time applications for unemployment benefits are at a 52-year low, leading economists to raise their GDP growth estimates for the fourth quarter.
Still, consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue.
The Omicron variant is also creating more uncertainty for households and businesses.
Powell said Fed officials are monitoring the evolving economic landscape and acknowledged they might face "tension" as they pursue the U.S. central bank's dual mandate of achieving maximum employment and price stability.
"We have to balance those two goals when they are in tension, as they are right now," Powell said.
"But I assure you we will use our tools to make sure that this high inflation we are experiencing does not become entrenched."
Powell noted that wages have been rising, particularly for low-wage workers, and said the Fed is tracking the increases.
"We have seen wages moving up significantly," Powell said.
"We don’t see them moving up at a troubling rate that would tend to spark higher inflation, but that’s something we’re watching very carefully."
Reporting by Jonnelle Marte and Lindsay Dunsmuir; Additional reporting by Ann Saphir and Lucia Mutikani Editing by Leslie Adler
https://www.reuters.com/world/us/feds-p ... 021-12-01/
Re: THE FEDERAL RESERVE
REUTERS
"U.S. economy gaining steam as manufacturing forges ahead; shortages still a constraint"
By Lucia Mutikani
December 1, 2021
Summary
* Manufacturing activity picks up in November
* Signs supply constraints easing in a few industries
* Private payrolls increase 534,000
WASHINGTON, Dec 1 (Reuters) - U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.
Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month.
But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.
"Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
"There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues."
The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.
A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy.
Economists polled by Reuters had forecast the index rising to 61.0.
"The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement," said Timothy Fiore, ISM chair of the manufacturing business survey committee.
Global economies' simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.
The Federal Reserve's Beige Book on Wednesday described economic activity as growing at "a modest to moderate pace" during October and early November, but noted that "growth was constrained by supply chain disruptions and labor shortages."
All of the six largest manufacturing industries in the ISM survey, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.
Makers of computer and electronic products said "international component shortages continue to cause delays in completing customer orders."
Transport equipment manufacturers reported "large volume drops due to chip shortage."
Furniture producers said "business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor."
But there are some glimmers of hope.
Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products.
Supply of plastic resins is improving, accounts from electrical equipment, appliances and components, as well as plastics and rubber products manufacturers suggested.
The ISM survey's measure of supplier deliveries slipped to 72.2 from 75.6 in October.
A reading above 50% indicates slower deliveries.
The long delivery times kept inflation at the factory gate bubbling.
The survey's measure of prices paid by manufacturers fell to a still-high 82.4 from 85.7 in October.
Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.
Fed Chair Jerome Powell told lawmakers on Tuesday that "the risk of higher inflation has increased," adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.
The Fed's preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.
Stocks on Wall Street rebounded after Tuesday's sell-off.
The dollar was steady against a basket of currencies.
Prices for longer-dated U.S. Treasury prices rose.
STRONG ORDERS
The ISM survey's forward-looking new orders sub-index climbed to 61.5 last month from 59.8 in October.
Customer inventories remained depressed.
With demand robust, factories hired more workers.
A measure of manufacturing employment rose to a seven-month high.
Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October.
That was broadly in line with expectations.
This, combined with consumers' robust perceptions of the labor market last month suggest job growth accelerated further in November.
First-time applications for unemployment benefits declined between mid-October and mid-November.
But a shortage of workers caused by the pandemic is hindering faster job growth.
There were 10.4 million job openings at the end of September.
Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.
"Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November.
The economy created 531,000 jobs in October.
The Labor Department is scheduled to publish its closely watched employment report for November on Friday.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/us-p ... 021-12-01/
"U.S. economy gaining steam as manufacturing forges ahead; shortages still a constraint"
By Lucia Mutikani
December 1, 2021
Summary
* Manufacturing activity picks up in November
* Signs supply constraints easing in a few industries
* Private payrolls increase 534,000
WASHINGTON, Dec 1 (Reuters) - U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.
Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month.
But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.
"Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
"There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues."
The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.
A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy.
Economists polled by Reuters had forecast the index rising to 61.0.
"The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement," said Timothy Fiore, ISM chair of the manufacturing business survey committee.
Global economies' simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.
The Federal Reserve's Beige Book on Wednesday described economic activity as growing at "a modest to moderate pace" during October and early November, but noted that "growth was constrained by supply chain disruptions and labor shortages."
All of the six largest manufacturing industries in the ISM survey, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.
Makers of computer and electronic products said "international component shortages continue to cause delays in completing customer orders."
Transport equipment manufacturers reported "large volume drops due to chip shortage."
Furniture producers said "business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor."
But there are some glimmers of hope.
Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products.
Supply of plastic resins is improving, accounts from electrical equipment, appliances and components, as well as plastics and rubber products manufacturers suggested.
The ISM survey's measure of supplier deliveries slipped to 72.2 from 75.6 in October.
A reading above 50% indicates slower deliveries.
The long delivery times kept inflation at the factory gate bubbling.
The survey's measure of prices paid by manufacturers fell to a still-high 82.4 from 85.7 in October.
Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.
Fed Chair Jerome Powell told lawmakers on Tuesday that "the risk of higher inflation has increased," adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.
The Fed's preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.
Stocks on Wall Street rebounded after Tuesday's sell-off.
The dollar was steady against a basket of currencies.
Prices for longer-dated U.S. Treasury prices rose.
STRONG ORDERS
The ISM survey's forward-looking new orders sub-index climbed to 61.5 last month from 59.8 in October.
Customer inventories remained depressed.
With demand robust, factories hired more workers.
A measure of manufacturing employment rose to a seven-month high.
Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October.
That was broadly in line with expectations.
This, combined with consumers' robust perceptions of the labor market last month suggest job growth accelerated further in November.
First-time applications for unemployment benefits declined between mid-October and mid-November.
But a shortage of workers caused by the pandemic is hindering faster job growth.
There were 10.4 million job openings at the end of September.
Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.
"Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November.
The economy created 531,000 jobs in October.
The Labor Department is scheduled to publish its closely watched employment report for November on Friday.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/us-p ... 021-12-01/