REUTERS
"Fed's Daly says officials may need to start crafting plan for rate increase"
Reuters
December 2, 2021
Dec 2 (Reuters) - As Federal Reserve officials always need to be prepared for various economic scenarios and it might be time to start crafting a plan for raising interest rates to address above target inflation, San Francisco Fed President Mary Daly said on Thursday.
Fed officials might need to start dialing down some of the extra accommodation they're "giving to the economy and start crafting a plan to, at least, you know, think about raising the interest rate," Daly said during a virtual event organized by the Peterson Institute for International Economics.
Reporting by Jonnelle Marte
https://www.reuters.com/markets/us/feds ... 021-12-02/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Unfazed by Omicron, Fed policymakers show greater consensus for faster taper"
By Ann Saphir and Lindsay Dunsmuir, Jonnelle Marte
December 2, 2021
Dec 2 (Reuters) - Federal Reserve policymakers on Thursday sounded sanguine about the economic impact of the latest COVID-19 variant, but flagged rising inflation in remarks that suggested growing consensus for an earlier end to bond buys and, perhaps, earlier interest rate hikes next year.
Atlanta Fed President Raphael Bostic told the Reuters Next conference on Thursday it would be appropriate to end the central bank's bond-buying program by the end of March to allow the Fed to raise rates to deal with inflation.
The Fed, which began tapering its bond-buying last month at a pace that would end the program by June, is set to consider compressing that timeline when policymakers meet on Dec. 14 and 15.
With robust growth, an improving job market and inflation more than twice the Fed's 2% target, "I think having this finished some time before the end of the first quarter would be in our interest," Bostic said.
And if inflation continues as high as 4% through next year, as some forecasters project, "there’s going to be a good case to be made that we should be pulling forward more interest rate increases and perhaps even do more than the one I’ve penciled in."
Only half of Fed policymakers in September thought the Fed should start raising rates next year, with the rest expecting the first rate hike in 2023.
Since then, several appear to have moved their rate hike expectations earlier.
After this week's hawkish Fed commentary, rate futures traders now see the first Fed rate hike in May.
Though the new Omicron variant's severity and transmissibility will determine how afraid people are, Bostic said each successive wave of COVID-19 has led to milder economic slowdowns.
If that holds, the economy will continue to grow through it, he said.
Bostic is hardly the Fed's lone hawkish voice.
Earlier this week, Fed Chair Jerome Powell said he wants a faster taper timeline on the table at this month's meeting.
Bostic said he doesn't see "tension" between the Fed's two goals of price stability and full employment at the moment.
Once the Fed does start raising rates, he said, it will likely do so at a "slow and steady" pace.
Though if inflation does not recede as expected over the next year or two, it may need to "take more strident steps" to rein it in, he said.
But other Fed policymakers appear increasingly worried they may need to put the brakes on growth before the labor market has fully healed and millions of unemployed Americans find jobs.
“If we didn't have higher inflation readings, you might let the economy go a little bit more to see if we can get through COVID and have those individuals come back,” said San Francisco Fed President Mary Daly, who as recently as last month was calling for "patience" in the face of high inflation.
“Right now, we're dealing with inflation that's above our target and inconsistent in its current readings with our longer run views on price stability,” Daly said during a virtual event held by the Peterson Institute for International Economics.
“We have to deal with that.”
Speaking alongside Daly at the Peterson event, Richmond Fed President Thomas Barkin said it is important for the Fed to keep long-run inflation expectations anchored.
"I do take seriously actual inflation and its impact, and that's why I'm supportive of normalizing policy as we're doing," he said.
HAWKISH STANCE
Fed Governor Randal Quarles, in his final public appearance before leaving his post this month, took an even more hawkish stance.
He said at an American Enterprise Institute event he believes "sustained higher demand" is stoking inflation and the Fed should "constrain that demand" to allow supply chains to catch up.
Given strength of economic data, "I certainly would be supportive of moving the end of the taper forward," he said.
If inflation is still over 4% by next spring, the Fed would have to consider rate hikes, he said.
The Omicron variant could prolong some of the supply chain challenges.
"On the supply side, it means the inflationary pressures will probably persist even longer," Kristin Forbes, an economics professor at MIT's Sloan School of Management, told the Reuters Next conference.
Reporting by Ann Saphir, Lindsay Dunsmuir and Dan Burns; Editing by Chizu Nomyama and Cynthia Osterman
https://www.reuters.com/business/financ ... 021-12-02/
"Unfazed by Omicron, Fed policymakers show greater consensus for faster taper"
By Ann Saphir and Lindsay Dunsmuir, Jonnelle Marte
December 2, 2021
Dec 2 (Reuters) - Federal Reserve policymakers on Thursday sounded sanguine about the economic impact of the latest COVID-19 variant, but flagged rising inflation in remarks that suggested growing consensus for an earlier end to bond buys and, perhaps, earlier interest rate hikes next year.
Atlanta Fed President Raphael Bostic told the Reuters Next conference on Thursday it would be appropriate to end the central bank's bond-buying program by the end of March to allow the Fed to raise rates to deal with inflation.
The Fed, which began tapering its bond-buying last month at a pace that would end the program by June, is set to consider compressing that timeline when policymakers meet on Dec. 14 and 15.
With robust growth, an improving job market and inflation more than twice the Fed's 2% target, "I think having this finished some time before the end of the first quarter would be in our interest," Bostic said.
And if inflation continues as high as 4% through next year, as some forecasters project, "there’s going to be a good case to be made that we should be pulling forward more interest rate increases and perhaps even do more than the one I’ve penciled in."
Only half of Fed policymakers in September thought the Fed should start raising rates next year, with the rest expecting the first rate hike in 2023.
Since then, several appear to have moved their rate hike expectations earlier.
After this week's hawkish Fed commentary, rate futures traders now see the first Fed rate hike in May.
Though the new Omicron variant's severity and transmissibility will determine how afraid people are, Bostic said each successive wave of COVID-19 has led to milder economic slowdowns.
If that holds, the economy will continue to grow through it, he said.
Bostic is hardly the Fed's lone hawkish voice.
Earlier this week, Fed Chair Jerome Powell said he wants a faster taper timeline on the table at this month's meeting.
Bostic said he doesn't see "tension" between the Fed's two goals of price stability and full employment at the moment.
Once the Fed does start raising rates, he said, it will likely do so at a "slow and steady" pace.
Though if inflation does not recede as expected over the next year or two, it may need to "take more strident steps" to rein it in, he said.
But other Fed policymakers appear increasingly worried they may need to put the brakes on growth before the labor market has fully healed and millions of unemployed Americans find jobs.
“If we didn't have higher inflation readings, you might let the economy go a little bit more to see if we can get through COVID and have those individuals come back,” said San Francisco Fed President Mary Daly, who as recently as last month was calling for "patience" in the face of high inflation.
“Right now, we're dealing with inflation that's above our target and inconsistent in its current readings with our longer run views on price stability,” Daly said during a virtual event held by the Peterson Institute for International Economics.
“We have to deal with that.”
Speaking alongside Daly at the Peterson event, Richmond Fed President Thomas Barkin said it is important for the Fed to keep long-run inflation expectations anchored.
"I do take seriously actual inflation and its impact, and that's why I'm supportive of normalizing policy as we're doing," he said.
HAWKISH STANCE
Fed Governor Randal Quarles, in his final public appearance before leaving his post this month, took an even more hawkish stance.
He said at an American Enterprise Institute event he believes "sustained higher demand" is stoking inflation and the Fed should "constrain that demand" to allow supply chains to catch up.
Given strength of economic data, "I certainly would be supportive of moving the end of the taper forward," he said.
If inflation is still over 4% by next spring, the Fed would have to consider rate hikes, he said.
The Omicron variant could prolong some of the supply chain challenges.
"On the supply side, it means the inflationary pressures will probably persist even longer," Kristin Forbes, an economics professor at MIT's Sloan School of Management, told the Reuters Next conference.
Reporting by Ann Saphir, Lindsay Dunsmuir and Dan Burns; Editing by Chizu Nomyama and Cynthia Osterman
https://www.reuters.com/business/financ ... 021-12-02/
Re: THE FEDERAL RESERVE
CNBC
"Job growth disappoints in November, with a gain of just 210,000, despite high hopes"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, DEC 3 2021
KEY POINTS
* Nonfarm payrolls increased by 210,000 in November, following a gain of 546,000 the previous month.
* The number was well below Wall Street expectations of 573,000.
* Despite the big hiring miss, the unemployment rate fell to 4.2%, a 0.4% percentage point decline that came even with rising labor force participation.
* Professional and business services and transportation and warehousing led gains, while hiring in leisure and hospitality was sluggish and retail lost jobs despite the traditional holiday hiring season.
The U.S. economy created far fewer jobs than expected in November, in a sign that hiring started to slow even ahead of the new Covid threat, the Labor Department reported Friday.
Nonfarm payrolls increased by just 210,000 for the month, though the unemployment rate fell sharply to 4.2% from 4.6%, even though the labor force participation rate increased for the month to 61.8%, its highest level since March 2020.
The Dow Jones estimate was for 573,000 new jobs and a jobless level of 4.5% for an economy beset by a chronic labor shortage.
A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped even more, tumbling to 7.8% from 8.3%.
The household survey painted a brighter picture, with an addition of 1.1 million jobs as the labor force increased by 594,000.
“This report is a tale of two surveys,” said Nick Bunker, economic research director at jobs placement site Indeed.
“The household survey shows accelerating employment gains, workers returning to the labor force, and low levels of involuntary part-time work."
"The payroll survey shows a significant deceleration in job growth, particularly in COVID-affected sectors.”
“The underlying momentum of the labor market is still strong, but this month shows more uncertainty than expected,” he added.
Leisure and hospitality, which includes bars, restaurants, hotels and similar businesses, saw a gain of just 23,000 after being a leading job creator for much of the recovery.
Though the sector has regained nearly 7 million of the jobs lost at the depths of the pandemic, it remains about 1.3 million below its February 2020 level, with an unemployment rate stuck at 7.5%.
Following the disappointment, markets initially shrugged off the numbers, but then turned negative after the open.
Initial jobs tallies this year have seen substantial revisions, with months showing low counts initially often bumped higher.
The October and September estimates were moved up a combined 82,000 in the report released Friday.
Sectors showing the biggest gains in November included professional and business services (90,000), transportation and warehousing (50,000) and construction (31,000).
Even with the holiday shopping season approaching, retail saw a decline of 20,000.
Worker wages climbed for the month, rising 0.26% in November and 4.8% from a year ago.
Both numbers were slightly below estimates.
Fed ready to change policy
Policymakers have been watching the employment figures closely to gauge how close the economy is to a full recovery from the depths of the pandemic.
The U.S. suffered its shortest but steepest recession in the early days of the Covid-19 breakout and has been on a progressive but volatile path since.
Federal Reserve officials put a new wrinkle into the picture this week when they indicated that the measures they instituted to support growth could be coming to an end sooner than expected.
In congressional testimony earlier in the week, Fed Chairman Jerome Powell said he expects the central bank’s policy committee to discuss at its meeting this month stepping up the level at which it is tapering its monthly bond purchases.
Powell said he sees the unwinding to conclude “a few months” sooner than expected, a move that would open the possibility for interest rate hikes.
“The disappointing 210,000 gain in non-farm payrolls in November suggests the labor market recovery was faltering even before the potential impact of the new Omicron variant, possibly as a result of the rising infection rates in the Northeast and Midwest,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.
“Nevertheless, the Fed will still push ahead with its plans to accelerate the pace of its QE taper at this month’s FOMC meeting.”
San Francisco Fed President Mary Daly backed up Powell’s comments in remarks Thursday, saying that inflation that is stronger and more durable than expected is creating the need to rethink policy.
She said the Fed should “at least, you know, think about raising the interest rate” and accelerating the taper pace.
Daly also hinted that the summary of economic projections to be released this month, in which officials show their expectations for the future, likely will point to interest rate hikes pulled forward into 2022.
Markets currently expect the Fed to enact at least two quarter-percentage point increases next year.
St. Louis Fed President James Bullard added to the chorus on Friday, saying the economy as measured by GDP has recovered fully and can operate with less policy stimulus, particularly considering the pace at which inflation is running.
“These considerations suggest, on balance, that the Federal Open Market Committee should remove monetary policy accommodation,” Bullard said.
https://www.cnbc.com/2021/12/03/jobs-re ... -2021.html
"Job growth disappoints in November, with a gain of just 210,000, despite high hopes"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, DEC 3 2021
KEY POINTS
* Nonfarm payrolls increased by 210,000 in November, following a gain of 546,000 the previous month.
* The number was well below Wall Street expectations of 573,000.
* Despite the big hiring miss, the unemployment rate fell to 4.2%, a 0.4% percentage point decline that came even with rising labor force participation.
* Professional and business services and transportation and warehousing led gains, while hiring in leisure and hospitality was sluggish and retail lost jobs despite the traditional holiday hiring season.
The U.S. economy created far fewer jobs than expected in November, in a sign that hiring started to slow even ahead of the new Covid threat, the Labor Department reported Friday.
Nonfarm payrolls increased by just 210,000 for the month, though the unemployment rate fell sharply to 4.2% from 4.6%, even though the labor force participation rate increased for the month to 61.8%, its highest level since March 2020.
The Dow Jones estimate was for 573,000 new jobs and a jobless level of 4.5% for an economy beset by a chronic labor shortage.
A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped even more, tumbling to 7.8% from 8.3%.
The household survey painted a brighter picture, with an addition of 1.1 million jobs as the labor force increased by 594,000.
“This report is a tale of two surveys,” said Nick Bunker, economic research director at jobs placement site Indeed.
“The household survey shows accelerating employment gains, workers returning to the labor force, and low levels of involuntary part-time work."
"The payroll survey shows a significant deceleration in job growth, particularly in COVID-affected sectors.”
“The underlying momentum of the labor market is still strong, but this month shows more uncertainty than expected,” he added.
Leisure and hospitality, which includes bars, restaurants, hotels and similar businesses, saw a gain of just 23,000 after being a leading job creator for much of the recovery.
Though the sector has regained nearly 7 million of the jobs lost at the depths of the pandemic, it remains about 1.3 million below its February 2020 level, with an unemployment rate stuck at 7.5%.
Following the disappointment, markets initially shrugged off the numbers, but then turned negative after the open.
Initial jobs tallies this year have seen substantial revisions, with months showing low counts initially often bumped higher.
The October and September estimates were moved up a combined 82,000 in the report released Friday.
Sectors showing the biggest gains in November included professional and business services (90,000), transportation and warehousing (50,000) and construction (31,000).
Even with the holiday shopping season approaching, retail saw a decline of 20,000.
Worker wages climbed for the month, rising 0.26% in November and 4.8% from a year ago.
Both numbers were slightly below estimates.
Fed ready to change policy
Policymakers have been watching the employment figures closely to gauge how close the economy is to a full recovery from the depths of the pandemic.
The U.S. suffered its shortest but steepest recession in the early days of the Covid-19 breakout and has been on a progressive but volatile path since.
Federal Reserve officials put a new wrinkle into the picture this week when they indicated that the measures they instituted to support growth could be coming to an end sooner than expected.
In congressional testimony earlier in the week, Fed Chairman Jerome Powell said he expects the central bank’s policy committee to discuss at its meeting this month stepping up the level at which it is tapering its monthly bond purchases.
Powell said he sees the unwinding to conclude “a few months” sooner than expected, a move that would open the possibility for interest rate hikes.
“The disappointing 210,000 gain in non-farm payrolls in November suggests the labor market recovery was faltering even before the potential impact of the new Omicron variant, possibly as a result of the rising infection rates in the Northeast and Midwest,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.
“Nevertheless, the Fed will still push ahead with its plans to accelerate the pace of its QE taper at this month’s FOMC meeting.”
San Francisco Fed President Mary Daly backed up Powell’s comments in remarks Thursday, saying that inflation that is stronger and more durable than expected is creating the need to rethink policy.
She said the Fed should “at least, you know, think about raising the interest rate” and accelerating the taper pace.
Daly also hinted that the summary of economic projections to be released this month, in which officials show their expectations for the future, likely will point to interest rate hikes pulled forward into 2022.
Markets currently expect the Fed to enact at least two quarter-percentage point increases next year.
St. Louis Fed President James Bullard added to the chorus on Friday, saying the economy as measured by GDP has recovered fully and can operate with less policy stimulus, particularly considering the pace at which inflation is running.
“These considerations suggest, on balance, that the Federal Open Market Committee should remove monetary policy accommodation,” Bullard said.
https://www.cnbc.com/2021/12/03/jobs-re ... -2021.html
Re: THE FEDERAL RESERVE
CNBC
"Powell’s fourth major shift raises questions about the Fed’s policy credibility"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, DEC 8 2021
KEY POINTS
* The Fed is expected to say next week it will double the pace of its bond purchase taper, while also likely hinting at more aggressive rate hikes in 2022.
* If it meets those expectations, it will mark at least the fourth significant policy change under Chairman Jerome Powell’s leadership.
* With policy so unpredictable and forecasts proving often unreliable, the Fed could be facing a substantial credibility challenge.
If the Federal Reserve meets expectations next week and announces a more aggressive unwind of the measures taken to boost the economy, it will mark an important policy shift for the U.S. central bank and Chairman Jerome Powell.
Again.
The Powell Fed, in fact, has become almost as known for its abrupt changes in direction as it has for the unprecedented levels of stimulus it has provided during the pandemic.
“What the Fed has proven is the difficulty in forecasting by both committee and consensus,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former head of the National Economic Council under former President Donald Trump.
“In market parlance, the Fed has bought the high and sold the low."
"So I do think there will be a credibility issue going forward.”
At its two-day meeting next week, the Fed is expected to say it will double the pace of its bond purchase taper, while also likely hinting at more aggressive interest rate hikes coming in 2022.
The moves are coming in response to inflation that is stronger and longer-lasting than Fed officials had anticipated.
But LaVorgna worries that the Fed, after months of calling inflation “transitory,” is now making the mistake of overestimating its duration and tightening at the wrong time.
That could necessitate officials again having to change back next year, if the current inflation trend runs out of steam.
A history of pivots
This would be at least the fourth such shift for an institution that prides itself on forecasts and communication, providing what it hopes to be a reliable road map for market participants and the public.
But the whipsaw nature of the U.S. economy has wreaked havoc.
A Fed committed to raising — or “normalizing” — interest rates in 2018 had to change its tune the following year when global weakness came calling.
The central bank then closed 2019 with Powell and his colleagues insisting they had cut enough and were confident that rates would hold steady for the foreseeable future.
The pandemic changed all that in 2020, forcing rate cuts and expansive monetary policy that eventually would see the Fed expand its balance sheet by more than $4 trillion.
Later that year, though, the Fed would step in again and announce a paradigm shift in which it would focus more of its efforts on jobs and be willing to tolerate higher inflation.
The Fed pledged it would keep policy easy until it had made “substantial further progress” toward employment that was not only full but also inclusive across gender, race and income.
It’s that last move that brings the Fed to its current crossroads: With price increases running at more than 30-year highs, the Fed is now expected to resume its role as an inflation fighter.
Where once market participants talked about the “Powell Put,” or the Fed’s willingness to put a policy floor under market drops, the new conversation could be about the “Powell Pivot.”
But with policy so unpredictable and forecasts often proving unreliable, the Fed could be facing a substantial credibility challenge as it shifts gears once more.
‘The world is shifting’
“This has eerie similarities to December 2018 in the sense that the Fed is saying one thing and the markets are saying another,” LaVorgna said, referring to the Fed’s last rate-hiking cycle that ended with the worst-ever Christmas Eve sell-off on Wall Street.
Indeed, for all the talk of rate hikes looming next spring after the Fed winds down its monthly bond-buying program, Treasury yields have held remarkably steady.
The bond market has also taken down its 5- and 10-year inflation expectations, albeit from historical highs in mid-November.
However, traders have pulled forward the timing of those hikes, expecting two — and maybe three —quarter-percentage-point increases in 2022.
More broadly, stocks stumbled through November — mostly on pandemic fears — but the Fed’s policy churns don’t seem to be bother too many investors.
“I think it adds to their credibility."
"The world is shifting underneath them,” Moody’s Analytics chief economist Mark Zandi said.
“The Fed is doing exactly what it has to do."
"It’s trying to thread the needle.”
Powell has been able to forge consensus on moving more quickly to wind down the extremely accommodative monetary policy stance of the pandemic era.
Last week, he engaged in a sense of economic diplomacy by saying it was time to retire “transitory” to describe inflation.
Even some of the more dovish Fed members, or those in favor of easier policy, have conceded that it’s time to tap the brakes.
San Francisco Fed President Mary Daly went from saying in mid-November that “the best policy is recognizing the need to wait,” to noting last week that tapering asset purchases is “certainly something that I would anticipate that we could see” as well as raising rates sooner than the Fed consensus indicated in September.
“The pandemic has just completely upended and scrambled everything over and over again,” Zandi said.
“It would be shocking if investors didn’t have a higher level of uncertainty at this point given all that is going on."
"Investors seem to be of one mind, which is to buy.”
In fact, Zandi said a little less clarity about policy might not be such a bad thing, in light of how high stock market valuations are.
Where Alan Greenspan’s Fed always kept the markets guessing about what it was doing, the Powell Fed has been ultra-transparent, seeking to telegraph all its moves that usually are geared toward supporting financial conditions, no matter how frothy.
“If I had a criticism, I think they’re a little too focused on what investors think,” Zandi said.
“They’re following."
"I think they’ve got to lead a little bit more.”
https://www.cnbc.com/2021/12/08/another ... ility.html
"Powell’s fourth major shift raises questions about the Fed’s policy credibility"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, DEC 8 2021
KEY POINTS
* The Fed is expected to say next week it will double the pace of its bond purchase taper, while also likely hinting at more aggressive rate hikes in 2022.
* If it meets those expectations, it will mark at least the fourth significant policy change under Chairman Jerome Powell’s leadership.
* With policy so unpredictable and forecasts proving often unreliable, the Fed could be facing a substantial credibility challenge.
If the Federal Reserve meets expectations next week and announces a more aggressive unwind of the measures taken to boost the economy, it will mark an important policy shift for the U.S. central bank and Chairman Jerome Powell.
Again.
The Powell Fed, in fact, has become almost as known for its abrupt changes in direction as it has for the unprecedented levels of stimulus it has provided during the pandemic.
“What the Fed has proven is the difficulty in forecasting by both committee and consensus,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former head of the National Economic Council under former President Donald Trump.
“In market parlance, the Fed has bought the high and sold the low."
"So I do think there will be a credibility issue going forward.”
At its two-day meeting next week, the Fed is expected to say it will double the pace of its bond purchase taper, while also likely hinting at more aggressive interest rate hikes coming in 2022.
The moves are coming in response to inflation that is stronger and longer-lasting than Fed officials had anticipated.
But LaVorgna worries that the Fed, after months of calling inflation “transitory,” is now making the mistake of overestimating its duration and tightening at the wrong time.
That could necessitate officials again having to change back next year, if the current inflation trend runs out of steam.
A history of pivots
This would be at least the fourth such shift for an institution that prides itself on forecasts and communication, providing what it hopes to be a reliable road map for market participants and the public.
But the whipsaw nature of the U.S. economy has wreaked havoc.
A Fed committed to raising — or “normalizing” — interest rates in 2018 had to change its tune the following year when global weakness came calling.
The central bank then closed 2019 with Powell and his colleagues insisting they had cut enough and were confident that rates would hold steady for the foreseeable future.
The pandemic changed all that in 2020, forcing rate cuts and expansive monetary policy that eventually would see the Fed expand its balance sheet by more than $4 trillion.
Later that year, though, the Fed would step in again and announce a paradigm shift in which it would focus more of its efforts on jobs and be willing to tolerate higher inflation.
The Fed pledged it would keep policy easy until it had made “substantial further progress” toward employment that was not only full but also inclusive across gender, race and income.
It’s that last move that brings the Fed to its current crossroads: With price increases running at more than 30-year highs, the Fed is now expected to resume its role as an inflation fighter.
Where once market participants talked about the “Powell Put,” or the Fed’s willingness to put a policy floor under market drops, the new conversation could be about the “Powell Pivot.”
But with policy so unpredictable and forecasts often proving unreliable, the Fed could be facing a substantial credibility challenge as it shifts gears once more.
‘The world is shifting’
“This has eerie similarities to December 2018 in the sense that the Fed is saying one thing and the markets are saying another,” LaVorgna said, referring to the Fed’s last rate-hiking cycle that ended with the worst-ever Christmas Eve sell-off on Wall Street.
Indeed, for all the talk of rate hikes looming next spring after the Fed winds down its monthly bond-buying program, Treasury yields have held remarkably steady.
The bond market has also taken down its 5- and 10-year inflation expectations, albeit from historical highs in mid-November.
However, traders have pulled forward the timing of those hikes, expecting two — and maybe three —quarter-percentage-point increases in 2022.
More broadly, stocks stumbled through November — mostly on pandemic fears — but the Fed’s policy churns don’t seem to be bother too many investors.
“I think it adds to their credibility."
"The world is shifting underneath them,” Moody’s Analytics chief economist Mark Zandi said.
“The Fed is doing exactly what it has to do."
"It’s trying to thread the needle.”
Powell has been able to forge consensus on moving more quickly to wind down the extremely accommodative monetary policy stance of the pandemic era.
Last week, he engaged in a sense of economic diplomacy by saying it was time to retire “transitory” to describe inflation.
Even some of the more dovish Fed members, or those in favor of easier policy, have conceded that it’s time to tap the brakes.
San Francisco Fed President Mary Daly went from saying in mid-November that “the best policy is recognizing the need to wait,” to noting last week that tapering asset purchases is “certainly something that I would anticipate that we could see” as well as raising rates sooner than the Fed consensus indicated in September.
“The pandemic has just completely upended and scrambled everything over and over again,” Zandi said.
“It would be shocking if investors didn’t have a higher level of uncertainty at this point given all that is going on."
"Investors seem to be of one mind, which is to buy.”
In fact, Zandi said a little less clarity about policy might not be such a bad thing, in light of how high stock market valuations are.
Where Alan Greenspan’s Fed always kept the markets guessing about what it was doing, the Powell Fed has been ultra-transparent, seeking to telegraph all its moves that usually are geared toward supporting financial conditions, no matter how frothy.
“If I had a criticism, I think they’re a little too focused on what investors think,” Zandi said.
“They’re following."
"I think they’ve got to lead a little bit more.”
https://www.cnbc.com/2021/12/08/another ... ility.html
Re: THE FEDERAL RESERVE
CNBC
"‘6% inflation is devastating’ to everyday Americans, rising prices need to be curbed, expert says"
Annie Nova @ANNIEREPORTER
PUBLISHED WED, DEC 8 2021
KEY POINTS
* Inflation is here to stay, and the Federal Reserve is leaving the economy and everyday Americans at risk by keeping rates so low, one bond expert says.
* “Everyday Americans are having a very difficult time with food inflation, which is running very close to 30% and 40%,” said Gilbert Garcia, a managing partner at Garcia Hamilton & Associates.
Inflation is too high and the central bank needs to move quicker to get it under control by raising interest rates, said Gilbert Garcia, a managing partner at Garcia Hamilton & Associates in Houston.
“I wished we’d retire the word ‘transitory,’” Garcia said, at the CNBC Financial Advisor Summit on Wednesday, speaking of predictions that the recent rise in prices are temporary.
“Inflation is running at 6%, probably well over 6%, no matter how you look at it,” he added.
“It’s pretty clear that it’s longer than transitory and it’s much hotter than their inflationary target.”
He said it was time for the Federal Reserve to lift rates, saying that the government is currently keeping them “artificially low.”
The central bank has indicated that it could raise rates earlier than previously expected, with the first hike potentially coming as early as this spring.
Rates have been near zero since the pandemic began in the U.S. in March 2020.
Rising prices are most hurting those who can least afford it, Garcia added.
“Everyday Americans are having a very difficult time with food inflation, which is running very close to 30% and 40%,” he said.
“This 6% inflation is devastating,” Garcia said.
“We’ve got to get that inflation back to a more normal, containable level.”
https://www.cnbc.com/2021/12/08/6percen ... says-.html
"‘6% inflation is devastating’ to everyday Americans, rising prices need to be curbed, expert says"
Annie Nova @ANNIEREPORTER
PUBLISHED WED, DEC 8 2021
KEY POINTS
* Inflation is here to stay, and the Federal Reserve is leaving the economy and everyday Americans at risk by keeping rates so low, one bond expert says.
* “Everyday Americans are having a very difficult time with food inflation, which is running very close to 30% and 40%,” said Gilbert Garcia, a managing partner at Garcia Hamilton & Associates.
Inflation is too high and the central bank needs to move quicker to get it under control by raising interest rates, said Gilbert Garcia, a managing partner at Garcia Hamilton & Associates in Houston.
“I wished we’d retire the word ‘transitory,’” Garcia said, at the CNBC Financial Advisor Summit on Wednesday, speaking of predictions that the recent rise in prices are temporary.
“Inflation is running at 6%, probably well over 6%, no matter how you look at it,” he added.
“It’s pretty clear that it’s longer than transitory and it’s much hotter than their inflationary target.”
He said it was time for the Federal Reserve to lift rates, saying that the government is currently keeping them “artificially low.”
The central bank has indicated that it could raise rates earlier than previously expected, with the first hike potentially coming as early as this spring.
Rates have been near zero since the pandemic began in the U.S. in March 2020.
Rising prices are most hurting those who can least afford it, Garcia added.
“Everyday Americans are having a very difficult time with food inflation, which is running very close to 30% and 40%,” he said.
“This 6% inflation is devastating,” Garcia said.
“We’ve got to get that inflation back to a more normal, containable level.”
https://www.cnbc.com/2021/12/08/6percen ... says-.html
Re: THE FEDERAL RESERVE
REUTERS
"U.S. household wealth increase in Q3 smallest of pandemic era, Fed says"
Reuters
December 9, 2021
Dec 9 (Reuters) - U.S. household wealth rose to a record $144.7 trillion at the end of the third quarter, a report from the Federal Reserve showed on Thursday, though the $2.4 trillion gain over the period was the smallest since the rebound from the coronavirus pandemic began.
Real estate values added around $1.4 trillion to overall wealth, according to the U.S. central bank's latest quarterly report on household, business and government financial accounts.
The value of equities held by households and nonprofits fell by $300 billion.
The slower growth in U.S. household wealth suggests the boost from an unprecedented period of easy monetary policy and a fiscal firehose of aid initiated by former President Donald Trump and extended under President Joe Biden has begun to wane.
During the third quarter, fiscal supports including pandemic unemployment benefits and mortgage forbearance expired, and a surge in COVID-19 infections peaked and then receded.
The Fed's quarterly report reflects the reduction in new government aid, with federal government debt dropping at an annualized rate of 1.3%, the first decline in the pandemic era.
Still, the imprint of government aid is large: compared with the first quarter of 2020, U.S. household wealth is up nearly 31%, a much bigger and quicker gain than after the 2007-2009 recession.
The report does not reflect the breakdown of gains by income, but a large part was driven by rising home values and the stock market, benefiting households with such assets rather than those at the bottom of the income spectrum.
The amount held in household savings deposits rose to $10.7 trillion in the third quarter from $10.6 trillion at the end of the second quarter.
Balances in checking accounts increased to $3.71 trillion from $3.67 trillion in the second quarter, the report showed.
Household debt grew at an annualized rate of 6.2% in the third quarter, compared to 7.8% in the second quarter.
Non-financial business debt accelerated to an annualized rate of 3.9%, from 1.8% in the second quarter.
Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/business/us-hou ... 021-12-09/
"U.S. household wealth increase in Q3 smallest of pandemic era, Fed says"
Reuters
December 9, 2021
Dec 9 (Reuters) - U.S. household wealth rose to a record $144.7 trillion at the end of the third quarter, a report from the Federal Reserve showed on Thursday, though the $2.4 trillion gain over the period was the smallest since the rebound from the coronavirus pandemic began.
Real estate values added around $1.4 trillion to overall wealth, according to the U.S. central bank's latest quarterly report on household, business and government financial accounts.
The value of equities held by households and nonprofits fell by $300 billion.
The slower growth in U.S. household wealth suggests the boost from an unprecedented period of easy monetary policy and a fiscal firehose of aid initiated by former President Donald Trump and extended under President Joe Biden has begun to wane.
During the third quarter, fiscal supports including pandemic unemployment benefits and mortgage forbearance expired, and a surge in COVID-19 infections peaked and then receded.
The Fed's quarterly report reflects the reduction in new government aid, with federal government debt dropping at an annualized rate of 1.3%, the first decline in the pandemic era.
Still, the imprint of government aid is large: compared with the first quarter of 2020, U.S. household wealth is up nearly 31%, a much bigger and quicker gain than after the 2007-2009 recession.
The report does not reflect the breakdown of gains by income, but a large part was driven by rising home values and the stock market, benefiting households with such assets rather than those at the bottom of the income spectrum.
The amount held in household savings deposits rose to $10.7 trillion in the third quarter from $10.6 trillion at the end of the second quarter.
Balances in checking accounts increased to $3.71 trillion from $3.67 trillion in the second quarter, the report showed.
Household debt grew at an annualized rate of 6.2% in the third quarter, compared to 7.8% in the second quarter.
Non-financial business debt accelerated to an annualized rate of 3.9%, from 1.8% in the second quarter.
Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/business/us-hou ... 021-12-09/
Re: THE FEDERAL RESERVE
CNBC
"Fed will aggressively dial back its bond buying, sees three rate hikes next year"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, DEC 15 2021
KEY POINTS
* The Federal Reserve provided multiple indications that its run of ultra-easy policy since the beginning of the pandemic is coming to a close, making aggressive policy moves in response to rising inflation.
* For one, the central bank said it will accelerate the reduction of its monthly bond purchases.
The Federal Reserve provided multiple indications Wednesday that its run of ultra-easy policy since the beginning of the Covid pandemic is coming to a close, making aggressive policy moves in response to rising inflation.
For one, the central bank said it will accelerate the reduction of its monthly bond purchases.
The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December.
The Fed was tapering by $15 billion a month in November, doubled that in December, then will accelerate the reduction further come 2022.
After that wraps up, in late winter or early spring, the central bank expects to start raising interest rates, which were held steady at this week’s meeting.
Projections released Wednesday indicate that Fed officials see as many as three rate hikes coming in 2022, with two in the following year and two more in 2024.
“Economic developments and changes in the outlook warrant this evolution of monetary policy, which will continue to provide appropriate support for the economy,” Chairman Jerome Powell said at his post-meeting news conference.
The Federal Open Market Committee’s moves, approved unanimously, represent a substantial adjustment to policy that has been the loosest in its 108-year history.
The post-meeting statement noted the impact from inflation.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the statement said.
The committee sharply ratcheted up its inflation outlook for 2021, pushing it to 5.3% from 4.2% for all items and to 4.4% from 3.7% excluding food and energy.
For 2022, the expectation is now 2.6% for headline and 2.7% for core, both up from September.
At the same time, the unemployment rate projection for 2021 came down to 4.3% from 4.8% in September.
The statement noted that “job gains have been solid in recent months, and the unemployment rate has declined substantially.”
However, members came out on the hawkish side of policy moves, with members solidly leaning toward rate hikes.
The “dot plot” of individual members rate expectations indicated that just six of the 18 FOMC members saw fewer than three increases next year, and no members saw rates staying where they are now, anchored near zero.
That vote came even as the statement reaffirmed that the Fed’s benchmark overnight borrowing rate would stay near zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”
The committee reduced its forecast for economic growth this year, seeing GDP rising 5.5% for 2021, compared with the 5.9% indicated in September.
Officials also revised their forecasts in subsequent year, raising 2022 growth to 4% from 3.8% and lowering 2023 to 2.2% from 2.5%.
The statement again noted that developments with the Covid pandemic, in particular with variants, pose risks to the outlook.
Inflation hotter than expected
Both policy moves came in response to escalating inflation, which is running at its highest level in 39 years for consumer prices.
Wholesale prices in November jumped 9.6%, the fastest on record in a sign that inflation pressures are becoming more ingrained and broad based.
Fed officials long have stressed that inflation is “transitory,” which Powell has defined as unlikely to leave a lasting imprint on the economy.
He and other central bank leaders, as well as Treasury Secretary Janet Yellen, have stressed that prices are booming due to pandemic-related factors such as extraordinary demand that has outstripped supply but ultimately will fade.
However, the term had become a pejorative and the post-meeting statement eliminated it.
Powell telegraphed the move during congressional testimony last month, saying “it’s probably a good time to retire that word and try to explain more clearly what we mean.”
For the Powell Fed, tightening policy now marks a dramatic pivot off a policy enacted just over a year ago.
Known as “flexible average inflation targeting,” which meant it would be content with inflation a little above or below its long-held 2% target.
The policy’s practical application was that the Fed was willing to let inflation run a little hot in the interest of completely healing the labor market from the hit it took during the pandemic.
The Fed’s new policy sought employment that was both full and inclusive across racial, gender and economic lines.
Officials agreed not to raise interest rates in anticipation of increasing inflation, as the central bank had done in the past.
However, as the “transitory” narrative came into question and inflation began to look stronger and more durable, the Fed has had to rethink its intentions and shift gears.
The asset purchase taper began in November, with a reduction of $10 billion in Treasury purchases and $5 billion in mortgage-backed securities.
That still left the month buys at $70 billion and $35 billion, respectively.
However, the Fed’s $8.7 trillion balance sheet increased by just $2 billion over the past four weeks, with Treasury holdings up $52 billion and MBS actually reduced by $23 billion.
Over the past 12 months, Treasury holdings have expanded by $978 billion while MBS has risen by $567 billion.
Under the new terms of a program also known as quantitative easing, the Fed would accelerate the decline of its holdings until it is no longer adding to its portfolio.
That would bring QE to an end in the spring and allow the central bank to raise rates anytime after.
The Fed has said it likely would not hike rates and continue buying bonds simultaneously, as the two moves would work at cross purposes.
From there, the Fed at anytime could start reducing its balance sheet either by selling securities outright, or, in the more likely scenario, begin allowing the proceeds of its current bond holdings to run off each month at a controlled pace.
Correction: The Fed’s $8.7 trillion balance sheet increased by just $2 billion over the past four weeks, with Treasury holdings up $52 billion and MBS actually reduced by $23 billion.
An earlier version misstated one of the figures.
https://www.cnbc.com/2021/12/15/fed-wil ... -year.html
"Fed will aggressively dial back its bond buying, sees three rate hikes next year"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, DEC 15 2021
KEY POINTS
* The Federal Reserve provided multiple indications that its run of ultra-easy policy since the beginning of the pandemic is coming to a close, making aggressive policy moves in response to rising inflation.
* For one, the central bank said it will accelerate the reduction of its monthly bond purchases.
The Federal Reserve provided multiple indications Wednesday that its run of ultra-easy policy since the beginning of the Covid pandemic is coming to a close, making aggressive policy moves in response to rising inflation.
For one, the central bank said it will accelerate the reduction of its monthly bond purchases.
The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December.
The Fed was tapering by $15 billion a month in November, doubled that in December, then will accelerate the reduction further come 2022.
After that wraps up, in late winter or early spring, the central bank expects to start raising interest rates, which were held steady at this week’s meeting.
Projections released Wednesday indicate that Fed officials see as many as three rate hikes coming in 2022, with two in the following year and two more in 2024.
“Economic developments and changes in the outlook warrant this evolution of monetary policy, which will continue to provide appropriate support for the economy,” Chairman Jerome Powell said at his post-meeting news conference.
The Federal Open Market Committee’s moves, approved unanimously, represent a substantial adjustment to policy that has been the loosest in its 108-year history.
The post-meeting statement noted the impact from inflation.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the statement said.
The committee sharply ratcheted up its inflation outlook for 2021, pushing it to 5.3% from 4.2% for all items and to 4.4% from 3.7% excluding food and energy.
For 2022, the expectation is now 2.6% for headline and 2.7% for core, both up from September.
At the same time, the unemployment rate projection for 2021 came down to 4.3% from 4.8% in September.
The statement noted that “job gains have been solid in recent months, and the unemployment rate has declined substantially.”
However, members came out on the hawkish side of policy moves, with members solidly leaning toward rate hikes.
The “dot plot” of individual members rate expectations indicated that just six of the 18 FOMC members saw fewer than three increases next year, and no members saw rates staying where they are now, anchored near zero.
That vote came even as the statement reaffirmed that the Fed’s benchmark overnight borrowing rate would stay near zero “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.”
The committee reduced its forecast for economic growth this year, seeing GDP rising 5.5% for 2021, compared with the 5.9% indicated in September.
Officials also revised their forecasts in subsequent year, raising 2022 growth to 4% from 3.8% and lowering 2023 to 2.2% from 2.5%.
The statement again noted that developments with the Covid pandemic, in particular with variants, pose risks to the outlook.
Inflation hotter than expected
Both policy moves came in response to escalating inflation, which is running at its highest level in 39 years for consumer prices.
Wholesale prices in November jumped 9.6%, the fastest on record in a sign that inflation pressures are becoming more ingrained and broad based.
Fed officials long have stressed that inflation is “transitory,” which Powell has defined as unlikely to leave a lasting imprint on the economy.
He and other central bank leaders, as well as Treasury Secretary Janet Yellen, have stressed that prices are booming due to pandemic-related factors such as extraordinary demand that has outstripped supply but ultimately will fade.
However, the term had become a pejorative and the post-meeting statement eliminated it.
Powell telegraphed the move during congressional testimony last month, saying “it’s probably a good time to retire that word and try to explain more clearly what we mean.”
For the Powell Fed, tightening policy now marks a dramatic pivot off a policy enacted just over a year ago.
Known as “flexible average inflation targeting,” which meant it would be content with inflation a little above or below its long-held 2% target.
The policy’s practical application was that the Fed was willing to let inflation run a little hot in the interest of completely healing the labor market from the hit it took during the pandemic.
The Fed’s new policy sought employment that was both full and inclusive across racial, gender and economic lines.
Officials agreed not to raise interest rates in anticipation of increasing inflation, as the central bank had done in the past.
However, as the “transitory” narrative came into question and inflation began to look stronger and more durable, the Fed has had to rethink its intentions and shift gears.
The asset purchase taper began in November, with a reduction of $10 billion in Treasury purchases and $5 billion in mortgage-backed securities.
That still left the month buys at $70 billion and $35 billion, respectively.
However, the Fed’s $8.7 trillion balance sheet increased by just $2 billion over the past four weeks, with Treasury holdings up $52 billion and MBS actually reduced by $23 billion.
Over the past 12 months, Treasury holdings have expanded by $978 billion while MBS has risen by $567 billion.
Under the new terms of a program also known as quantitative easing, the Fed would accelerate the decline of its holdings until it is no longer adding to its portfolio.
That would bring QE to an end in the spring and allow the central bank to raise rates anytime after.
The Fed has said it likely would not hike rates and continue buying bonds simultaneously, as the two moves would work at cross purposes.
From there, the Fed at anytime could start reducing its balance sheet either by selling securities outright, or, in the more likely scenario, begin allowing the proceeds of its current bond holdings to run off each month at a controlled pace.
Correction: The Fed’s $8.7 trillion balance sheet increased by just $2 billion over the past four weeks, with Treasury holdings up $52 billion and MBS actually reduced by $23 billion.
An earlier version misstated one of the figures.
https://www.cnbc.com/2021/12/15/fed-wil ... -year.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Kashkari, citing inflation risks, sees 2 rate hikes this year"
By Ann Saphir and Jonnelle Marte
January 4, 2022
Jan 4 (Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said he expects the U.S. central bank to need to raise interest rates two times this year to address persistently high inflation, reversing his long-held view that rates will need to stay at zero until at least 2024.
The surge in inflation seen over the past six months has surprised Fed officials, and they are now trying to determine how long those pressures may last, the policymaker said.
"I brought forward two rate increases into 2022 because inflation has been higher and more persistent than I had expected," Kashkari said in a post on Medium.
The Fed last month sped up reductions to its bond-buying program and signaled three rate hikes were coming in 2022.
Kashkari said Tuesday he supported the faster taper as "a prudent decision that provides flexibility in the future for raising rates sooner if necessary."
The abrupt shift to embrace rate hikes by one of the Fed's most dovish policymakers underscores the level of concern at the central bank over the threat of high inflation, now running more than twice the Fed's 2% goal.
"The truth is, inflation has been higher than I expected and it has lasted longer than I had expected," Kashkari said during a virtual event hosted by the Wisconsin Bankers Association.
"And so the key question is, is it still going to be transitory or not?"
Kashkari's remarks signaled he may be ready to sacrifice some gains in employment in order to keep inflation in check, a difficult tradeoff that Fed policymakers had hoped to avoid.
But he also warned of the need to stay on alert for signs that once-entrenched low-inflation is returning.
"If the macroeconomic forces that kept advanced economies in a low-inflation regime are ultimately going to reassert themselves, the challenge for the FOMC will be to recognize this as soon as possible so we can avoid needlessly slowing the recovery, while at the same time protecting against the risk of entering a new, high-inflation regime," he wrote.
The Fed official said he expects the demand pressures contributing to higher inflation to weaken as the fiscal aid provided to support the economy during the pandemic fades.
However, Kashkari said it is less clear how long it will take the economy to resolve supply side challenges leading to higher prices, with some companies saying they may continue into next year.
Reporting by Ann Saphir, Howard Schneider and Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 022-01-04/
"Fed's Kashkari, citing inflation risks, sees 2 rate hikes this year"
By Ann Saphir and Jonnelle Marte
January 4, 2022
Jan 4 (Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said he expects the U.S. central bank to need to raise interest rates two times this year to address persistently high inflation, reversing his long-held view that rates will need to stay at zero until at least 2024.
The surge in inflation seen over the past six months has surprised Fed officials, and they are now trying to determine how long those pressures may last, the policymaker said.
"I brought forward two rate increases into 2022 because inflation has been higher and more persistent than I had expected," Kashkari said in a post on Medium.
The Fed last month sped up reductions to its bond-buying program and signaled three rate hikes were coming in 2022.
Kashkari said Tuesday he supported the faster taper as "a prudent decision that provides flexibility in the future for raising rates sooner if necessary."
The abrupt shift to embrace rate hikes by one of the Fed's most dovish policymakers underscores the level of concern at the central bank over the threat of high inflation, now running more than twice the Fed's 2% goal.
"The truth is, inflation has been higher than I expected and it has lasted longer than I had expected," Kashkari said during a virtual event hosted by the Wisconsin Bankers Association.
"And so the key question is, is it still going to be transitory or not?"
Kashkari's remarks signaled he may be ready to sacrifice some gains in employment in order to keep inflation in check, a difficult tradeoff that Fed policymakers had hoped to avoid.
But he also warned of the need to stay on alert for signs that once-entrenched low-inflation is returning.
"If the macroeconomic forces that kept advanced economies in a low-inflation regime are ultimately going to reassert themselves, the challenge for the FOMC will be to recognize this as soon as possible so we can avoid needlessly slowing the recovery, while at the same time protecting against the risk of entering a new, high-inflation regime," he wrote.
The Fed official said he expects the demand pressures contributing to higher inflation to weaken as the fiscal aid provided to support the economy during the pandemic fades.
However, Kashkari said it is less clear how long it will take the economy to resolve supply side challenges leading to higher prices, with some companies saying they may continue into next year.
Reporting by Ann Saphir, Howard Schneider and Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 022-01-04/
Re: THE FEDERAL RESERVE
REUTERS
"Hawkish Fed signals it may have to raise rates sooner to fight inflation"
By Howard Schneider, Jonnelle Marte
JANUARY 5, 2022
WASHINGTON (Reuters) - A “very tight” job market and unabated inflation might require the Federal Reserve to raise interest rates sooner than expected and begin reducing its overall asset holdings as a second brake on the economy, U.S. central bank policymakers said in their meeting last month.
In a document released on Wednesday that markets took as decidedly hawkish, the minutes from the Dec. 14-15 policy meeting showed Fed officials uniformly concerned about the pace of price increases that promised to persist, alongside global supply bottlenecks “well into” 2022.
Those concerns, at least as of mid-December, even appeared to outweigh the risks potentially posed by the fast-surging Omicron variant of the coronavirus, seen by some Fed officials as likely adding further to inflation pressures but not “fundamentally altering the path of economic recovery in the United States.”
“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."
"Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes stated.
The language showed the depth of the consensus that has emerged at the Fed in recent weeks over the need to move against high inflation - not just by raising borrowing costs but by acting with a second lever and reducing the central bank’s holdings of Treasury bonds and mortgage-backed securities.
The Fed has about $8.8 trillion on its balance sheet, much of it accumulated during the coronavirus pandemic to keep financial markets stable and hold down long-term interest rates.
Markets swiftly took note.
The probability that the Fed would lift interest rates in March for the first time since the pandemic’s onset rose to greater than 70%, as tracked by CME Group’s FedWatch tool.
That, plus the prospect of the Fed reducing its presence in long-term bond markets, pushed the U.S. 10-year Treasury yield to its strongest level since April 2021.
U.S. stocks tumbled, with the S&P 500 index down about 1.6%, as the readout of last month’s meeting showed perhaps even more conviction than investors had expected among Fed policymakers to tackle inflation.
The yield on the 2-year Treasury note, the maturity most sensitive to Fed policy expectations, shot to its highest level since March 2020 when the pandemic-fueled economic crisis was unfolding.
“This is news."
"This is more hawkish than expected,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York.
MAXIMUM EMPLOYMENT
The minutes offered more details on the Fed’s abrupt shift in policy last month, taken to counter inflation running at more than twice the central bank’s 2% target.
Along with outlining their inflation concerns, officials said that even with the U.S. labor market more than 3 million jobs short of its pre-pandemic peak, the economy was closing in fast on what might be considered maximum employment, given the retirements and other departures from the job market that have been prompted by the health crisis.
“Participants pointed to a number of signs that the U.S. labor market was very tight, including near-record rates of quits and job vacancies, as well as a notable pickup in wage growth,” the minutes said.
“Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment.”
Policymakers in December agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.
The Fed’s benchmark overnight interest rate is currently set near zero.
The December meeting was held as coronavirus case counts had begun to climb due to the spread of the Omicron variant.
Infections have exploded since then, and there has been no commentary from senior Fed officials yet to indicate whether the changing health situation has altered their views about appropriate monetary policy.
Fed Chair Jerome Powell will appear before the Senate Banking Committee next week for a hearing on his nomination for a second four-year term as head of the central bank, and is likely to update his views about the economy at that time.
Reporting by Howard Schneider; Additional reporting by Stephen Culp and Jamie McGeever; Editing by Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2TL1UH
"Hawkish Fed signals it may have to raise rates sooner to fight inflation"
By Howard Schneider, Jonnelle Marte
JANUARY 5, 2022
WASHINGTON (Reuters) - A “very tight” job market and unabated inflation might require the Federal Reserve to raise interest rates sooner than expected and begin reducing its overall asset holdings as a second brake on the economy, U.S. central bank policymakers said in their meeting last month.
In a document released on Wednesday that markets took as decidedly hawkish, the minutes from the Dec. 14-15 policy meeting showed Fed officials uniformly concerned about the pace of price increases that promised to persist, alongside global supply bottlenecks “well into” 2022.
Those concerns, at least as of mid-December, even appeared to outweigh the risks potentially posed by the fast-surging Omicron variant of the coronavirus, seen by some Fed officials as likely adding further to inflation pressures but not “fundamentally altering the path of economic recovery in the United States.”
“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."
"Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes stated.
The language showed the depth of the consensus that has emerged at the Fed in recent weeks over the need to move against high inflation - not just by raising borrowing costs but by acting with a second lever and reducing the central bank’s holdings of Treasury bonds and mortgage-backed securities.
The Fed has about $8.8 trillion on its balance sheet, much of it accumulated during the coronavirus pandemic to keep financial markets stable and hold down long-term interest rates.
Markets swiftly took note.
The probability that the Fed would lift interest rates in March for the first time since the pandemic’s onset rose to greater than 70%, as tracked by CME Group’s FedWatch tool.
That, plus the prospect of the Fed reducing its presence in long-term bond markets, pushed the U.S. 10-year Treasury yield to its strongest level since April 2021.
U.S. stocks tumbled, with the S&P 500 index down about 1.6%, as the readout of last month’s meeting showed perhaps even more conviction than investors had expected among Fed policymakers to tackle inflation.
The yield on the 2-year Treasury note, the maturity most sensitive to Fed policy expectations, shot to its highest level since March 2020 when the pandemic-fueled economic crisis was unfolding.
“This is news."
"This is more hawkish than expected,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York.
MAXIMUM EMPLOYMENT
The minutes offered more details on the Fed’s abrupt shift in policy last month, taken to counter inflation running at more than twice the central bank’s 2% target.
Along with outlining their inflation concerns, officials said that even with the U.S. labor market more than 3 million jobs short of its pre-pandemic peak, the economy was closing in fast on what might be considered maximum employment, given the retirements and other departures from the job market that have been prompted by the health crisis.
“Participants pointed to a number of signs that the U.S. labor market was very tight, including near-record rates of quits and job vacancies, as well as a notable pickup in wage growth,” the minutes said.
“Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment.”
Policymakers in December agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.
The Fed’s benchmark overnight interest rate is currently set near zero.
The December meeting was held as coronavirus case counts had begun to climb due to the spread of the Omicron variant.
Infections have exploded since then, and there has been no commentary from senior Fed officials yet to indicate whether the changing health situation has altered their views about appropriate monetary policy.
Fed Chair Jerome Powell will appear before the Senate Banking Committee next week for a hearing on his nomination for a second four-year term as head of the central bank, and is likely to update his views about the economy at that time.
Reporting by Howard Schneider; Additional reporting by Stephen Culp and Jamie McGeever; Editing by Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2TL1UH
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Daly sees rate hikes ahead, but says 'measured' approach needed"
By Ann Saphir
January 6, 2022
Jan 6 (Reuters) - With the U.S. labor market "very strong" and high inflation acting as a "repressive tax" that puts a particular burden on the poor, the Federal Reserve should raise interest rates this year, San Francisco Fed President Mary Daly said on Thursday.
Still, she added, with the U.S. economy supporting millions of fewer jobs than before the onset of the COVID-19 pandemic, as many workers remain cautious in the face of the virus, the U.S. central bank's approach ought to be data-driven and "measured."
"If we act too aggressively to offset the high inflation that’s caused by the supply and demand imbalances, we won't actually do very much to solve the supply chain problems, but we will absolutely bridal the economy in a way that will mean less job creation down the road," Daly said during an Irish central bank virtual event.
While the economy is "closing in" on full employment in the context of an ongoing pandemic, she added, "there's a difference in the short run and the long run ... balancing those things as we move forward in 2022 will be the critical point of business for monetary policy."
Inflation has been running at more than twice the Fed's 2% goal for months, and has broadened from sectors directly impacted by COVID-19, such as used cars, to most of the basket of goods that Americans buy regularly.
In response, and with the U.S. unemployment rate now at 4.2%, Fed policymakers in December decided to end their asset purchase program by March to make room for interest rate hikes later this year.
Minutes of the Dec. 14-15 meeting released on Wednesday showed that some Fed policymakers want to move even faster to tighten policy, including by shrinking the Fed's $8 trillion-plus balance sheet.
"I'm of the mind that we might need to, likely will need to, raise interest rates ... in order to keep the economy in balance," Daly said.
But with interest rates as low as they are - the Fed has kept its benchmark overnight interest rate pinned near zero since March of 2020 - "raising them a little bit is not the same as constraining the economy," she said.
Daly added that it is a "very different conversation" from reducing the balance sheet, as doing so would only come after the Fed has begun normalizing interest rates.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/world/us/feds-d ... 022-01-06/
"Fed's Daly sees rate hikes ahead, but says 'measured' approach needed"
By Ann Saphir
January 6, 2022
Jan 6 (Reuters) - With the U.S. labor market "very strong" and high inflation acting as a "repressive tax" that puts a particular burden on the poor, the Federal Reserve should raise interest rates this year, San Francisco Fed President Mary Daly said on Thursday.
Still, she added, with the U.S. economy supporting millions of fewer jobs than before the onset of the COVID-19 pandemic, as many workers remain cautious in the face of the virus, the U.S. central bank's approach ought to be data-driven and "measured."
"If we act too aggressively to offset the high inflation that’s caused by the supply and demand imbalances, we won't actually do very much to solve the supply chain problems, but we will absolutely bridal the economy in a way that will mean less job creation down the road," Daly said during an Irish central bank virtual event.
While the economy is "closing in" on full employment in the context of an ongoing pandemic, she added, "there's a difference in the short run and the long run ... balancing those things as we move forward in 2022 will be the critical point of business for monetary policy."
Inflation has been running at more than twice the Fed's 2% goal for months, and has broadened from sectors directly impacted by COVID-19, such as used cars, to most of the basket of goods that Americans buy regularly.
In response, and with the U.S. unemployment rate now at 4.2%, Fed policymakers in December decided to end their asset purchase program by March to make room for interest rate hikes later this year.
Minutes of the Dec. 14-15 meeting released on Wednesday showed that some Fed policymakers want to move even faster to tighten policy, including by shrinking the Fed's $8 trillion-plus balance sheet.
"I'm of the mind that we might need to, likely will need to, raise interest rates ... in order to keep the economy in balance," Daly said.
But with interest rates as low as they are - the Fed has kept its benchmark overnight interest rate pinned near zero since March of 2020 - "raising them a little bit is not the same as constraining the economy," she said.
Daly added that it is a "very different conversation" from reducing the balance sheet, as doing so would only come after the Fed has begun normalizing interest rates.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/world/us/feds-d ... 022-01-06/