REUTERS
"U.S. consumers' inflation outlooks drop sharply, NY Fed survey shows"
Reuters
August 8, 2022
Aug 8 (Reuters) - U.S. consumers' expectations for where inflation will be in a year and three years dropped sharply in July, a New York Federal Reserve survey showed on Monday, indicating U.S. central bankers are winning the fight to keep the outlook for price growth well-anchored as they battle to tame high inflation.
Median expectations for where inflation will be in one year tumbled 0.6 percentage point to 6.2% and the three-year outlook fell 0.4 percentage point to 3.2%, the lowest levels since February of this year and April of last year, respectively.
For the one-year outlook, the fall in expectations was driven by big drops in year-ahead price growth changes for gasoline and food, with the decline in anticipated gasoline price growth being the second largest in the survey's nine-year history and the decline in food price growth the largest ever.
Inflation expectations are a key dynamic being closely watched by Fed policymakers as they aggressively raise interest rates to contain price pressures running at four-decade highs.
The Fed has raised its policy rate by 225 basis points since March as it seeks to return inflation to its 2% goal.
In June, the deterioration in U.S. consumers' inflation outlook was cited by policymakers who pushed through a 75-basis-point interest rate hike at their policy meeting that month.
Fed officials have flagged that the possibility of another rate rise of that magnitude will depend on inflation, employment, consumer and economic growth data between now and their next policy meeting on Sept. 20-21.
The results of the New York Fed's latest monthly Survey of Consumer Expectations provide some encouragement that things are improving even as a benchmark reading of consumer prices due later this week is expected to show little relief from inflation.
The Labor Department's Consumer Price Index for July, due to be released on Wednesday, is expected to show headline prices rose by 8.7% from a year earlier, a slight decline from the prior month on the back of falling gasoline prices.
Another key measure which strips out volatility from energy and food prices, however, is forecast to accelerate to 6.1% on an annual basis, compared to 5.9% in June.
The median household spending growth expectation fell for the second straight month from May's record high, the New York Fed's survey also showed, to 6.9% in July, the lowest level since February.
The 1.5-percentage-point drop was the largest in the series history and was broad-based across age, education and income groups surveyed.
In the labor market, expectations that the unemployment rate will be higher a year from now edged 0.2 percentage point lower to 40.2% while the mean perceived probability of losing one's job also saw a slight decline.
The mean probability of quitting one's job over the next year rose to 19.5% in July from 18.6% in the prior month.
A high quits rate is seen as reflecting worker confidence in the labor market.
The New York Fed's internet-based survey taps a rotating panel of 1,300 households and is structured so that a roughly equal amount of data are collected every week of the month.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/us-c ... 022-08-08/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
CNBC
"Consumer prices rose 8.5% in July, less than expected as inflation pressures ease a bit"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, AUG 10 2022
KEY POINTS
* The consumer price index rose 8.5% in July from a year ago, below expectations, due largely to slumping energy prices.
* Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%.
* The report was good news for workers, who saw a 0.5% monthly increase in real wages.
Prices that consumers pay for a variety of goods and services rose 8.5% in July from a year ago, a slowing pace from the previous month due largely to a drop in gasoline prices.
On a monthly basis, prices were flat as energy prices broadly declined 4.6% and gasoline fell 7.7%.
That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs.
Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.
Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%.
Even with the lower-than-expected numbers, inflation pressures remained strong.
The jump in the food index put the 12-month increase to 10.9%, the fastest pace since May 1979.
Butter is up 26.4% over the past year, eggs have surged 38% and coffee is up more than 20%.
Despite the monthly drop in the energy index, electricity prices rose 1.6% and were up 15.2% from a year ago.
The energy index rose 32.9% from a year ago.
Used vehicle prices posted a 0.4% monthly decline, while apparel prices also fell, easing 0.1%, and transportation services were off 0.5% as airline fares fell 1.8% for the month and 7.8% from a year ago.
Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up more than 400 points and government bond yields down sharply.
“Things are moving in the right direction,” said Aneta Markowska, chief economist at Jefferies.
“This is the most encouraging report we’ve had in quite some time.”
The report was good news for workers, who saw a 0.5% monthly increase in real wages.
Inflation-adjusted average hourly earnings were still down 3% from a year ago.
Shelter costs, which make up about one-third of the CPI weighting, continued to rise and are up 5.7% over the past 12 months.
The numbers indicate that inflation pressures are easing somewhat but still remain near their highest levels since the early 1980s.
Clogged supply chains, outsized demand for goods over services, and trillions of dollars in pandemic-related fiscal and monetary stimulus have combined to create an environment of high prices and slow economic growth that has bedeviled policymakers.
The July drop in gas prices has provided some hope after prices at the pump rose past $5 a gallon.
But gasoline was still up 44% from a year ago and fuel oil increased 75.6% on an annual basis, despite an 11% decline in July.
Federal Reserve officials are using a recipe of interest rate increases and related monetary policy tightening in hopes of beating back inflation numbers running well ahead of their 2% long-run target.
The central bank has hiked benchmark borrowing rates by 2.25 percentage points so far in 2022, and officials have provided strong indications that more increases are coming.
There was some good news earlier this week when a New York Fed survey indicated that consumers have pared back inflation expectations for the future.
But for now, the soaring cost of living remains a problem.
While inflation has been accelerating, gross domestic product declined for the first two quarters of 2022.
The combination of slow growth and rising prices is associated with stagflation, while the two straight quarters of negative GDP meets a widely held definition of recession.
Wednesday’s inflation numbers could take some heat off the Fed.
Recent commentary from policymakers has pointed toward a third consecutive 0.75 percentage point interest rate hike at the September meeting.
Following the CPI report, market pricing reversed, with traders now anticipating a better chance of a lesser 0.5 percentage point move.
“At the very least, this report takes the pressure off the Fed at the next meeting,” Markowska said.
“They’ve been saying they’re ready to deliver a 75 basis point hike if they have to."
"I don’t think they have to anymore.”
https://www.cnbc.com/2022/08/10/consume ... a-bit.html
"Consumer prices rose 8.5% in July, less than expected as inflation pressures ease a bit"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, AUG 10 2022
KEY POINTS
* The consumer price index rose 8.5% in July from a year ago, below expectations, due largely to slumping energy prices.
* Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%.
* The report was good news for workers, who saw a 0.5% monthly increase in real wages.
Prices that consumers pay for a variety of goods and services rose 8.5% in July from a year ago, a slowing pace from the previous month due largely to a drop in gasoline prices.
On a monthly basis, prices were flat as energy prices broadly declined 4.6% and gasoline fell 7.7%.
That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs.
Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.
Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared with respective estimates of 6.1% and 0.5%.
Even with the lower-than-expected numbers, inflation pressures remained strong.
The jump in the food index put the 12-month increase to 10.9%, the fastest pace since May 1979.
Butter is up 26.4% over the past year, eggs have surged 38% and coffee is up more than 20%.
Despite the monthly drop in the energy index, electricity prices rose 1.6% and were up 15.2% from a year ago.
The energy index rose 32.9% from a year ago.
Used vehicle prices posted a 0.4% monthly decline, while apparel prices also fell, easing 0.1%, and transportation services were off 0.5% as airline fares fell 1.8% for the month and 7.8% from a year ago.
Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up more than 400 points and government bond yields down sharply.
“Things are moving in the right direction,” said Aneta Markowska, chief economist at Jefferies.
“This is the most encouraging report we’ve had in quite some time.”
The report was good news for workers, who saw a 0.5% monthly increase in real wages.
Inflation-adjusted average hourly earnings were still down 3% from a year ago.
Shelter costs, which make up about one-third of the CPI weighting, continued to rise and are up 5.7% over the past 12 months.
The numbers indicate that inflation pressures are easing somewhat but still remain near their highest levels since the early 1980s.
Clogged supply chains, outsized demand for goods over services, and trillions of dollars in pandemic-related fiscal and monetary stimulus have combined to create an environment of high prices and slow economic growth that has bedeviled policymakers.
The July drop in gas prices has provided some hope after prices at the pump rose past $5 a gallon.
But gasoline was still up 44% from a year ago and fuel oil increased 75.6% on an annual basis, despite an 11% decline in July.
Federal Reserve officials are using a recipe of interest rate increases and related monetary policy tightening in hopes of beating back inflation numbers running well ahead of their 2% long-run target.
The central bank has hiked benchmark borrowing rates by 2.25 percentage points so far in 2022, and officials have provided strong indications that more increases are coming.
There was some good news earlier this week when a New York Fed survey indicated that consumers have pared back inflation expectations for the future.
But for now, the soaring cost of living remains a problem.
While inflation has been accelerating, gross domestic product declined for the first two quarters of 2022.
The combination of slow growth and rising prices is associated with stagflation, while the two straight quarters of negative GDP meets a widely held definition of recession.
Wednesday’s inflation numbers could take some heat off the Fed.
Recent commentary from policymakers has pointed toward a third consecutive 0.75 percentage point interest rate hike at the September meeting.
Following the CPI report, market pricing reversed, with traders now anticipating a better chance of a lesser 0.5 percentage point move.
“At the very least, this report takes the pressure off the Fed at the next meeting,” Markowska said.
“They’ve been saying they’re ready to deliver a 75 basis point hike if they have to."
"I don’t think they have to anymore.”
https://www.cnbc.com/2022/08/10/consume ... a-bit.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed to raise interest rates to 4% next year, Evans says"
By Ann Saphir
August 10, 2022
Aug 10 (Reuters) - Wednesday's consumer price index report showing U.S. inflation didn't accelerate in July was the first "positive" reading on price pressures since the Federal Reserve began tightening policy, Chicago Fed President Charles Evans said, even as he signaled he believes the Fed has plenty more work to do.
With consumer prices unchanged last month compared to June, but up 8.5% from a year earlier, inflation is still "unacceptably" high, and the Fed will likely need to lift its policy rate, currently in the 2.25%-2.5% range, to 3.25%-3.5% this year and to 3.75%-4% by the end of next year, Evans said.
The remarks suggest Evans, among the 19 central bankers who set U.S. monetary policy, expects to soon slow what's been the Fed's steepest round of interest-rate hikes in decades.
Though he was not explicit on whether he would support a downshift as soon as next month, the Fed would only need to raise rates a percentage point over the course of the next four months to reach his forecasted year-end rate.
That would be half the pace of rate hikes over the last four months.
At the same time, his expectation that rates will top out at 4% next year suggest he is more hawkish than financial markets, which are pricing a top fed funds rate of 3.75% to be reached mid-2023, with rate cuts to follow.
"I feel like we're in a good place and we can pivot to be more restrictive if inflation gets out of hand more than what I'm thinking about," Evans said at an event at Drake University in Des Moines, Iowa.
"But also, if things get better more quickly, we can not raise rates quite as much as I've just indicated ..."
"I think we're well-positioned now for a couple of different turns of the data over the next few months."
Evans said he expects inflation to be closer to 2.5% next year by the Fed's preferred measure, the personal consumption expenditures price index, though still above the Fed's 2% target for inflation.
Since March, the Fed has raised its benchmark policy rate 2.25 percentage points, including two back-to-back increases of three-quarters-of-a-percentage point at its June and July meetings.
A report last week showing employers added more than half a million jobs in July - far more than expected - fueled market anticipation for a third straight 75-basis point increase in September to head off what could be renewed inflationary pressures from a tight labor market.
After Wednesday's CPI report showed inflation cooling instead, traders switched to betting on a half-point hike for September.
Evans on Wednesday said he did not think the recent jobs report necessarily pointed to more inflation, "but we need more data on that."
And he'll get it: the Fed will have one more monthly reading on the U.S. labor market before its September meeting, and several different measures of inflation.
Reporting by Ann Saphir; Editing by Jonathan Oatis and Mark Potter
https://www.reuters.com/markets/us/feds ... 022-08-10/
"Fed to raise interest rates to 4% next year, Evans says"
By Ann Saphir
August 10, 2022
Aug 10 (Reuters) - Wednesday's consumer price index report showing U.S. inflation didn't accelerate in July was the first "positive" reading on price pressures since the Federal Reserve began tightening policy, Chicago Fed President Charles Evans said, even as he signaled he believes the Fed has plenty more work to do.
With consumer prices unchanged last month compared to June, but up 8.5% from a year earlier, inflation is still "unacceptably" high, and the Fed will likely need to lift its policy rate, currently in the 2.25%-2.5% range, to 3.25%-3.5% this year and to 3.75%-4% by the end of next year, Evans said.
The remarks suggest Evans, among the 19 central bankers who set U.S. monetary policy, expects to soon slow what's been the Fed's steepest round of interest-rate hikes in decades.
Though he was not explicit on whether he would support a downshift as soon as next month, the Fed would only need to raise rates a percentage point over the course of the next four months to reach his forecasted year-end rate.
That would be half the pace of rate hikes over the last four months.
At the same time, his expectation that rates will top out at 4% next year suggest he is more hawkish than financial markets, which are pricing a top fed funds rate of 3.75% to be reached mid-2023, with rate cuts to follow.
"I feel like we're in a good place and we can pivot to be more restrictive if inflation gets out of hand more than what I'm thinking about," Evans said at an event at Drake University in Des Moines, Iowa.
"But also, if things get better more quickly, we can not raise rates quite as much as I've just indicated ..."
"I think we're well-positioned now for a couple of different turns of the data over the next few months."
Evans said he expects inflation to be closer to 2.5% next year by the Fed's preferred measure, the personal consumption expenditures price index, though still above the Fed's 2% target for inflation.
Since March, the Fed has raised its benchmark policy rate 2.25 percentage points, including two back-to-back increases of three-quarters-of-a-percentage point at its June and July meetings.
A report last week showing employers added more than half a million jobs in July - far more than expected - fueled market anticipation for a third straight 75-basis point increase in September to head off what could be renewed inflationary pressures from a tight labor market.
After Wednesday's CPI report showed inflation cooling instead, traders switched to betting on a half-point hike for September.
Evans on Wednesday said he did not think the recent jobs report necessarily pointed to more inflation, "but we need more data on that."
And he'll get it: the Fed will have one more monthly reading on the U.S. labor market before its September meeting, and several different measures of inflation.
Reporting by Ann Saphir; Editing by Jonathan Oatis and Mark Potter
https://www.reuters.com/markets/us/feds ... 022-08-10/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Mary Daly says it's too early to 'declare victory' over inflation - FT"
Reuters
August 11, 2022
Aug 11 (Reuters) - San Francisco Federal Reserve Bank President Mary Daly warned it is far too early for the U.S. central bank to "declare victory" in its fight against inflation, the Financial Times reported on Thursday.
Daly's remarks comes as U.S. consumer prices remained unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for weary Americans who have watched inflation climb over the past two years.
In an interview with the Financial Times, Daly did not rule out a third consecutive 0.75% point interest rate rise at the central bank's next policy meeting in September, however, she said that a half-percentage point rate rise was her “baseline”.
"There's good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal," the newspaper quoted Daly as saying during the interview conducted on Wednesday.
She also maintained that interest rates should rise to just under 3.5 per cent by the end of the year, according to the report.
The fed funds rate, the rate that banks charge each other to borrow or lend excess reserves overnight, is currently in the 2.25%-2.5% range.
Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policymakers left no doubt they will continue to tighten monetary policy until price pressures are fully broken.
The Fed is "far, far away from declaring victory" on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said at the Aspen Ideas Conference, despite the "welcome" news in the CPI report.
Kashkari, the Fed's most hawkish member, said he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023.
Reporting by Akriti Sharma in Bengaluru; Editing by Shri Navaratnam & Simon Cameron-Moore
https://www.reuters.com/markets/us/feds ... 022-08-11/
"Fed's Mary Daly says it's too early to 'declare victory' over inflation - FT"
Reuters
August 11, 2022
Aug 11 (Reuters) - San Francisco Federal Reserve Bank President Mary Daly warned it is far too early for the U.S. central bank to "declare victory" in its fight against inflation, the Financial Times reported on Thursday.
Daly's remarks comes as U.S. consumer prices remained unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for weary Americans who have watched inflation climb over the past two years.
In an interview with the Financial Times, Daly did not rule out a third consecutive 0.75% point interest rate rise at the central bank's next policy meeting in September, however, she said that a half-percentage point rate rise was her “baseline”.
"There's good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal," the newspaper quoted Daly as saying during the interview conducted on Wednesday.
She also maintained that interest rates should rise to just under 3.5 per cent by the end of the year, according to the report.
The fed funds rate, the rate that banks charge each other to borrow or lend excess reserves overnight, is currently in the 2.25%-2.5% range.
Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policymakers left no doubt they will continue to tighten monetary policy until price pressures are fully broken.
The Fed is "far, far away from declaring victory" on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said at the Aspen Ideas Conference, despite the "welcome" news in the CPI report.
Kashkari, the Fed's most hawkish member, said he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023.
Reporting by Akriti Sharma in Bengaluru; Editing by Shri Navaratnam & Simon Cameron-Moore
https://www.reuters.com/markets/us/feds ... 022-08-11/
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Barkin says rate increases need to continue until inflation holds at 2%"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, AUG 12 2022
KEY POINTS
* Richmond Fed President Thomas Barkin said Friday that more interest rate increases will be needed to tamp down inflation.
* Barkin said he wants to see inflation running around 2% “for a period of time.” The current level is far from that goal.
Despite positive inflation data this week, Richmond Federal Reserve President Thomas Barkin said Friday that more interest rate increases will be needed to tamp down price pressures.
Releases this week showing that consumer and wholesale price increases softened in July were “very welcome,” Barkin told CNBC’s “Squawk on the Street” in a live interview.
“So we’re happy to see inflation start to move down,” he added.
But he noted that, “I’d like to see a period of sustained inflation under control, and until we do that I think we’re just going to have to continue to move rates into restrictive territory.”
Headline consumer prices were flat in July while producer prices declined 0.5%, according to the Bureau of Labor Statistics.
However, that was just one-month’s data: CPI still was up 8.5% on a year-over-year basis, and the producer price index climbed 9.8%.
Both numbers are still far above the Fed’s 2% long-run inflation objective, so Barkin said the central bank needs to keep pushing forward until it achieves its goal.
“You’d like to see inflation running at our target, which is 2% at the PCE, and I’d like to see it running at our target for a period of time,” he said.
The Fed uses as its preferred gauge the personal consumption expenditures price index; June headline PCE ran at a 6.8% annual rate while core excluding food and energy was at 4.8%.
Barkin’s comments reflect those of most Fed officials who have spoken recently about rates.
The central bank has hiked its benchmark borrowing rate 0.75 percentage point at each of its last two meetings.
Markets are divided over whether the Fed will increase by three-quarters of a point in September or scale down to half a point, with traders tilting slightly toward the latter, according to CME Group data Friday morning.
Whichever is the case, Barkin said acting aggressively now is important.
He said his constituents are deeply concerned about inflation and want action from the Fed.
“Consumers really dislike inflation, and one message that I get loud and clear as I wander around my district is, ‘we don’t like inflation,’” he said.
Data also provided by Reuters
https://www.cnbc.com/2022/08/12/feds-ba ... rcent.html
"Fed’s Barkin says rate increases need to continue until inflation holds at 2%"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, AUG 12 2022
KEY POINTS
* Richmond Fed President Thomas Barkin said Friday that more interest rate increases will be needed to tamp down inflation.
* Barkin said he wants to see inflation running around 2% “for a period of time.” The current level is far from that goal.
Despite positive inflation data this week, Richmond Federal Reserve President Thomas Barkin said Friday that more interest rate increases will be needed to tamp down price pressures.
Releases this week showing that consumer and wholesale price increases softened in July were “very welcome,” Barkin told CNBC’s “Squawk on the Street” in a live interview.
“So we’re happy to see inflation start to move down,” he added.
But he noted that, “I’d like to see a period of sustained inflation under control, and until we do that I think we’re just going to have to continue to move rates into restrictive territory.”
Headline consumer prices were flat in July while producer prices declined 0.5%, according to the Bureau of Labor Statistics.
However, that was just one-month’s data: CPI still was up 8.5% on a year-over-year basis, and the producer price index climbed 9.8%.
Both numbers are still far above the Fed’s 2% long-run inflation objective, so Barkin said the central bank needs to keep pushing forward until it achieves its goal.
“You’d like to see inflation running at our target, which is 2% at the PCE, and I’d like to see it running at our target for a period of time,” he said.
The Fed uses as its preferred gauge the personal consumption expenditures price index; June headline PCE ran at a 6.8% annual rate while core excluding food and energy was at 4.8%.
Barkin’s comments reflect those of most Fed officials who have spoken recently about rates.
The central bank has hiked its benchmark borrowing rate 0.75 percentage point at each of its last two meetings.
Markets are divided over whether the Fed will increase by three-quarters of a point in September or scale down to half a point, with traders tilting slightly toward the latter, according to CME Group data Friday morning.
Whichever is the case, Barkin said acting aggressively now is important.
He said his constituents are deeply concerned about inflation and want action from the Fed.
“Consumers really dislike inflation, and one message that I get loud and clear as I wander around my district is, ‘we don’t like inflation,’” he said.
Data also provided by Reuters
https://www.cnbc.com/2022/08/12/feds-ba ... rcent.html
Re: THE FEDERAL RESERVE
REUTERS
"Analysis: Fed faces balance sheet dilemma as U.S. economy slows"
By Gertrude Chavez-Dreyfuss
August 15, 2022
NEW YORK, Aug 15 (Reuters) - With the recent slowdown in inflation, the Federal Reserve is faced with a conundrum ahead of a plan next month to double the rate at which it is shrinking its massive $8.9 trillion balance sheet.
The move to accelerate quantitative tightening (QT), as it's referred to, is meant to further drain pandemic-era stimulus from the financial system and increase borrowing rates for long-dated assets to weaken inflation.
But that is taking place as the U.S. central bank pushes ahead with interest rate hikes to tame stubbornly high inflation, which is currently running at more than three times the Fed's 2% target.
The double tightening, however, makes it harder for the Fed to achieve a "soft landing" in which the economy slows but avoids a recession.
With some investors believing the economy is already in a recession, speculation has grown that if something has to give, it could be the pace at which QT unfolds.
The odds, however, remain long that the Fed would change its plan in the near term, some bond investors say.
"There is some latitude for the Fed to either eventually go on a slow trajectory on quantitative tightening or even end earlier than expected."
"But it is hard to know (as to how) the Fed balances things out," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management in Dallas.
"At what point does the Fed view that financial conditions have tightened enough?"
"That's nebulous ... and you don't really know until after the fact if you have gone too far."
The U.S. economy contracted in the first and second quarters, amplifying an ongoing debate over whether the country is, or will soon be, in recession.
Along with the contractions, two reports last week that suggested inflation had likely peaked in July took some pressure off the Fed to deliver another oversized rate hike at its Sept. 20-21 policy meeting.
The annual U.S. consumer price index rose by a weaker-than-expected 8.5% last month, following a 9.1% rise in June, while U.S. producer prices also unexpectedly fell 0.5% on a monthly basis in July.
Traders of futures tied to the federal funds rate, the central bank's policy rate, are now pricing in a 63.5% chance of a 50-basis-point hike at the September meeting.
"We really think the Fed slows down sooner rather than later."
"The data is starting to adjust and we're seeing a slower economy," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York.
Still, her base case is for the Fed to run QT as is, but use that as a lever that can be adjusted in conjunction with rate hikes.
"If the rate hikes go fast and furious and they reverse, then they have to stop QT," Jones said.
"If the rate hikes slow and level off, they can continue QT for a longer time period and tighten policy through the back door instead of the front door."
Following the tamer CPI reading, several Fed officials said it was too early to declare victory on the inflation front.
"Inflation remains far, far above anything that could be considered price stability."
"It remains a very long journey back towards acceptable levels of inflation," said Jamie Dannhauser, an economist at London-based asset manager Ruffer LLP.
Dannhauser does not believe falling inflation numbers will affect the Fed's QT plan.
He added that more unexpected good news on inflation, to the extent that it alters the baseline view for monetary policy, will be reflected in the downward shift in Fed forecasts for the central bank's policy rate.
'BEHIND THE CURVE'
The Fed's balance sheet was at nearly $9 trillion as of last week.
Its holdings of Treasuries and mortgage-backed securities have not declined significantly since June when the Fed started QT, but should come down over time, although it won't occur in a straight line.
"The effects of QT are very small at the moment," said Thomas Simons, an economist at Jefferies in New York.
But bank reserves held at the Fed have fallen to $3.3 trillion, down about $1 trillion from a high of $4.3 trillion in December 2021.
Analysts said the contraction in reserves has been faster than many anticipated.
In the Fed's previous QT, $1.3 trillion in liquidity was withdrawn over five years.
The Fed has not announced a target size for its balance sheet.
Gennadiy Goldberg, senior rates strategist at TD Securities, thinks the Fed's ultimate goal would be to reduce the balance sheet to a point where bank reserves reach around 9% of GDP, which is where they stood prior to the September 2019 liquidity crunch.
Slowing down QT would be an option if it creates a shortage of bank reserves that starts to limit bank activities such as lending or market-making, analysts said.
Jay Hatfield, chief investment officer at Infrastructure Capital Management in New York, thinks the Fed should slow the pace of QT, as the market doesn't need another $1 trillion reduction in bank reserves.
"That would be catastrophic for bonds and stocks," Hatfield said.
"Unfortunately, the Fed almost universally ignores liquidity and money supply."
"That's why the Fed is perpetually behind the curve in controlling inflation and anticipating deflation."
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Karen Brettell; Editing by Alden Bentley and Paul Simao
https://www.reuters.com/markets/us/fed- ... 022-08-15/
"Analysis: Fed faces balance sheet dilemma as U.S. economy slows"
By Gertrude Chavez-Dreyfuss
August 15, 2022
NEW YORK, Aug 15 (Reuters) - With the recent slowdown in inflation, the Federal Reserve is faced with a conundrum ahead of a plan next month to double the rate at which it is shrinking its massive $8.9 trillion balance sheet.
The move to accelerate quantitative tightening (QT), as it's referred to, is meant to further drain pandemic-era stimulus from the financial system and increase borrowing rates for long-dated assets to weaken inflation.
But that is taking place as the U.S. central bank pushes ahead with interest rate hikes to tame stubbornly high inflation, which is currently running at more than three times the Fed's 2% target.
The double tightening, however, makes it harder for the Fed to achieve a "soft landing" in which the economy slows but avoids a recession.
With some investors believing the economy is already in a recession, speculation has grown that if something has to give, it could be the pace at which QT unfolds.
The odds, however, remain long that the Fed would change its plan in the near term, some bond investors say.
"There is some latitude for the Fed to either eventually go on a slow trajectory on quantitative tightening or even end earlier than expected."
"But it is hard to know (as to how) the Fed balances things out," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management in Dallas.
"At what point does the Fed view that financial conditions have tightened enough?"
"That's nebulous ... and you don't really know until after the fact if you have gone too far."
The U.S. economy contracted in the first and second quarters, amplifying an ongoing debate over whether the country is, or will soon be, in recession.
Along with the contractions, two reports last week that suggested inflation had likely peaked in July took some pressure off the Fed to deliver another oversized rate hike at its Sept. 20-21 policy meeting.
The annual U.S. consumer price index rose by a weaker-than-expected 8.5% last month, following a 9.1% rise in June, while U.S. producer prices also unexpectedly fell 0.5% on a monthly basis in July.
Traders of futures tied to the federal funds rate, the central bank's policy rate, are now pricing in a 63.5% chance of a 50-basis-point hike at the September meeting.
"We really think the Fed slows down sooner rather than later."
"The data is starting to adjust and we're seeing a slower economy," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York.
Still, her base case is for the Fed to run QT as is, but use that as a lever that can be adjusted in conjunction with rate hikes.
"If the rate hikes go fast and furious and they reverse, then they have to stop QT," Jones said.
"If the rate hikes slow and level off, they can continue QT for a longer time period and tighten policy through the back door instead of the front door."
Following the tamer CPI reading, several Fed officials said it was too early to declare victory on the inflation front.
"Inflation remains far, far above anything that could be considered price stability."
"It remains a very long journey back towards acceptable levels of inflation," said Jamie Dannhauser, an economist at London-based asset manager Ruffer LLP.
Dannhauser does not believe falling inflation numbers will affect the Fed's QT plan.
He added that more unexpected good news on inflation, to the extent that it alters the baseline view for monetary policy, will be reflected in the downward shift in Fed forecasts for the central bank's policy rate.
'BEHIND THE CURVE'
The Fed's balance sheet was at nearly $9 trillion as of last week.
Its holdings of Treasuries and mortgage-backed securities have not declined significantly since June when the Fed started QT, but should come down over time, although it won't occur in a straight line.
"The effects of QT are very small at the moment," said Thomas Simons, an economist at Jefferies in New York.
But bank reserves held at the Fed have fallen to $3.3 trillion, down about $1 trillion from a high of $4.3 trillion in December 2021.
Analysts said the contraction in reserves has been faster than many anticipated.
In the Fed's previous QT, $1.3 trillion in liquidity was withdrawn over five years.
The Fed has not announced a target size for its balance sheet.
Gennadiy Goldberg, senior rates strategist at TD Securities, thinks the Fed's ultimate goal would be to reduce the balance sheet to a point where bank reserves reach around 9% of GDP, which is where they stood prior to the September 2019 liquidity crunch.
Slowing down QT would be an option if it creates a shortage of bank reserves that starts to limit bank activities such as lending or market-making, analysts said.
Jay Hatfield, chief investment officer at Infrastructure Capital Management in New York, thinks the Fed should slow the pace of QT, as the market doesn't need another $1 trillion reduction in bank reserves.
"That would be catastrophic for bonds and stocks," Hatfield said.
"Unfortunately, the Fed almost universally ignores liquidity and money supply."
"That's why the Fed is perpetually behind the curve in controlling inflation and anticipating deflation."
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Karen Brettell; Editing by Alden Bentley and Paul Simao
https://www.reuters.com/markets/us/fed- ... 022-08-15/
Re: THE FEDERAL RESERVE
CNBC
"Fed sees interest rate hikes continuing until inflation eases substantially, minutes show"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, AUG 17 2022
Federal Reserve officials at their July meeting indicated they likely would not consider pulling back on interest rate hikes until inflation came down substantially, according to minutes from the session released Wednesday.
During a meeting in which the central bank approved a 0.75 percentage point rate hike, policymakers expressed resolve to bring down inflation that is running well above the Fed’s desired 2% level.
They did not provide specific guidance for future increases and said they would be watching data closely before making that decision.
Market pricing is for a half-point rate hike at the September meeting, though that remains a close call.
Meeting participants noted that the 2.25%-2.50% range for the federal funds rate was around the “neutral” level that is neither supportive nor restrictive on activity.
Some officials said a restrictive stance likely will be appropriate, indicating more rate hikes to come.
“With inflation remaining well above the Committee’s objective, participants judged that moving to a restrictive stance of policy was required to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the minutes said.
The document also reflected the idea that once the Fed gets comfortable with its policy stance and sees it having an impact on inflation, it could start to take its foot off the policy brake.
That notion has helped push stocks into a strong summer rally.
“Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation,” the minutes said.
However, the summary also stated that some participants said “it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent.”
Officials noted that future rate decisions would be based on incoming data.
But they also said there were few signs that inflation was abating, and the minutes repeatedly stressed the Fed’s resolve to bring down inflation.
They further noted that it likely would “take some time” before policy kicked in enough to have a meaningful impact.
The consumer price index was flat for July but was up 8.5% from a year ago.
A separate measure the Fed follows, the personal consumption expenditures price index, rose 1% in June and was up 6.8% year over year.
Policymakers worried that any signs of wavering from the Fed would make the situation worse.
“Participants judged that a significant risk facing the Committee was that elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the stance of policy sufficiently,” the minutes said.
“If this risk materialized, it would complicate the task of returning inflation to 2 percent and could raise substantially the economic costs of doing so.”
Though the Fed took the unprecedented steps of hiking three-quarters of a point at successive meetings, markets have been in rally mode lately on hopes that the central bank might soften the pace of increases heading into the fall.
Since the recent bottom in mid-June, the Dow Jones Industrial Average is up more than 14%.
The minutes noted that some members worried the Fed could overdo it with rate hikes, underscoring the importance of not being tied to forward guidance on moves and instead following the data.
https://www.cnbc.com/2022/08/17/fed-min ... 2022-.html
"Fed sees interest rate hikes continuing until inflation eases substantially, minutes show"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, AUG 17 2022
Federal Reserve officials at their July meeting indicated they likely would not consider pulling back on interest rate hikes until inflation came down substantially, according to minutes from the session released Wednesday.
During a meeting in which the central bank approved a 0.75 percentage point rate hike, policymakers expressed resolve to bring down inflation that is running well above the Fed’s desired 2% level.
They did not provide specific guidance for future increases and said they would be watching data closely before making that decision.
Market pricing is for a half-point rate hike at the September meeting, though that remains a close call.
Meeting participants noted that the 2.25%-2.50% range for the federal funds rate was around the “neutral” level that is neither supportive nor restrictive on activity.
Some officials said a restrictive stance likely will be appropriate, indicating more rate hikes to come.
“With inflation remaining well above the Committee’s objective, participants judged that moving to a restrictive stance of policy was required to meet the Committee’s legislative mandate to promote maximum employment and price stability,” the minutes said.
The document also reflected the idea that once the Fed gets comfortable with its policy stance and sees it having an impact on inflation, it could start to take its foot off the policy brake.
That notion has helped push stocks into a strong summer rally.
“Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation,” the minutes said.
However, the summary also stated that some participants said “it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent.”
Officials noted that future rate decisions would be based on incoming data.
But they also said there were few signs that inflation was abating, and the minutes repeatedly stressed the Fed’s resolve to bring down inflation.
They further noted that it likely would “take some time” before policy kicked in enough to have a meaningful impact.
The consumer price index was flat for July but was up 8.5% from a year ago.
A separate measure the Fed follows, the personal consumption expenditures price index, rose 1% in June and was up 6.8% year over year.
Policymakers worried that any signs of wavering from the Fed would make the situation worse.
“Participants judged that a significant risk facing the Committee was that elevated inflation could become entrenched if the public began to question the Committee’s resolve to adjust the stance of policy sufficiently,” the minutes said.
“If this risk materialized, it would complicate the task of returning inflation to 2 percent and could raise substantially the economic costs of doing so.”
Though the Fed took the unprecedented steps of hiking three-quarters of a point at successive meetings, markets have been in rally mode lately on hopes that the central bank might soften the pace of increases heading into the fall.
Since the recent bottom in mid-June, the Dow Jones Industrial Average is up more than 14%.
The minutes noted that some members worried the Fed could overdo it with rate hikes, underscoring the importance of not being tied to forward guidance on moves and instead following the data.
https://www.cnbc.com/2022/08/17/fed-min ... 2022-.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed staff sees bond portfolio income turning negative in coming months"
Reuters
August 17, 2022
Aug 17 (Reuters) - Federal Reserve staff expect the net income from the Fed's holdings of more than $8 trillion of bonds to "turn negative in coming months," a readout of the central bank's July meeting showed on Wednesday.
The development potentially signals that the stream of tens of billions of dollars from income earned from its bond portfolio that it has been sending annually to the U.S. Treasury may slow as the Fed shrinks its balance sheet.
It should not affect the ability to implement monetary policy as directed by the Federal Open Market Committee, according to minutes of the July 26-27 meeting.
The negative income would be shown as a deferred asset on the Fed's balance sheet, which "would be extinguished over time as net income turned positive again in later years."
The Fed began culling its holdings of nearly $5.8 trillion of Treasuries and $2.7 trillion of mortgage-backed securities starting in June and aims to increase the pace of reduction to $95 billion a month starting in September.
As of a week ago, it had reduced its overall holdings by less than $40 billion.
The Fed turns any excess earnings it has generated to the Treasury each year, and those remittances have exploded in the two years of the COVID-19 pandemic, mostly because the Fed bought about $4.5 trillion of bonds in that period to support the economy through the crisis.
Last year, the Fed sent $109 billion to the Treasury, up from $86.9 billion in 2020 and about $55 billion in 2019.
Reporting by Dan Burns in New York; Editing by Matthew Lewis
https://www.reuters.com/markets/us/fed- ... 022-08-17/
"Fed staff sees bond portfolio income turning negative in coming months"
Reuters
August 17, 2022
Aug 17 (Reuters) - Federal Reserve staff expect the net income from the Fed's holdings of more than $8 trillion of bonds to "turn negative in coming months," a readout of the central bank's July meeting showed on Wednesday.
The development potentially signals that the stream of tens of billions of dollars from income earned from its bond portfolio that it has been sending annually to the U.S. Treasury may slow as the Fed shrinks its balance sheet.
It should not affect the ability to implement monetary policy as directed by the Federal Open Market Committee, according to minutes of the July 26-27 meeting.
The negative income would be shown as a deferred asset on the Fed's balance sheet, which "would be extinguished over time as net income turned positive again in later years."
The Fed began culling its holdings of nearly $5.8 trillion of Treasuries and $2.7 trillion of mortgage-backed securities starting in June and aims to increase the pace of reduction to $95 billion a month starting in September.
As of a week ago, it had reduced its overall holdings by less than $40 billion.
The Fed turns any excess earnings it has generated to the Treasury each year, and those remittances have exploded in the two years of the COVID-19 pandemic, mostly because the Fed bought about $4.5 trillion of bonds in that period to support the economy through the crisis.
Last year, the Fed sent $109 billion to the Treasury, up from $86.9 billion in 2020 and about $55 billion in 2019.
Reporting by Dan Burns in New York; Editing by Matthew Lewis
https://www.reuters.com/markets/us/fed- ... 022-08-17/
Re: THE FEDERAL RESERVE
REUTERS
"Fed minutes show more rate hikes in the pipeline, but pace could slow"
By Howard Schneider
August 17, 2022
WASHINGTON, Aug 17 (Reuters) - Federal Reserve officials saw "little evidence" late last month that U.S. inflation pressures were easing, and steeled themselves to force the economy to slow down to control an ongoing surge in prices, according to the minutes of their July 26-27 policy meeting.
While not explicitly hinting at a particular pace of coming rate increases, beginning with the Sept. 20-21 meeting, the minutes released on Wednesday showed U.S. central bank policymakers committed to raising rates as high as necessary to tame inflation - even as they began to acknowledge more explicitly the risk they might go too far and curb economic activity too much.
"Participants agreed that there was little evidence to date that inflation pressures were subsiding," the minutes said.
Though some reduction in inflation, which has been running at four-decade highs, might occur through improving global supply chains or drops in the prices of fuel and other commodities, much of the heavy lifting would have to come by imposing such high borrowing costs on businesses and households that they would spend less, the minutes stated.
"Participants emphasized that a slowing in aggregate demand would play an important role in reducing inflation pressures," the minutes said.
Yet despite that arch tone on inflation as their top concern, the minutes also flagged what will be an important dimension of the Fed's debate in coming months - when to slow down the pace of rate increases, and how to know if rate hikes have gone past the point needed to beat rising prices.
While judged as generally "dovish" by traders who increased their bets the Fed would approve just a half-percentage-point hike at the September meeting, Bob Miller, head of Americas Fundamental Fixed Income at BlackRock, said the minutes seemed to be giving the Fed more scope to react as data flowed in.
"The intended message was much more nuanced" and reflected a need to "optionality" by a central bank trying to assess conflicting economic data and shocks, he said.
"Staking out some conditionality going forward seems sensible given the unprecedented nature of this particular cycle."
The pace of rate increases indeed could ease as soon as next month, with the minutes stating that, given the need for time to evaluate how tighter policy is affecting the economy, "it would become appropriate at some point" to move from the large, 75-basis-point increases approved at the Fed's June and July meetings, to half-percentage-point and eventually quarter-percentage-point hikes.
But the ultimate level of interest rates seemed still very much in play.
"Some" participants said they felt rates would have to reach a "sufficiently restrictive level" and remain there for "some time" in order to control inflation that was proving far more persistent than anticipated.
"Many," on the other hand, noted the risk that the Fed "could tighten the stance of policy by more than necessary to restore price stability," particularly given the length of time it takes for monetary policy to change economic behavior.
Referring to the rate increases already telegraphed by the Fed, "participants generally judged that the bulk of the effects on real activity had yet to be felt," the minutes stated.
As of the July meeting, Fed officials noted that while some parts of the economy, notably housing, had begun to slow under the weight of tighter credit conditions, the labor market remained strong and unemployment was at a near-record low.
INCOMING DATA
The Fed has lifted its benchmark overnight interest rate by 225 points this year to a target range of 2.25% to 2.50%.
The central bank is widely expected to hike rates next month by either 50 or 75 basis points.
For the Fed to scale back its rate hikes, inflation reports due to be released before the next meeting would likely need to confirm that the pace of price increases was declining.
Inflation by the Fed's preferred measure is more than three times the central bank's 2% target.
Data since the Fed's July policy meeting showed annual consumer inflation eased that month to 8.5% from 9.1% in June, a fact that would argue for the smaller 50-basis-point rate increase next month.
But other data released on Wednesday showed why that remains an open question.
Core U.S. retail sales, which correspond most closely with the consumer spending component of gross domestic product, were stronger than expected in July.
That data, along with the shock-value headline that inflation had passed the 10% mark in the United Kingdom, seemed to prompt investors in futures tied to the Fed's target policy interest rate to shift bets in favor of a 75-basis-point rate hike next month.
Meanwhile, a Chicago Fed index of credit, leverage and risk metrics showed continued easing.
That poses a dilemma for policymakers who feel that tighter financial conditions are needed to curb inflation.
Job and wage growth in July exceeded expectations, and a recent stock market rally may show an economy still too "hot" for the Fed's comfort.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/fed- ... 022-08-17/
"Fed minutes show more rate hikes in the pipeline, but pace could slow"
By Howard Schneider
August 17, 2022
WASHINGTON, Aug 17 (Reuters) - Federal Reserve officials saw "little evidence" late last month that U.S. inflation pressures were easing, and steeled themselves to force the economy to slow down to control an ongoing surge in prices, according to the minutes of their July 26-27 policy meeting.
While not explicitly hinting at a particular pace of coming rate increases, beginning with the Sept. 20-21 meeting, the minutes released on Wednesday showed U.S. central bank policymakers committed to raising rates as high as necessary to tame inflation - even as they began to acknowledge more explicitly the risk they might go too far and curb economic activity too much.
"Participants agreed that there was little evidence to date that inflation pressures were subsiding," the minutes said.
Though some reduction in inflation, which has been running at four-decade highs, might occur through improving global supply chains or drops in the prices of fuel and other commodities, much of the heavy lifting would have to come by imposing such high borrowing costs on businesses and households that they would spend less, the minutes stated.
"Participants emphasized that a slowing in aggregate demand would play an important role in reducing inflation pressures," the minutes said.
Yet despite that arch tone on inflation as their top concern, the minutes also flagged what will be an important dimension of the Fed's debate in coming months - when to slow down the pace of rate increases, and how to know if rate hikes have gone past the point needed to beat rising prices.
While judged as generally "dovish" by traders who increased their bets the Fed would approve just a half-percentage-point hike at the September meeting, Bob Miller, head of Americas Fundamental Fixed Income at BlackRock, said the minutes seemed to be giving the Fed more scope to react as data flowed in.
"The intended message was much more nuanced" and reflected a need to "optionality" by a central bank trying to assess conflicting economic data and shocks, he said.
"Staking out some conditionality going forward seems sensible given the unprecedented nature of this particular cycle."
The pace of rate increases indeed could ease as soon as next month, with the minutes stating that, given the need for time to evaluate how tighter policy is affecting the economy, "it would become appropriate at some point" to move from the large, 75-basis-point increases approved at the Fed's June and July meetings, to half-percentage-point and eventually quarter-percentage-point hikes.
But the ultimate level of interest rates seemed still very much in play.
"Some" participants said they felt rates would have to reach a "sufficiently restrictive level" and remain there for "some time" in order to control inflation that was proving far more persistent than anticipated.
"Many," on the other hand, noted the risk that the Fed "could tighten the stance of policy by more than necessary to restore price stability," particularly given the length of time it takes for monetary policy to change economic behavior.
Referring to the rate increases already telegraphed by the Fed, "participants generally judged that the bulk of the effects on real activity had yet to be felt," the minutes stated.
As of the July meeting, Fed officials noted that while some parts of the economy, notably housing, had begun to slow under the weight of tighter credit conditions, the labor market remained strong and unemployment was at a near-record low.
INCOMING DATA
The Fed has lifted its benchmark overnight interest rate by 225 points this year to a target range of 2.25% to 2.50%.
The central bank is widely expected to hike rates next month by either 50 or 75 basis points.
For the Fed to scale back its rate hikes, inflation reports due to be released before the next meeting would likely need to confirm that the pace of price increases was declining.
Inflation by the Fed's preferred measure is more than three times the central bank's 2% target.
Data since the Fed's July policy meeting showed annual consumer inflation eased that month to 8.5% from 9.1% in June, a fact that would argue for the smaller 50-basis-point rate increase next month.
But other data released on Wednesday showed why that remains an open question.
Core U.S. retail sales, which correspond most closely with the consumer spending component of gross domestic product, were stronger than expected in July.
That data, along with the shock-value headline that inflation had passed the 10% mark in the United Kingdom, seemed to prompt investors in futures tied to the Fed's target policy interest rate to shift bets in favor of a 75-basis-point rate hike next month.
Meanwhile, a Chicago Fed index of credit, leverage and risk metrics showed continued easing.
That poses a dilemma for policymakers who feel that tighter financial conditions are needed to curb inflation.
Job and wage growth in July exceeded expectations, and a recent stock market rally may show an economy still too "hot" for the Fed's comfort.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/fed- ... 022-08-17/
Re: THE FEDERAL RESERVE
REUTERS
"Fed united on need for higher rates, divided over how high"
By Ann Saphir, Howard Schneider
AUGUST 18, 2022
(Reuters) -The Federal Reserve needs to keep raising borrowing costs to bring high inflation under control, a string of U.S. central bank officials said on Thursday, even as they debated how fast and how high to lift them.
St. Louis Fed President James Bullard, who was among the central bank’s earliest advocates last year of a more muscular response to fast-building price pressures, said that given the strength of the economy he is currently leaning toward supporting a third straight 75-basis-point interest rate hike in September.
“I don’t really see why you want to drag out interest rate increases into next year,” Bullard told the Wall Street Journal, saying he would like to get the Fed’s benchmark overnight interest rate to a target range of 3.75% to 4.00% by the end of this year.
The Fed’s policy rate is currently 2.25%-2.50%.
Earlier on Thursday, San Francisco Fed President Mary Daly said hiking rates by 50 or 75 basis points at the Fed’s next policy meeting on Sept. 20-21 would be a “reasonable” way to get short-term borrowing costs to “a little bit above” 3% by the end of this year, and on their way to a little bit higher in 2023.
The exact pace would depend on employment data, which has shown brisk growth in recent months, and inflation, Daly told CNN International.
Inflation, by the Fed’s preferred measure, is running at more than three times the central bank’s 2% target.
With the global economic slowdown acting as a headwind on U.S. growth, she said “we have to take that into consideration as we ensure that we don’t overdo policy.”
Fresh data on Thursday showing a dip in the number of Americans filing for unemployment benefits last week added to evidence that, save for the fast-cooling housing market, the economy is holding up despite the steepest round of Fed rate hikes since the 1980s.
‘DEFINITELY PREMATURE’
Investors may get a better read on the Fed’s likely actions in coming months next Friday, Aug. 26, when Fed Chair Jerome Powell gives a highly anticipated speech on the economic outlook at the annual global central bankers’ conference in Jackson Hole, Wyoming.
Powell last month held the door open to another “unusually large” rate hike at the Fed’s next meeting, but also said “it likely will become appropriate to slow the pace of increases” to give policymakers time to take stock of how higher borrowing costs are affecting the economy.
Fed officials' remarks Thursday suggest an emerging split here in the central bank between those who want to push rates higher quickly, and those who are more cautious because of potential damage to the job market and the risk of a rise in the U.S. unemployment rate, now at 3.5%.
But both Bullard and Daly said they felt that once rates get to a certain level, the Fed will not quickly reverse course.
Bullard said market expectations of rate cuts were “definitely premature.”
Daly said she supported a “raise-and-hold” strategy.
“The worst thing you can have as a business or a consumer is to have rates go up and then come rapidly down... it just causes a lot of caution and uncertainty,” Daly said.
“I do think we want to not have this idea that we’ll have this large hump-shaped rate path where we’ll ratchet up really rapidly this year and then cut aggressively next year - that’s not what’s on my mind.”
Trading in futures contracts tied to the Fed’s policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later.
Speaking at a separate event, Kansas City Fed President Esther George said she and her colleagues would continue to debate the question of how fast to raise rates, but that they would not stop tightening policy until they are “completely convinced” that inflation is coming down.
The recent easing of U.S. financial conditions, including a surge in stock prices, may have been based on an overly optimistic sense that inflation was peaking and the pace of interest rate increases was likely to slow, she said.
Minneapolis Fed President Neel Kashkari, the most hawkish of Fed policymakers, said the central bank needs to “urgently” bring down inflation.
“The question right now is, can we bring inflation down without triggering a recession?” he said at an event in Wayzata, Minnesota.
“And my answer to that question is, I don’t know.”
Reporting by Ann Saphir and Howard Schneider; Additional reporting by Akanksha Khushi in Bengaluru; Editing by Paul Simao and Rosalba O’Brien
https://www.reuters.com/article/usa-fed ... SL1N2ZU1MK
"Fed united on need for higher rates, divided over how high"
By Ann Saphir, Howard Schneider
AUGUST 18, 2022
(Reuters) -The Federal Reserve needs to keep raising borrowing costs to bring high inflation under control, a string of U.S. central bank officials said on Thursday, even as they debated how fast and how high to lift them.
St. Louis Fed President James Bullard, who was among the central bank’s earliest advocates last year of a more muscular response to fast-building price pressures, said that given the strength of the economy he is currently leaning toward supporting a third straight 75-basis-point interest rate hike in September.
“I don’t really see why you want to drag out interest rate increases into next year,” Bullard told the Wall Street Journal, saying he would like to get the Fed’s benchmark overnight interest rate to a target range of 3.75% to 4.00% by the end of this year.
The Fed’s policy rate is currently 2.25%-2.50%.
Earlier on Thursday, San Francisco Fed President Mary Daly said hiking rates by 50 or 75 basis points at the Fed’s next policy meeting on Sept. 20-21 would be a “reasonable” way to get short-term borrowing costs to “a little bit above” 3% by the end of this year, and on their way to a little bit higher in 2023.
The exact pace would depend on employment data, which has shown brisk growth in recent months, and inflation, Daly told CNN International.
Inflation, by the Fed’s preferred measure, is running at more than three times the central bank’s 2% target.
With the global economic slowdown acting as a headwind on U.S. growth, she said “we have to take that into consideration as we ensure that we don’t overdo policy.”
Fresh data on Thursday showing a dip in the number of Americans filing for unemployment benefits last week added to evidence that, save for the fast-cooling housing market, the economy is holding up despite the steepest round of Fed rate hikes since the 1980s.
‘DEFINITELY PREMATURE’
Investors may get a better read on the Fed’s likely actions in coming months next Friday, Aug. 26, when Fed Chair Jerome Powell gives a highly anticipated speech on the economic outlook at the annual global central bankers’ conference in Jackson Hole, Wyoming.
Powell last month held the door open to another “unusually large” rate hike at the Fed’s next meeting, but also said “it likely will become appropriate to slow the pace of increases” to give policymakers time to take stock of how higher borrowing costs are affecting the economy.
Fed officials' remarks Thursday suggest an emerging split here in the central bank between those who want to push rates higher quickly, and those who are more cautious because of potential damage to the job market and the risk of a rise in the U.S. unemployment rate, now at 3.5%.
But both Bullard and Daly said they felt that once rates get to a certain level, the Fed will not quickly reverse course.
Bullard said market expectations of rate cuts were “definitely premature.”
Daly said she supported a “raise-and-hold” strategy.
“The worst thing you can have as a business or a consumer is to have rates go up and then come rapidly down... it just causes a lot of caution and uncertainty,” Daly said.
“I do think we want to not have this idea that we’ll have this large hump-shaped rate path where we’ll ratchet up really rapidly this year and then cut aggressively next year - that’s not what’s on my mind.”
Trading in futures contracts tied to the Fed’s policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later.
Speaking at a separate event, Kansas City Fed President Esther George said she and her colleagues would continue to debate the question of how fast to raise rates, but that they would not stop tightening policy until they are “completely convinced” that inflation is coming down.
The recent easing of U.S. financial conditions, including a surge in stock prices, may have been based on an overly optimistic sense that inflation was peaking and the pace of interest rate increases was likely to slow, she said.
Minneapolis Fed President Neel Kashkari, the most hawkish of Fed policymakers, said the central bank needs to “urgently” bring down inflation.
“The question right now is, can we bring inflation down without triggering a recession?” he said at an event in Wayzata, Minnesota.
“And my answer to that question is, I don’t know.”
Reporting by Ann Saphir and Howard Schneider; Additional reporting by Akanksha Khushi in Bengaluru; Editing by Paul Simao and Rosalba O’Brien
https://www.reuters.com/article/usa-fed ... SL1N2ZU1MK