CNBC
"Fed Vice Chair Clarida says another year of inflation like this one would not be ‘a policy success’"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED MON, NOV 8 2021
KEY POINTS
* Fed Vice Chairman Richard Clarida conceded inflation is running at “much more than a moderate overshoot” of the central bank’s 2% target.
* If the current pace continues into next year, that would not be considered “a policy success,” he added.
Federal Reserve Vice Chairman Richard Clarida conceded Monday that inflation is running well above a level the central bank considers desirable, and if that continues it would signal a policy error.
Though Clarida still subscribes to the broader description of current price pressures as “transitory,” he said they are more intense than expected and will be higher this year than the Fed’s most recent forecast.
“Realized inflation so far this year represents to me much more than a moderate overshoot of our 2% longer-run goal, and I would certainly not consider a repeat performance a policy success,” he said during a virtual conference presented by the Brookings Institution.
The remarks come nearly a week after the Fed indicated it would keep its benchmark interest rate anchored near zero for now, but later this month will start tapering the amount of bonds it purchases each month.
The move will see the Fed reduce the program by $15 billion a month for at least November and December, then will continue each month so long as economic and market conditions hold up.
Left unanswered is the question of when the Fed will hike rates.
Current Fed forecasts indicate a slightly better-than-even chance for the first increase coming in 2022.
Pricing in the federal funds futures market, however, indicates the rate will rise to 0.51% by the end of the year, which would mean two quarter-percentage point increases.
Clarida said he will be watching inflation, unemployment and gross domestic product.
Should they continue to improve – he projects full employment by the end of 2022 – then he expects that rate hikes will be appropriate.
“While we clearly are a ways away from considering raising interest rates, if the outlooks for inflation and unemployment … turn out to be the actual outcomes, then I do believe that these three conditions for raising the target range of the funds rate will have been met by year-end 2022,” he said.
The Brookings event focused on the framework the Fed adopted last year on inflation.
Under the guidelines, the Fed is willing to tolerate a higher inflation rate than its 2% target for a period of time to promote full and inclusive employment.
Clarida said he sees the Fed’s preferred inflation gauge hitting 4% this year, higher than the 3.7% outlook the Fed’s rate-setting body pointed to in September.
He then sees inflation averaging 2.5% in 2022 before fading back toward the 2% longer-run target.
Philadelphia Fed President Patrick Harker also weighed in on inflation Monday, acknowledging the impact but saying that he also expects prices to fall back.
“I am acutely aware that this period of rising prices is painful for many Americans."
"But I do expect inflation to moderate next year as supply chains come back online and bottlenecks ease, he told the Economic Club of New York in prepared remarks.
“I don’t expect that the federal funds rate will rise before the tapering is complete, but we are monitoring inflation very closely and are prepared to take action, should circumstances warrant it.”
https://www.cnbc.com/2021/11/08/fed-vic ... ccess.html
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Evans: inflation high but still no rate hike until 2023"
By Reuters Staff
NOVEMBER 8, 2021
Nov 8 (Reuters) - Chicago Federal Reserve Bank President Charles Evans on Monday said that while he is a bit more nervous about inflation staying high than he had previously been, he still believes the Fed will not need to raise interest rates until 2023.
“I think inflation will stay more elevated in 2022,” he told reporters after a speech.
But “I still tend to think we have time to be patient” because most of the price increases are being driven by supply shocks that will abate.
If inflation expectations increased a lot, it would “certainly” make sense to think about a 2022 rate hike, he said, but for his own view, “I don’t think it’s until 2023.”
Reporting by Ann Saphir; Editing by Chris Reese
https://www.reuters.com/article/usa-fed ... SS0N2O401T
"Fed's Evans: inflation high but still no rate hike until 2023"
By Reuters Staff
NOVEMBER 8, 2021
Nov 8 (Reuters) - Chicago Federal Reserve Bank President Charles Evans on Monday said that while he is a bit more nervous about inflation staying high than he had previously been, he still believes the Fed will not need to raise interest rates until 2023.
“I think inflation will stay more elevated in 2022,” he told reporters after a speech.
But “I still tend to think we have time to be patient” because most of the price increases are being driven by supply shocks that will abate.
If inflation expectations increased a lot, it would “certainly” make sense to think about a 2022 rate hike, he said, but for his own view, “I don’t think it’s until 2023.”
Reporting by Ann Saphir; Editing by Chris Reese
https://www.reuters.com/article/usa-fed ... SS0N2O401T
Re: THE FEDERAL RESERVE
REUTERS
"U.S. consumers' income and spending expectations reach 8-year high"
By Jonnelle Marte
November 8, 2021
Nov 8 (Reuters) - Short-term inflation expectations increased in October and consumers' expectations for how much money they will earn and spend over the next year rose to the highest level in eight years, according to survey findings released by the New York Federal Reserve on Monday.
Median expectations for what inflation will be one year from now rose in October for the 12th straight month to 5.7% from 5.3% in September, reaching a new high for the survey launched in June of 2013.
However, medium-term inflation expectations for what inflation will be in three years remained unchanged in October at 4.2% after three consecutive months of increases.
Consumers said they expected household income to grow by a median of 3.3% in one year, up from 3.0% in September and reaching a series high.
Expectations for how much more consumers expect to spend a year from now rose to 5.4% in October from 5.0% the previous month, also reaching a new high.
The report provided more evidence of the ways that imbalances caused by the pandemic may be leading to inflationary pressures and wage growth.
Fed policymakers said last week that they largely expect those pressures to fade on their own as those supply and demand imbalances are resolved, but they are watching the data closely for signs that they may persist.
The median expectations for the year-ahead change in the price of gas rose sharply to 9.4% in October from 5.9% in September, the survey found.
Consumers also said they expect further increases in the cost of college, food and rent.
The monthly survey of consumer expectations is based on a rotating panel of approximately 1,300 households.
Reporting by Jonnelle Marte; Editing by Andrea Ricci
https://www.reuters.com/world/us/us-con ... 021-11-08/
"U.S. consumers' income and spending expectations reach 8-year high"
By Jonnelle Marte
November 8, 2021
Nov 8 (Reuters) - Short-term inflation expectations increased in October and consumers' expectations for how much money they will earn and spend over the next year rose to the highest level in eight years, according to survey findings released by the New York Federal Reserve on Monday.
Median expectations for what inflation will be one year from now rose in October for the 12th straight month to 5.7% from 5.3% in September, reaching a new high for the survey launched in June of 2013.
However, medium-term inflation expectations for what inflation will be in three years remained unchanged in October at 4.2% after three consecutive months of increases.
Consumers said they expected household income to grow by a median of 3.3% in one year, up from 3.0% in September and reaching a series high.
Expectations for how much more consumers expect to spend a year from now rose to 5.4% in October from 5.0% the previous month, also reaching a new high.
The report provided more evidence of the ways that imbalances caused by the pandemic may be leading to inflationary pressures and wage growth.
Fed policymakers said last week that they largely expect those pressures to fade on their own as those supply and demand imbalances are resolved, but they are watching the data closely for signs that they may persist.
The median expectations for the year-ahead change in the price of gas rose sharply to 9.4% in October from 5.9% in September, the survey found.
Consumers also said they expect further increases in the cost of college, food and rent.
The monthly survey of consumer expectations is based on a rotating panel of approximately 1,300 households.
Reporting by Jonnelle Marte; Editing by Andrea Ricci
https://www.reuters.com/world/us/us-con ... 021-11-08/
Re: THE FEDERAL RESERVE
REUTERS
"Analysis: Flatlining participation, rising wages leave Fed employment puzzle unresolved"
By Howard Schneider
November 8, 2021
WASHINGTON, Nov 8 (Reuters) - The U.S. Federal Reserve's hoped-for surge of people into the U.S. job market fell short again in October, with the labor force participation rate now flat for 15 months and continued broad wage gains reflecting what's become perhaps the key supply "bottleneck" for the central bank.
Average hourly earnings rose 4.9% on an annual basis in October, the most since March and continuing a pandemic-era rise in wages the Fed is watching for its possible effect on inflation.
So far the wage gains are generally welcomed by the Fed, likely to support spending and economic growth in coming months as pandemic-era government programs decline, and providing some evidence the central bank's ultra-easy monetary policy is helping the least well off.
Earnings in the lower-paid leisure and hospitality industry, hardest hit in terms of joblessness at the outset of the pandemic and still the farthest from recovering lost employment, rose more than 11% as of October compared to a year ago, nearly double the pace of the next closest industry, transportation.
But an otherwise strong October employment report, with 531,000 jobs added, came with a footnote: Growth in the labor force moved sideways again, foiling the Fed's hopes that people would return to jobs or begin actively seeking work in larger numbers.
Since August of 2020 the labor force participation rate has ranged between 61.4% and 61.7%, making little headway back to the pre-pandemic level of 63.4% that policymakers have set their sights on.
October's rate was 61.6%, unchanged from September.
Unless that improves, wrote Capital Economics Senior U.S. Economist Michael Pearce, wages are likely to continue higher and the Fed left open to the risk that "maximum employment" may arrive sooner, with a lower-than-anticipated level of jobs.
"There was absolutely no sign of a pick-up in labor supply."
"That suggests the sharp acceleration in wage growth in recent months has further to run," Pearce said.
Fed officials are "arguing that participation rates will rebound as virus fears and caregiving burdens ease."
"But with growth in the labor force muted even as case numbers drop back, we're increasingly worried that the big drop in participation over the past few years will prove permanent."
So far Fed Chair Jerome Powell and top policymakers feel the increase in wages is in line with changes in prices overall and labor productivity - meaning it won't be an inflationary force on its own, and help turn what's expected to be a temporary period of rising prices into something more persistent.
Recent gains have helped narrow some of the gap in the U.S. income distribution, bringing the leisure and hospitality industry's $19 average hourly pay a bit closer to the nearly $31 national average, and narrowing the spread with workers in the highest-paid and tech-influenced information industry.
The transition of the economy back to fuller reliance on private earnings will also be key to sustaining U.S. growth that Fed officials and economists expect to accelerate now that the pandemic is easing again.
An Atlanta Fed real-time tracker for quarterly economic growth for the rest of 2021 jumped Friday to 8.5% from 8.2% after news U.S. companies added 531,000 jobs in October, a pace that shows an easing of pandemic concerns and which could make up the job market's remaining lost ground sometime next year.
The unemployment rate of 4.6% is now just 1.1 percentage points above the 3.5% mark hit at the start of the pandemic, and has clawed back more than 90% of the surge in the spring of 2020 when it spiked to 14.8%.
"Wages have been moving up strongly, very strongly..."
"It's very important, and it's generally a good thing," Powell said last week after the Fed's latest policy meeting.
But the Fed has now tied its policy, and any increase in interest rates from the current near-zero level, to reaching "maximum employment."
That's a concept the central bank has not quantified but is judging against an array of statistics including the behavior of labor force participation and wages.
The two influence each other, and Powell this week acknowledged that the lack of improvement in the numbers of people working or actively looking for work has surprised him.
As the infections from the coronavirus Delta variant subsided "we thought that schools reopening and elapsing unemployment benefits would produce some sort of additional labor supply."
"That doesn't seem to have been the case," he said.
Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci
https://www.reuters.com/business/flatli ... 021-11-08/
"Analysis: Flatlining participation, rising wages leave Fed employment puzzle unresolved"
By Howard Schneider
November 8, 2021
WASHINGTON, Nov 8 (Reuters) - The U.S. Federal Reserve's hoped-for surge of people into the U.S. job market fell short again in October, with the labor force participation rate now flat for 15 months and continued broad wage gains reflecting what's become perhaps the key supply "bottleneck" for the central bank.
Average hourly earnings rose 4.9% on an annual basis in October, the most since March and continuing a pandemic-era rise in wages the Fed is watching for its possible effect on inflation.
So far the wage gains are generally welcomed by the Fed, likely to support spending and economic growth in coming months as pandemic-era government programs decline, and providing some evidence the central bank's ultra-easy monetary policy is helping the least well off.
Earnings in the lower-paid leisure and hospitality industry, hardest hit in terms of joblessness at the outset of the pandemic and still the farthest from recovering lost employment, rose more than 11% as of October compared to a year ago, nearly double the pace of the next closest industry, transportation.
But an otherwise strong October employment report, with 531,000 jobs added, came with a footnote: Growth in the labor force moved sideways again, foiling the Fed's hopes that people would return to jobs or begin actively seeking work in larger numbers.
Since August of 2020 the labor force participation rate has ranged between 61.4% and 61.7%, making little headway back to the pre-pandemic level of 63.4% that policymakers have set their sights on.
October's rate was 61.6%, unchanged from September.
Unless that improves, wrote Capital Economics Senior U.S. Economist Michael Pearce, wages are likely to continue higher and the Fed left open to the risk that "maximum employment" may arrive sooner, with a lower-than-anticipated level of jobs.
"There was absolutely no sign of a pick-up in labor supply."
"That suggests the sharp acceleration in wage growth in recent months has further to run," Pearce said.
Fed officials are "arguing that participation rates will rebound as virus fears and caregiving burdens ease."
"But with growth in the labor force muted even as case numbers drop back, we're increasingly worried that the big drop in participation over the past few years will prove permanent."
So far Fed Chair Jerome Powell and top policymakers feel the increase in wages is in line with changes in prices overall and labor productivity - meaning it won't be an inflationary force on its own, and help turn what's expected to be a temporary period of rising prices into something more persistent.
Recent gains have helped narrow some of the gap in the U.S. income distribution, bringing the leisure and hospitality industry's $19 average hourly pay a bit closer to the nearly $31 national average, and narrowing the spread with workers in the highest-paid and tech-influenced information industry.
The transition of the economy back to fuller reliance on private earnings will also be key to sustaining U.S. growth that Fed officials and economists expect to accelerate now that the pandemic is easing again.
An Atlanta Fed real-time tracker for quarterly economic growth for the rest of 2021 jumped Friday to 8.5% from 8.2% after news U.S. companies added 531,000 jobs in October, a pace that shows an easing of pandemic concerns and which could make up the job market's remaining lost ground sometime next year.
The unemployment rate of 4.6% is now just 1.1 percentage points above the 3.5% mark hit at the start of the pandemic, and has clawed back more than 90% of the surge in the spring of 2020 when it spiked to 14.8%.
"Wages have been moving up strongly, very strongly..."
"It's very important, and it's generally a good thing," Powell said last week after the Fed's latest policy meeting.
But the Fed has now tied its policy, and any increase in interest rates from the current near-zero level, to reaching "maximum employment."
That's a concept the central bank has not quantified but is judging against an array of statistics including the behavior of labor force participation and wages.
The two influence each other, and Powell this week acknowledged that the lack of improvement in the numbers of people working or actively looking for work has surprised him.
As the infections from the coronavirus Delta variant subsided "we thought that schools reopening and elapsing unemployment benefits would produce some sort of additional labor supply."
"That doesn't seem to have been the case," he said.
Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci
https://www.reuters.com/business/flatli ... 021-11-08/
Re: THE FEDERAL RESERVE
CNBC
"Wholesale prices rose 8.6% year over year in October, tied for highest ever"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
9 NOVEMBER 2021
KEY POINTS
The Labor Department’s producer price index, which measures wholesale prices, rose 0.6% in October, translating into an 8.6% increase year over year.
Surging prices for gasoline and autos helped push the increase which was tilted far more to goods than services.
The reading is one of two important inflation measures coming this week, with the consumer price index on tap for Wednesday.
Wholesale prices rose 8.6% from a year ago in October, their highest annual pace in records going back nearly 11 years, the Labor Department said Tuesday.
The government’s producer price index, which serves as a gauge of final demand prices from goods producers, rose 0.6% for the month, in line with Dow Jones estimates and an indicator that inflation pressures are continuing to burden the U.S. economy.
The monthly pace was faster than the 0.5% increase in September.
Stripping out food, trade and energy prices, the index increased 0.4% month over month, slightly below the 0.5% estimate but an elevated pace from September’s 0.1% gain.
On a year-over-year basis, core producer prices increased 6.2%.
The year-over-year records go back to November 2010.
Elevated demand for goods over services again led the inflation story, with the price rises for final demand goods accounting for more than 60% of the index’s increase.
Goods prices rose 1.2% compared with just a 0.2% increase for services, while construction prices jumped 6.6%.
One-third of the increase in goods prices came from soaring gasoline, with prices rising 6.7%.
Beef and veal prices represented the other side of the ledger, posting a collective decline of 10.3%.
The index for light motor trucks, a key driver of inflation this year, moved lower as did residential electric power.
On the services side, more than 80% of the increase in final demand services price increases came from autos and auto parts, which increased 8.9%.
Final demand prices are a gauge of what goods producers receive in sales for personal consumption, capital investment and to government, as well as for exporting.
The PPI report is one of two key inflation readings this week.
The Labor Department on Wednesday will release the October consumer price index, which is expected to show a 0.6% monthly increase for all goods, translating into a 5.9% annual gain.
Federal Reserve officials are watching the inflation data closely.
Policymakers generally believe price increases are driven primarily by factors such as supply chain shocks tied to the coronavirus pandemic, and will ease some next year and eventually drift back toward the central bank’s 2% annual target.
However, the Fed has conceded that inflation pressures are lasting longer than thought, and last week voted to begin reducing the pace of its monthly bond purchases.
Goldman Sachs economists over the weekend noted the “inflation overshoot will likely get worse before it gets better.”
Markets have been pricing in more aggressive interest rate hikes than the Fed is currently indicating.
Citigroup economists project that the central bank will have to step up its planned $15 billion a month pace of bond purchase reductions, with an acceleration to $22.5 billion a month, meaning the quantitative easing program would wind down completely by April 2022.
That would then allow the Fed to start increasing rates should inflation continue to be a problem.
https://www.cnbc.com/2021/11/09/wholesa ... -ever.html
"Wholesale prices rose 8.6% year over year in October, tied for highest ever"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
9 NOVEMBER 2021
KEY POINTS
The Labor Department’s producer price index, which measures wholesale prices, rose 0.6% in October, translating into an 8.6% increase year over year.
Surging prices for gasoline and autos helped push the increase which was tilted far more to goods than services.
The reading is one of two important inflation measures coming this week, with the consumer price index on tap for Wednesday.
Wholesale prices rose 8.6% from a year ago in October, their highest annual pace in records going back nearly 11 years, the Labor Department said Tuesday.
The government’s producer price index, which serves as a gauge of final demand prices from goods producers, rose 0.6% for the month, in line with Dow Jones estimates and an indicator that inflation pressures are continuing to burden the U.S. economy.
The monthly pace was faster than the 0.5% increase in September.
Stripping out food, trade and energy prices, the index increased 0.4% month over month, slightly below the 0.5% estimate but an elevated pace from September’s 0.1% gain.
On a year-over-year basis, core producer prices increased 6.2%.
The year-over-year records go back to November 2010.
Elevated demand for goods over services again led the inflation story, with the price rises for final demand goods accounting for more than 60% of the index’s increase.
Goods prices rose 1.2% compared with just a 0.2% increase for services, while construction prices jumped 6.6%.
One-third of the increase in goods prices came from soaring gasoline, with prices rising 6.7%.
Beef and veal prices represented the other side of the ledger, posting a collective decline of 10.3%.
The index for light motor trucks, a key driver of inflation this year, moved lower as did residential electric power.
On the services side, more than 80% of the increase in final demand services price increases came from autos and auto parts, which increased 8.9%.
Final demand prices are a gauge of what goods producers receive in sales for personal consumption, capital investment and to government, as well as for exporting.
The PPI report is one of two key inflation readings this week.
The Labor Department on Wednesday will release the October consumer price index, which is expected to show a 0.6% monthly increase for all goods, translating into a 5.9% annual gain.
Federal Reserve officials are watching the inflation data closely.
Policymakers generally believe price increases are driven primarily by factors such as supply chain shocks tied to the coronavirus pandemic, and will ease some next year and eventually drift back toward the central bank’s 2% annual target.
However, the Fed has conceded that inflation pressures are lasting longer than thought, and last week voted to begin reducing the pace of its monthly bond purchases.
Goldman Sachs economists over the weekend noted the “inflation overshoot will likely get worse before it gets better.”
Markets have been pricing in more aggressive interest rate hikes than the Fed is currently indicating.
Citigroup economists project that the central bank will have to step up its planned $15 billion a month pace of bond purchase reductions, with an acceleration to $22.5 billion a month, meaning the quantitative easing program would wind down completely by April 2022.
That would then allow the Fed to start increasing rates should inflation continue to be a problem.
https://www.cnbc.com/2021/11/09/wholesa ... -ever.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Kashkari: next nine months key for getting clarity on economic outlook"
By Reuters Staff
NOVEMBER 9, 2021
Nov 9 (Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said he believes the forces that are currently keeping people out of the labor market and pushing up prices will prove to be temporary, and will fade as COVID-19 turns from being pandemic to being endemic.
“We are getting these mixed signals out of the economy,” Kashkari said at an Eau Claire Area Chamber of Commerce event, with wages rising, for instance, but an estimated 5 million to 7 million fewer jobs than would have been expected had there been no COVID-19 crisis.
“I’m optimistic, in the next three, six, nine months we will get a lot more information,” and clarity about the outlook for both inflation and the labor market, he said.
(Reporting by Ann Saphir; Editing by Chris Reese)
https://www.reuters.com/article/usa-fed ... SS0N2O401X
"Fed's Kashkari: next nine months key for getting clarity on economic outlook"
By Reuters Staff
NOVEMBER 9, 2021
Nov 9 (Reuters) - Minneapolis Federal Reserve Bank President Neel Kashkari on Tuesday said he believes the forces that are currently keeping people out of the labor market and pushing up prices will prove to be temporary, and will fade as COVID-19 turns from being pandemic to being endemic.
“We are getting these mixed signals out of the economy,” Kashkari said at an Eau Claire Area Chamber of Commerce event, with wages rising, for instance, but an estimated 5 million to 7 million fewer jobs than would have been expected had there been no COVID-19 crisis.
“I’m optimistic, in the next three, six, nine months we will get a lot more information,” and clarity about the outlook for both inflation and the labor market, he said.
(Reporting by Ann Saphir; Editing by Chris Reese)
https://www.reuters.com/article/usa-fed ... SS0N2O401X
Re: THE FEDERAL RESERVE
REUTERS
"Fed doves look to midsummer for clarity on economy"
Reuters
November 9, 2021
Nov 9 (Reuters) - Two of the U.S. central bank's most dovish policymakers said Tuesday they expect to get more clarity on the post-pandemic economic outlook by next summer, when the Federal Reserve is expected to finish winding down its asset purchases.
Whether that clarity leaves them convinced interest rates should stay at their current near-zero level for another year or more, or moves them to join the half of their fellow Fed policymakers who support more immediate rate hikes, will depend on two main factors, their remarks suggested: if inflation has begun to abate as they expect, and if workers are flooding back into the labor force as they have long hoped.
Minneapolis Federal Reserve Bank President Neel Kashkari, who in September was the Fed's only policymaker to call for leaving rates at their current near-zero level until 2024, said Tuesday he is keeping an "open mind" on monetary policy.
With the latest COVID-19 surge fading in the United States but still disrupting economies globally, "we are getting these mixed signals out of the economy," Kashkari said at an event at University of Wisconsin-Eau Claire.
Wages are rising, for instance, but the U.S. economy is supporting an estimated 5 million to 7 million fewer jobs than would have been expected had there been no COVID-19 crisis, and the percentage of the population who are working or want to work has stalled at 61.6%, well below pre-pandemic levels, data shows.
Inflation is well above the Fed's 2% target, driven by factors that ought to be temporary -- supply-chain disruptions as well as a surge in demand as the economy reopens -- but are proving to be longer lasting than earlier thought, Kashkari said.
"I'm optimistic, in the next three, six, nine months we will get a lot more information" and clarity about whether the millions who left the workforce during the pandemic will return, he said.
If they don't, "that's going to give me more concern that the high inflation readings that we've been seeing may be sustained."
Earlier Tuesday, San Francisco Federal Reserve Bank President Mary Daly also set her clock to mid-2022, telling a National Association of Business Economists virtual meeting, "let's be patient" on policy and wait to see whether inflation fades when the pandemic does, as she expects.
Raising interest rates too soon, she said, will do very little to reduce prices but will "absolutely" reduce the pace of job gains.
"That's too much risk to take when we don't have any indication that these are today persistent trends," she said.
"I'm looking at the summer of 2022 is when we should - knock on wood, no more variants, no more Delta surges - get some clarity" on whether inflation will persist post-pandemic and if the labor supply is truly tight, as many employers say it is, or if higher wages and an improving public health environment bring more people back to the job market.
In the meantime it could be a "challenging time" as consumers have to pay more for gasoline and food and other necessities, she said.
On Monday, Chicago Fed President Charles Evans, who also leans dovish, said he too thinks inflation is being driven mostly by COVID-19-related supply shortages that will fade.
But he said he's less sure than he had been three or four months ago, and appeared to set a more rapid timetable for proving his expectations out.
"By the spring we are going to know a lot more about this, and if I'm still kind of making the same excuses, boy they better be really good excuses because it's just not going to sound quite right," he told reporters.
Reporting by Ann Saphir; Editing by Jonathan Oatis
https://www.reuters.com/business/feds-k ... 021-11-09/
"Fed doves look to midsummer for clarity on economy"
Reuters
November 9, 2021
Nov 9 (Reuters) - Two of the U.S. central bank's most dovish policymakers said Tuesday they expect to get more clarity on the post-pandemic economic outlook by next summer, when the Federal Reserve is expected to finish winding down its asset purchases.
Whether that clarity leaves them convinced interest rates should stay at their current near-zero level for another year or more, or moves them to join the half of their fellow Fed policymakers who support more immediate rate hikes, will depend on two main factors, their remarks suggested: if inflation has begun to abate as they expect, and if workers are flooding back into the labor force as they have long hoped.
Minneapolis Federal Reserve Bank President Neel Kashkari, who in September was the Fed's only policymaker to call for leaving rates at their current near-zero level until 2024, said Tuesday he is keeping an "open mind" on monetary policy.
With the latest COVID-19 surge fading in the United States but still disrupting economies globally, "we are getting these mixed signals out of the economy," Kashkari said at an event at University of Wisconsin-Eau Claire.
Wages are rising, for instance, but the U.S. economy is supporting an estimated 5 million to 7 million fewer jobs than would have been expected had there been no COVID-19 crisis, and the percentage of the population who are working or want to work has stalled at 61.6%, well below pre-pandemic levels, data shows.
Inflation is well above the Fed's 2% target, driven by factors that ought to be temporary -- supply-chain disruptions as well as a surge in demand as the economy reopens -- but are proving to be longer lasting than earlier thought, Kashkari said.
"I'm optimistic, in the next three, six, nine months we will get a lot more information" and clarity about whether the millions who left the workforce during the pandemic will return, he said.
If they don't, "that's going to give me more concern that the high inflation readings that we've been seeing may be sustained."
Earlier Tuesday, San Francisco Federal Reserve Bank President Mary Daly also set her clock to mid-2022, telling a National Association of Business Economists virtual meeting, "let's be patient" on policy and wait to see whether inflation fades when the pandemic does, as she expects.
Raising interest rates too soon, she said, will do very little to reduce prices but will "absolutely" reduce the pace of job gains.
"That's too much risk to take when we don't have any indication that these are today persistent trends," she said.
"I'm looking at the summer of 2022 is when we should - knock on wood, no more variants, no more Delta surges - get some clarity" on whether inflation will persist post-pandemic and if the labor supply is truly tight, as many employers say it is, or if higher wages and an improving public health environment bring more people back to the job market.
In the meantime it could be a "challenging time" as consumers have to pay more for gasoline and food and other necessities, she said.
On Monday, Chicago Fed President Charles Evans, who also leans dovish, said he too thinks inflation is being driven mostly by COVID-19-related supply shortages that will fade.
But he said he's less sure than he had been three or four months ago, and appeared to set a more rapid timetable for proving his expectations out.
"By the spring we are going to know a lot more about this, and if I'm still kind of making the same excuses, boy they better be really good excuses because it's just not going to sound quite right," he told reporters.
Reporting by Ann Saphir; Editing by Jonathan Oatis
https://www.reuters.com/business/feds-k ... 021-11-09/
Re: THE FEDERAL RESERVE
REUTERS
"Analysis: Flexible inflation targets a recipe for bond market turbulence"
By Dhara Ranasinghe and Sujata Rao
November 10, 2021
Summary
* Inflation surge poses test for new Fed, ECB mandates
* Adds to bond markets uncertainty, fuels volatility
* MOVE index of bond volatility near highest since March 2020
LONDON, Nov 10 (Reuters) - For markets trying to navigate the pathway for stickier-than-expected inflation, a move to asymmetric price targets at the world's two biggest central banks may be a recipe for wild and increasingly frequent bond price swings.
The U.S. Federal Reserve adopted in 2020 a flexible average inflation target (FAIT) designed to be more forgiving of price pressures than before, a major shift in the Fed's dual approach towards achieving maximum employment and stable prices.
The European Central Bank followed this year, setting a 2% medium-term inflation target and ditching its long-established "below but close to 2%" goal.
Although both dismiss current price pressures as "transitory", they are facing the first real test of these new frameworks.
"Hindsight is a beautiful thing, but it is unfortunate timing that we had those reviews," said Rabobank senior rates strategist Lyn Graham-Taylor.
"Under the old mandates, we knew the reaction function of central banks."
"Now there's more uncertainty around that."
Flexible inflation mandates make it harder to judge just how hot inflation will be allowed to run and whether central banks are at risk of moving too late.
Euro area annual inflation is above 4%, while the U.S. consumer price index exceeded 6% last month, stoked by supply bottlenecks and red-hot commodity prices.
Where next for inflation?
While central banks cannot control such factors, they often act early to ensure consumers' expectations of future inflation do not translate into significantly higher wages.
So New Zealand and Norway have started lifting rates; Britain and Canada are preparing to do so.
While the Fed is set to unwind its $120 billion monthly stimulus, it shows no inclination to raise rates.
At the ECB, a move may not come for years.
But markets are wary of hawkish surprises.
For David Arnaud, a senior fund manager at Canada Life Asset Management, the asymmetric targets raise more questions than they address about central banks' policy response.
"They're saying we're going to make up for past low inflation by allowing inflation to run hotter above 2%, so on average we're going to be able to meet our 2% target," he said.
"But for how long do you let inflation run above your target?"
"What's an acceptable level?"
"These metrics have not been defined intentionally, because they want to keep their options open, but this has created uncertainty and makes the reaction function much harder to read for bond investors."
HARD TIMES
Sovereign bonds are among the tools central banks deploy to transmit policy messages.
But if investors don't understand that message, confusion can ensue.
That's what happened last month when bond yields shot up in anticipation that central banks would act against inflation, only to plummet as policymakers quashed those bets.
Italian 10-year yields swung from an 18 basis-point weekly jump to a 25 bps weekly fall, and even staid Germany saw 10-year borrowing costs drop 19 basis points last week, the biggest fall since 2012, a week after hitting 2-1/2-year highs.
The turmoil was caused by what was seen as a timid ECB pushback against rate-hike wagers.
Policymakers have since calmed markets but positions for a 2022 move have not dissipated.
If the ECB does raise rates next year, it would violate its guidance or mean that inflation has busted all forecasts, BofA analysts note.
Recent swings were partly down to a positioning shakeout, triggered after Australia failed to defend a key target for bond yields and instead allowed them to soar.
This year's steady rise in bond volatility to 20-month highs (.MOVE) contrasts with the calm in forex and equity markets.
Salman Ahmed, global head of macro at Fidelity International, reckons the Fed has deliberately not defined FAIT parameters so it has the option to act if inflation stays high.
"This leads to a growth-inflation tango, which the bond market is switching back and forth from," he added.
The outlook hinges on what trajectory inflation takes.
Vaccines and easing curbs on travel are already boosting demand for services over consumer goods, Purchasing Managers' Index surveys show.
Eventually that should ease supply chain stresses.
A services boom is more likely to cause wage pressures which policymakers will find harder to ignore, notes Paul O'Connor, head of multi-asset at Janus Henderson.
Equity investors, with gains underpinned by central bank largesse, will be watching.
"We may see more turbulence in fixed income markets as they struggle to price what the policy response might be to labour market inflation," he said, describing recent volatility spikes as "recognition that the 'central bank put' is diminishing."
Reporting by Dhara Ranasinghe and Sujata Rao; Editing by Catherine Evans
https://www.reuters.com/business/flexib ... 021-11-10/
"Analysis: Flexible inflation targets a recipe for bond market turbulence"
By Dhara Ranasinghe and Sujata Rao
November 10, 2021
Summary
* Inflation surge poses test for new Fed, ECB mandates
* Adds to bond markets uncertainty, fuels volatility
* MOVE index of bond volatility near highest since March 2020
LONDON, Nov 10 (Reuters) - For markets trying to navigate the pathway for stickier-than-expected inflation, a move to asymmetric price targets at the world's two biggest central banks may be a recipe for wild and increasingly frequent bond price swings.
The U.S. Federal Reserve adopted in 2020 a flexible average inflation target (FAIT) designed to be more forgiving of price pressures than before, a major shift in the Fed's dual approach towards achieving maximum employment and stable prices.
The European Central Bank followed this year, setting a 2% medium-term inflation target and ditching its long-established "below but close to 2%" goal.
Although both dismiss current price pressures as "transitory", they are facing the first real test of these new frameworks.
"Hindsight is a beautiful thing, but it is unfortunate timing that we had those reviews," said Rabobank senior rates strategist Lyn Graham-Taylor.
"Under the old mandates, we knew the reaction function of central banks."
"Now there's more uncertainty around that."
Flexible inflation mandates make it harder to judge just how hot inflation will be allowed to run and whether central banks are at risk of moving too late.
Euro area annual inflation is above 4%, while the U.S. consumer price index exceeded 6% last month, stoked by supply bottlenecks and red-hot commodity prices.
Where next for inflation?
While central banks cannot control such factors, they often act early to ensure consumers' expectations of future inflation do not translate into significantly higher wages.
So New Zealand and Norway have started lifting rates; Britain and Canada are preparing to do so.
While the Fed is set to unwind its $120 billion monthly stimulus, it shows no inclination to raise rates.
At the ECB, a move may not come for years.
But markets are wary of hawkish surprises.
For David Arnaud, a senior fund manager at Canada Life Asset Management, the asymmetric targets raise more questions than they address about central banks' policy response.
"They're saying we're going to make up for past low inflation by allowing inflation to run hotter above 2%, so on average we're going to be able to meet our 2% target," he said.
"But for how long do you let inflation run above your target?"
"What's an acceptable level?"
"These metrics have not been defined intentionally, because they want to keep their options open, but this has created uncertainty and makes the reaction function much harder to read for bond investors."
HARD TIMES
Sovereign bonds are among the tools central banks deploy to transmit policy messages.
But if investors don't understand that message, confusion can ensue.
That's what happened last month when bond yields shot up in anticipation that central banks would act against inflation, only to plummet as policymakers quashed those bets.
Italian 10-year yields swung from an 18 basis-point weekly jump to a 25 bps weekly fall, and even staid Germany saw 10-year borrowing costs drop 19 basis points last week, the biggest fall since 2012, a week after hitting 2-1/2-year highs.
The turmoil was caused by what was seen as a timid ECB pushback against rate-hike wagers.
Policymakers have since calmed markets but positions for a 2022 move have not dissipated.
If the ECB does raise rates next year, it would violate its guidance or mean that inflation has busted all forecasts, BofA analysts note.
Recent swings were partly down to a positioning shakeout, triggered after Australia failed to defend a key target for bond yields and instead allowed them to soar.
This year's steady rise in bond volatility to 20-month highs (.MOVE) contrasts with the calm in forex and equity markets.
Salman Ahmed, global head of macro at Fidelity International, reckons the Fed has deliberately not defined FAIT parameters so it has the option to act if inflation stays high.
"This leads to a growth-inflation tango, which the bond market is switching back and forth from," he added.
The outlook hinges on what trajectory inflation takes.
Vaccines and easing curbs on travel are already boosting demand for services over consumer goods, Purchasing Managers' Index surveys show.
Eventually that should ease supply chain stresses.
A services boom is more likely to cause wage pressures which policymakers will find harder to ignore, notes Paul O'Connor, head of multi-asset at Janus Henderson.
Equity investors, with gains underpinned by central bank largesse, will be watching.
"We may see more turbulence in fixed income markets as they struggle to price what the policy response might be to labour market inflation," he said, describing recent volatility spikes as "recognition that the 'central bank put' is diminishing."
Reporting by Dhara Ranasinghe and Sujata Rao; Editing by Catherine Evans
https://www.reuters.com/business/flexib ... 021-11-10/
Re: THE FEDERAL RESERVE
REUTERS
"Barkin says Fed needs 'a few more months' to see clear picture of inflation, labor market"
Reuters
November 15, 2021
WASHINGTON, Nov 15 (Reuters) - It may take several more months at least for the Federal Reserve to understand if high inflation and labor shortages are offshoots of the pandemic that will eventually ease, or reflect more durable changes to the economy, Richmond Federal Reserve President Thomas Barkin said on Monday.
Barkin said on Yahoo Finance the Fed will not hesitate to raise interest rates if it concludes high inflation threatens to persist, but "it is helpful for us to have a few more months to evaluate is inflation going to come back to a more normal level?"
"Is the labor market going to open up? ..."
"I think it is helpful to have some time to see where reality is."
Reporting by Howard Schneider; Editing by Chris Reese
https://www.reuters.com/world/us/barkin ... 021-11-15/
"Barkin says Fed needs 'a few more months' to see clear picture of inflation, labor market"
Reuters
November 15, 2021
WASHINGTON, Nov 15 (Reuters) - It may take several more months at least for the Federal Reserve to understand if high inflation and labor shortages are offshoots of the pandemic that will eventually ease, or reflect more durable changes to the economy, Richmond Federal Reserve President Thomas Barkin said on Monday.
Barkin said on Yahoo Finance the Fed will not hesitate to raise interest rates if it concludes high inflation threatens to persist, but "it is helpful for us to have a few more months to evaluate is inflation going to come back to a more normal level?"
"Is the labor market going to open up? ..."
"I think it is helpful to have some time to see where reality is."
Reporting by Howard Schneider; Editing by Chris Reese
https://www.reuters.com/world/us/barkin ... 021-11-15/
Re: THE FEDERAL RESERVE
RIGZONE
"Oil Settles Mixed on Choppy Trading"
by Bloomberg | Julia Fanzeres
Tuesday, November 16, 2021
Oil closed lower after swinging between gains and losses driven by factors including a potential release of crude from U.S. reserves and fuel-switching concerns.
Futures ended Tuesday’s choppy session down 0.2% in New York.
After signals from the Biden administration that it has been considering a release from its emergency crude reserves, the Energy Information Administration said the impact on oil prices would only be temporary, echoing several analysts.
Meanwhile, supply concerns rose after delays on a Russian pipeline sent natural gas prices soaring and once again raised the specter of power plants switching to oil.
“Crude prices remain very choppy as energy traders await a decision from the Biden administration over an SPR release,” said Ed Moya, senior market analyst at Oanda Corp.
“It seems the energy market is convinced that even if the U.S. resorts to tapping the strategic petroleum reserve, the benefits would be minimal.”
Oil hit a seven-year high above $85 last month with OPEC and its allies only gradually restoring supplies halted last year.
Yet, the International Energy Agency said Tuesday that market tightness is starting to ease as production recovers in the U.S. and elsewhere.
With energy prices still at high levels, U.S. President Joe Biden has been under pressure to tap the country’s emergency crude reserves.
While the U.S. has joined countries including India and Japan over concerns of supply tightness in the market, debate remains on how best to counter the situation.
“We’re still on the cusp of winter, which is the peak demand season and there’s still a bullish undertone to the market,” said John Kilduff, founding partner at Again Capital LLC.
“It’s a tight set-up and still vulnerable to some upside if they don’t come through with the SPR release.”
Prices:
West Texas Intermediate crude for December delivery fell 12 cents to settle at $80.76 a barrel in New York, the lowest in more than a week.
Brent for January settlement increased 38 cents to end the session at $82.43 a barrel.
India’s Oil Minister Hardeep Singh Puri said that strategic oil reserves were intended for “force majeure situations” such as natural disasters versus short-term solutions for price increases.
In testimony before the U.S. Senate Energy and Natural Resources Committee, EIA acting administrator Stephen Nalley said an SPR release would lower prices but only for a short time.
“Our analysis shows that it’s generally short-lived -- a couple of months -- and that typically the other dynamics in the market would overtake any decrease in price,” he said.
Meanwhile, the Federal Reserve Bank of St. Louis President James Bullard said earlier that he thinks the Federal Reserve should go in a more hawkish direction to manage inflation.
The pullback of support for the economy would lead to a stronger dollar, which would likely weigh on commodities.
In the U.S., the industry-funded American Petroleum Institute will release data on U.S. stockpile levels later Tuesday.
Analysts surveyed by Bloomberg estimate an inventory increase of 1.2 million barrels last week.
https://www.rigzone.com/news/wire/oil_s ... 8-article/
"Oil Settles Mixed on Choppy Trading"
by Bloomberg | Julia Fanzeres
Tuesday, November 16, 2021
Oil closed lower after swinging between gains and losses driven by factors including a potential release of crude from U.S. reserves and fuel-switching concerns.
Futures ended Tuesday’s choppy session down 0.2% in New York.
After signals from the Biden administration that it has been considering a release from its emergency crude reserves, the Energy Information Administration said the impact on oil prices would only be temporary, echoing several analysts.
Meanwhile, supply concerns rose after delays on a Russian pipeline sent natural gas prices soaring and once again raised the specter of power plants switching to oil.
“Crude prices remain very choppy as energy traders await a decision from the Biden administration over an SPR release,” said Ed Moya, senior market analyst at Oanda Corp.
“It seems the energy market is convinced that even if the U.S. resorts to tapping the strategic petroleum reserve, the benefits would be minimal.”
Oil hit a seven-year high above $85 last month with OPEC and its allies only gradually restoring supplies halted last year.
Yet, the International Energy Agency said Tuesday that market tightness is starting to ease as production recovers in the U.S. and elsewhere.
With energy prices still at high levels, U.S. President Joe Biden has been under pressure to tap the country’s emergency crude reserves.
While the U.S. has joined countries including India and Japan over concerns of supply tightness in the market, debate remains on how best to counter the situation.
“We’re still on the cusp of winter, which is the peak demand season and there’s still a bullish undertone to the market,” said John Kilduff, founding partner at Again Capital LLC.
“It’s a tight set-up and still vulnerable to some upside if they don’t come through with the SPR release.”
Prices:
West Texas Intermediate crude for December delivery fell 12 cents to settle at $80.76 a barrel in New York, the lowest in more than a week.
Brent for January settlement increased 38 cents to end the session at $82.43 a barrel.
India’s Oil Minister Hardeep Singh Puri said that strategic oil reserves were intended for “force majeure situations” such as natural disasters versus short-term solutions for price increases.
In testimony before the U.S. Senate Energy and Natural Resources Committee, EIA acting administrator Stephen Nalley said an SPR release would lower prices but only for a short time.
“Our analysis shows that it’s generally short-lived -- a couple of months -- and that typically the other dynamics in the market would overtake any decrease in price,” he said.
Meanwhile, the Federal Reserve Bank of St. Louis President James Bullard said earlier that he thinks the Federal Reserve should go in a more hawkish direction to manage inflation.
The pullback of support for the economy would lead to a stronger dollar, which would likely weigh on commodities.
In the U.S., the industry-funded American Petroleum Institute will release data on U.S. stockpile levels later Tuesday.
Analysts surveyed by Bloomberg estimate an inventory increase of 1.2 million barrels last week.
https://www.rigzone.com/news/wire/oil_s ... 8-article/