REUTERS
"US economic activity expanded slightly in recent weeks, Fed says"
By Reuters
April 17, 2024
April 17 (Reuters) - U.S. economic activity expanded slightly from late February through early April and firms signaled they expect inflation pressures to hold steady, a Federal Reserve survey showed on Wednesday, continuing recent trends that have kept the central bank from being able to cut interest rates.
The U.S. central bank released its latest snapshot on the health of the economy a day after Fed Chair Jerome Powell ditched previous guidance on when its benchmark interest rate may be cut and instead said monetary policy needs to be restrictive for longer due to a string of stronger-than-expected inflation readings.
"Overall economic activity expanded slightly ..."
"Ten out of twelve Districts experienced either slight or modest economic growth," the Fed said in the survey known as the "Beige Book," which polled business contacts across the central bank's 12 districts through April 8.
"The economic outlook among contacts was cautiously optimistic, on balance."
Up until the turn of the year, Powell and his colleagues had been buoyed by data that showed inflation, which spiked to a 40-year high two years ago, drifting downwards toward the Fed's 2% target rate, even amid strong economic growth and a low unemployment rate.
However, that momentum has stalled and even reversed, calling into question whether the Fed, which in March provisionally penciled in three rate cuts this year, will be able to cut its policy rate in the coming months.
Investors now only expect a first cut in September and the odds of a second cut are dwindling.
INFLATION TO HOLD STEADY
In the Fed's survey, the pace of price increases was described overall by firms as modest on average, but six of the central bank's districts noted moderate increases in energy prices and contacts in a few of them, mostly manufacturers, saw upside risks in the near-term in both input and output prices.
"On balance, contacts expected that inflation would hold steady at a slow pace moving forward," the survey noted, even as firms frequently said their ability to pass cost increases on to consumers "had weakened considerably" in recent months.
The Fed is expected at the end of its April 30-May 1 policy meeting to leave its policy rate in the current 5.25%-5.50% range, where it has been since last July.
By the Fed's preferred measure, inflation in February ticked up to a 2.5% annual rate, while a gauge that strips out more volatile food and energy components, rose at a 2.8% annual rate.
Employment rose at a slight pace overall too, the Fed survey showed.
Despite more available workers, many Fed districts continued to see persistent shortages of qualified applicants for certain positions, but multiple districts said that annual wage growth rates had recently returned to historical averages.
One restaurateur, for instance, told the Cleveland Fed "we've seen wages stabilize and haven't had to escalate wages to hire good people."
Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/us-e ... 024-04-17/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bostic says he is not in a 'mad dash hurry' on rate cuts"
By Reuters
April 18, 2024
April 18 (Reuters) - Atlanta Federal Reserve President Raphael Bostic on Thursday said inflation is going to return to the U.S. central bank's 2% more slowly than many had expected, and "for me, that's okay ... I'm not in a mad dash hurry to get there," because the economy is continuing to create jobs and wages are rising.
"I'm comfortable being patient," Bostic said during an appearance before the Greater Fort Lauderdale Alliance in Florida.
"I'm of the view that things are going to be slow enough this year that we won't be in a position to reduce our rates towards ... the end of the year."
The Fed has kept its policy rate in the 5.25%-5.50% range since last July.
Earlier this year most U.S. central bankers thought inflation was falling quickly enough to allow several rate cuts before the end of 2024.
But hotter-than-expected inflation readings so far this year have changed minds.
Bostic has been at the vanguard of that change, projecting just one rate cut in the fourth quarter, and earlier this month going so far as to suggest the Fed may end up not cutting rates at all this year.
Monetary policy, Bostic said on Thursday, is restrictive and will slow the economy and move inflation to the Fed's 2% target over the next two years.
"I'm going to be watching labor markets to make sure that we're still creating jobs" and wages continue to rise faster than inflation, he said.
"If we can keep those things going, and inflation has the signs that it is moving to that target, I'm happy to just stay where we are" on the policy rate.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-04-18/
"Fed's Bostic says he is not in a 'mad dash hurry' on rate cuts"
By Reuters
April 18, 2024
April 18 (Reuters) - Atlanta Federal Reserve President Raphael Bostic on Thursday said inflation is going to return to the U.S. central bank's 2% more slowly than many had expected, and "for me, that's okay ... I'm not in a mad dash hurry to get there," because the economy is continuing to create jobs and wages are rising.
"I'm comfortable being patient," Bostic said during an appearance before the Greater Fort Lauderdale Alliance in Florida.
"I'm of the view that things are going to be slow enough this year that we won't be in a position to reduce our rates towards ... the end of the year."
The Fed has kept its policy rate in the 5.25%-5.50% range since last July.
Earlier this year most U.S. central bankers thought inflation was falling quickly enough to allow several rate cuts before the end of 2024.
But hotter-than-expected inflation readings so far this year have changed minds.
Bostic has been at the vanguard of that change, projecting just one rate cut in the fourth quarter, and earlier this month going so far as to suggest the Fed may end up not cutting rates at all this year.
Monetary policy, Bostic said on Thursday, is restrictive and will slow the economy and move inflation to the Fed's 2% target over the next two years.
"I'm going to be watching labor markets to make sure that we're still creating jobs" and wages continue to rise faster than inflation, he said.
"If we can keep those things going, and inflation has the signs that it is moving to that target, I'm happy to just stay where we are" on the policy rate.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-04-18/
Re: THE FEDERAL RESERVE
REUTERS
"Fed policymakers coalesce around 'no rush' on rate cuts"
By Ann Saphir and Michael S. Derby
April 18, 2024
April 18 (Reuters) - Federal Reserve policymakers are coalescing around the idea of keeping borrowing costs where they are until perhaps well into the year, given slow and bumpy progress on inflation, and a still-strong U.S. economy.
On Thursday New York Fed President John Williams became the latest U.S. rate-setter to embrace the "no rush" on rate cuts view articulated in February by Fed Governor Christopher Waller and since echoed by many of his colleagues.
"I definitely don't feel urgency to cut interest rates" given the strength of the economy, Williams said at the Semafor's World Economy Summit in Washington.
"I think eventually...interest rates will need to be lower at some point, but the timing of that is driven by the economy."
Cleveland Fed President Loretta Mester, in comments late on Wednesday, also said the Fed will likely cut rates "at some point," steering clear of the later "this year" language she - and Williams - had previously used.
Speaking in Fort Lauderdale, Florida on Thursday, Atlanta Fed President Raphael Bostic offered "the end of the year" as his view of the likely timing for a first rate cut, saying "I'm comfortable being patient."
Minneapolis Fed President Neel Kashkari told Fox News Channel he also wants to be "patient," with the first rate cut "potentially" not appropriate until next year, Bloomberg News reported.
As recently as a few weeks ago many policymakers signaled they expected hotter-than-expected inflation in early 2024 would give way to cooler readings in the face of the Fed's tight monetary policy, necessitating several rate cuts before the end of the year to prevent policy from slowing the economy too much.
But strong growth in jobs, a third-month-in-a-row upside surprise on inflation in March, and robust retail spending among other recent economic indicators have convinced more central bankers that rate cuts ought to wait.
Earlier this week Fed Vice Chair Philip Jefferson omitted any reference to the appropriate timing for rate cuts, and Fed Chair Jerome Powell said it's likely to take longer to get enough confidence on inflation's decline to reduce borrowing costs.
As San Francisco Fed President Mary Daly put it on Monday, "the worst thing to do is act urgently when urgency is not required."
With Fed rhetoric shifting and the labor market data showing few signs of cracks, financial markets have also moved to price in fewer and later rate cuts.
Futures contracts that settle to the Fed's policy rate now reflect expectations that the first reduction comes in September, versus June just a few weeks ago.
The odds of a second rate cut by the end of the year have dropped to about 50-50, based on the CME FedWatch Tool.
A Reuters poll released on Thursday showed economists are on the same page.
Inflation by the Fed's targeted measure, the personal consumption expenditures price index, was 2.5% in February, and Fed policymakers say they expect the March reading of core PCE - a gauge of where inflation is heading - to be even higher.
The Fed targets 2% inflation.
That has even raised questions of whether the Fed may have to hike rates again to ensure price pressures ebb.
Williams said that appears unlikely but noted that it was impossible to rule out.
Fed policymakers next meet April 30-May 1 and are expected keep the policy rate in the 5.25%-5.5% range, where it has been since last July.
Reporting by Michael S. Derby and Ann Saphir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-04-18/
"Fed policymakers coalesce around 'no rush' on rate cuts"
By Ann Saphir and Michael S. Derby
April 18, 2024
April 18 (Reuters) - Federal Reserve policymakers are coalescing around the idea of keeping borrowing costs where they are until perhaps well into the year, given slow and bumpy progress on inflation, and a still-strong U.S. economy.
On Thursday New York Fed President John Williams became the latest U.S. rate-setter to embrace the "no rush" on rate cuts view articulated in February by Fed Governor Christopher Waller and since echoed by many of his colleagues.
"I definitely don't feel urgency to cut interest rates" given the strength of the economy, Williams said at the Semafor's World Economy Summit in Washington.
"I think eventually...interest rates will need to be lower at some point, but the timing of that is driven by the economy."
Cleveland Fed President Loretta Mester, in comments late on Wednesday, also said the Fed will likely cut rates "at some point," steering clear of the later "this year" language she - and Williams - had previously used.
Speaking in Fort Lauderdale, Florida on Thursday, Atlanta Fed President Raphael Bostic offered "the end of the year" as his view of the likely timing for a first rate cut, saying "I'm comfortable being patient."
Minneapolis Fed President Neel Kashkari told Fox News Channel he also wants to be "patient," with the first rate cut "potentially" not appropriate until next year, Bloomberg News reported.
As recently as a few weeks ago many policymakers signaled they expected hotter-than-expected inflation in early 2024 would give way to cooler readings in the face of the Fed's tight monetary policy, necessitating several rate cuts before the end of the year to prevent policy from slowing the economy too much.
But strong growth in jobs, a third-month-in-a-row upside surprise on inflation in March, and robust retail spending among other recent economic indicators have convinced more central bankers that rate cuts ought to wait.
Earlier this week Fed Vice Chair Philip Jefferson omitted any reference to the appropriate timing for rate cuts, and Fed Chair Jerome Powell said it's likely to take longer to get enough confidence on inflation's decline to reduce borrowing costs.
As San Francisco Fed President Mary Daly put it on Monday, "the worst thing to do is act urgently when urgency is not required."
With Fed rhetoric shifting and the labor market data showing few signs of cracks, financial markets have also moved to price in fewer and later rate cuts.
Futures contracts that settle to the Fed's policy rate now reflect expectations that the first reduction comes in September, versus June just a few weeks ago.
The odds of a second rate cut by the end of the year have dropped to about 50-50, based on the CME FedWatch Tool.
A Reuters poll released on Thursday showed economists are on the same page.
Inflation by the Fed's targeted measure, the personal consumption expenditures price index, was 2.5% in February, and Fed policymakers say they expect the March reading of core PCE - a gauge of where inflation is heading - to be even higher.
The Fed targets 2% inflation.
That has even raised questions of whether the Fed may have to hike rates again to ensure price pressures ebb.
Williams said that appears unlikely but noted that it was impossible to rule out.
Fed policymakers next meet April 30-May 1 and are expected keep the policy rate in the 5.25%-5.5% range, where it has been since last July.
Reporting by Michael S. Derby and Ann Saphir; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-04-18/
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Goolsbee says ‘more sniffing’ may be needed before rate cuts"
Kelli Grant, CFP @KELLIGRANT.MONEY
PUBLISHED FRI, APR 19 2024
KEY POINTS
* The path to 2% inflation is “more difficult” in 2024, Federal Reserve Bank of Chicago president Austan Goolsbee said on Friday.
* Inflation has dropped significantly since its pandemic-era peak of 9.1%, but it remains above the Fed’s target.
* Goolsbee said the Fed needs “more sniffing” before it can start cutting interest rates.
CHICAGO — The path to 2% inflation is “more difficult” in 2024, said Federal Reserve Bank of Chicago President Austan Goolsbee.
“We’re going to get to 2%,” Goolsbee said Friday during a session at the Society for Advancing Business Editing and Writing’s annual conference.
“We said it."
"That’s our stated target.“
Inflation has come down significantly from its pandemic-era peak of 9.1%, but remains stubbornly above that stated target.
The consumer price index, a broad measure of costs for goods and services across the economy, rose 3.5% in March from a year ago.
“If you take a broad view, inflation got way above where we were comfortable with and it’s down a lot,” he said.
The first three readings for this year indicate covering the remaining distance to 2% “may not be as rapid,” he added.
That “stalling” merits further investigation on the direction of the economy before the Fed moves to cut rates, said Goolsbee, who is a nonvoting member this year of the rate-setting Federal Open Market Committee.
He described himself as a “proud data dog,” and pointed to what he says is “the first rule of the kennel.”
“If you are unclear, stop walking and start sniffing,” he said.
“And with these numbers, we need to do more sniffing.”
“We want to have confidence that we are on this path to 2[%],” he said.
“That’s the thing we have got to pay attention to.”
Housing inflation is a key area to watch, Goolsbee said.
“That’s the one that has not behaved as we thought it would,” he said.
Shelter costs, which make up about one-third of the weighting in the CPI, rose 5.7% in March from a year ago.
“The market rent inflation is well down, but it hasn’t flowed through into the official measure,” he said.
“If it doesn’t — I still think it will — but if it doesn’t, I think we’re going to have a hard time."
"It’s definitely going to be more difficult to get to 2% overall if we do not see progress.”
https://www.cnbc.com/2024/04/19/feds-go ... cuts-.html
"Fed’s Goolsbee says ‘more sniffing’ may be needed before rate cuts"
Kelli Grant, CFP @KELLIGRANT.MONEY
PUBLISHED FRI, APR 19 2024
KEY POINTS
* The path to 2% inflation is “more difficult” in 2024, Federal Reserve Bank of Chicago president Austan Goolsbee said on Friday.
* Inflation has dropped significantly since its pandemic-era peak of 9.1%, but it remains above the Fed’s target.
* Goolsbee said the Fed needs “more sniffing” before it can start cutting interest rates.
CHICAGO — The path to 2% inflation is “more difficult” in 2024, said Federal Reserve Bank of Chicago President Austan Goolsbee.
“We’re going to get to 2%,” Goolsbee said Friday during a session at the Society for Advancing Business Editing and Writing’s annual conference.
“We said it."
"That’s our stated target.“
Inflation has come down significantly from its pandemic-era peak of 9.1%, but remains stubbornly above that stated target.
The consumer price index, a broad measure of costs for goods and services across the economy, rose 3.5% in March from a year ago.
“If you take a broad view, inflation got way above where we were comfortable with and it’s down a lot,” he said.
The first three readings for this year indicate covering the remaining distance to 2% “may not be as rapid,” he added.
That “stalling” merits further investigation on the direction of the economy before the Fed moves to cut rates, said Goolsbee, who is a nonvoting member this year of the rate-setting Federal Open Market Committee.
He described himself as a “proud data dog,” and pointed to what he says is “the first rule of the kennel.”
“If you are unclear, stop walking and start sniffing,” he said.
“And with these numbers, we need to do more sniffing.”
“We want to have confidence that we are on this path to 2[%],” he said.
“That’s the thing we have got to pay attention to.”
Housing inflation is a key area to watch, Goolsbee said.
“That’s the one that has not behaved as we thought it would,” he said.
Shelter costs, which make up about one-third of the weighting in the CPI, rose 5.7% in March from a year ago.
“The market rent inflation is well down, but it hasn’t flowed through into the official measure,” he said.
“If it doesn’t — I still think it will — but if it doesn’t, I think we’re going to have a hard time."
"It’s definitely going to be more difficult to get to 2% overall if we do not see progress.”
https://www.cnbc.com/2024/04/19/feds-go ... cuts-.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed policy on hold because of 'stalled' progress on inflation, Goolsbee says"
By Ann Saphir
April 19, 2024
April 19 (Reuters) - Progress on bringing down inflation has "stalled" this year, Chicago Federal Reserve President Austan Goolsbee said on Friday, becoming the latest U.S. central banker to drop an earlier focus on the coming need for interest rate cuts.
"Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed's current restrictive monetary policy is appropriate," Goolsbee said during an appearance before a business journalism group in Chicago.
"I think we have to recalibrate and we have to wait and see."
The belief that rates will need to stay high for longer to get price pressures moving down again is now the dominant view at the Fed.
The U.S. central bank has kept its policy rate in the 5.25%-5.50% range since last July, and just a few weeks ago most policymakers, including Goolsbee, thought at least three rate cuts this year would be appropriate.
Three months of higher-than-expected inflation data "can't be dismissed," and the Fed will need to determine if continued strong growth in the economy and job market is a sign of overheating, Goolsbee said.
Though higher productivity and labor force participation, driven partly by immigration, suggest there is "space for progress" on services inflation, he said, persistently high housing inflation remains the main threat to price stability.
"It is supposed to have been falling," he said, citing the decline in market data on new leases.
"If it doesn't, it will be hard to see a smooth path back to our 2% inflation goal."
Goolsbee notably did not rule out a fresh rate hike in the face of disappointingly sticky inflation, but he also said the Fed may need to reduce borrowing costs if inflation resumes its decline.
"We're just trying to figure out ... what is necessary, how restrictive do we need to be ... we have weeks, months to find out," he said.
"Ultimately the proper policy going forward will depend on the data."
Economists and traders now expect the Fed will hold rates steady at its next three policy meetings, with a rate cut coming at the Sept. 17-18 session.
Financial market bets against any more than one reduction in borrowing costs this year also have risen.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-04-19/
"Fed policy on hold because of 'stalled' progress on inflation, Goolsbee says"
By Ann Saphir
April 19, 2024
April 19 (Reuters) - Progress on bringing down inflation has "stalled" this year, Chicago Federal Reserve President Austan Goolsbee said on Friday, becoming the latest U.S. central banker to drop an earlier focus on the coming need for interest rate cuts.
"Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed's current restrictive monetary policy is appropriate," Goolsbee said during an appearance before a business journalism group in Chicago.
"I think we have to recalibrate and we have to wait and see."
The belief that rates will need to stay high for longer to get price pressures moving down again is now the dominant view at the Fed.
The U.S. central bank has kept its policy rate in the 5.25%-5.50% range since last July, and just a few weeks ago most policymakers, including Goolsbee, thought at least three rate cuts this year would be appropriate.
Three months of higher-than-expected inflation data "can't be dismissed," and the Fed will need to determine if continued strong growth in the economy and job market is a sign of overheating, Goolsbee said.
Though higher productivity and labor force participation, driven partly by immigration, suggest there is "space for progress" on services inflation, he said, persistently high housing inflation remains the main threat to price stability.
"It is supposed to have been falling," he said, citing the decline in market data on new leases.
"If it doesn't, it will be hard to see a smooth path back to our 2% inflation goal."
Goolsbee notably did not rule out a fresh rate hike in the face of disappointingly sticky inflation, but he also said the Fed may need to reduce borrowing costs if inflation resumes its decline.
"We're just trying to figure out ... what is necessary, how restrictive do we need to be ... we have weeks, months to find out," he said.
"Ultimately the proper policy going forward will depend on the data."
Economists and traders now expect the Fed will hold rates steady at its next three policy meetings, with a rate cut coming at the Sept. 17-18 session.
Financial market bets against any more than one reduction in borrowing costs this year also have risen.
Reporting by Ann Saphir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-04-19/
Re: THE FEDERAL RESERVE
REUTERS
"Fed report cites inflation, US election as key financial stability risks"
By Howard Schneider and Pete Schroeder
April 19, 2024
WASHINGTON, April 19 (Reuters) - Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve's latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as "a potentially significant source of shocks."
"Contacts noted several areas of uncertainty including trade policy and other foreign policy issues related to escalating geopolitical tensions," the Fed said on Friday in its semi-annual survey of 25 market participants, academics and other contacts.
"They also noted policy uncertainty associated with the U.S. elections in November," when the Democratic incumbent Joe Biden faces Republican former President Donald Trump.
The survey results were included as part of the Fed's latest Financial Stability Report, which looks at issues like leverage and risk-taking throughout the economy to try to identify potential trouble spots.
The report was released more than two years after the Fed launched the most aggressive interest rate hiking cycle since the 1980s in a bid to slow a surge in inflation, a move that was broadly predicted to tip the economy into recession and aggravate stresses in the financial sector.
But the latest report, much like those preceding it through the Fed's battle with inflation, shows little evidence of widespread risks to the financial system despite borrowing costs remaining at their highest levels in a quarter of a century.
But that overall impression of resilience also suggests potential problems for Fed officials who feel the economy needs to slow in order for inflation to sustainably return to the central bank's 2% target.
The strength of household and business balance sheets, the stability of the banks, and the lack of imminent bubbles or other threats suggest that a slowdown won't come through financial or credit channels that have typically been an important part of monetary policy transmission.
Contacts were interviewed through March, when Fed officials began to have doubts about an ongoing drop in inflation and noted that rate cuts might not come as fast as expected.
While that added to uncertainty about monetary policy, which along with inflation was the most cited risk, the level of "policy uncertainty" flowing from the escalation of violence in Israel and throughout the Middle East, the ongoing war in Ukraine, and the state of U.S. politics, was the second-most cited threat to the financial system.
Across what has become the Fed's standard framework for assessing financial vulnerabilities, however, the system was characterized as in largely steady shape despite high policy interest rates and the ongoing inflation fight.
There were some areas of concern, including declining values for commercial real estate and rising leverage among some of the bigger hedge funds.
Asset values, including stocks and real estate, were high.
But private debt as a share of national economic output declined, businesses maintained a "robust" capacity to service debt, and household debt was "modest."
"The banking system remained sound and resilient," with strong capital and liquidity levels, the Fed said in the report.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/fed- ... 024-04-19/
"Fed report cites inflation, US election as key financial stability risks"
By Howard Schneider and Pete Schroeder
April 19, 2024
WASHINGTON, April 19 (Reuters) - Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve's latest survey of U.S. central bank contacts, with geopolitical troubles and the 2024 U.S. presidential election also mentioned as "a potentially significant source of shocks."
"Contacts noted several areas of uncertainty including trade policy and other foreign policy issues related to escalating geopolitical tensions," the Fed said on Friday in its semi-annual survey of 25 market participants, academics and other contacts.
"They also noted policy uncertainty associated with the U.S. elections in November," when the Democratic incumbent Joe Biden faces Republican former President Donald Trump.
The survey results were included as part of the Fed's latest Financial Stability Report, which looks at issues like leverage and risk-taking throughout the economy to try to identify potential trouble spots.
The report was released more than two years after the Fed launched the most aggressive interest rate hiking cycle since the 1980s in a bid to slow a surge in inflation, a move that was broadly predicted to tip the economy into recession and aggravate stresses in the financial sector.
But the latest report, much like those preceding it through the Fed's battle with inflation, shows little evidence of widespread risks to the financial system despite borrowing costs remaining at their highest levels in a quarter of a century.
But that overall impression of resilience also suggests potential problems for Fed officials who feel the economy needs to slow in order for inflation to sustainably return to the central bank's 2% target.
The strength of household and business balance sheets, the stability of the banks, and the lack of imminent bubbles or other threats suggest that a slowdown won't come through financial or credit channels that have typically been an important part of monetary policy transmission.
Contacts were interviewed through March, when Fed officials began to have doubts about an ongoing drop in inflation and noted that rate cuts might not come as fast as expected.
While that added to uncertainty about monetary policy, which along with inflation was the most cited risk, the level of "policy uncertainty" flowing from the escalation of violence in Israel and throughout the Middle East, the ongoing war in Ukraine, and the state of U.S. politics, was the second-most cited threat to the financial system.
Across what has become the Fed's standard framework for assessing financial vulnerabilities, however, the system was characterized as in largely steady shape despite high policy interest rates and the ongoing inflation fight.
There were some areas of concern, including declining values for commercial real estate and rising leverage among some of the bigger hedge funds.
Asset values, including stocks and real estate, were high.
But private debt as a share of national economic output declined, businesses maintained a "robust" capacity to service debt, and household debt was "modest."
"The banking system remained sound and resilient," with strong capital and liquidity levels, the Fed said in the report.
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/fed- ... 024-04-19/
Re: THE FEDERAL RESERVE
CNBC
"Fed keeps rates steady as it notes ‘lack of further progress’ on inflation"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, MAY 1 2024
KEY POINTS
* The Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
* The federal funds rate has been between 5.25%-5.50% since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
* “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed’s statement said.
WASHINGTON – The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%.
The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank’s mammoth balance sheet, in what could be viewed as an incremental loosening of monetary policy.
With its decision to hold the line on rates, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used after the January and March meetings.
The statement also altered its characterization of its progress toward its dual mandate of stable prices and full employment.
The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.”
Previous statements said the risks “are moving into better balance.”
Beyond that, the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains and “low” unemployment.
Chair Jerome Powell during the news conference following the decision expanded on the idea that prices are still rising too quickly.
“Inflation is still too high,” he said.
“Further progress in bringing it down is not assured and the path forward is uncertain.”
However, investors were pleased by Powell’s comment that Fed’s next move was “unlikely” to be a rate hike.
The Dow Jones Industrial Average jumped after the remarks, and rose as much as 500 points.
He also stressed the need for the committee to make its decisions “meeting by meeting.”
On the balance sheet, the committee said that beginning in June it will slow the pace at which it is allowing maturing bond proceeds to roll off without reinvesting them.
‘Quantitative tightening’
In a program begun in June 2022 and nicknamed “quantitative tightening,” the Fed had been allowing up to $95 billion a month in proceeds from maturing Treasurys and mortgage-backed securities to roll off each month.
The process has resulted in the central bank balance sheet to come down to about $7.4 trillion, or $1.5 trillion less than its peak around mid-2022.
Under the new plan, the Fed will reduce the monthly cap on Treasurys to $25 billion from $60 billion.
That would put the annual reduction in holdings at $300 billion, compared with $720 billion from when the program began in June 2022.
The potential mortgage roll-off would be unchanged at $25 billion a month, a level that has only been hit on rare occasions.
QT was one way the Fed used to tighten conditions after inflation surged, as it backed away from its role of assuring the flow of liquidity through the financial system by buying and holding large amounts of Treasury and agency debt.
The reduction of the balance sheet roll-off, then, can be seen as a slight easing measure.
The funds rate sets what banks charge each other for overnight lending but feeds into many other consumer debt products.
The Fed uses interest rates to control the flow of money, with the intent that higher rates will dampen demand and thus help reduce prices.
However, consumers have continued to spend, running up credit indebtedness and decreasing savings levels as stubbornly high prices eat away at household finances.
Powell has repeatedly cited the pernicious effects of inflation, particularly for those at the lower-income levels.
Prices off peak levels
Though price increases are well off their peak in mid-2022, most data so far in 2024 has shown that inflation is holding well above the Fed’s 2% annual target.
The central bank’s main gauge shows inflation running at a 2.7% annual rate – 2.8% when excluding food and energy in the critical core measure that the Fed especially focuses on as a signal for longer-term trends.
At the same time, gross domestic product grew at a less-than-expected 1.6% annualized pace in the first quarter, raising concerns over the potential for stagflation with high inflation and slow growth.
Most recently, the Labor Department’s employment cost index this week posted its biggest quarterly increase in a year, sending another jolt to financial markets.
Consequently, traders have had to reprice their expectations for rates in a dramatic fashion.
Where the year started with markets pricing in at least six interest rate cuts that were supposed to have started in March, the outlook now is for just one, and likely not coming until near the end of the year.
Fed officials have shown near unanimity in their calls for patience on easing monetary policy as they look for confirmation that inflation is heading comfortably back to target.
One or two officials even have mentioned the possibility of a rate increase should the data not cooperate.
Atlanta Fed President Raphael Bostic was the first to specifically say he only expects one rate cut this year, likely in the fourth quarter.
In March, FOMC members penciled in three rate cuts this year, assuming quarter percentage point intervals, and won’t get a chance to update that call until the June 11-12 meeting.
https://www.cnbc.com/2024/05/01/fed-rat ... 2024-.html
"Fed keeps rates steady as it notes ‘lack of further progress’ on inflation"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, MAY 1 2024
KEY POINTS
* The Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
* The federal funds rate has been between 5.25%-5.50% since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
* “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the Fed’s statement said.
WASHINGTON – The Federal Reserve on Wednesday held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that has grown more difficult lately.
In a widely expected move, the U.S. central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%.
The federal funds rate has been at that level since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.
The rate-setting Federal Open Market Committee did vote to ease the pace at which it is reducing bond holdings on the central bank’s mammoth balance sheet, in what could be viewed as an incremental loosening of monetary policy.
With its decision to hold the line on rates, the committee in its post-meeting statement noted a “lack of further progress” in getting inflation back down to its 2% target.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said, reiterating language it had used after the January and March meetings.
The statement also altered its characterization of its progress toward its dual mandate of stable prices and full employment.
The new language hedges a bit, saying the risks of achieving both “have moved toward better balance over the past year.”
Previous statements said the risks “are moving into better balance.”
Beyond that, the statement was little changed, with economic growth characterized as moving at “a solid pace,” amid “strong” job gains and “low” unemployment.
Chair Jerome Powell during the news conference following the decision expanded on the idea that prices are still rising too quickly.
“Inflation is still too high,” he said.
“Further progress in bringing it down is not assured and the path forward is uncertain.”
However, investors were pleased by Powell’s comment that Fed’s next move was “unlikely” to be a rate hike.
The Dow Jones Industrial Average jumped after the remarks, and rose as much as 500 points.
He also stressed the need for the committee to make its decisions “meeting by meeting.”
On the balance sheet, the committee said that beginning in June it will slow the pace at which it is allowing maturing bond proceeds to roll off without reinvesting them.
‘Quantitative tightening’
In a program begun in June 2022 and nicknamed “quantitative tightening,” the Fed had been allowing up to $95 billion a month in proceeds from maturing Treasurys and mortgage-backed securities to roll off each month.
The process has resulted in the central bank balance sheet to come down to about $7.4 trillion, or $1.5 trillion less than its peak around mid-2022.
Under the new plan, the Fed will reduce the monthly cap on Treasurys to $25 billion from $60 billion.
That would put the annual reduction in holdings at $300 billion, compared with $720 billion from when the program began in June 2022.
The potential mortgage roll-off would be unchanged at $25 billion a month, a level that has only been hit on rare occasions.
QT was one way the Fed used to tighten conditions after inflation surged, as it backed away from its role of assuring the flow of liquidity through the financial system by buying and holding large amounts of Treasury and agency debt.
The reduction of the balance sheet roll-off, then, can be seen as a slight easing measure.
The funds rate sets what banks charge each other for overnight lending but feeds into many other consumer debt products.
The Fed uses interest rates to control the flow of money, with the intent that higher rates will dampen demand and thus help reduce prices.
However, consumers have continued to spend, running up credit indebtedness and decreasing savings levels as stubbornly high prices eat away at household finances.
Powell has repeatedly cited the pernicious effects of inflation, particularly for those at the lower-income levels.
Prices off peak levels
Though price increases are well off their peak in mid-2022, most data so far in 2024 has shown that inflation is holding well above the Fed’s 2% annual target.
The central bank’s main gauge shows inflation running at a 2.7% annual rate – 2.8% when excluding food and energy in the critical core measure that the Fed especially focuses on as a signal for longer-term trends.
At the same time, gross domestic product grew at a less-than-expected 1.6% annualized pace in the first quarter, raising concerns over the potential for stagflation with high inflation and slow growth.
Most recently, the Labor Department’s employment cost index this week posted its biggest quarterly increase in a year, sending another jolt to financial markets.
Consequently, traders have had to reprice their expectations for rates in a dramatic fashion.
Where the year started with markets pricing in at least six interest rate cuts that were supposed to have started in March, the outlook now is for just one, and likely not coming until near the end of the year.
Fed officials have shown near unanimity in their calls for patience on easing monetary policy as they look for confirmation that inflation is heading comfortably back to target.
One or two officials even have mentioned the possibility of a rate increase should the data not cooperate.
Atlanta Fed President Raphael Bostic was the first to specifically say he only expects one rate cut this year, likely in the fourth quarter.
In March, FOMC members penciled in three rate cuts this year, assuming quarter percentage point intervals, and won’t get a chance to update that call until the June 11-12 meeting.
https://www.cnbc.com/2024/05/01/fed-rat ... 2024-.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed leaves rates unchanged, flags 'lack of further progress' on inflation"
By Howard Schneider and Ann Saphir
May 1, 2024
Summary
* Policy rate remains in 5.25%-5.50% range
* Fed policymakers concerned by recent inflation data
* Markets take 'dovish' view of Fed chief's remarks
WASHINGTON, May 1 (Reuters) - The U.S. Federal Reserve held interest rates steady on Wednesday and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings that could make those rate cuts a while in coming.
Indeed, Fed Chair Jerome Powell said that after starting 2024 with three months of faster-than-expected price increases, it "will take longer than previously expected" for policymakers to become comfortable that inflation will resume the decline towards 2% that had cheered them through much of last year.
That steady progress has stalled for now, and while Powell said rate increases remained unlikely, he set the stage for a potentially extended hold of the benchmark policy rate in the 5.25%-5.50% range that has been in place since July.
U.S. central bankers still believe the current policy rate is putting enough pressure on economic activity to bring inflation under control, Powell said, and they would be content to wait as long as needed for that to become apparent - even if inflation is simply "moving sideways" in the meantime.
The Fed's preferred inflation measure - the personal consumption expenditures price index - increased at a 2.7% annual rate in March, an acceleration from the prior month.
"Inflation is still too high," Powell said in a press conference after the end of the Federal Open Market Committee's two-day policy meeting.
"Further progress in bringing it down is not assured and the path forward is uncertain."
Powell said his forecast remained for inflation to fall over the course of the year, but that "my confidence in that is lower than it was."
Whether there are rate cuts this year or not remains in doubt.
"If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we're not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts," Powell said.
"There are paths to not cutting and there are paths to cutting."
"It's really going to depend on the data."
Despite the uncertainty of the current economic moment, Powell's characterization of rate hikes as "unlikely" cheered investors concerned about a newly hawkish Fed chief.
U.S. stock and bond prices turned higher as Powell preached patience that may delay rate cuts, but also means a high bar for any more hikes.
The Fed raised its benchmark policy rate by 5.25 percentage points in 2022 and 2023 to curb a surge in inflation.
Powell's remarks on Wednesday were "notably less hawkish than many feared," said analysts at Evercore ISI.
"The basic message was that cuts have been delayed, not derailed."
Investors in contracts tied to the Fed's policy rate increased bets that rate cuts could begin in September rather than later in the year as reflected in earlier market pricing.
BALANCE SHEET
The Fed's latest policy statement kept key elements of its economic assessment and policy guidance intact, noting that "inflation has eased" over the past year, and framing its discussion of interest rates around the conditions under which borrowing costs can be lowered.
"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%," the Fed repeated in its unanimously-approved statement.
That continues to leave the timing of any rate cut in doubt, and Fed officials made emphatic their concern that the first months of 2024 have done little to help the cause.
"In recent months, there has been a lack of further progress towards the Committee's 2% inflation objective," the Fed said in its statement.
The U.S. central bank also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only $25 billion in Treasury bonds to run off each month versus the current $60 billion.
Mortgage-backed securities will continue to run off by up to $35 billion monthly.
The step is meant to ensure the financial system does not run short of reserves, as happened in 2019 during the Fed's last round of "quantitative tightening."
While the move could loosen financial conditions at the margin at a time when the U.S. central bank is trying to keep pressure on the economy, policymakers insist their balance sheet and interest rate tools serve different ends.
The Fed maintained its overall assessment of economic growth, saying that the economy "continued to expand at a solid pace."
"Job gains have remained strong and the unemployment rate has remained low."
Powell reconciled that with the relatively weak, 1.6% growth of gross domestic product in the first quarter by saying that the 3.1% increase in private domestic demand was a better gauge of where the economy stands, with output buttressed by a recent jump in immigration.
Asked about the risk the U.S. was entering a period of "stagflation" with stagnant growth and rising prices, Powell said current conditions are nothing like those seen in the late 1970s when prices were rising more than 10% annually at one point alongside high unemployment.
"Right now we have ... pretty solid growth ..."
"We have inflation running under 3%," Powell said.
"I don't see the 'stag' and I don't see the 'flation.'"
Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir, Michael S. Derby and Ann Saphir; Editing by Andrea Ricci and Paul Simao
https://www.reuters.com/markets/rates-b ... 024-05-01/
"Fed leaves rates unchanged, flags 'lack of further progress' on inflation"
By Howard Schneider and Ann Saphir
May 1, 2024
Summary
* Policy rate remains in 5.25%-5.50% range
* Fed policymakers concerned by recent inflation data
* Markets take 'dovish' view of Fed chief's remarks
WASHINGTON, May 1 (Reuters) - The U.S. Federal Reserve held interest rates steady on Wednesday and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings that could make those rate cuts a while in coming.
Indeed, Fed Chair Jerome Powell said that after starting 2024 with three months of faster-than-expected price increases, it "will take longer than previously expected" for policymakers to become comfortable that inflation will resume the decline towards 2% that had cheered them through much of last year.
That steady progress has stalled for now, and while Powell said rate increases remained unlikely, he set the stage for a potentially extended hold of the benchmark policy rate in the 5.25%-5.50% range that has been in place since July.
U.S. central bankers still believe the current policy rate is putting enough pressure on economic activity to bring inflation under control, Powell said, and they would be content to wait as long as needed for that to become apparent - even if inflation is simply "moving sideways" in the meantime.
The Fed's preferred inflation measure - the personal consumption expenditures price index - increased at a 2.7% annual rate in March, an acceleration from the prior month.
"Inflation is still too high," Powell said in a press conference after the end of the Federal Open Market Committee's two-day policy meeting.
"Further progress in bringing it down is not assured and the path forward is uncertain."
Powell said his forecast remained for inflation to fall over the course of the year, but that "my confidence in that is lower than it was."
Whether there are rate cuts this year or not remains in doubt.
"If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we're not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts," Powell said.
"There are paths to not cutting and there are paths to cutting."
"It's really going to depend on the data."
Despite the uncertainty of the current economic moment, Powell's characterization of rate hikes as "unlikely" cheered investors concerned about a newly hawkish Fed chief.
U.S. stock and bond prices turned higher as Powell preached patience that may delay rate cuts, but also means a high bar for any more hikes.
The Fed raised its benchmark policy rate by 5.25 percentage points in 2022 and 2023 to curb a surge in inflation.
Powell's remarks on Wednesday were "notably less hawkish than many feared," said analysts at Evercore ISI.
"The basic message was that cuts have been delayed, not derailed."
Investors in contracts tied to the Fed's policy rate increased bets that rate cuts could begin in September rather than later in the year as reflected in earlier market pricing.
BALANCE SHEET
The Fed's latest policy statement kept key elements of its economic assessment and policy guidance intact, noting that "inflation has eased" over the past year, and framing its discussion of interest rates around the conditions under which borrowing costs can be lowered.
"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%," the Fed repeated in its unanimously-approved statement.
That continues to leave the timing of any rate cut in doubt, and Fed officials made emphatic their concern that the first months of 2024 have done little to help the cause.
"In recent months, there has been a lack of further progress towards the Committee's 2% inflation objective," the Fed said in its statement.
The U.S. central bank also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only $25 billion in Treasury bonds to run off each month versus the current $60 billion.
Mortgage-backed securities will continue to run off by up to $35 billion monthly.
The step is meant to ensure the financial system does not run short of reserves, as happened in 2019 during the Fed's last round of "quantitative tightening."
While the move could loosen financial conditions at the margin at a time when the U.S. central bank is trying to keep pressure on the economy, policymakers insist their balance sheet and interest rate tools serve different ends.
The Fed maintained its overall assessment of economic growth, saying that the economy "continued to expand at a solid pace."
"Job gains have remained strong and the unemployment rate has remained low."
Powell reconciled that with the relatively weak, 1.6% growth of gross domestic product in the first quarter by saying that the 3.1% increase in private domestic demand was a better gauge of where the economy stands, with output buttressed by a recent jump in immigration.
Asked about the risk the U.S. was entering a period of "stagflation" with stagnant growth and rising prices, Powell said current conditions are nothing like those seen in the late 1970s when prices were rising more than 10% annually at one point alongside high unemployment.
"Right now we have ... pretty solid growth ..."
"We have inflation running under 3%," Powell said.
"I don't see the 'stag' and I don't see the 'flation.'"
Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir, Michael S. Derby and Ann Saphir; Editing by Andrea Ricci and Paul Simao
https://www.reuters.com/markets/rates-b ... 024-05-01/
Re: THE FEDERAL RESERVE
REUTERS
"Weak US productivity could threaten Fed's 'soft landing' hopes"
By Howard Schneider
May 2, 2024
WASHINGTON, May 2 (Reuters) - Weaker U.S. productivity gains in the first quarter may challenge the Federal Reserve's efforts to finish its inflation fight without a painful rise in unemployment, potentially stalling progress on prices absent a further economic slowdown.
A jump last year in how much workers produce helped the economy grow fast and hiring remain strong while inflation fell nonetheless.
Data for the first three months of 2024, however, showed worker productivity rose at a 0.3% annual pace, compared to increases of more than 3% in the prior three quarters.
Unit labor costs, as a result, jumped 4.7%, the fastest in a year, as businesses spread higher wage and benefit payments across a comparatively small boost in what each person produced.
Analysts said the first-quarter results don't on their own disrupt what has been a core reason for optimism that the U.S. was heading for a "soft landing" in which inflation would return to the Fed's 2% target without the sort of sharp rise in joblessness associated with past battles against rising prices.
Productivity numbers are volatile, they noted, and even those reported for the first quarter leave a stronger yearly trend intact with reason to believe there will be further improvements.
But it also keeps alive the question of how much the Fed can count on additional improvement in the economy's ability to supply goods and services to help in the inflation fight, and how much will now rest on curbing demand - potentially dealing a blow to employment in the process.
Fed Chair Jerome Powell was sensitive to the issue during a press conference on Wednesday after the Fed held its benchmark interest rate steady in the current 5.25%-5.50% range while acknowledging that improvement in inflation had slowed and would require borrowing costs to remain high.
He said he still believes inflation can be returned to the Fed's target "without significant dislocations in the labor market or elsewhere."
Supply-side improvements, including higher productivity and faster immigration, "really helped inflation come down ... I'm not giving up on that."
"I think it is possible those forces will still work to help us," Powell said.
But, he added, there was no guarantee, and at the very least the process "will take longer than previously expected."
JOBS DATA
The U.S. Labor Department will release its employment report for April on Friday, providing the latest touchpoint for central bankers to assess whether the economy is moving towards a more sustainable pace of job and wage growth, as many feel it is.
Results for March from the Job Openings and Labor Turnover Survey, for example, showed balance continuing to emerge between the availability of workers and the demand for them.
Economists polled by Reuters expect firms hired an additional 243,000 workers in April, continuing a pandemic-era streak of job gains that a rising number of foreign-born workers has helped sustain even as wage growth moderates.
The unemployment rate has been below 4% for 26 months, a run not seen since the late 1960s.
The Fed doesn't want to wreck that streak, and the thinking under Powell has shifted away from what had been a working assumption that a low jobless rate stokes inflation to a more open-ended "show-me" attitude.
The approach served the Fed well last year.
Inflation fell sharply from the 40-year highs hit in 2022 even though the unemployment rate remained at levels that would, in some assessments of the U.S. economy, have kept price pressures elevated.
Even amid calls from top ranking economists that the unemployment rate had to rise for inflation to fall, the central bank unveiled its last rate hike in July.
But if "disinflation" loses steam it could make the Fed's endgame more difficult.
For now, Powell said the central bank is content to be patient and allow the current policy rate to do its work.
In the opening statement of his press conference on Wednesday, he excluded a phrase he had used in January and March that "it will likely be appropriate to begin dialing back policy restraint at some point this year," cementing a shift in expectations for steady and substantial rate cuts this year to doubt about whether rates will fall at all.
The change in Powell's language has touched off a mini-cycle of financial tightening across credit markets, with the average rate on a 30-year fixed-rate home mortgage jumping back above 7% and yields on the 2-year U.S. Treasury note, considered a proxy for Fed policy, rising from roughly 4.2% in January to around 5% now.
Powell said this week that these trends will all eventually show up in the form of inflation falling towards 2% from a level that, based on the Fed's preferred inflation measure, was running at 2.7% in March.
But how long that journey takes and what happens to workers in the meantime will depend on factors - productivity among them - well outside the central bank's control.
The Fed may not be willing to risk damaging the economy with further rate hikes to achieve the last bit of inflation control.
But neither, Powell said, will policymakers rush to cut rates over a modest rise in unemployment.
"It would have to be a meaningful thing and get our attention and lead us to think the labor market was really significantly weakening" he said on Wednesday.
"A couple of tenths (of a percentage point) in the unemployment rate would probably not do that."
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/weak ... 024-05-02/
"Weak US productivity could threaten Fed's 'soft landing' hopes"
By Howard Schneider
May 2, 2024
WASHINGTON, May 2 (Reuters) - Weaker U.S. productivity gains in the first quarter may challenge the Federal Reserve's efforts to finish its inflation fight without a painful rise in unemployment, potentially stalling progress on prices absent a further economic slowdown.
A jump last year in how much workers produce helped the economy grow fast and hiring remain strong while inflation fell nonetheless.
Data for the first three months of 2024, however, showed worker productivity rose at a 0.3% annual pace, compared to increases of more than 3% in the prior three quarters.
Unit labor costs, as a result, jumped 4.7%, the fastest in a year, as businesses spread higher wage and benefit payments across a comparatively small boost in what each person produced.
Analysts said the first-quarter results don't on their own disrupt what has been a core reason for optimism that the U.S. was heading for a "soft landing" in which inflation would return to the Fed's 2% target without the sort of sharp rise in joblessness associated with past battles against rising prices.
Productivity numbers are volatile, they noted, and even those reported for the first quarter leave a stronger yearly trend intact with reason to believe there will be further improvements.
But it also keeps alive the question of how much the Fed can count on additional improvement in the economy's ability to supply goods and services to help in the inflation fight, and how much will now rest on curbing demand - potentially dealing a blow to employment in the process.
Fed Chair Jerome Powell was sensitive to the issue during a press conference on Wednesday after the Fed held its benchmark interest rate steady in the current 5.25%-5.50% range while acknowledging that improvement in inflation had slowed and would require borrowing costs to remain high.
He said he still believes inflation can be returned to the Fed's target "without significant dislocations in the labor market or elsewhere."
Supply-side improvements, including higher productivity and faster immigration, "really helped inflation come down ... I'm not giving up on that."
"I think it is possible those forces will still work to help us," Powell said.
But, he added, there was no guarantee, and at the very least the process "will take longer than previously expected."
JOBS DATA
The U.S. Labor Department will release its employment report for April on Friday, providing the latest touchpoint for central bankers to assess whether the economy is moving towards a more sustainable pace of job and wage growth, as many feel it is.
Results for March from the Job Openings and Labor Turnover Survey, for example, showed balance continuing to emerge between the availability of workers and the demand for them.
Economists polled by Reuters expect firms hired an additional 243,000 workers in April, continuing a pandemic-era streak of job gains that a rising number of foreign-born workers has helped sustain even as wage growth moderates.
The unemployment rate has been below 4% for 26 months, a run not seen since the late 1960s.
The Fed doesn't want to wreck that streak, and the thinking under Powell has shifted away from what had been a working assumption that a low jobless rate stokes inflation to a more open-ended "show-me" attitude.
The approach served the Fed well last year.
Inflation fell sharply from the 40-year highs hit in 2022 even though the unemployment rate remained at levels that would, in some assessments of the U.S. economy, have kept price pressures elevated.
Even amid calls from top ranking economists that the unemployment rate had to rise for inflation to fall, the central bank unveiled its last rate hike in July.
But if "disinflation" loses steam it could make the Fed's endgame more difficult.
For now, Powell said the central bank is content to be patient and allow the current policy rate to do its work.
In the opening statement of his press conference on Wednesday, he excluded a phrase he had used in January and March that "it will likely be appropriate to begin dialing back policy restraint at some point this year," cementing a shift in expectations for steady and substantial rate cuts this year to doubt about whether rates will fall at all.
The change in Powell's language has touched off a mini-cycle of financial tightening across credit markets, with the average rate on a 30-year fixed-rate home mortgage jumping back above 7% and yields on the 2-year U.S. Treasury note, considered a proxy for Fed policy, rising from roughly 4.2% in January to around 5% now.
Powell said this week that these trends will all eventually show up in the form of inflation falling towards 2% from a level that, based on the Fed's preferred inflation measure, was running at 2.7% in March.
But how long that journey takes and what happens to workers in the meantime will depend on factors - productivity among them - well outside the central bank's control.
The Fed may not be willing to risk damaging the economy with further rate hikes to achieve the last bit of inflation control.
But neither, Powell said, will policymakers rush to cut rates over a modest rise in unemployment.
"It would have to be a meaningful thing and get our attention and lead us to think the labor market was really significantly weakening" he said on Wednesday.
"A couple of tenths (of a percentage point) in the unemployment rate would probably not do that."
Reporting by Howard Schneider; Editing by Paul Simao
https://www.reuters.com/markets/us/weak ... 024-05-02/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bowman supports current policy stance but still sees inflation risks"
By Reuters
May 3, 2024
May 3 (Reuters) - Inflation should continue to decline even as the U.S. central bank holds its benchmark interest rate steady at current levels, Federal Reserve Governor Michelle Bowman said on Friday while also reiterating her willingness to raise the policy rate if progress peters out or reverses.
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks that affect my outlook," Bowman said in prepared remarks for a speech to a banking conference in Key Biscayne, Florida.
"While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," Bowman added.
In her speech, Bowman made clear she expects inflation to remain elevated for some time, highlighting a number of factors that could keep it from falling back to the Fed's 2% goal.
Those include a lack of further supply-side improvements such as last year's healing of supply chains, lower energy prices and increased immigration, all of which helped put downward pressure on inflation.
Bowman also cited risks from spillovers from conflicts abroad as well as a recent loosening in financial conditions, which could cause inflation to re-accelerate
And at a time when Fed officials are keenly focused on the persistence of stronger-than-expected housing inflation, Bowman proposed a potential new wrinkle in the expectation that those pricing pressures will abate.
"Given the current low inventory of affordable housing, the inflow of new immigrants to some geographic areas could result in upward pressure on rents, as additional housing supply may take time to materialize," Bowman said.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-05-03/
"Fed's Bowman supports current policy stance but still sees inflation risks"
By Reuters
May 3, 2024
May 3 (Reuters) - Inflation should continue to decline even as the U.S. central bank holds its benchmark interest rate steady at current levels, Federal Reserve Governor Michelle Bowman said on Friday while also reiterating her willingness to raise the policy rate if progress peters out or reverses.
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks that affect my outlook," Bowman said in prepared remarks for a speech to a banking conference in Key Biscayne, Florida.
"While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," Bowman added.
In her speech, Bowman made clear she expects inflation to remain elevated for some time, highlighting a number of factors that could keep it from falling back to the Fed's 2% goal.
Those include a lack of further supply-side improvements such as last year's healing of supply chains, lower energy prices and increased immigration, all of which helped put downward pressure on inflation.
Bowman also cited risks from spillovers from conflicts abroad as well as a recent loosening in financial conditions, which could cause inflation to re-accelerate
And at a time when Fed officials are keenly focused on the persistence of stronger-than-expected housing inflation, Bowman proposed a potential new wrinkle in the expectation that those pricing pressures will abate.
"Given the current low inventory of affordable housing, the inflow of new immigrants to some geographic areas could result in upward pressure on rents, as additional housing supply may take time to materialize," Bowman said.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
https://www.reuters.com/markets/us/feds ... 024-05-03/