Economy
Strong US data makes ‘reacceleration scenario’ possible, Fed’s Barkin says
© Reuters. FILE PHOTO: Richmond Federal Reserve President Thomas Barkin poses during a break at a Dallas Fed conference in Dallas, Texas, U.S., May 23, 2019. REUTERS/Ann Saphir/File Photo
By Howard Schneider
DANVILLE, Virginia (Reuters) – The Federal Reserve must be open to the possibility that the economy will begin to reaccelerate rather than slow, with potential implications for the U.S. central bank’s inflation fight, Richmond Fed President Thomas Barkin said on Tuesday.
U.S. retail sales were stronger than expected in July, and with consumer confidence also rising “the reacceleration scenario has come onto the table in a way that it really wasn’t three or four months ago,” Barkin said in an interview with Reuters.
That includes a possibility “that inflation stays high and the economy strengthens,” Barkin said. “If I got convinced that inflation was remaining high and demand was giving no signal that inflation was going to come down, that would make the case” for further tightening of monetary policy through higher interest rates.
Retail sales rose 0.7% in July, far more than expected, and the economy grew at a 2.4% annualized rate in the second quarter, well above the level Fed officials feel would allow inflation to cool.
Barkin said the possibility of a strengthening economy meant a broader “playing field” of possibilities beyond the Fed’s recent discussion of whether the economy might slide into a recession or achieve the so-called “soft landing” in which inflation slows without a downturn.
He said he would not prejudge what the central bank should do at its meeting next month, when it is widely expected to leave its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range. Inflation has declined in recent months, though it remains well above the Fed’s 2% target, and there is data still to come on jobs and prices that could influence the outcome of the next policy session.
Officials are also discussing the degree to which the economy has fully absorbed the aggressive rate hikes delivered by the Fed since it began its monetary tightening campaign in March of 2022. Since the last policy meeting in July, for example, the yields on long-term and 2-year U.S. Treasuries have risen sharply, raising borrowing costs for households and businesses.
Barkin said there was nothing in the recent market movements which caused him to think financial conditions were tightening too quickly or in ways that were concerning.
“It doesn’t strike me that having a 10-year rate over 4 (percent) is somehow wildly inappropriate,” given the Fed’s current policy rate, Barkin said. Rates seem to be increasing “as best I can tell with the strength of the economic data … If consumer spending and retail sales continue to be that strong … it’s probably appropriate.”
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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