Economy
As inflation cools, Fed officials signal rate hikes likely done
© Reuters. FILE PHOTO: The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque/File Photo
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By Ann Saphir and Michael S. Derby
(Reuters) – Federal Reserve policymakers signaled on Thursday the U.S. central bank’s interest rate hikes are likely over, but held the door open to further monetary policy tightening should progress on inflation stall, and pushed back on market expectations that there will be a quick pivot to rate cuts.
“Policy is in a very good place,” San Francisco Fed President Mary Daly told the German newspaper Borsen-Zeitung in an interview published on Thursday, adding that she has found the latest inflation data “encouraging” and noting her “base case” does not call for any further rate hikes.
Still, she said, it is “too early to know” if the Fed, which has raised its policy rate by 5.25 percentage points in the last 20 months, is finished with the rate increases.
“I’m not thinking about rate cuts at all right now,” she said. “I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability.”
New York Fed President John Williams struck a similar tone in remarks made shortly after the U.S. government reported that the personal consumption expenditures (PCE) price index rose 3% in October from a year ago, moderating from a three-month string of 3.4% readings. The Fed targets 2% inflation.
The risks for the economy are currently two-sided between inflation that is too high and a weaker economy, Williams said, and “in balancing these risks, and based on what I know now, my assessment is that we are at, or near, the peak level of the target range of the federal funds rate.”
Williams said he expects inflation to end this year at 3%, and ebb to 2.25% in 2024, as economic growth slows to 1.25% and unemployment rises to 4.25%. The U.S. economy grew at a 5.2% annual pace last quarter, the Commerce Department reported on Wednesday, and the unemployment rate is currently 3.9%.
“If price pressures and imbalances persist more than I expect, additional policy firming may be needed,” Williams said.
The policymakers spoke just ahead of a customary blackout period where they refrain from public comment ahead of a rate-setting meeting. The Fed will hold its next policy meeting on Dec. 12-13.
Fed Chair Jerome Powell is expected to get a final word in on Friday, when he is due to speak at Spelman College in Atlanta.
Traders, who are betting heavily the Fed will keep its overnight benchmark interest rate steady in the 5.25%-5.50% range next month, pared bets that rate cuts could start as soon as March after the release of the PCE data and the remarks by Daly and Williams.
Still, prices of futures contracts tied to the Fed’s policy rate show traders see about a 75% chance of a rate cut in May, with further reductions taking it into the 4.00%-4.25% range by the end of 2024.
Like Daly, Williams called the talk of rate cuts “speculative.”
© 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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