© Reuters. FILE PHOTO: The U.S. Federal Reserve building is pictured in Washington, March 18, 2008. REUTERS/Jason Reed/File Photo
By Michael S. Derby
(Reuters) – Two years after the presidents of the Dallas and Boston Federal Reserve banks left their jobs amid revelations they had traded on financial markets while helping to set monetary policy, an internal watchdog has yet to finish a probe into a scandal that has clouded the U.S. central bank’s reputation.
That’s left some lawmakers in the U.S. Congress, as well as outside experts, incredulous over the state of an inquiry they argue should have been wrapped up long ago. But there has been progress: While several legislative efforts to overhaul central bank ethics and increase transparency have made little headway, the Fed sharply clamped down on how and when its officials, top staff and family members can invest.
On Oct. 4, 2021, Fed Chair Jerome Powell asked the central bank’s Inspector General (IG) to look into the controversy that erupted after it was disclosed that Boston Fed President Eric Rosengren had traded real-estate securities and Dallas Fed President Robert Kaplan had traded millions of dollars of individual stocks in 2020, even as the Fed undertook a rescue of the U.S. economy and financial markets with massive purchases of Treasuries and housing-backed bonds.
That probe later expanded as other concerns about officials’ financial activities emerged, but exactly two years later, IG Mark Bialek has not yet submitted a final report.
“The Fed’s watchdog has failed” at every stage of its investigation so far, Democratic Senator Elizabeth Warren said in an interview. Republican Senator Rick Scott said the lack of resolution “is unfortunately another example of how the Fed has not, and will not, hold anyone accountable for their actions.”
Peter Conti-Brown, a professor at the Wharton School of the University of Pennsylvania, said “the IG has just flubbed this, and that invites all kinds of theorizing, most of which will not be drawn in the Fed’s favor.” He added that “there’s a good reason why we have not gotten a more thorough report about the Reserve Bank presidents’ activities around these trades, or there isn’t. If there’s a good reason, we should know what it is.”
Bialek’s office declined to comment about the state of the investigation.
UP IN THE AIR
The IG cleared Powell just over a year ago of what the central bank chief had said were accidental trades that happened too close to monetary policy meetings. It also cleared Richard Clarida, the Fed’s former vice chair, over how he reported his own trades.
But at the regional level, the IG has yet to weigh in on the trading activities of Rosengren, Kaplan and current Atlanta Fed President Raphael Bostic. Rosengren left the Boston Fed in late September of 2021 and Kaplan followed about a week later.
Both Rosengren and Kaplan have said they followed the Fed rules that governed trading at the time, and their disclosures were approved by Fed lawyers. Neither responded to questions from Reuters about their interactions with the IG probe.
Bostic acknowledged last year that he had inadvertently made financial trades during forbidden periods and noted more such issues in June of 2023.
The Atlanta Fed said the IG “has been in contact with President Bostic since the investigation was initiated, but since it is ongoing, we don’t have any additional comment.”
The most concrete response to the controversy to date has come from the Fed itself. It tightened rules in early 2022 around officials’ investing, sharply limited what financial assets policymakers, top staff and their families could own and clamped down on when they could make transactions. The Fed also said earlier this year that it would implement recommendations from the IG to ensure compliance with the new system.
Conti-Brown praised the central bank’s new ethics regime as likely the best in government, which he said casts the IG’s work in an even worse light. “The Fed has it within itself to be serious about these issues. And I don’t know why the IG is not handling this in a more serious way.”
Warren and Scott see Bialek, who has been in his job since 2011, as a compromised watchdog because the IG is appointed by the Fed chief, a built-in conflict of interest in their view.
They have proposed legislation that would make the Fed IG position a presidential appointment requiring confirmation by the Senate, something Bialek has publicly opposed.
During a hearing in the Senate in May, Bialek said the Fed had never interfered in his work. He also pushed back on legislators’ assertions that his investigation of Powell and Clarida had been superficial.
He noted that the ongoing probe into the trading activities of Rosengren and Kaplan limited what he could say about his methods, promising that a fuller accounting of how his office has investigated the matter would be forthcoming once the process was complete.
Warren said she’s still holding out hope the IG overhaul bill she proposed with Scott will move forward. Since its introduction last spring, however, it has attracted only half a dozen other co-sponsors and has not been acted upon by the Senate Banking Committee to which it was assigned and where Warren is a member.
“There’s been a long tradition in the Senate of hands off on the Fed. That’s how a culture of corruption first takes root and starts to grow,” Warren said. “Now that we’ve seen that certain lapses have made it into the public view, we’ll make significant changes so that those kinds of mistakes never happen again.”
Fed pivot to interest-rate cuts seen likely to start in May
© Reuters. FILE PHOTO: The Federal Reserve building is seen in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts/File Photo
By Ann Saphir
(Reuters) – A stronger-than-expected U.S. labor market won’t keep the Federal Reserve from pivoting to a series of interest-rate cuts next year, but it could take until May for it to deliver the first reduction, traders bet on Friday.
Employers added 199,000 workers to their payrolls in November, the Labor Department’s monthly jobs report showed, more than the 180,000 that economists had expected, and the unemployment rate unexpectedly fell to 3.7%, from 3.9% in October.
Hourly earnings ticked up 0.4% from a month earlier, more than expected and an acceleration from the prior month. But the labor force participation rate also rose, to 62.8%, easing the prospect that an overheated job market will short-circuit progress on the Fed’s inflation battle.
A separate report Friday showed U.S. consumer sentiment improved more than expected in December as households saw inflation pressures easing.
The U.S. central bank is expected to keep rates in the current 5.25%-5.50% range when it meets next week, leaving policy on hold since July. Traders before Friday’s jobs report had put about a 60% probability on a March start to Fed rate cuts, but after the data reduced that to just under 50%, with a first reduction seen as more likely to come in May.
Further rate cuts are priced in for the rest of 2024, with the policy rate seen ending the year in the 4%-4.25% range as the Fed adjusts borrowing costs downward not as an antidote to a weaker labor market but rather to keep pace with an expected continued cooling in inflation.
The pace of that improvement in inflation will help determine the timing of the Fed’s pivot to rate cuts, analysts said.
“We maintain our call for the Fed to start cutting rates by mid-year, but it is contingent on inflation continuing to trend lower and further weakening in economic activity,” wrote Nationwide economist Kathy Bostjancic after the report.
Fed policymakers will release their own views of where the economy, inflation, and interest rates will go next year when they wrap up their last meeting of the year on Wednesday.
US consumers’ moods brighten as inflation worries subside – UMich
© Reuters. FILE PHOTO: A person arranges groceries in El Progreso Market in the Mount Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022. REUTERS/Sarah Silbiger/File Photo
(Reuters) -U.S. consumer sentiment perked up much more than expected in December, snapping four straight months of declines, as households saw inflation pressures easing, a survey showed on Friday.
The University of Michigan’s preliminary reading of its Consumer Sentiment Index shot up to 69.4, the highest since August, from November’s final reading of 61.3.
The median expectation among economists in a Reuters poll had been for the index to edge up to 62.0.
“Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation,” survey Director Joanne Hsu said in a statement.
The survey’s preliminary gauge of current conditions rose to 74.0 from last month’s final level of 68.3, while the expectations index climbed to 66.4, the highest since July, from 56.8 in November.
Consumers’ outlook for inflation in the year ahead plunged to 3.1% – the lowest since March 2021 – from November’s final expectation of 4.5%. The 1.4 percentage point decline was the largest monthly drop in one-year inflation expectations in 22 years.
Over a five-year horizon, consumers expect inflation to average a three-month low of 2.8%, down from 3.2% in November, which had been the highest since March 2011, when it reached the same level.
Russian inflation accelerates in November, rate hike beckons
© Reuters. FILE PHOTO: People shop at a local market in the town of Rostov in the Yaroslavl Region, Russia April 15, 2023. REUTERS/Evgenia Novozhenina/File Photo
MOSCOW (Reuters) – Inflation in Russia accelerated in November, data from state statistics service Rosstat showed on Friday, cementing expectations that the central bank will hike interest rates as it meets for the final time this year on Dec. 15.
The central bank has now raised rates by 750 basis points since July, including an unscheduled emergency hike in August, under pressure from a weak rouble, tight labour market and strong consumer demand. Analysts widely expect another hike, to 16%, next week.
High interest rates are one of several irksome economic challenges facing President Vladimir Putin, who on Friday said he would run again for president next year, although none seem insurmountable thanks to Russia’s success in evading a Western oil price cap helping to drive a recovery in economic growth.
In November, annual inflation stood at 7.48% year-on-year, up from 6.69% a month earlier and just shy of analysts’ expectations of a 7.6% reading.
The data suggests that annual inflation will exceed the central bank’s expectation of year-end inflation at the upper end of the 7.0%-7.5% range, which is well above its 4% target.
On a monthly basis, the consumer price index (CPI) rose 1.11% in November after a 0.83% increase in October, the data showed, coming just below analyst forecasts of a 1.2% increase. That was the fastest monthly rise since April 2022.
In the week up to Dec. 4, consumer prices rose 0.12%, separate Rosstat data showed.
Russian households regularly cite inflation as a major concern, with many having no savings after a decade of economic crises, while rising prices dragged living standards down across the country.
Rosstat gave the following details:
RUSSIAN CPI Nov 23 Oct 23 Nov 22
Mth/mth pct change +1.11 +0.83 +0.37
– food +1.55 +1.35 +0.40
– non-food +0.53 +0.55 +0.06
– services +1.23 +0.48 +0.76
Y/Y pct change +7.48 +6.69 +11.98
Core CPI y/y pct change +6.36 +5.50 +15.06
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