Economy

Fed seen pivoting to interest rate cuts in March, perhaps earlier

Published

5 months ago

December 15, 2023

Fed seen pivoting to interest rate cuts in March, perhaps earlier

(Reuters) – The Federal Reserve’s signal on Wednesday that its interest rate hiking campaign is over triggered a drop in bond yields and a rash of market bets on U.S. rate cuts next year, marking a sharp shift in pricing that is rare outside of financial panics.

Economic data on Thursday showing stronger-than-expected retail sales in November and a smaller-than-anticipated rise in weekly jobless claims had traders paring a bit of their earlier enthusiasm for Fed policy easing next year.

But even after the data, rate futures markets remain solidly priced for a March start to a round of rate reductions that would push the Fed’s benchmark rate, now in the 5.25%-5.50% range, to the 3.75%-4.00% range by the end of next year.

That’s twice the 75-basis-points of rate cuts Fed policymakers themselves penciled in for 2024 in projections released by the U.S. central bank on Wednesday.

But to some analysts, the abrupt market moves – with bond yields plunging and stock prices soaring – following the central bank’s policy meeting this week and Fed Chair Jerome Powell’s acknowledgement that rate-cut discussions were coming into view were not necessarily overdone – or even outside of what the Fed itself may be aiming for.

“The Fed is moving aggressively to ease financial conditions,” analysts at Citi wrote. “Chair Powell and his colleagues’ objective is to prevent a gathering slowdown from developing into a recession.”

“Once the market thinks the Fed is done, bonds and stocks BOTH rally, regardless if a recession is ahead or not,” Piper Sandler analysts wrote.

The yield on the 10-year Treasury note fell below 4% for the first time in four months, nearly fully reversing the rise that followed what now appears to have been the Fed’s final rate hike, in July.

Fed policymakers had cited that increase and other tightening of financial conditions as one reason why they could hold policy steady.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

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.

Economy

China identifies second set of projects in $140 billion spending plan

Published

4 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© 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)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 25, 2023

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.