Economy

Fed to leave rates unchanged on Sept. 20; cut unlikely before Q2 2024: Reuters poll

Published

3 weeks ago

September 13, 2023

Fed to leave rates unchanged on Sept. 20; cut unlikely before Q2 2024: Reuters poll

By Prerana Bhat

BENGALURU (Reuters) – The Federal Reserve will leave its benchmark overnight interest rate unchanged at the end of its Sept. 19-20 policy meeting and probably wait until the April-June period of 2024 or later before cutting it, according to economists in a Reuters poll.

Fed Chair Jerome Powell underscored the “higher-for-longer” mantra for rates in a speech at the annual Jackson Hole central banking symposium in August and maintained another rate hike might still be needed to bring inflation down to the 2% target.

But other members of the rate-setting Federal Open Market Committee (FOMC), including some of the more hawkish ones, have raised the possibility of holding off on another rate hike to allow more time to gauge the impact of the cumulative 525 basis points of tightening delivered by the Fed since March 2022.

More than 95% of economists, 94 of 97, in the Sept. 7-12 Reuters poll predicted the U.S. central bank would hold the federal funds rate in the current 5.25%-5.50% range next week, in line with market expectations.

Still, nearly 20% of the economists, 17 of 97, predicted at least one more rate rise before the end of the year, including three who expected one this month.

“Though we continue to expect the Fed to remain on hold at the Sept. 20 FOMC meeting, we would not be surprised to see most officials continue to project one more rate hike by year-end in their updated ‘dot plot,'” said Brett Ryan, senior U.S. economist at Deutsche Bank, referring to the interest rate projections released by Fed policymakers on a quarterly basis.

“While there has been meaningful progress to date on inflation … the Fed will not be able to take this for granted.”

Much of the immediate outlook for Fed policy will depend on the release on Wednesday of Consumer Price Index (CPI) data for August. The CPI was expected to have risen 0.6% last month, after a 0.2% rise in July, according to economists polled by Reuters. If realized, that would mean an acceleration in the annual rate to 3.6% from 3.2%.

JOB MARKET

The unemployment rate rose to 3.8% in August, raising hopes among those who don’t want to see another rate hike that the U.S. labor market was finally cooling.

But the Reuters poll of economists forecast that the jobless rate would average 3.7% this year and rise only slightly to 4.3% in 2024, suggesting the Fed even then will not be far off its goal of full employment.

House prices and rents were also expected to remain elevated now that a relatively brief U.S. housing market correction appears to be over, according to a separate Reuters poll.

That may put the brakes on further declines in inflation, which is not predicted to reach the Fed’s target until at least 2025.

That suggests rate cuts may still be a long way off.

Of the 87 respondents who had forecasts until the middle of 2024, 28 put the timing of the first rate cut in the first quarter and 33 had it in the quarter after that. Only one said the Fed would cut rates this year.

Around 70% of those respondents, 62 of 87, had at least one rate cut by the end of next June. Still, all but five of 28 respondents to an extra question said the bigger risk was that the first Fed cut would come later than they currently forecast.

“Tight labor and housing markets present upside risk to inflation … That means that absent a recession, policymakers are likely to keep policy rates on hold well into 2024,” said Andrew Hollenhorst, chief U.S. economist at Citi.

A serious economic downturn could justify an earlier rate cut, but that is looking less likely. The economy was expected to expand by 2.0% this year and 0.9% in 2024, according to the poll.

The median view from a dwindling sample of economists who provided responses on the probability of a recession within one year fell further to 30%, after tumbling below 50% for the first time in nearly a year last month. It peaked at 65% in October 2022.

“In our base-case forecast, the economy enters recession in the first half of next year, which would have the Fed cutting by Q2. But the risk is that growth holds up and the first cut is pushed out later,” Citi’s Hollenhorst said.

(For other stories from the Reuters global economic poll:)

Economy

Fed’s Powell: Economy still working through the impact of the pandemic

Published

21 hours ago

October 3, 2023

Fed's Powell: Economy still working through the impact of the pandemic

By Howard Schneider

YORK, Pa. (Reuters) – The U.S. economy is still dealing with the aftermath of the COVID-19 pandemic, Federal Reserve chair Jerome Powell said during a meeting with community and business leaders in York, Pennsylvania.

“We are still coming through the other side of the pandemic,” Powell said, noting labor shortages in healthcare, ongoing difficulties with access to child care, and other issues heightened by the health crisis. He did not comment on current monetary policy or the economic outlook in brief opening remarks.

Economy

Credit Suisse, Mozambique secure out-of-court ‘tuna bond’ settlement

Published

2 days ago

October 2, 2023

Credit Suisse, Mozambique secure out-of-court 'tuna bond' settlement

By Noele Illien and Kirstin Ridley

ZURICH (Reuters) -Credit Suisse has reached an 11th-hour out-of-court settlement with Mozambique over the decade-old $1.5 billion-plus “tuna bond” scandal, the Swiss bank’s new owner UBS said on Sunday, drawing a line under a damaging dispute it inherited.

“The parties have mutually released each other from any liabilities and claims relating to the transactions,” UBS said in a statement. “The parties are pleased to have resolved this long-running dispute,” it added without giving further details.

Under the deal, struck one day before a three-month London civil trial was due to start, UBS will forgive part of a loan that Credit Suisse made to Mozambique in 2013, representing less than $100 million, said one source familiar with the situation, who declined to be named because the terms are not public.

In Maputo, the Mozambican Attorney General’s Office and Ministry of Economy and Finance said they were calling a joint news conference for Monday morning.

The tuna bond case dates back to deals between state-owned Mozambican companies and shipbuilder Privinvest – funded in part by loans and bonds from Credit Suisse and backed by undisclosed Mozambican government guarantees in 2013 and 2014 – ostensibly to develop the fishing industry and for maritime security.

But hundreds of millions of dollars went missing and, when the government debt came to light in 2016, donors such as the International Monetary Fund temporarily halted support, triggering a currency collapse, defaults and financial turmoil.

The settlement included most of the creditors involved in funding a 2013 loan to ProIndicus, a state-owned Mozambican company, UBS said.

DRAWING A LINE

UBS, which took over scandal-scarred Credit Suisse amid turmoil in the global banking sector earlier this year, has pledged to resolve Credit Suisse’s legacy legal disputes.

Since completing the mega merger on June 12, it has paid $388 million to U.S. and British regulators over dealings with collapsed private investment firm Archegos Capital Management and settled a dispute with a finance blog.

The latest settlement leaves French shipping mogul Iskandar Safa and his Privinvest group among key remaining defendants in a High Court battle over the funding and maritime deals that have already triggered U.S. and Mozambican criminal proceedings.

Mozambique has alleged it was the victim of a conspiracy and that Privinvest paid bribes to corrupt Mozambican officials and Credit Suisse bankers, exposing the country to a potential liability of at least $2 billion.

Privinvest has alleged it delivered on all of its obligations under the contracts and that any payments it made were either investments, consultancy payments, legitimate remuneration or legitimate political campaign contributions.

The company did not immediately respond to a request for comment.

NYUSI IMMUNITY

In another twist to the complex case, Privinvest on Friday secured permission to appeal against a London High Court decision to grant Mozambican President Filipe Nyusi immunity from the proceedings. Privinvest has argued that if it is found liable, Nyusi should contribute to any damages.

Officials in the Maputo government did not immediately respond to a request for comment.

Court of Appeal Judge Elizabeth Laing said it was now up to the trial judge to grant any applications for adjournment, a decision seen by Reuters over the weekend showed.

In 2021, Credit Suisse agreed to pay about $475 million to British and U.S. authorities to resolve bribery and fraud charges and has pledged to forgive $200 million of debt owed by Mozambique.

It has alleged three former bankers, who arranged the bonds and have pleaded guilty in the United States to handling kickbacks, hid their misconduct from the bank.

Economy

US Congress averts government shutdown, passing stopgap bill

Published

2 days ago

October 2, 2023

5/5

US Congress averts government shutdown, passing stopgap bill

© Reuters. U.S. House Speaker Kevin McCarthy (R-CA) speaks with reporters after a House Republican conference meeting following a series of failed votes on spending packages at the U.S. Capitol ahead of a looming government shutdown in Washington, U.S. September 29,

2/5

By David Morgan, Moira Warburton and Makini Brice

WASHINGTON (Reuters) -The U.S. Congress passed a stopgap funding bill late on Saturday with overwhelming Democratic support after Republican House Speaker Kevin McCarthy backed down from an earlier demand by his party’s hardliners for a partisan bill.

The Democratic-majority Senate voted 88-9 to pass the measure to avoid the federal government’s fourth partial shutdown in a decade, sending the bill to President Joe Biden, who signed it into law before the 12:01 a.m. ET (0401 GMT) deadline.

McCarthy abandoned party hardliners’ insistence that any bill pass the House with only Republican votes, a change that could cause one of his far-right members to try to oust him from his leadership role.

The House voted 335-91 to fund the government through Nov. 17, with more Democrats than Republicans supporting it.

That move marked a profound shift from earlier in the week, when a shutdown looked all but inevitable. A shutdown would mean that most of the government’s 4 million employees would not get paid – whether they were working or not – and also would shutter a range of federal services, from National Parks to financial regulators.

Federal agencies had already drawn up detailed plans that spell out what services would continue, such as airport screening and border patrols, and what must shut down, including scientific research and nutrition aid to 7 million poor mothers.

“The American people can breathe a sigh of relief: there will be no government shutdown tonight,” Democratic Senate Majority Leader Chuck Schumer said after the vote. “Democrats have said from the start that the only solution for avoiding a shutdown is bipartisanship, and we are glad Speaker McCarthy has finally heeded our message.”

DEMOCRATS CALL IT A WIN

Some 209 Democrats supported the bill, far more than the 126 Republicans who did so, and Democrats described the result as a win.

“Extreme MAGA Republicans have lost, the American people have won,” top House Democrat Hakeem Jeffries told reporters ahead of the vote, referring to the “Make America Great Again” slogan used by former President Donald Trump and many hardline Republicans.

Democratic Representative Don Beyer said: “I am relieved that Speaker McCarthy folded and finally allowed a bipartisan vote at the 11th hour on legislation to stop Republicans’ rush to a disastrous shutdown.”

McCarthy’s shift won the support of top Senate Republican Mitch McConnell, who had backed a similar measure that was moving through the Senate with broad bipartisan support, even though the House version dropped aid for Ukraine.

Democratic Senator Michael Bennett held the bill up for several hours trying to negotiate a deal for further Ukraine aid.

“While I would have preferred to pass a bill now with additional assistance for Ukraine, which has bipartisan support in both the House and Senate, it is easier to help Ukraine with the government open than if it were closed,” Democratic Senator Chris Van Hollen said in a statement.

McCarthy dismissed concerns that hardline Republicans could try to oust him as leader.

“I want to be the adult in the room, go ahead and try,” McCarthy told reporters. “And you know what? If I have to risk my job for standing up for the American public, I will do that.”

He said that House Republicans would push ahead with plans to pass more funding bills that would cut spending and include other conservative priorities, such as tighter border controls.

CREDIT CONCERNS

The standoff comes just months after Congress brought the federal government to the brink of defaulting on its $31.4 trillion debt. The drama has raised worries on Wall Street, where the Moody’s (NYSE:) ratings agency has warned it could damage U.S. creditworthiness.

Congress typically passes stopgap spending bills to buy more time to negotiate the detailed legislation that sets funding for federal programs.

This year, a group of Republicans has blocked action in the House as they have pressed to tighten immigration and cut spending below levels agreed to in the debt-ceiling standoff in the spring.

The McCarthy-Biden deal that avoided default set a limit of $1.59 trillion in discretionary spending in fiscal 2024. House Republicans are demanding a further $120 billion in cuts.

The funding fight focuses on a relatively small slice of the $6.4 trillion U.S. budget for this fiscal year. Lawmakers are not considering cuts to popular benefit programs such as Social Security and Medicare.

“We should never have been in this position in the first place. Just a few months ago, Speaker McCarthy and I reached a budget agreement to avoid precisely this type of manufactured crisis,” Biden said in a statement after the vote. “House Republicans tried to walk away from that deal by demanding drastic cuts that would have been devastating for millions of Americans. They failed.”