Economy
Fed’s Goolsbee does not see rise in long-term yields imperiling soft landing
© Reuters. FILE PHOTO: Chicago Fed President Austan Goolsbee reacts as he heads into the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, U.S., August 24, 2023. REUTERS/Ann Saphir/File Photo
(Reuters – Chicago Federal Reserve Bank President Austan Goolsbee says he sees no clear signals that the U.S. economy is veering off the “golden path” toward the Fed’s 2% inflation goal and at the same time averting a recession, even as the recent surge in long-term Treasury yields has some analysts questioning exactly that.
“On the real side I feel like nothing has happened so far that is convincing evidence that we are off the golden path,” Goolsbee said on Bloomberg’s Odd Lots podcast, recorded on Tuesday and aired on Thursday. “I still feel like this is our goal and it’s still possible.”
The Fed’s 5.25 percentage points of interest-rate hikes over the last 18 months has helped bring inflation down from its 40-year high last summer, Goolsbee and others have noted — so far without the surge in unemployment that usually accompanies such a trajectory.
Inflation by the Fed’s preferred gauge was 3.5% in August, half its peak monthly pace last year; unemployment was 3.8% in August, compared with 3.7% a year earlier.
Last month U.S. central bankers signaled they feel the Fed will likely need just one more quarter-point hike, bringing the policy rate to 5.50%-5.75%, to cement inflation’s downward path. Their projections also showed they expect to end next year with only a slightly higher unemployment rate, of 4.1%, and a slightly lower policy rate, of 5.1%.
In the weeks since the Fed released those projections, Treasury yields surged to 16-year highs, marking abruptly tighter financial conditions that could cool the economy and the jobs market more quickly than anticipated.
Goolsbee said that the timing of the rise in long-rates is a puzzle. But the fact that they are higher compared with six months ago, he said, when stress in the banking sector had triggered widespread fear of an imminent recession, “is not a puzzle… it’s clear that the long rates coming up is what you’d expect.”
What could steer the economy from the “golden path,” Goolsbee said, is a shock unrelated to the Fed’s actions — like a sustained rise in energy prices, or a protracted autoworker strike, or a government shutdown.
That’s the kind of external shock that has undone previous soft landings, he said.
Should the rise in long-term yields go so far as to trigger a surge in unemployment or sharp slowdown in economic activity, the Fed will adjust, Goolsbee said.
“We absolutely monitor that and are thinking about that, and that could be a blow to either the financial or the real economy,” Goolsbee said.
Right now, he said, “all eyes are on getting inflation down.”
© 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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