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Fed’s Waller: central bank should finish tapering bond buys by April

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Fed's Waller: central bank should finish tapering bond buys by April
© Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis

(Reuters) -The Federal Reserve should increase the pace of its reduction in bond purchases to give more leeway to raise interest rates from their near zero level sooner than it currently expects if high inflation and the strength of job gains persists, Fed Governor Christopher Waller said on Friday.

“The rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022,” Waller said in prepared remarks delivered at the Center for Financial Stability in New York.

Fielding questions after the speech, he argued in favor of the Fed doubling the pace of the taper in January in order to be done by April and provide more policy space for an initial rate hike in the second quarter of next year.

The central bank began earlier this week to reduce its asset purchase program, through which it was buying $120 billion in bonds a month as part of emergency measures to help the economy through the pandemic.

It expects to taper those purchases to zero by June. Policymakers have indicated they will begin to raise interest rates only once that is completed.

But an inflation rate at a 30-year high and a quickening pace of job gains has given almost all Fed policymakers pause, with Waller and St. Louis Fed President James Bullard most vocal in pushing for an accelerated timeline.

The tension comes as President Joe Biden nears a decision on whether to keep Jerome Powell as Fed chair for another term, or to elevate Governor Lael Brainard to the position. A decision is expected by Thanksgiving.

PATIENCE NOT A VIRTUE

Waller gave short thrift to others on the rate-setting committee who continue to argue for patience given high inflation is expected to be transitory, even if it persists longer than thought.

“All shocks tend to be transitory and fade away; by this logic the Fed should never respond to any shocks, but sometimes it does, as it should… appropriate monetary policy responds to these inflation movements,” Waller said.

Bullard said earlier this week that he is in favor of speeding up the taper, ending purchases as of March.

Even those policymakers more sanguine up until now about the persistently high levels of inflation increasingly acknowledge an interest rate rise in 2022 is more likely than they previously said.

Waller acknowledged that he had also been caught off guard by the “large and persistent” effects supply constraints caused by the pandemic were having, with inflation pressures becoming more widespread and set to last longer into 2022 than he expected.

He added he was becoming increasingly concerned about inflation becoming embedded in wage demands, and referenced the recently signed contract by unionized John Deere (NYSE:) workers as an example.

Their six-year contract included an initial 10% raise for all workers and 5% increases in 2023 and 2025, alongside other bonus benefits.

Waller repeated his view that the Fed’s balance sheet should eventually be reduced, arguing for a gradual and predictable roll-off of securities similar to last time.

Yields edged up off the day’s lows after Waller voiced support for reducing the Fed’s balance sheet outright, not merely ending the bond purchases adding to its growth.

The Fed next meets Dec. 14-15.

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Economy

Oil Russia ban news: Russia will ban the sale of its oil to countries that have imposed a price ceiling

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oil Russia ban

Will Russia sell oil to Europe? The administration of President Vladimir Putin is preparing an order prohibiting Russian companies and any trader from buying Russian oil to sell raw materials to countries and companies that have imposed a price ceiling on Moscow. Bloomberg news agency wrote this, citing a report from sources.

“The Kremlin is preparing a presidential decree banning Russian companies and any traders buying national oil from selling it to anyone who participates in the price ceiling,” the publication wrote.

According to the newspaper’s interlocutors, this would prohibit any mention of the price ceiling in contracts for Russian crude, as well as transferring it to countries that have joined the price ceiling for the natural resource.

In the first half of September, the press service of the US Treasury Department said that the USA, together with its allies from G7 (Great Britain, Germany, Italy, Canada, France and Japan) and the European Union (EU) would impose a ban on marine transportation of Russian oil on December 5 and oil products – on February 5.

Earlier we reported that EU negotiations on limiting the prices of Russian oil reached a deadlock today.

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Economy

EU talks on restrictions on Russian crude oil prices today stalled

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russian crude oil price today

Negotiations between the European Union countries about the “ceiling” of Russian crude oil prices today reached an impasse; Bloomberg reported, according to its sources.

Representatives of the bloc cannot reach an agreement on the ceiling price of Russian oil. According to the agency, the proposed European Commission limit of $65-70 per barrel, Poland and the Baltic countries believe “too generous,” while Greece and Malta, which is actively engaged in transporting fuel, do not want the limit to fall below $ 70. Recall that the Russian response to the oil price cap was negative. The Russian government has officially said that it will only sell oil at market prices.

“We are looking for ways to make this solution work and we are trying to find a common ground to implement it in a perfectly pragmatic and efficient way, while avoiding that it may cause excessive inconvenience to the European Union,” said German Chancellor Olaf Scholz.

Earlier, we reported that the SEC fined Goldman Sachs $4 million for non-compliance with ESG fund principles.

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Economy

More than 50% of Germans said they had given up shopping for new clothes and electronics. Is Germany’s economy failing?

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is germany's economy failing

Die Welt newspaper cited a survey by the consulting company EY and said that about 56% of Germans who took part in the survey said that they had practically refused to buy new clothes.

Also, 56% of German consumers reported that they now refrain from buying televisions, smartphones, laptops and game consoles. Also, nearly one in two now uses less gasoline, and one in four said they are saving on medications.

What caused the economic crisis in Germany? The main reason is the war in Ukraine and the resulting sanctions by the EU. Also, every second respondent reported that at the moment he could buy only the essentials. According to EY analysts, German households plan to further reduce spending in the coming months. In particular, they plan to save money on food delivery and entertainment.

Earlier, we reported that prices for liquefied natural gas in Asia reached their highest since October.

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