Connect with us

Economy

With bond-buying ‘taper’ in the bag, Fed turns a wary eye to inflation

By Howard Schneider

Published

on

With bond-buying 'taper' in the bag, Fed turns a wary eye to inflation
© Reuters. FILE PHOTO: The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. REUTERS/Chris Wattie

By Howard Schneider

WASHINGTON (Reuters) – The Federal Reserve on Wednesday is expected to detail plans to end its pandemic-era bond purchases by mid-2022 as policymakers shift their focus towards what, if anything, to do about a surge in inflation that is lasting longer than anticipated.

U.S. central bankers, in the minutes of their Sept. 21-22 meeting, signaled that a “taper” of the $120 billion in monthly asset purchases would be approved at this week’s gathering of the policy-setting Federal Open Market Committee.

What the minutes described as an “illustrative tapering path” would trim the purchases by $15 billion per month beginning in November or December, a pace and starting point that would end the program by June or July.

(For graphic on Fed balance sheet by era – https://graphics.reuters.com/USA-FED/TAPER/xmpjolmanvr/chart.png)

Of more note now is how the Fed changes other parts of its policy statement, and particularly its description of inflation as “largely reflecting transitory factors.”

Fed officials still largely hold that view. By some time in 2022 they anticipate that global supply bottlenecks will have eased, pandemic-fueled demand for goods among U.S. consumers will cool after massive spending on cars, motorcycles and appliances, and enough people will be pushing to return to jobs that the pace of wage and benefit increases will also subside.

But in recent weeks Fed officials have acknowledged the risks to that outlook. The jump in inflation this year has already lasted longer than anticipated; headline rates are running at twice the Fed’s 2% target; and rising rents, low business inventories, and large numbers of workers still waiting on the sidelines may mean the high pace of price increases will continue for now.

(For graphic on “Broad-based” or not? “Broad-based” or not? – https://graphics.reuters.com/USA-FED/INFLATION/klpykzrowpg/chart.png)

The dilemma facing the U.S. central bank is whether inflation eases before policymakers feel compelled to step in with interest rate increases to curb it. Investors are acting as if the Fed’s patience will run out soon.

The Fed cut its overnight benchmark federal funds interest rate to the near-zero level last year in a bid to stem the economic fallout of the pandemic. Trading in federal funds futures currently show investors expecting up to three quarter-percentage-point rate increases in 2022; Fed officials as of September were split over whether there would even be one.

“Will they hold on to the transitory description of inflation? My best guess is they will,” in order to keep their commitment to support the economic recovery until the economy is closer to full employment, said Aneta Markowska, an economist at Jefferies (NYSE:). “If they were being intellectually honest they would probably drop it, but given what is happening in the market the Fed has to tread carefully.”

Push back too hard on the current market expectations, by emphasizing the 5 million U.S. jobs still missing from before the pandemic, and it could “unhinge” the market outlook for inflation, she noted. Lean too hard on inflation risks, and it could push rate hike expectations even higher, begin to restrict credit and borrowing, and slow the recovery.

EYES ON POWELL

The Fed is due to release its policy statement at 2 p.m. EDT (1800 GMT). It will not issue new economic forecasts, so beyond the statement it will be up to Fed Chair Jerome Powell in his news conference half an hour later to strike a balance between the two sides of the central bank’s mandated goals of achieving maximum employment and stable prices.

This will be a critical communications moment for Powell whose term as Fed chief ends in February 2022. The White House has yet to announce whether the former investment banker will be reappointed to a second term.

Through much of the pandemic, Powell’s bias – and that of most other Fed policymakers – has been in favor of the job market, in line with the central bank’s new strategic approach to allow more risks with higher inflation in order to push job growth as high as possible.

The Fed currently says it will not raise rates until inflation has not just risen to its 2% target, but is on track to exceed it “for some time,” so that the 2% level is maintained on average following years in which it ran low.

That phrase has not been quantified in terms of how much or how long an overshoot of inflation is intended. While Fed policymakers have generally described achievement of the inflation benchmark as still “a ways off,” a few have noted that the averages are creeping higher already.

(For graphic on Inflation, on average Inflation, on average – https://graphics.reuters.com/USA-FED/FRAMEWORK/byvrjjmbkve/chart.png)

The labor market rebound has also taken on a different course than Fed officials expected. Despite near-record numbers of job openings, labor force participation is improving only slowly – with workers by choice or family necessity taking more time to return to jobs, and using savings elevated by pandemic benefit payments to cover the bills in the meantime.

The employment-to-population ratio is still 2.4 percentage points below where it was at the outset of the pandemic in February 2020, less than half the ground needed to be covered to return to the previous level.

(For graphic on The jobs hole facing Biden and the Fed – https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png)

The discussion over the taper of the Fed’s purchases of U.S. Treasuries and mortgage-backed securities will likely end on Wednesday with the central bank declaring that the economy has made “substantial further progress” in healing from the pandemic.

(For graphic on “Substantial further progress” for the Fed? – https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/yzdvxmmmdpx/chart.png)

The debate will then turn to how much more the job market can improve, how fast it can be done, and whether COVID-19 has changed the economy in ways that mean higher inflation with fewer people working.

“If the Fed projects that inflation will not revert to target within a reasonable amount of time, then the Fed could step up the tightening schedule even if employment is short of the mandate,” Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote ahead of the policy decision. “The Fed could tell this story after this week’s meeting. In practice, the Fed has made pretty clear it is waiting for more inflation data” to see if the “transitory” narrative holds.

Economy

Rough gas storage facility UK to be mothballed

Published

on

Rough gas storage facility UK

Rough gas storage facility UK, which was mothballed in 2017 due to safety concerns, will resume operations due to the country’s energy crisis. According to The Telegraph, Centrica, which owns the facility, is ready to begin filling it in early September.

The Occupational Safety and Health Administration has already approved the storage facility’s reopening. Now Centrica needs to coordinate state support and get the go-ahead from the North Sea Transition Authority. According to the authors, both of these tasks “do not appear to be problematic” for the company.

At the same time, the newspaper reports that Rough will initially operate at only a quarter of its capacity. A total of about 3.4 billion cubic meters of natural gas could be pumped there. According to the newspaper’s calculations, a partial return to service would increase the current total volume of blue fuel stored in Great Britain to 1.6 billion cubic meters.

“We can bring Rough back into service by increasing its capacity in stages each winter,” Centrica said.

Economists predict that in January 2023, electricity bills in the UK for local households could rise to more than three thousand pounds per year.

Earlier we reported that the U.S. economy was falling for the second quarter in a row.



Continue Reading

Economy

Will the decline in the US economy begin to slow? The economy is falling for the second quarter in a row. What does it mean?

Published

on

decline in the US economy begins to slow

Will the decline in the US economy begin to slow? Compared to the first quarter of 2022, U.S. GDP has fallen by 0.9% year on year, said the country’s Commerce Department. At the same time, the economy was supposed to show growth of 0.3 p. p. This was the second decrease in the year – in the first quarter of 2022; it decreased by 0.3 p p. compared to the previous quarter. The decline in real GDP reflects a decline in private investment in inventories and fixed capital, as well as reduced spending and investment by the federal government.

Decline in the US economy becoming stronger or weaker? 

Despite the decline in real GDP, the Commerce Department reported a 7.8% ($465.1 billion) year-over-year increase in GDP at current prices, as well as an increase in exports and personal consumption expenditures (PCE) related to Americans’ domestic and foreign travel.

Consumer spending, which accounts for two-thirds of U.S. GDP, increased 1% in Q2 after rising 1.8% a quarter earlier. Business fixed investment fell 3.9% and federal government spending declined 1.9%. Exports jumped 18% last quarter, while imports rose only 3.1%.

Economists at Deutsche Bank predicted recessions in the U.S. and Germany on July 15. In their opinion, markets were seriously changed after the data publication on July 13, which showed an acceleration of consumer price growth in the USA. The futures-markets dynamics allow for an almost 100% probability of a recession in the American economy till the end of 2022.

A report from the International Monetary Fund on July 12 stressed that the U.S. will find it “increasingly difficult” to avoid a recession. The Institute worsened its estimates of the economy: the growth forecast for 2022 was decreased from 2.9% to 2.3%; the real GDP growth expectation for 2023 was decreased from 1.7% to 1%.

The Fed is raising the rate at an accelerated pace: at the last meeting – immediately by 0.75 bp to 1.75%, which was the biggest increase since 1994. However, the current prime rate (1.58%) remains very low – far below both the neutral level (2.5%), and the inflation rate (9.1% in annual terms in June). Most analysts expect the Fed to have to raise the rate to at least 3.75-4% at the end of the year.

We should not expect that the very fact of a recession in the U.S. will have a strong negative impact on other developed world economies. The effect will strongly depend on the depth of the crisis. In any case, the severity of the recession will not be comparable to the Great Depression, when for four years there was a rapid drop in GDP.

Earlier we reported on whether Europe is in a recession.

Continue Reading

Economy

Is Europe in a recession now: the consequences are listed

Published

on

is there a recession in Europe

Is Europe in a recession now? The depth of the recession in the eurozone will depend on the pace as well as the extent of the economic decline, which can be tried to regulate by raising key interest rates. The consequences of a recession could be a drop in personal income and a rise in unemployment. 

The euro zone economy is very likely to face a recession, according to 60 percent of experts surveyed by Bloomberg. That number has risen from 45 percent in the last survey and 20 percent since the Russian invasion of Ukraine.

Is there a recession in Europe? 

Is there a recession in Europe? There are different variations on the speed at which the eurozone is going into this dynamic. Most markets will show zero or negative growth in the third quarter. Naturally, this will have an immediate impact on equity and commodity markets. This, in turn, will lead to big changes in the economy.

Different countries, regions and markets will go into recession unevenly. Most likely, the USA will show one more quarter of negative growth rates, which will be a clear indicator of a departure into this phase. The same is likely to be true for Europe.

There is no recession in China, but the growth rate is already declining. This is also a significant factor which will affect the global economy. The depth of the failure will depend on how the authorities of different countries will react to what is happening: whether they will slow down the increase in rates; whether they will manage to achieve a balance. This will have an impact on the price of raw materials, unemployment, etc.

No precise predictions are impossible to make at the moment: we will have to wait for statistics for the third quarter or at least for August.

Earlier we reported on an unexpected threat to the U.S. economy



Continue Reading

News

us dollar rate today us dollar rate today
Forex16 hours ago

The US dollar rate today is stable against the euro, rising against the yen

The US dollar rate today is stable against the euro, rising against the yen and weakly rising against the pound....

Eurozone gdp growth 2022 Eurozone gdp growth 2022
Forex16 hours ago

Is the EU economy growing? Quarterly GDP growth estimate for the eurozone worsened to 0.6%

Is the EU economy growing? Quarterly estimate of eurozone GDP growth worsened to 0.6%Eurozone GDP growth quarterly estimate worsened to...

Rough gas storage facility UK Rough gas storage facility UK
Economy16 hours ago

Rough gas storage facility UK to be mothballed

Rough gas storage facility UK, which was mothballed in 2017 due to safety concerns, will resume operations due to the...

decline in the US economy begins to slow decline in the US economy begins to slow
Economy16 hours ago

Will the decline in the US economy begin to slow? The economy is falling for the second quarter in a row. What does it mean?

Will the decline in the US economy begin to slow? Compared to the first quarter of 2022, U.S. GDP has...

reasons for increase in gas prices reasons for increase in gas prices
Commodities2 days ago

Experts named the main reasons for increase in gas prices in the European Union

Problems with the restoration of full operation of the Nord Stream pipeline continue to put pressure on gas futures prices...

Natural gas price Natural gas price
Commodities2 days ago

Natural gas prices in Europe exceed $2,600

Natural gas prices on the London Stock Exchange ICE record rose to more than $2,600 per thousand cubic meters for...

oil is getting cheaper oil is getting cheaper
Commodities2 days ago

Oil is getting cheaper — What’s going on in the commodities market?

Oil is getting cheaper. Oil quotes are falling Tuesday night due to concerns about slowing global economic growth and weakening...

tornado cash sanctions tornado cash sanctions
Cryptocurrency2 days ago

Sanctions against Tornado Cash boosted TORN token trading volumes

Tornado cash (TORN) token trading volumes jumped sixfold amid the announcement of sanctions against the mixer. This was pointed out...

eqonex news eqonex news
Cryptocurrency2 days ago

Eqonex news: High competition buried public crypto exchange Eqonex

Eqonex news: public U.S. crypto exchange Eqonex (EQOS) will close its services to customers on August 22 due to high...

bitcoin plummets as miners sell inventory bitcoin plummets as miners sell inventory
Cryptocurrency2 days ago

Bitcoin plummets as miners sell inventory? Miners continue to sell bitcoin, albeit in smaller volumes 

Despite lower market volatility, miners are still dumping bitcoin. Because of this, bitcoin also plummets as miners sell inventory. This...

crude oil price forecast 2022 crude oil price forecast 2022
Forex3 days ago

Crude oil price forecast 2022: WTI in free fall amid global turmoil

Crude oil prices are in free-fall at the beginning of the week, with a barrel of West Texas Intermediate currently...

is there a recession in Europe is there a recession in Europe
Economy3 days ago

Is Europe in a recession now: the consequences are listed

Is Europe in a recession now? The depth of the recession in the eurozone will depend on the pace as...

saudi aramco base oil company saudi aramco base oil company
Commodities3 days ago

Saudi Aramco based oil company sees no strong impact on its position in Asia

Saudi Aramco-based oil company does not see any impact on its position in Asia, including India, from the redistribution of...

will crude oil prices fall will crude oil prices fall
Commodities3 days ago

Oil prices have stepped up their fall. Will crude oil prices fall even more? 

During the day oil quotes turned to fall on fears of slowing growth of the Chinese economy and increasing oil...

is bitcoin rally over is bitcoin rally over
Cryptocurrency3 days ago

Investors Ask Asian Crypto Exchange’s CEO To Step Down, Bankrupt Exchange In Potential Fundraising Talks

Is the Bitcoin rally over? Institutional investors didn’t cause a new bitcoin rally. That’s what Bloomberg writes, citing members of...

coinbase stock chart coinbase stock chart
Cryptocurrency3 days ago

S&P Global downgraded Coinbase to speculative: What will happen to the Coinbase stock chart? 

Rating agency S&P Global downgraded Coinbase cryptocurrency from BB+ to BB. How will this affect the Coinbase stock chart? Coinbase...

galaxy digital to buy bitgo galaxy digital to buy bitgo
Cryptocurrency3 days ago

Galaxy digital to buy BitGo? The company declined to buy the cryptocurrency depository

Galaxy Digital to buy BitGo? Galaxy Digital, a company owned by bitcoin investor Mike Novogratz, has changed its mind about...

current dollar rate as of today current dollar rate as of today
Forex3 days ago

Current dollar rate as of today: The dollar is rising against the euro and the pound, slightly falling against the yen

Current dollar rate as of today: The dollar is moderately strengthening against the euro and pound sterling. but slightly declining...

US war with china and russia US war with china and russia
Economy3 days ago

US war with China and Russia: Kissinger says the U.S. is “on the brink” of war with Russia and China

US war with China and Russia: Former Secretary of State Henry Kissinger believes that the U.S. is “on the brink...

a threat to the u s economy are important a threat to the u s economy are important
Economy3 days ago

A threat to the US economy biggest: experts name unexpected factor

The conflict between China and Taiwan is a threat to the U.S. economy largest and can deal a blow to...

How does FED rate cut affect stock market How does FED rate cut affect stock market
Economy3 days ago

How does the FED rate cut affect the stock market? Fed spokesperson calls for continued rate hikes

The history of FED rate hikes and cuts has yet to face what is happening today. Thomas Barkin, president of...

inflation reduction act of 2022 inflation reduction act of 2022
Economy3 days ago

Inflation reduction act of 2022: U.S. Congress agrees to allocate $430 billion for climate and inflation

Both houses of Congress have approved the Inflation Reduction Act of 2022, which also entails an allocation of nearly $370...

oil prices fall again oil prices fall again
Commodities3 days ago

Oil prices fall again at the start of Monday’s trading

Global oil prices fall again Monday morning by more than 1%. Investors are evaluating a lot of factors – both...

copper price by day copper price by day
Commodities3 days ago

Copper price per pound declines on doubts about demand in China

Copper prices per pound are declining on Monday due to negative demand prospects in China, according to trading data. The...

gold price today gold price today
Commodities3 days ago

Gold price today at 1810 dollars per troy ounce

The gold price today stabilized. On Friday evening, it was at 1810 dollars per troy ounce, which might show the...

import of gold in India import of gold in India
Commodities3 days ago

Imports of gold in India fell 30% in January-July

Imports of gold in India in January-July declined by 30%. India imported $2.37 billion worth of gold in July 2022,...

oil prices daily oil prices daily
Commodities3 days ago

What will happen to Brent crude oil prices in the new week

The global oil market will be guided by fresh forecasts on the demand for the raw materials. Brent crude oil...

international oil prices international oil prices
Commodities3 days ago

U.S. Treasury Department to discuss with Brazilian counterparts restrictions on international oil prices from Russia

Deputy Treasury Secretary Brian Nelson will discuss with the Brazilian Ministry of Finance during his visit to Brazil the limitation...

Stablecoin AUSD collapse Stablecoin AUSD collapse
Cryptocurrency3 days ago

Stablecoin AUSD collapse? Collapse to $0.05 after hacker attack

Stablecoin AUSD collapse? Unknown individuals attacked the Polkadot-based Acala Network protocol and released over 1.2 billion AUSD. As a result,...

cryptocurrency trading volume analysis cryptocurrency trading volume analysis
Cryptocurrency3 days ago

Cryptocurrency trading volume analysis: Trading volume decreased by 1.7% in July

According to cryptocurrency trading volume analysis from Chinese journalist Colin Wu, July was not a very good month for the...

Trending

©2021-2022 Letizo All Rights Reserved