Posts Tagged ‘interest rate’

As Market Rout Continues, Trump Stands Firm on Fed, Border Wall

December 26, 2018
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President Trump criticized Federal Reserve interest-rate increases and said on Tuesday a partial U.S. government shutdown wouldn’t end until Congress funded a wall along the border with Mexico, holding firm on his policy stances against the backdrop of a global economic slowdown and an extended world-wide stock plunge.

Japan’s Nikkei Stock Average fell 5% and into a bear market on Tuesday, following a 3% fall in U.S. stocks on Monday, the worst Christmas Eve trading day in history.

Mr. Trump, speaking in the Oval Office on Christmas Day, said the Federal Reserve is “raising interest rates too fast”—a practice he blames for volatile U.S. indexes.

With a view toward giving Mr. Trump a clearer idea of Fed Chairman Jerome Powell’s work and focus, administration aides have discussed setting up a private meeting between the two men early in the new year. The Treasury Department, headed by Steven Mnuchin, has looked into whether there was precedent for such a meeting, an administration official said.

Presidents have met with Fed leaders in the past. In 2005, President George W. Bush met with then-Fed chairman Alan Greenspan to discuss the economic impact of Hurricane Katrina, and President Obama met with then-Fed Chairman Ben Bernanke in 2011 amid market turbulence and a tepid economic recovery. Mr. Obama also met with Mr. Bernanke’s successor, Janet Yellen.

“The best thing is for the president to have a conversation with his Fed chairman,” said Larry Kudlow, Mr. Trump’s top economic adviser. “Why not? It’s happened all the time.”

A meeting between Messrs. Trump and Powell would be unusual, however, because of the president’s public and repeated criticism of the central bank leader, which has included calling on the Fed not to raise rates ahead of its meeting last week. The Fed went ahead with a planned quarter-percentage-point rate increase. Messrs. Bush and Obama adhered to a precedent established by President Bill Clinton in refraining from criticizing the Fed leader.

By publicly attacking the central bank, Mr. Trump has complicated the Fed’s task of appearing independent from politics, and any meeting with Mr. Trump might further cause the public to question whether future policy adjustments by the Fed were being made to accommodate the president.

A spokeswoman for the Fed declined to comment.

While Mr. Trump has singled out the Fed as the source of market turbulence, former senior economic officials have privately warned the White House that the president’s tweets and statements are making matters worse.

They have told Mr. Trump’s economic advisers that his open criticism of the Fed is helping to trigger the steep market losses that have left him so aggrieved.

Gary Cohn, the president’s former top economic adviser, told the White House recently that Mr. Trump’s tweet declaring himself a “Tariff Man” was unhelpful and triggered substantial losses in the Dow Jones Industrial Average, people familiar with the matter said.

President Trump said Tuesday that a government shutdown wouldn’t end until Congress agreed to fund a wall on the U.S.-Mexico border.
President Trump said Tuesday that a government shutdown wouldn’t end until Congress agreed to fund a wall on the U.S.-Mexico border. PHOTO: JACQUELYN MARTIN/ASSOCIATED PRESS

Mr. Trump tweeted on Dec. 4 shortly after a meeting with Chinese President Xi Jinping appeared to inspire hope among investors that the U.S. would reach a cease-fire in the trade war with China. Since then, financial markets have fallen further, with the Dow closing on Christmas Eve at its lowest level in more than 15 months.

On Christmas Day, a former senior Republican Treasury Department official spoke to Mr. Mnuchin and told him that Mr. Trump’s tweets and “dysfunctional” governing style were causing stock indexes to plummet, the former official said.

This person suggested that Mr. Mnuchin tell Mr. Trump to stop tweeting—advice the president frequently gets and seldom seems to heed.

The White House didn’t respond to a request for comment about the president’s tweets. A Treasury spokesman declined to comment on the exchange with Mr. Mnuchin.

Senior members of the Trump administration have said that the president’s behavior isn’t the issue. Mr. Kudlow said the White House is making no special plans to stabilize the markets.

“We need to stick with our knitting, which we have done: Lower tax rates and regulation, an energy boom and keeping the entrepreneurs humming,” Mr. Kudlow said. “If we do all that, the stock market will take care of itself.”

Another top official said Tuesday the economy is “fundamentally” strong, with healthy growth rates that suggest a “disconnect” with the volatile markets.

This official said that market declines are the product of a natural correction to overheated markets, along with structural forces such as electronic trading, among other issues. Before the selloff that began in October, the Dow had risen more than 45% since the 2016 election.

In fresh signs that consumer spending remains strong, Mastercard reported that U.S. retail sales, excluding automobiles, rose 5.1% between Nov. 1 and Dec. 24.

Some analysts said that political turmoil in Washington is helping to drive the volatility. When Fed officials raised their benchmark rate last week, they also penciled in two more rate increases for 2019. That outlook was predicated on the economy growing at a slower but still strong 2.3% rate next year and was down from a projection of three rate increases when officials met in September.

Bond markets see just a one-in-four probability that the Fed will raise rates at all in the next year, and a one-in-seven chance that it will have cut rates by next December, according to CME Group. The Fed raised rates four times in the past year, most recently to a range between 2.25% and 2.5%.

Because bond markets are pricing in low odds of rate increases next year, some economists said the Fed isn’t a culprit for the continued market rout. Given the way bond markets have discounted future rate increases, the more likely culprit for the recent selloff is “dysfunctional policy intentionally stoking uncertainty,” said Julia Coronado, founder of MacroPolicy Perspectives LLC, a New York economics advisory firm.

Markets have had to factor in not just one policy risk—such as a more aggressive Fed—but several different threats, including slower growth from U.S. trading partners, escalating trade tensions with China, geopolitical uncertainty such as Brexit, and domestic political tensions as seen through recent turnover in the Trump administration and the federal government’s partial shutdown.

Mr. Trump revived his criticism of the Fed during what for him has been an unusual holiday season. He delayed his customary trip to his Mar-a-Lago estate in Palm Beach, Fla., because of the government shutdown arising from a dispute over funding for his promised border wall.

His wife, Melania, went to Palm Beach separately, though she returned to celebrate Christmas Eve Mass with him in Washington.

“I am all alone (poor me) in the White House waiting for the Democrats to come back and make a deal on desperately needed Border Security,” Mr. Trump tweeted around lunchtime on Monday.

Some analysts said Mr. Trump’s criticism of the Fed could make it difficult for Mr. Powell to pause rate increases without being perceived as responding to pressure from the president rather than to economic factors.

“It can’t be seen as giving in to presidential pressure,” said Sarah Binder, a political scientist who studies how politics shape the Fed. “That is the real challenge for the Fed, to figure out how they’re going to weigh these pressures they are facing versus what they see in the economy.”

Nelson Peltz, a billionaire investor who supports Mr. Mnuchin as Treasury secretary, said the Fed should signal plans to hold off on further rate increases as long as inflation remains low.

“I think there’s a disconnect between the Fed, the markets and reality,” Mr. Peltz said, adding that the economy remains strong. “I don’t see any inflation that they need to be raising rates against.”

Write to Peter Nicholas at peter.nicholas@wsj.com, Michael Wursthorn at Michael.Wursthorn@wsj.com and Paul Kiernan at paul.kiernan@wsj.com

Appeared in the December 26, 2018, print edition as ‘Trump Holds Firm on His Fed Criticism.’

https://www.wsj.com/articles/as-market-rout-continues-trump-stands-firm-on-fed-and-shutdown-11545765737?mod=hp_lead_pos1

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U.S Federal Reserve Takes The Wind From U.S. Stock Markets, Investors

December 20, 2018

Markets Finally Grasp What the Fed Means by QT — Quantitative Tightening

Investors and the central bank are at odds, and it’s not clear who deserves to win. Also, capitulation time and Mexico’s ‘AMLO Bounce.’

Federal Reserve Chairman Jerome Powell may have just made a big mistake.

Photographer: Bloomberg/Bloomberg

Markets awoke Wednesday expecting a “dovish hike” from the Federal Reserve. Chairman Jerome Powell thought that’s what he delivered, with policy makers now forecasting only two interest-rate hikes next year, not the three they expected in September. Powell added that the federal funds rate is within the range of estimates of what is considered neutral, which neither stimulates nor constrains the economy. Recall how in early October he caused a stir by saying the rate was still “well below” neutral.

Who could be upset by this turn of events? It turns out almost anyone owning U.S. stocks. Meanwhile, anyone who had a long position in bonds did nicely. Bonds were supposed to be in a bear market, and for good reason. The economy is growing, there are reasonable worries about faster inflationthere are reasonable worries about faster inflation and there are enormous concerns about whether the bond market can digest the enormous borrowing by Uncle Sam to finance a bulging budget deficit created by an unfunded tax cut. Ponder also that dovishness means, among other things, that rates will be lower than expected, which also means that bond yields should be lower, all else equal (or ceteris paribus, to put it in the Latin beloved of economists).

But all other things were not equal. In response to a question about the Fed’s balance sheet, and the policy of QT, or quantitative tightening, that the Fed has been using to reverse years of QE, or quantitative easing to buy bonds, Powell said this:

“We came to the decision that we would have the balance sheet run-off on automatic pilot and use rate policy as the active tool of monetary policy. I don’t see us changing that.”

Implicit in this response was Powell’s belief that the steady move to reduce the Fed’s balance sheet assets and, hence, mop up liquidity, was not going to roil the markets. For some reason, he had not said this quite so bluntly before, and judging by the market’s reaction, investors did not think that this was the plan. As a reminder, this is what “automatic pilot” looks like:

We have known for years that QE had helped to keep the stock market aloft, and it was logical to believe that 1) QT would follow QE, and that 2) QT would have the effect of reversing the impact of QE. Wednesday may go down in history as the day when the market finally grasped this.

None of this is to say that there was only one cause driving markets today. There were many moving parts, as always. But the Powell comments on QT appeared to be a turning point. Here is a Bloomberg chart of 10-year Treasury yields and the S&P 500, minute by minute, throughout the trading day:

The inverse correlation between the two asset classes was perfect. The first big shock came at 2 p.m. New York time, as the Fed statement was released. That eliminated the slight hope that the Fed might decide not to hike at all. Also, the statement was just barely more dovish than the previous one from the Fed, containing the critical sentence:

“The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

The word “some” was added to the boilerplate language from the previous statement in early November, which could be taken as a sign that the campaign to tighten is nearing an end. However, the generally upbeat message on the economy from the rest of the statement remained unchanged. Many had evidently hoped that the Fed would be getting more nervous and more likely to stop raising rates. As for the accompanying “dot plot” of economic projections, it was more dovish than its predecessor, but still suggested that policy makers fully expected to boost rates two more times next year. This is a screen grab of the projected path of rates, and those of you with access to a Bloomberg terminal can have fun looking at how the Fed’s projections have changed using one of most intuitively named functions: DOTS.

In all, this was a disappointment for a stock market braced for a just-conceivable pause in the hiking cycle, and at least a strong hint that the end of the rate boosts was imminent.

I will make some quick observations about what happened. First, bond yields fell sharply even though Powell said he intended to continue with QT on autopilot, which should mean a higher supply of bonds, and therefore lower prices and higher yields. The urge to get out of stocks, still overvalued and still offering profits that some institutions want to bank before they disappear, swamped any urge to get out of bonds as they face a daunting supply surge from both the Fed and the Treasury. The structural factors keeping bond yields low are strong, and yields now appear to be forcing their way downwards. They are now back below the 2.8 percent level that so scared the stock market back in February.

Meanwhile, the yield curve offers no great hope for banks, which traditionally derive much of their profit from the gap between low short-term rates and higher long-term rates. The difference between two- and 10-year Treasury yields is now almost as flat as a pancake. As a flat curve tends to imply a fear that rates will rise in the short run, it could also be taken as a measure of the market’s fear of a hawkish mistake by the Fed:

As for stock markets, I find the drop in the share prices of asset managers breathtaking. Their profits are very much affected by overall returns on the market as a whole, so the collapse in their shares says something about what’s happened to optimism. The sector as a whole has now given up all of its gains since Donald Trump was elected U.S. president in November 2016.

For active managers, there might be a little good news in the fact that as many as 200 of the 500 stocks in the S&P 500 have avoided losses for the year. There’s dispersion and volatility, so managers with skill may have been able to prove their mettle. But the underlying message of the stock market is still emphatically that the Fed is wrong, and that the chances of an imminent downturn are increasing. One good measure of the stock market’s economic outlook is to compare the performance of cyclical and defensive sectors. This is how the industrial sector (cyclical) has fared compared to the utility sector (defensive) since election day:

The market and the Fed are at odds. At this point, it’s not clear who deserves to win. Powell seems to have badly misjudged the level of anxiety in markets about QT and the effect it’s having on liquidity. The markets seem to be moving to discount an imminent recession in a far more extreme way than anything in the data currently supports. Sadly, for investors, Powell is not quite the QT they had hoped.

Authers notes:

Time to capitulate? Bank of America Merrill Lynch published its last global fund manager survey for the year this week. In the light of what has happened in markets this quarter, the level of bearishness revealed by the survey is not surprising. But the pessimism is impressive. The question is whether it has already reached the level of capitulation.

On some measures, this does look close to cathartic and irrational fear. The proportion of investors worried by global corporate balance sheets is, astonishingly, even higher than it was during the worst of the credit crisis in 2008:

Meanwhile, the outlook for profits has rapidly deteriorated. This number does not look outlandish to me, but the speed with which expectations have fallen strikes me as very strange:

Naturally, given these assumptions, fund managers are shifting away from stocks to bonds and cash, but the allocations are nowhere near cathartic levels. At present, equity allocations are 0.4 standard deviation below the norm, and bond allocations 0.6 standard deviation above. There’s room for these numbers to move much further.

To determine how this plays out, look at the survey’s measure of the greatest perceived “tail risks.” Despite the truce announced in Buenos Aires, the trade war between the U.S. and China continues to be the greatest concern. Worries about a China slowdown need to increase, I suspect, before we reach catharsis.

Meanwhile, in Mexico: Nobody was thinking much about what was going on south of the border, but let me just say that Mexico has had a thoroughly predictable “AMLO bounce.” The country’s stock market has outperformed the world as a whole by almost 13 percent since its nadir just before the new president took office. This does not mean that Andrés Manuel López Obrador, a left-wing populist, will continue to produce great returns. He has a lot of work on his hands. But it does show that sentiment had managed to get far too extreme. This is common when western investors witness a success for Latin American populists.

Mr. Market, as much as the new president, created a nice relative buying opportunity.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
John Authers at jauthers@bloomberg.net

To contact the editor responsible for this story:
Robert Burgess at bburgess@bloomberg.net

https://www.bloomberg.com/opinion/articles/2018-12-20/the-federal-reserve-shocks-stock-and-bond-markets-jpvwfx42

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Stocks End Lower After Fed Lifts Rates

December 19, 2018

Dow falls 352 points as worries about higher interest rates and slowing growth pushed indexes down

The Dow erased a 350-point gain immediately after the Fed's announcement

The Dow erased a 350-point gain immediately after the Fed’s announcement

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.Image result for jerome powell, december 19, 2018, pictures
  • Stocks fall after Fed raises rates
  • FedEx and Micron drop after earnings
  • Oil prices rebound

The Dow Jones Industrial Average swung nearly 900 points Wednesday, slumping after the Federal Reserve raised interest rates for the fourth time in 2018 and signaled a milder path of increases over the next year.

Major indexes turned negative following the Fed’s decision, then tumbled anew during Fed Chairman Jerome Powell’s remarks, falling alongside long-term Treasury yields as investors worried about the outlook for the economy.

The Dow industrials ended lower by 351.98 points, or 1.5%, at 23323.66, after falling as many as 513 points while Mr. Powell spoke. The index had been up about 300 points just ahead of the interest-rate decision.

The S&P 500 fell 39.20 points, or 1.5%, to 2506.96—its lowest close since September 2017—after rising 1.1% earlier in the day.

Traders stand outside the New York Stock Exchange.
Traders stand outside the New York Stock Exchange. PHOTO: JORDAN SIREK/BLOOMBERG NEWS
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The tech-heavy Nasdaq Composite dropped 147.08 points, or 2.2%, to 6636.83, bringing it 18% below its August record and near bear-market territory, defined as a drop of 20% from a recent peak.

Worries about higher interest rates and slowing economic growth have pushed all three indexes down more than 11.5% for the quarter and more than 8.5% this month.

Eleven of 17 central-bank officials expect the Fed will need to raise rates no more than twice next year, Wednesday’s projections show, potentially easing some analyst worries about aggressive rate increases ahead. The targets also could quell fears about rising borrowing costs and threats to corporate profitability.

Yet even anticipation that the Fed might be more cautious with rate increases next year has made some investors worry that growth is cooling more quickly than anticipated, buffeting stocks in recent weeks.

“There was no good answer out of this,” said Stephen Lee, principal and portfolio manager at Logan Capital Management. “That’s why we’re getting the volatility.”

Stocks extended declines after Mr. Powell said during his news conference that officials don’t see the Fed’s slowly shrinking balance sheet as the cause of any market instability. Some analysts have said the Fed’s balance sheet runoff has helped fuel large moves in debt markets and prompted corresponding wild swings in stocks.

“The moves are so fast that it’s hard to find the right liquidity,” said Mike O’Rourke, chief market strategist with JonesTrading, referring to the ease of trading securities. “People are actively trying to hedge their positions.”

In one sign of investor angst about the outlook for growth, short-term Treasury yields have closed the gap on longer-dated yields, prompting worries that the so-called yield curve could invert and send an ominous signal about the health of the economy.

The yield on the benchmark 10-year U.S. Treasury slumped to 2.782%, down from about 2.830% before the Fed’s announcement and its lowest level since May. Bond yields fall as prices rise and have slid lately since settling at their highest level since 2011 last month. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, was up 0.1%.

“It’s not so much that short-term rates are going up, it’s the dynamics of the yield curve,” said Joe Mallen, chief investment officer at Helios Quantitative Research. “The fact that long-term rates aren’t rising is more of a concern for the overall market.”

The outsize swings across asset classes are likely to continue, some analysts say, with worries about trade and financial conditions snowballing late in the year. Negotiations between the U.S. and China regarding their monthslong tariff fight are continuing, but some companies have already reported tepid demand for their products and services.

So far this month, the S&P 500 has on average closed 1.5% below its intraday peak, the largest such mark since August 2011, according to Dow Jones Market Data.

“Fears have been building at an incredible rate,” said Patrick Kaser, portfolio manager at Brandywine Global. “Is there anything that the Fed can say in a day that reduces the fear out there? Probably not.”

Lingering uncertainty about inflation and trade tensions have muddled the Fed’s path moving forward, economists say, after anxiety about consumer prices and interest rates already has fueled stock-market volatility throughout the year.

February’s selloff was largely driven by rising wage growth and inflation jitters. Markets tumbled again after the Fed’s Mr. Powell said in October he believed the U.S. economy was “a long way from neutral,” referring to the point at which interest rates are neither spurring nor slowing economic growth.

Stocks then briefly rallied last month when Mr. Powell appeared to walk back those comments but have since tumbled anew with analysts anxious about slower-than-expected growth. Fed officials on Wednesday reduced their projection of U.S. growth for this year, to 3% from 3.1%, and next year, to 2.3% from 2.5%.

In corporate news, chip maker Micron Technology fell $2.70, or 7.9%, to $31.41 after the company missed sales targets, and FedEx slumped 22.50, or 12.2%, to 162.51 after posting downbeat results.

“Global trade has slowed in recent months and leading indicators point to ongoing deceleration,” FedEx Chief Financial Officer Alan Graf said in the company’s earnings release.

Elsewhere, the Stoxx Europe 600 edged up 0.3% as a budget-deficit agreement buoyed shares of Italian lenders.

Markets in Asia closed mixed. Hong Kong’s Hang Seng inched up 0.2%, and Japan’s Nikkei Stock Average fell 0.6%. Stocks in Shanghai and Shenzhen fell more than 1%.

—Riva Gold contributed to this article.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

Federal Reserve hikes interest rates in defiance of Trump – and its chair tells president ‘nothing will deter us’ from more raises as share prices plunge after move

December 19, 2018

  • The Federal Reserve announced its decision on rates after extraordinary public pressure from the president 
  • Hike of 0.25 per cent 
  • Benchmark rate at 2.5 per cent 
  • Said more rate increases were appropriate 
  • News wiped away morning 350 point gain in the Dow 
  • Powell said ‘political considerations play no role whatsoever in our discussions’ 
  • Said ‘nothing will deter us from doing what we think is the right thing to do’ 
  • Trump on Tuesday argued against a hike and urged the Fed to ‘feel the market’
  • He has also attacked Fed Chair Jerome Powell in interviews and on Twitter
  • Decision comes amid a strong job market but some signs of economic cooling
  • A volatile market has wiped out 2018’s stock market gains
  • The move impacts borrowing across the board 

Federal Reserve Board Chair Jerome Powell said ‘nothing’ will deter independent central bankers from following their economic convictions – after an extraordinary pressure campaign by President Donald Trump failed to stave off a rate hike.

Powell got asked repeatedly Wednesday about Trump’s extended public push to hold off on further rate increases – which the Fed’s rate committee brushed past as it came out with a 0.25 per cent increase in the Fed’s closely-watched lending rate.

And though he didn’t go after Trump by name, Powell, who was nominated by the president, proclaimed his independence when asked about the pressure tactics by multiple reporters at a rare press conference.

‘Political considerations play no role whatsoever in our discussions or our decisions about monetary policy,’ Powell told reporters just minutes after the Fed announced its rate hike.

'Nothing will deter us from doing what we think is the right thing to do,' said Trump-appointed Fed chair Jerome Powell

‘Nothing will deter us from doing what we think is the right thing to do,’ said Trump-appointed Fed chair Jerome Powell

‘We’re always going to be focused on the mission that Congress has given us we have the tools to carry it about. We have the independence which we think is essential to be able to do our jobs in a non-political way,’ he continued.

Then, the central banker insisted in stark terms: ‘We at the Fed are absolutely committed to that mission, and nothing will deter us from doing what we think is the right thing to do.’

Later, Powell got asked about Trump’s urging Tuesday on Twitter to ‘feel the market’ in one of his many pleas to keep rates low.

‘Broadly speaking we don’t look at any one market,’ he responded. ‘What matters for the broader economy is material changes in a broad range of financial conditions,’ he said.

The Federal Reserve’s rate-making committee announced a decision Wednesday to raise rates by a quarter of a percentage point – turning back a pressure campaign by Trump against an increase.

The central bank announced a decision to raise rates by 0.25 per cent, brushing off public pressure by the president. That put the Fed’s benchmark rate at 2.5 per cent, up from 2.25 per cent before the change.

The fed acted after an extraordinary pressure campaign by President Trump, who fears further rate hikes will undermine the U.S. economy, which could in turn cause him political challenges.

'Political considerations play no role whatsoever in our discussions or our decisions about monetary policy,' said Powell after President Trump's pressure campaign

‘Political considerations play no role whatsoever in our discussions or our decisions about monetary policy,’ said Powell after President Trump’s pressure campaign

The Dow erased a 350-point gain immediately after the Fed's announcement

The Dow erased a 350-point gain immediately after the Fed’s announcement

The Nasaq and other markets dropped after the Fed's announcement Wednesday

The Nasaq and other markets dropped after the Fed’s announcement Wednesday

The move, which was anticipated by the markets, will impact consumer borrowing on a number of fronts.  It also sent the stock market dropping in the immediate minutes after the announcement.

The Dow Jones Industrial Average immediately retreated from a 350-point gain in the minutes after the news. The broader S&P 500 shed its 1-percent morning gain. The tech-heavy NASDAQ also dropped.

The Federal Open Markets Committee had already ordered three previous rate hikes this year, despite escalating pressure from the president.

‘Judgements of people both inside and outside the fed will sometimes differ,’ Powell told reporters in a rare press conference after the announcement, in a mere hint at critics like Trump.

Reporters were reluctant to press Powell on the breadth of the president’s repeated pubic attacks. When one of them did raise it in a three-part question, Powell responded: ‘Political considerations play no role whatsoever in our discussions or our decisions about monetary policy. We’re always going to be focused on the mission that Congress has given us.’

Powell said members of the Fed were determined to ‘do our jobs in a non-political way. We at the fed are absolutely committed to that mission, and nothing will deter us from doing what we think is the right thing to do.’

According to a statement by the Federal Open Markets Committee Wednesday afternoon: ‘The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.’

In addition to the increase of 25 basis points, the fed signaled there could be two further rate hikes during 2019, when three had been anticipated – meaning there could be two more opportunities for presidential heartburn about the Fed’s policy.

A prior statement used the term ‘expects’ rather than ‘judges,’ which could connote ore determination and less passivity, CNBC noted.

Prior increases have helped drive up the Fed’s benchmark rate over 2 per cent – which in turn drives up borrowing costs for ordinary Americans. But the central bank has been seeking to head off inflation, while putting rates in a position where it has flexibility in case it needs to combat a future recession.

On Tuesday, Trump undertook what in previous administrations would have been the unusual step of urging further rate hike on the eve of a key meeting.

‘I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!’ the president wrote.

TAKE A HIKE! President Donald Trump put the pressure on the Federal Reserve Tuesday not to hike interest rates

TAKE A HIKE! President Donald Trump put the pressure on the Federal Reserve Tuesday not to hike interest rates

Trump warned the Fed not to 'make yet another mistake'

Trump warned the Fed not to ‘make yet another mistake’

Trump has railed against Federal Reserve Chairman Jerome Powell. The Fed announced its decision on rates Wednesday

Trump has railed against Federal Reserve Chairman Jerome Powell. The Fed announced its decision on rates Wednesday

Trump has railed for months against the central bank and Chairman Jerome Powell as the Fed continues to raise interest rates.

His tweet comes a day after U.S. stocks dropped again on Monday as another day of big losses took the market to its lowest level in more than a year.

The president has repeatedly hailed stock market gains, trumpeting them on Twitter and at news events. He has been less talkative amid an October drop and a down December that wiped out market gains for the year.

Earlier this month, Trump said ‘I think it would be foolish’ for the Fed to raise rates.

In late November, he told the Washington Post he was ‘not even a little bit happy with my selection of Jay,’ in reference to Powell. He added: ‘They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.’

He complained in October: ‘I think the Fed has gone crazy.’

https://www.dailymail.co.uk/news/article-6513257/FED-DEFIES-Trump-hikes-rates-despite-presidents-unceasing-attacks.html

Federal Reserve Raises Interest Rate

December 19, 2018

Downgrading its economic outlook, the Federal Reserve raised its key interest rate Wednesday for a fourth time this year but lowered its forecast to two hikes in 2019 amid the recent stock market selloff and uncertain growth prospects.

The central bank’s latest move, which comes amid President Trump’s repeated criticism of Fed rate hikes, is expected to set off a domino effect across the economy, bumping up rates on credit cards, home equity lines of credit, and adjustable-rate mortgages.

Image result for jerome powell, pictures

The impact of a single rate hike is fairly modest but this marks the ninth time the Fed has lifted its benchmark short-term rate since late 2015, significantly increasing monthly payments for many borrowers. At the same time, Americans are also starting to benefit from higher bank savings rates.

As expected, the Fed raised the federal funds rate — which is what banks charge each other for overnight loans – by a quarter point to a range of 2.25 percent to 2.5 percent.

But in a statement after a two-day meeting, the Fed newly acknowledged a slowdown in global economic growth, the stock market’s plunge and a strong dollar that’s making U.S. exports more expensive for overseas customers.

“The Committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook,” the Fed said.

Fed officials also indicated it foresees fewer rate hikes next year, estimating that “some gradual increases” in the rate “will be consistent” with a solidly growing economy and inflation near the Fed’s 2 percent target.

The wording change reflects a central bank that now intends to respond in real-time to the course the economy takes rather than follow a rate-hike roadmap as it has the past couple of years.

That’s because Fed officials are grappling with conflicting forces. On the one hand, the unemployment rate has fallen to a 49-year low of 3.7 percent. That typically would lead to an eventual jump in inflation as employers boost wages to compete for a smaller pool of available workers, with price increases likely to follow. Fed officials have tried to head off such a spike by steadily raising rates.

At the same time, federal tax cuts and spending increases that juiced economic growth this year are set to begin fading in 2019. The Trump administration’s trade war with China is likely to take a bigger toll on the economy. And the Fed rate hikes themselves are expected to more substantially curtail consumer and business borrowing.

Largely as a result, the stock market has trended sharply lower in recent weeks, with the Dow Jones industrial average more than 10% from its early October peak. Meanwhile, the dollar has strengthened amid a weakening global economy, making U.S. goods more expensive overseas and hurting American manufacturers.

The upshot is an economy that could weaken next year, keeping inflation contained and raising the risk that an aggressive Fed might tip it into recession.

President Trump has taken the highly unusual step of repeatedly criticizing Powell in recent months for hiking rates, saying the strategy has impeded the faster economic growth he has promised.

Powell has said the remarks have no effect on the decisions of the Fed, independent agency. But they’ve put Fed policymakers in the uncomfortable position of appearing to kowtow to Trump if they ease up on the hikes or deliberately defying him if they stay the course.

How fast rates will rise

The Fed cut its forecast from three hikes next year to two. Amid the uncertain economy, markets have anticipated just one rate increase in 2019.

Fed officials expect the key rate to rise to 2.9 percent at the end of 2019, and 3.1 percent at the end of 2020, down from 2.9 percent and 3.1 percent, respectively, in their September projection. The Fed now expects the rate to be 2.8% over the long run, down from 3%.

But the policymakers are divided, with an equal number projecting two, three and four hikes.

Fed officials are also split on what the central bank’s long-term “neutral” rate — the level that would neither spur nor dampen growth – should be.  In late November, Fed Chairman Jerome Powell said the Fed’s key rate was “just below” neutral, suggesting the Fed may not have to raise it much more and retreating from his prior comment that it was a “long way” from that level.

Economy

The Fed said “economic activity has been rising at a strong rate.”

The Fed estimates the economy will grow 3 percent in 2018, down from its prior estimate of 3.1%, and 2.3% in 2019, below its previous 2.5% forecast.

The economy grew 4.2 percent and 3.5 percent in the third and fourth quarters, its best six-month stretch since 2014. Many analysts expect solid 2.5 percent growth in the current quarter and 3 percent this year – which would be its best performance since 2005 — but a slowdown next year.

Jobs

“The labor market has continued to strengthen,” the Fed said, “adding that” job gains have been strong, on average, in recent months.”

The Fed left its estimate of the unemployment rate at the end of this year unchanged at 3.7%. But it slightly raised its forecast for the rate at the end of 2020 to 3.6%.

Despite increasing worker shortages, employers have added over 200,000 jobs a month this year. The pace is expected to slow to about 150,000 next year as the supply of discouraged workers on the sidelines dwindles.

As firms compete for fewer workers, annual wage gains have picked up to a nine-year high of 3.1 percent in recent months.

With the economy expected to slow a bit, the Fed slightly lowered its inflation forecast.

It expects annual inflation to dip from 2 percent to 1.9 percent at the end of 2018 and stay at that level by the end of next year. IIt predicts a core measure that strips out volatile food and energy items will rise from 1.8 percent to 1.9 percent by the end of this year and 2 percent by the end of 2019, below its prior estimates of 2 percent and 2.1 percent, respectively.

Many economists expect consumer price increases to stay contained as a result of cheap oil and gasoline and long-term forces such as discounted online shopping.

The Fed is acknowledging recent developments that have tempered its economic forecast, including the slowdown in global growth, market volatility and the strong dollar.

While Fed policymakers largely maintained an upbeat outlook, they modestly reined in their expectations for the economy and the pace of rate hikes

https://www.usatoday.com/story/money/2018/12/19/fed-decision-interest-rates/2306246002/

Argentina raises interest rate to 60%

August 30, 2018

Central bank acts after peso’s sharp sell-off resumes in morning trading

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By Colby Smith and Robin Wigglesworth in New York and Benedict Mander in Buenos Aires

Argentina ratcheted up interest rates by 15 percentage points to 60 per cent on Thursday as the central bank sought to arrest the plunge in the peso to a new record low.

As the country battled to reassure investors that it can address its economic vulnerabilities, the bank‘s drastic action initially offered some support for the embattled currency. But the peso — which has now lost roughly half its value this year — swiftly fell back to a fresh record low of 39.6 per dollar on Thursday — down almost 14 per cent on the day.

President Mauricio Macri on Wednesday surprised the market by asking the International Monetary Fund to speed up the release of its $50bn bailout package to shore up next year’s budget, triggering Argentina’s latest round of financial turmoil.

The central bank’s interest rate hike to the highest level of any developed country was described as a “bold policy response” by Alberto Ramos, head of Latin American economic research at Goldman Sachs.

But he warned that the government would still have to ditch its policy of “ gradualism” in crimping the budget deficit and accelerate spending cuts markedly to restore confidence.

“This is a battle that the central bank will not be able to win alone. They need a fiscal shock,” he said. “It is politically difficult but its the least costly option.”

The tumbling peso added further pressure to emerging market currencies, with Turkey’s lira falling as much as 5.5 per cent against the dollar as worries continued to swirl over the country’s economy and finances. The lira sell-off was exacerbated by news that the deputy governor of the central bank, Erkan Kilimci, is preparing to resign for a role at the Development Bank of Turkey.

Argentina’s turmoil also exacerbated the sell-off in the developing world’s financial markets. The FTSE Emerging Index of EM equities fell 1.2 per cent, its biggest decline in three weeks, and JPMorgan’s EM currency gauge slid 1 per cent to a new record low.

Marcos Peña, Argentina’s cabinet chief, had attempted to project calm before the central bank acted, denying that Mr Macri was considering a cabinet reshuffle.

“We are not facing an economic failure,” Mr Peña said on Thursday morning. “This is a transformation, not a failure. In that transformation there are more difficult moments, and moments when it seems that things are going more easily.”

Christine Lagarde, managing director of the IMF, said late on Wednesday said that it would revise its programme “in consideration of the more adverse international market conditions”.

Edward Al-Hussainy, a senior analyst at Columbia Threadneedle, estimated that Argentina needs to raise about $15bn a year over the next three years, which means even the IMF’s $50bn credit line — the biggest in its history — leaves “little room for error”.

Nicolás Dujovne, the economy minister, sought to calm markets late on Wednesday by insisting the government would create a “ceiling” for this year’s budget deficit of 1.3 per cent of economic output. He said the “only way” to return to normality is to keep reducing the deficit.

But Walter Stoeppelwerth, head of research at investment bank Balanz Capital, said the IMF would likely demand tougher austerity measures in exchange for the early release of funds.

“I expect the IMF to demand an even lower primary deficit in 2019, and social unrest will undoubtedly increase,” he said. “Now we are in an old style IMF programme with a deeper recession and a large nominal devaluation.”

The price to insure against a default on Argentina’s debt also rose sharply on Thursday, with the price of a five year “credit-default swap” on the country’s government bonds jumping 68 basis points to 724 bps, according to Bloomberg data from IHS Markit.

That means that investors consider Argentina to be the second-riskiest sovereign borrower in the world, after Venezuela, which has already defaulted on its debts, and ahead of Lebanon, Turkey, Pakistan and Iraq.

“The markets are overreacting. It is not a problem of a lack of dollars, it is a total lack of confidence in the peso,” said Miguel Acevedo, the president of the Argentine Industrial Union, a business association.

https://www.ft.com/content/09cc760a-ac59-11e8-89a1-e5de165fa619

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Inflation in the Philippines Expected to Spark Interest Rate Hike

August 2, 2018

The Bangko Sentral ng Pilipinas will likely hike its policy rate again, this time by 50 basis points (bps) instead of the traditional 25 bps adjustment to contain rising inflation and lend some strength to the local currency, analysts from Japanese bank Nomura said.

Central bank Governor Nestor Espenilla last month signaled that monetary authorities are building the case for a third rate hike this year, saying the BSP is considering a “strong follow-through monetary adjustment” next week amid risks posed by “excessive volatility” in foreign exchange markets.

Inflation spiked to a fresh five-year high of 5.2 percent in June from May’s 4.6 percent, putting the year-to-date figure at 4.3 percent, or above the BSP’ 2-4 percent target range. The central bank has responded by delivering back-to-back rate hikes.

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In a research note, economists at Nomura said there’s a 70 percent probability that the central bank will raise its benchmark rate by 50 bps and a 30 percent chance of a 25 bps move.

Nomura also expects the policy statement to remain hawkish, with BSP “clearly leaving the door open for further hikes.”

“We put a lot of weight in Governor Espenilla’s comments because he tends to be deliberate in his signals, and, as decisions at the last two meetings demonstrate, there is ultimately follow-through action even though decisions are collective on the part of the monetary board,” the Japanese bank said.

“The drivers of inflation have clearly broadened, which would be seen by BSP as a sign of more second-round effects alongside recent demands for wage and transport fare hikes,” it added.

The BSP’s economic research department forecasts inflation to spike 5.1-5.8 percent in July due to higher prices of electricity, food, fuel and transportation costs. Meanwhile, Nomura projects inflation in July to hit a new peak of 5.6 percent, which would be the highest print since 2009.

People have blamed soaring prices on the Duterte administration’s tax reform law, which raised excise levies on fuel and “sin” products, among others. Supply-side factors like higher global oil prices—exacerbated by the continuing depreciation of the peso—are also pushing up commodity prices.

The peso has weakened by more than 6 percent against the US dollar since the start of the year, making it one of Asia’s worst-performing currencies. Although higher policy rates could help fight outflows, Nomura said weak global risk sentiment poses a headwind.

The BSP’s Monetary Board is scheduled to review policy settings on August 9 a few hours after the Philippine Statistics Authority reports second-quarter gross domestic product growth, which Nomura expects to clock in at 6.8 percent, unchanged from the previous quarter.

The government will release the July inflation data on August 7.

Read more at https://www.philstar.com/business/2018/08/02/1839009/nomura-sees-50-basis-point-rise-interest-rates-august#ACFqOxbHhpPQrBd1.99

Turkey hikes interest rate again as vote looms

June 7, 2018

The Turkish central bank on Thursday hiked interest rates for the second time in two weeks, prompting the lira to rally strongly with elections on the horizon.

The 125 basis point (bps) headline interest rate hike comes after the bank raised its emergency rate by 300 bps on May 23.

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On Thursday the bank said it would raise the one-week repo rate to 17.75 percent from 16.5 percent, after a monetary policy committee (MPC) meeting.

The one-week repo rate has been the bank’s policy rate since June 1, after a long-awaited overhaul of its interest rates.

The lira surged after the bank’s announcement at 1100 GMT, gaining 1.7 percent against the dollar to reach 4.48 after previous record lows last month.

Before the bank’s move, the lira was at 4.58 against the greenback. Since January, the lira has lost over 18 percent against the dollar and over six percent in the past month.

The hikes come despite repeated calls for lower interest rates by President Recep Tayyip Erdogan, who has called interest rates the “mother and father of all evil”.

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The bank’s decision to raise rates was hoped for by the markets after the inflation rate jumped in May from 10.85 percent to 12.15 percent from the same period last year.

The bank said in a statement that the “tight stance” in monetary policy would be maintained until “inflation outlook displays significant improvement”.

“If needed, further monetary tightening will be delivered,” the bank added.

Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said the decision “should help improve sentiment, and stabilise the market a bit into the elections”.

Turks will vote in parliamentary and presidential elections on June 24 in a surprisingly tight contest, with Erdogan seeking a second mandate as president.

AFP

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Erdoğan calls on citizens to convert their dollars, euros into Turkish Lira

May 27, 2018

Turkish President Recep Tayyip Erdoğan called on Turkey’s citizens on May 26 to convert their dollar and euro savings into lira, as he sought to bolster the ailing currency which has lost some 20 percent of its value against the U.S. currency this year.

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“My brothers who have dollars or euros under their pillow. Go and convert your money into lira. We will thwart this game together,” Erdoğan said at a rally in the eastern Erzurum province ahead of parliamentary and presidential elections on June 24.

The presidential elections that will be held on June 24 will be critical for Turkey as the executive presidential system approved by the constitutional amendments will be fully in effect after the president is elected.

Less than a month ahead the elections, the Turkish economy is struggling.

The Turkish Central Bank decided to raise the top interest rate 300 basis points to 16.5 percent in an emergency meeting on May 23, after the Turkish Lira’s daily depreciation of 5 percent against the United States dollar. The dollar/lira rate hit an all-time high, reaching 4.93 hours before the bank raised interest rates.

One dollar had traded for 3.65 liras on average in 2017.

After the rate hike decision, the lira gained strength to 4.55 against the dollar but weakened to near 4.8 on May 24.

The lira has lost more than 20 percent of its value against the dollar since the start of the year.

Concerns about management of the economy and the independence of the Central Bank after the snap elections on June 24 are said to be affecting the depreciation of lira, alongside high inflation, a rising current account deficit, and the rally of the dollar.

http://www.hurriyetdailynews.com/erdogan-calls-on-citizens-to-convert-their-dollars-euros-into-turkish-lira-132409

UK unemployment holds at lowest since 1975

January 24, 2018
© AFP/File | Britain’s unemployment rate remains at the lowest level in more than 40 years, according to official data that showed wages growth still lagging inflation
LONDON (AFP) – Britain’s unemployment rate remains at the lowest level in more than 40 years, according to official data Wednesday that showed wages growth still lagging inflation.The jobless rate — or the proportion of the workforce that is unemployed — stood at 4.3 percent in the three months to the end of November, the Office for National Statistics said in a statement.

This was helped by a stronger-than-expected rise in employment to 32.2 million people — the highest level since records began in 1971, the ONS added.

Unemployment fell 3,000 to 1.44 million people.

“The latest labour market figures provided further reassurance that the economy held up in the fourth quarter of last year,” said Paul Hollingsworth, economist at Capital Economics research group.

“The 102,000 rise in employment in the three months to November was far stronger” than market forecasts.

Average weekly earnings meanwhile grew 2.5 percent in the year to November, but still lower than overall UK inflation.

“With the employment rate returning to a joint record-high and the number of vacancies setting a new record, demand for workers clearly remains strong,” said ONS statistician David Freeman.

“Nevertheless, inflation remains higher than pay growth and so the real value of earnings continues to decline.”

Price rises accelerated across the UK during 2017 after Britain’s referendum vote in favour of leaving the European Union pushed down on the pound, hiking the cost of imported goods.

Consequently, the Bank of England raised its main interest rate in November for the first time in a decade — to 0.5 percent from a record-low 0.25 percent.

The pound however is in recovery mode, in part on rising expectations of further rate tightening from the BoE in 2018.