Reuters 4/18/2023

The U.S. central bank should continue raising interest rates on the back of recent data showing inflation remains persistent while the broader economy seems poised to continue growing, even if slowly, St. Louis Federal Reserve President James Bullard said.

The bulk of Fed policymakers as of March felt one more rate increase, which would raise the benchmark overnight interest rate to a range between 5.00% and 5.25%, was all that would be needed. That could come at the Fed's May 2-3 meeting.

While agreeing that the tightening cycle may be close to the finish line, Bullard feels the policy rate will need to rise another half of a percentage point beyond that level, to between 5.50% and 5.75%.

Some policymakers and analysts worry it is those final steps that could push the economy into a recession. And beyond the rate hike decision next month, the Fed will have to send some signal about what happens next - whether to keep the language in the current policy statement that "some additional policy firming may be appropriate," or point to a pause.

Given how inflation and the economy are behaving, Bullard said, the fewer promises made the better.

"You want to be responsive to incoming data through the summer into the fall," he said. "You wouldn't want to be caught giving forward guidance that said we're definitely not doing anything and then have inflation coming in too hot or too sticky."

Bloomberg 4/14/2023
Federal Reserve Governor Christopher Waller said he favored more monetary policy tightening to reduce
persistently high inflation, although he said he was prepared to adjust his stance if needed if credit tightens more than expected.

“Because financial conditions have not significantly tightened, the labor market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further,” Waller said Friday in a speech in San Antonio, Texas. “How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions.”

Bloomberg 4/11/2023
Federal Reserve Bank of New York President John Williams said the March outlook of policymakers for one more interest-rate hike this year, followed by a pause, is a “reasonable starting place” though the path will depend on incoming economic data.
“We need to do what we need to do in order to make sure we bring inflation down,” Williams said Tuesday in an interview with Yahoo! Finance. He said inflation is coming down but but remains well above the Fed’s 2% goal, adding that a key underlying measure of prices has barely budged recently.
“We’ve seen the data come in consistently strong” and inflation has remained very high, Williams said. The economic impact of recent bank turmoil is uncertain, he said.

Bloomberg 4/10/2023
Traders upgraded the odds of another quarter-point rate increase by the Federal Reserve in May in the wake of strong employment data released Friday during a holiday-shortened session. Swap contracts referencing Fed meeting dates repriced to levels indicating more than 80% odds of the US central bank raising its policy rate range to 5%-5.25% on May 3.

After the US central bank set its policy band at 4.75%-5% on March 22, the odds of a May rate hike almost vanished amid a collapse in bank shares that began after several institutions failed. Since March 24, the sector has stabilized.

Bloomberg 4/4/2023
Ursula von der Leyen, president of the European Commission, is urging China to play a “constructive”
role in bringing peace to Ukraine, she says in an interview with the Financial Times.
*EU “concerned” by China’s position of friendship with Russia
** Beijing should use its ties with Moscow to rein in war
* “China is in a position to influence Russia in a constructive way, and therefore they have a responsibility”
* Stressed the importance of maintaining open diplomatic channels with Beijing
* When asked about von der Leyen’s remarks at a regular press briefing Tuesday in Beijing, Foreign Ministry spokeswoman Mao Ning said that “China is not a party to the Ukraine crisis.”
* She added that China hoped the EU “will display strategic independence and political wisdom, and take concrete steps towards lasting peace in Europe.”

Bloomberg 3/22/2023
FOMC continues pace of balance-sheet runoff, also known as quantitative tightening, leaving in place monthly caps of $60 billion for Treasuries that are allowed to mature without being reinvested and $35 billion for mortgage-backed securities

Powell FOMC Press Conference 3/22/2023
>> KYLE: Hi, Chair Powell. Thanks for taking the question. Kyle Campbell with American Banker. I have a couple questions about the balance sheet. First of all, I'm curious, at what point the financial supports that the Fed is extending through the discount window and through its enhanced lending facility might be at odds with the objective of reducing the balance sheet? I'm also curious what your thoughts are on not just the availability of reserves, but the distribution of them throughout the banking system. And at what point you might be concerned about it being scarce for certain banks. >> JEROME POWELL: So, people think of QE and QT in different ways. Let me be clear about how I'm thinking about these recent developments. Recent liquidity provision increased the size of our balance sheet. The intent and effects of it are very different from when we expand our balance sheet through purchases of longer-term securities. Large-scale purchases of long-term securities are really meant to alter the stance of policy by pushing down -- pushing up the price and down the rates, longer -term rates, which supports demand through channels we understand fairly well. The balance sheet expansion is really temporary lending to banks to meet those special liquidity demands created by the recent tensions. It's not intended to directly alter the stance of monetary policy. We do believe it's working. It's having its intended effect of bolstering confidence in the banking system. And, thereby, forestalling what might otherwise have been an abrupt and outsized tightening in financial conditions. So that's working. In terms of the distribution of reserves, we don't see ourselves as running into reserve shortages. We think that our program of allowing our balance sheet to run off predictably and passively is working. And, of course, we're always prepared to change that, if that changes. We don't see any evidence that that's changed.


...Chair Powell FOMC Press Conference 3/22/2023

>>MICHAEL: Michael McKee from Bloomberg Radio and Television. You've said the Fed would be raising interest rating and holding them there for some time. The markets priced in one more increase in May. Every meeting the rest of this year, they're pricing in rate cuts. Are they getting this totally wrong From the Fed? Or is there something different about the way you're looking at it given that you're now thinking that moves might be appropriate as opposed to ongoing. >> JEROME POWELL: We published an SEP today. It shows that basically participants expect relatively slow growth, rebalancing of supply and demand in the labor market, with inflation moving down gradually. In that most likely case, participants don't see rate cuts this year. They just don't.


Bloomberg 3/22/2023
The Federal Reserve raised interest rates by a quarter percentage point and signaled it’s not finished hiking, despite the risk of exacerbating a bank crisis that’s roiled global markets.
The Federal Open Market Committee voted unanimously to increase its target for the federal funds rate to a range of 4.75% to 5%, the highest since September 2007, when rates were at their peak on the eve of the financial crisis. It’s the second straight rise of 25 basis points following a string of aggressive moves starting in March 2022, when rates were near zero.
“The U.S. banking system is sound and resilient,” the Fed said in a statement in Washington after a two-day meeting.
At the same time, officials warned that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.”

Dow Jones 3/7/2023

Federal Reserve Chair Jerome Powell said strong and sustained economic activity to start this year could prompt central bank
officials to accelerate interest-rate increases and will likely lead them to lift rates more than they expected to combat high inflation.

We will continue to make our decisions meeting by meeting," Mr. Powell said. "Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy."

Since officials last met on Feb. 1, several economic reports have revealed hiring, spending and inflation were hotter in January than expected, and data revisions showed inflation and demand for labor didn't slow as much as initially reported late last year.

Mr. Powell said data on hiring, spending, factory production and inflation partly reversed softening trends seen just a few weeks ago. Some of the upswing could reflect unseasonably warm January weather that can interfere with seasonal adjustments to economic data, he said.

"Still, the breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous [policy-setting] meeting," Mr. Powell said.

Bloomberg 2/24/23
The Federal Reserve’s preferred inflation gauges unexpectedly accelerated in January and consumer spending surged after a year-end slump, adding pressure on policymakers to keep ratcheting up interest rates.
The personal consumption expenditures price index rose 5.4% from a year earlier and the core metric was up 4.7%, both marking pickups after several months of declines. Consumer spending, adjusted for prices, jumped 1.1% from the prior month, the most in nearly two years, after consecutive declines.
US stock futures fell and Treasury yields rose as traders firmed up bets that the Fed will raise interest rates by a quarter-point at each of the next three meetings. Investors also expect a higher terminal fed funds rate.
*FED SWAPS PRICE IN PEAK POLICY RATE OF 5.45% IN JULY 2023

Bloomberg 2/15/ 23

US retail sales rose in January by the most in nearly two years, signaling robust consumer demand that could bolster the Federal Reserve’s resolve to keep raising interest rates in the face of persistent inflation.
The value of overall retail purchases increased 3% in a broad advance — the most since March 2021 — after a 1.1% drop in the prior month, Commerce Department data showed Wednesday. Excluding gasoline and autos, retail sales rose 2.6%, also the biggest increase in nearly two years. The figures aren’t adjusted for inflation.
The median estimate in a Bloomberg survey of economists called for a 2% advance in total retail sales.
All 13 retail categories rose last month, led by motor vehicles, furniture and restaurants. The report showed vehicle sales climbed 5.9% in January. The value of sales at gasoline stations were unchanged.
The report showed US consumers got off to a good start in 2023, rebounding from a spending slowdown at the end of last year. A resilient labor market marked by historically low unemployment and solid wage gains has allowed many Americans to keep spending on goods and services even as borrowing costs rise and inflation remains elevated.

Bloomberg 2/21/23
Treasuries extended their slump Tuesday, with key benchmark yields pushing to new highs for the year amid growing sentiment that the Federal Reserve’s tightening is far from over.
Yields on both 5- and 10-year Treasury notes cracked new peaks for 2023, with the shorter tenor carving out fresh ground above the 4% mark. Across all maturities yields were up at least 10 basis points. Swaps showed firming conviction for higher Fed rates, with the market indicating three more 25-basis point hikes coming at each of the central bank’s policy gatherings through June.
The 10-year benchmark rate rose as much as 13 basis points to around 3.95%, spurred higher in US trading as purchasing managers index readings for services and manufacturing came in stronger than expected. Two-year breakeven rates — a gauge of inflation expectations — have advanced to the highest since November and are threatening to breach the psychological level of 3%.

Bloomberg 2/ 8/ 23

A prominent Chinese diplomat said the US should return debris from the balloon it shot down because it is the Asian nation’s property, putting the decision over the aircraft’s remains in Washington’s hands.
“If you pick up something on the street, you should return it to the owner, if you know who the owner is,” said Lu Shaye, China’s ambassador to France. Beijing maintains that the aircraft was a civilian climate research vehicle, though the US says it was for surveillance.

“If the Americans don’t want to return it, that’s their decision. This demonstrates their dishonesty,” Lu said in an interview with French news channel LCI on Monday, according to a transcript posted on the Chinese embassy’s official WeChat account on Wednesday.

Bloomberg 2/16/23
Federal Reserve Bank of Cleveland President Loretta Mester said she saw a compelling case for rolling out another 50 basis point hike earlier this month and the US central bank has to be prepared to move interest rates higher if inflation remains stubbornly high.
“At this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time,” Mester said Thursday in remarks prepared for an event organized by the Global Interdependence Center and the University of South Florida Sarasota-Manatee. “Indeed, at our meeting two weeks ago, setting aside what financial market participants expected us to do, I saw a compelling economic case for a 50 basis-point increase, which would have brought the top of the target range to 5%.”

Bloomberg - 2/6/23
German and Italian notes erased all their gains that followed last week’s European Central Bank and Federal Reserve decisions, when the market latched on to what appeared to be a dovish tilt. Treasuries also fell as traders ramped up their bets on future tightening, fully pricing the upper bound of the Fed Funds target rate reaching 5.25% for the first time since November. It currently sits at 4.75%.

Bloomberg 2/3/23

Treasuries Extend Slide After ISM Services Data Beats Estimate

Treasury yields peak at highest levels of the session across tenors after January ISM services beats estimate. Yields across the front end and belly of the curve rise as much as 17bp on the session, while the 2s10s and 5s30s spreads re-flatten, back to near the lows of the day.

US 10-year yields around 3.53% and cheaper by 13.5bp on the day with 2s10s, 5s30s spreads flatter by 2.5bp and 7bp versus Thursday’s close Fed-dated OIS is pricing in around 24bp of rate hikes at the March policy meeting and a combined 39bp over the next two meetings, up from the 32bp priced as of Thursday’s close


WSJ 2/3/23

Traders See Higher Rates After Booming Jobs Report

Bettors piled in to wager that the Federal Reserve would have to take interest rates higher than previously expected after January's jobs report showed a resiliently hot labor market.
Traders see the Fed taking the federal funds rate as high as 4.95% in July before cutting it to 4.59% by year-end.

Another quarter-point rate increase is now widely expected in March, while a further one in May is becoming more likely but remains split with the Fed pausing.

Ahead of Friday's data, traders expected the policy rate to touch just below 4.9%, followed by two rate cuts in the second half of the year. That would leave the benchmark rate below 4.5% at year-end.

Bloomberg 2/7/23
Bundesbank President Joachim Nagel warned not to underestimate the euro region’s consumer-price challenge and said more “significant” interest-rate increases will be required, according to Boersen-Zeitung.

“If we let up too soon, there’s a great danger that inflation becomes sustained,” Nagel told the German newspaper in an interview published Tuesday. “From my perspective today, more significant rate increases will be needed.” Joachim Nagel

Since they began tightening, policymakers have often used the label “significant” as shorthand to describe half-point interest-rate shifts. The ECB delivered such an increase last week, taking the deposit rate to 2.5%, and President Christine Lagarde flagged another one for March.

She also said that the ECB will then evaluate the subsequent path of its monetary policy. Nagel offered a more forceful view, arguing that the intention to raise rates by 50 basis points next month is “a strong commitment to a consequent monetary policy” and that even so, “I don’t see that our work is done with this rate hike in March"

Bloomberg 2/2/2023

European Central Bank Executive Board member Isabel Schnabel said there’s been little effect to date from an unprecedented bout of monetary-policy tightening aimed at taming inflation
.
The growth in consumer prices still has momentum, with the level of underlying inflation extraordinarily high, Schnabel told a webcast on Tuesday. The recent slowdown in the headline number isn’t down to ECB policy, she said.

“You can’t say that monetary policy is having such an impact that we can hope for inflation to reach our 2% target in the medium term,” Schnabel said. “We’ll closely look at what’s happening on labor markets, what’s happening to investments, how the economy develops overall.”

Dow Jones 2/21/23

The board of the Reserve Bank of Australia debated
raising official interest rates by 50 basis points at its policy meeting on
Feb. 7, noting that recent wages and prices data have exceeded expectations.

In minutes of the policy meeting published Tuesday, the RBA said that the
final decision to deliver only a 25-basis-point increase was determined by the
fact that interest rates have been increased substantially since May 2022.

"With interest rates already having been adjusted substantially, there was
less need to move by 50 basis points at this meeting," the minutes said.

The argument for a 50-basis-point hike stemmed from the concern that there has
been a pattern of incoming prices and wages data exceeding expectations, the
minutes said.

Bloomberg 2/1/23

Immediate Key Takeaways From FOMC Decision

Here are the immediate key takeaways:

Federal Open Market Committee raises benchmark rate by 25 basis points, as expected, to target range of 4.5%-4.75%; marks a step down from December’s 50 basis-point hike and the four straight 75 basis-point moves before that
Statement repeats prior language that “ongoing increases” in main rate will be appropriate while saying Fed will consider “extent of future increases,” a slight change from the prior language on the “pace” of hikes
Language suggests Fed inclined toward quarter-point rate hikes at next two meetings in March and May, rather than toward a pause after March
Fed says “inflation has eased somewhat but remains elevated” and removes prior references to causes of inflation including the pandemic; also omits a prior reference to considering “public health” as a factor in decision-making Decision is unanimous

Chair Powell press conference 2/1/23

>> CHAIR JEROME POWELL: So, we raised rates 4.5% points and we are talking about a couple more rate hikes to get to the level we think is appropriately restrictive. Why do we think that is appropriately necessary? Because inflation is running hot. We are taking into account long and variable lags. We are thinking about that. Really, the story we are telling about inflation to ourselves and the way we understand it, basically the three things I have just gone through a couple times. Again, we don't see it effecting the services sector, ex-housing, yet. Our assessment is that we are not very far from that level. We don't know that, though. We don't know that. We are living in a world of significant uncertainty. I would look across the rate, the spectrum of rates and see that real rates are now operative. We are -- by an appropriate set of measures or positive across the yield curve. I think policy is restrictive. We are trying to make a fine judgment about how much is restrictive enough. That is all. That is why we are slowing down to 25 basis points. We will be occasionally watching the committee, inflation and the process of the disinflationary process.

Bloomberg 2/16/2023
Bank of England Chief Economist Huw Pill signaled policy makers are ready to reduce the speed of their interest rate increases, saying there’s a risk of “overtightening” if the pace over the past few months is maintained.
The official who sits on the nine-member Monetary Policy Committee also said the labor market has shown signs of loosening, a suggestion that upward pressure on inflation from pay rises may be easing.
The remarks in the text of a speech given at Warwick University are the clearest sign yet that the BOE may endorse a quarter point increase at its March meeting — or even a pause in the quickest cycle of rate rises in three decades.
“Continuing to raise rates at the pace and magnitude seen over the past year would eventually – and perhaps soon – imply that monetary policy had cumulatively been tightened too much,” Pill said, according to a text released by the BOE in London on Thursday.

2/2/23

Monetary policy decisions

The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target. Accordingly, the Governing Council today decided to raise the three key ECB interest rates by 50 basis points and it expects to raise them further. In view of the underlying inflation pressures, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy. Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations. In any event, the Governing Council’s future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.

Bloomberg 1/18/23

Villeroy Says Lagarde’s Half-Point ECB Guidance Still Valid
French official won’t speculate on size of March rate increase
Moderating inflation has prompted talk of smaller hikes

Guidance from European Central Bank President Christine Lagarde that borrowing costs will continue to be lifted in half-point steps for some time still holds, according to Governing Council member Francois Villeroy de Galhau.
Speaking to Bloomberg TV at the World Economic Forum in Davos, the Bank of France chief said it’s too soon to talk about the size of the likely interest-rate increase in March, after people familiar with officials’ thinking told Bloomberg that moderating inflation and declining energy prices may warrant a smaller hike.
“We said very clearly we still decide meeting by meeting, we are data driven, so it’s much too early to speculate about what we will do in March,” Villeroy said. “Let me remind you of the words of President Lagarde at her last press conference in December: We should expect to raise rates at a pace of 50 basis points for a period of time. Well, these words are still valid today.”
Lagarde on Dec. 15:
“So we will continue that at a steady pace. Based on the information that we have available today, that predicates another 50-basis-point rate hike at our next meeting, and possibly at the one after that, and possibly thereafter, but everything will also be determined by the review of data. So don’t assume that it’s a one-shot 50; it’s more than that.”

MT Newswire 1/18/23

Bank of Japan Defies Market Speculators, But Pressure to End YCC
(MT Newswires)
The Bank of Japan defied market pressure and kept its ultra-low interest rate policy firmly in place after a two-day monetary policy meeting that ended today.

The yen fell and yields on Japan's government bonds plunged on the news, while stocks surged on the prospect of continued low rates.

But with current BoJ Governor Haruhiko Kuroda only in office until April, speculation of imminent change to the bank’s policy regime is unlikely to go away.