Federal Reserve delivers super-sized half-point rate cut
Axios 9/18/24
The Federal Reserve cut its target interest rate Wednesday by an extra-large half percentage point, and projected more rate cuts this year and next, as its period of trying to put brakes on the economy to fight inflation comes to a close.
The rate cut reflects the U.S. entering a new phase where the softening job market is the predominant economic risk rather than elevated inflation.
By going with an aggressive half-point cut instead of its more traditional quarter-point adjustment, the Fed moved to get ahead of some evident faltering in the job market.

BBG 9/19/24
The Monetary Policy Committee voted 8-1 to keep rates
steady at 5%, an outcome whose caution contrasts with the half-
point reduction delivered in the US on the eve of the UK
announcement on Thursday. That was in line with the expectations
of economists and markets.
“We should be able to reduce rates gradually over time,”
Governor Andrew Bailey said in a statement, stressing that such
a path would depend on price pressures continuing to ease. “It’s
vital that inflation stays low, so we need to be careful not to
cut too fast or by too much.”
The panel also maintained the £100 billion ($132 billion) a
year pace of its balance sheet run-off, in a unanimous decision
on quantitative tightening.

Lagarde Signals ECB Open to October Cut But December More Likely (9/13/24)

The European Central Bank is open to
considering an interest-rate cut in October if the economy
suffers a major setback — though the next comprehensive set of
information will only be available at the following meeting,
President Christine Lagarde said.
Her remarks, less than a day after the ECB delivered its
second quarter-point reduction in the deposit rate since June,
offer the clearest signal yet that policymakers are leaning
toward waiting until December for their next move.
But they’ve vowed to be data dependent and decline to rule
out acting already next months. People familiar with their
thinking have said it would take a more significant
deterioration in the growth outlook or aggressive easing by the
Federal Reserve to depart from the quarterly pace of rate-
cutting.

Monetary policy decisions (12 September 2024)

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

ECB press conference response
we can all count, it is six weeks before October 17, which is a relatively short period of time compared to other intervals that we've had in the past. I would simply repeat what I have said. We are going to be data dependent. We are going to decide meeting by meeting. I'm not giving you any commitment of any kind as far as that particular date is concerned. And our part is not predetermined at all

The Fed's Rate-Cut Dilemma: Start Big or Small? -- WSJ
By Nick Timiraos
Federal Reserve Chair Jerome Powell faces a difficult decision as the central bank prepares to cut interest rates next week: Start small or begin big?
The central bank is set to reduce rates for the first time since 2020 at its meeting on Sept. 17-18. Because officials have signaled greater confidence that they can make multiple rate cuts over the next several months, they are confronting questions over whether to cut by a traditional 0.25 percentage point or by a larger 0.5 point.
Powell kept all his options on the table in a speech last month in Jackson Hole, Wyo., that surprised some of his colleagues with its unambiguous call to turn attention to incipient risks in the jobs market. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks," he said then.
Officials last year raised their benchmark rate to around 5.3%, a two-decade high, and will have held it at that level for the last 14 months to combat inflation, which has declined notably.
They are nervous about keeping interest rates too high for too long amid evidence that higher borrowing costs are working as intended to slow inflation by cooling spending, investment and hiring. They don't want to let slip through their grasp a soft landing, in which inflation falls without a serious jump in joblessness.

Wall Street Journal 9/18/24
The Federal Reserve voted to lower interest rates by a half percentage point, opting for a bolder start in making its first reduction since 2020. The long-anticipated pivot followed an all-out fight against inflation the central bank launched two years ago.
Eleven of 12 Fed voters backed the cut, which will bring the benchmark federal-funds rate to a range between 4.75% and 5%. Quarterly projections released Wednesday showed a narrow majority of officials penciled in cuts that would lower rates by at least a quarter point each at meetings in November and December.

Bloomberg 10/23/24
The Bank of Canada stepped up the pace of interest-rate cuts and signaled that the post-pandemic era of high inflation is over.
Policymakers led by Governor Tiff Macklem lowered the benchmark overnight rate to 3.75% on Wednesday, the biggest reduction in borrowing costs since March 2020 during the early days of the pandemic.
The 50 basis-point cut suggests a new phase of monetary policy easing, where policymakers focus on returning interest rates to more neutral levels -- where borrowing costs neither restrict nor stimulate growth -- to avoid slowing the economy too much and having inflation undershoot the target.

FRANKFURT Reuters 9/2/24
European Central Bank policymakers are increasingly at odds on the outlook for growth, a rift that could shape the rate cut debate for months with some fearing a recession and others focusing on lingering inflation pressures, sources

Policy doves, who remain in the minority, argue the economy is weaker than thought, recession risks are on the rise and firms that have hoarded labour are starting to cut vacancies, leaving the jobs market softer.

Once employment declines, so does disposable income, quickly eroding consumption and leaving a self-reinforcing downturn.

"This would weaken price pressures quicker than we now forecast, so I think the risk of returning to below-target inflation is real," one of the sources, who asked not to be named, said.

This would suggest the central bank is behind the curve in cutting interest rates and buffering the economy, supporting the case for quicker interest rate cuts, they say.

Inflation, down to 2.2% in August, is now forecast to rise again towards the end of the year and coming back to 2% only in late 2025.

RECESSION?

Conservatives, or hawks in central banking parlance, who have dominated the policy debate since the start of rapid rate hikes in 2022, argue that actual growth figures persistently outperform weak survey results and the economy is holding up.

Consumption is robust, the bloc just enjoyed a superb tourism season and construction is finally rebounding, so growth remains respectable.

Moreover, wage growth remains far above levels consistent with a 2% inflation target, so real incomes are rebounding quickly and should continue to insulate the economy.

While industry is in a deep downturn and could drag Germany into a recession, this is more a structural issue that could take years to resolve, so monetary policy has little role, many of the sources said.

All this builds the case for slow rate cuts, perhaps one every quarter, until the ECB is certain inflation is heading back to 2%.

Hawks are also likely to fight any policy easing that would push into 2026 the date the inflation target is met, since that could jeopardize the ECB's credibility, the sources said.

ECB board member Isabel Schnabel, a prominent policy conservative, argues that inflation concerns should trump growth.

"Monetary policy should remain focused on bringing inflation back to our target in a timely manner," she said in a speech on Friday. "While risks to growth have increased, a soft landing still looks more likely than a recession."

OCTOBER

The rift is unlikely to impact September's policy decision since there is already widespread consensus to cut rates, the sources said.

But it could affect how ECB President Christine Lagarde communicates the decision, shifting expectations for the October meeting.

The bank is unlikely to discard its "meeting by meeting" approach to setting policy so there will be no commitment about October, but doves want Lagarde to highlight growth risks and signal that back-to-back cuts are not excluded.

Hawks fear such a message would heighten market expectations too much, putting the ECB in a bind. Investors already see a 40% to 50% chance of an October cut and such a dovish message would only firm up those bets.

"I think quarterly cuts serve us well and the data just don't support picking up this pace," a third source said.

Bloomberg 9/3/24
Bank of Japan Governor Kazuo Ueda reiterated
Tuesday that the central bank will continue to raise interest
rates if the economy and prices perform as expected by the BOJ,
a comment that supported further gains in the yen.
Ueda made the remark in a document submitted to a
government panel chaired by outgoing Prime Minister Fumio
Kishida in which he explained the BOJ’s July policy decision.
The yen firmed against the dollar following the release of
the comment, adding to gains for the day as Japan’s currency
bucked a weakening trend among G-10 currencies. The yen
continued to gain ground to briefly reach 145.61 at around 5:36
p.m. in Tokyo.
The comments served to remind market players that despite
the meltdown in global markets that was partly triggered by the
BOJ’s July rate hike, Ueda remains committed to raising
borrowing costs provided the bank’s forecasts materialize.

Bloomberg 8/29/24
Employment gauges in a fresh batch of
regional Federal Reserve bank surveys are emblematic of the
risks to the US job market prompting the central bank’s turn
toward interest-rate reductions.
August indexes in each of the five recently released
regional manufacturing reports show shrinking payrolls at
factories, and gauges of employment at service providers are
settling back. Measures of hours worked are also slipping.
The surveys are more a measure of industry sentiment rather
than actual changes in employment. Still, in the wake of
disappointing July job growth and separate data showing a huge
downward revision in the level of March payrolls, they offer
anecdotes of a moderation in the labor market that Fed Chair
Jerome Powell indicated is front and center for policymakers.

Bloomberg 9/26/24
China plans to issue special sovereign bonds worth about 2
trillion yuan this year, Reuters reports, citing two people
familiar with the matter.
* The Ministry of Finance plans to issue 1 trillion yuan of
special sovereign debt issued primarily to stimulate consumption
** Proceeds to help increase subsidies for the trade-in and
renewal of consumer goods and to upgrade large-scale business
equipment
** Will also give a monthly allowance of about 800 yuan ($114)
per child to all households with two or more children, excluding
the first child, one person said
* The other 1 trillion yuan, via a separate special sovereign
debt issuance, to be used to help local governments tackle debt
* Some of the measures could be unveiled as soon as this week

Bloomberg 8/23/24
Chair Jerome Powell said the time has come
for the Federal Reserve to cut its key policy rate, affirming
expectations that officials will begin lowering borrowing costs
next month and making clear his intention to prevent further
cooling in the labor market.
“The time has come for policy to adjust,” Powell said
Friday in the text of a speech at the Kansas City’s Fed’s annual
conference in Jackson Hole, Wyoming. “The direction of travel is
clear, and the timing and pace of rate cuts will depend on
incoming data, the evolving outlook and the balance of risks.”
The Fed chief also acknowledged recent progress on
inflation, which has resumed moderating in recent months after
stalling earlier in the year: “My confidence has grown that
inflation is on a sustainable path back to 2%,” he said,
referring to the central bank’s inflation target.
While those remarks provided some clarity for financial
markets in the near term, they offered few clues as to how the
Fed might proceed after its September gathering.

Yet just as inflation has neared its target, cracks have
appeared on the employment front, prompting several Fed
officials to worry that high rates now pose a threat to the
economy’s continued strength. Warning signals included a
disappointing July jobs report that rattled financial markets.
“We do not seek or welcome further cooling in labor market
conditions.” Powell said, adding that the slowdown in the labor
market was “unmistakable.”

"The Fed's Next Steps"
Bloomberg 8/1/2024
Treasuries are rallying, with some tenors trading at the lowest yields in months, as investors see economic data cementing the case for three Federal Reserve interest-rate cuts this year.
The 10-year note’s yield fell below 4% for the first time since February on Thursday after manufacturing and jobless claims data reinforced the idea that the US labor market is cooling.
Swaps traders fully priced in 75 basis points worth of easing by the Fed this year — anticipating a quarter-point reduction at each of its three remaining policy meetings.

Bloomberg 8/2/2024
Treasuries jump to fresh highs of the day after a softer-than-expected July employment report. Yields on the day tumble by almost 30bp across the front-end of the curve, while 2s10s and 5s30s spreads jump to session wides as front and belly outperform vs. long-end.
Fed-dated OIS sees dovish shift post-data, now pricing in 44bp of rate cuts for the September meeting, while further out around 117bp of cuts are priced into the December FOMC
US 10-year yields lower by around 19bp on the day, dropping to around 3.80%

Bloomberg 8/1/2024
*BANK OF ENGLAND CUTS KEY INTEREST RATE A QUARTER-POINT TO 5%
Traders bet on 24bps of further cuts by November and 38bps by year-end, compared with 16bps and 31bps ahead of the the BOE’s decision Thursday.

Benzinga Newswire 7/31/2024
Fed's Powell Says Asked About September Cut Again, Says If Inflation Moves Down In Line With Expectations, Growth Remains Reasonably Strong, Labor Market Remains As It Is, Rate Cut In September Would Be On Table

BBG 7/31/2024
*POWELL: 50 BPS CUT NOT SOMETHING WE'RE THINKING ABOUT NOW

Benzinga Newswire 7/31/2024
Fed's Powell Says Chances Of Hard Landing Are Now; Economy Is Neither Overheating Nor Sharply Weakening; We Must Be Humble About Giving Forward Guidance; Nobody Has Great Vision Deep Into The Future

BEIJING (AP) 07/28/2024

Italy and China signed a three-year action plan on Sunday to implement past agreements and experiment with new forms of cooperation, Italy’s Prime Minister Giorgia Meloni said on an official visit to the Chinese capital.
Meloni is trying to reset relations with China as fears of a trade war with the European Union are interwoven with continued interest in attracting Chinese investment in auto manufacturing and other sectors.

Meloni told the business leaders that the two sides had signed an industrial collaboration memorandum that includes electric vehicles and renewable energy, which she described as “sectors where China has already been operating on the technological frontier for some time ... and is sharing the new frontiers of knowledge with partners.”


Bloomberg 07/29/2024

President Xi Jinping is stepping up efforts to position himself as a peacemaker for ending Russia’s war in
Ukraine, despite growing criticisms from the US and Europe that Beijing is propping up the Kremlin’s battlefield efforts.
With both Moscow and Kyiv facing pressure at home and abroad to find a way to end the war, China last week hosted its
first senior official from Ukraine since the conflict began in 2022. While Foreign Minister Wang Yi told his Ukrainian
counterpart Dmytro Kuleba the time was “not yet ripe” for peace talks, he said both sides were signaling a willingness to
negotiate.

Beijing followed up that outreach on Sunday by dispatching
its special envoy Li Hui to Brazil, South Africa and Indonesia
to “build up conditions to resume peace talks” — countries that
have also skipped imposing US-led sanctions on Russia.
The flurry of activity underscores Xi’s ambition to forge a
bigger diplomatic role at a time when Kyiv — and the broader
European region — are bracing for a dramatic shift in foreign
policy from their most important ally.

Bloomberg 8/16/2024
Chinese carmarkers are planning to build
factories in Europe, according to the Shanghai Securities News.
* Dongfeng Automobile is in contact with the Italian government
about investing to build a factory

Japan Times 7/31/2024

The Bank of Japan raised rates Wednesday in a surprising and aggressive move that caught the market off guard, delivering a one-two punch of a rate change and a reduction in bond purchases that a week ago was considered highly unlikely.
At its two-day policy meeting, the BOJ voted to increase its short-term policy rate target to 0.25% from a range of 0% to 0.1%. It also said that it would reduce its buying of government bonds through March 2026.
An institution that had recently earned a reputation for being wishy-washy and making missteps instead acted decisively and with resolve.
Just days before, the vast majority of analysts polled forecast that the central bank would remain dovish and leave rates unchanged until September or October in order to gather more data.

Barrons 8/1/24
Federal Reserve Jerome Powell said Wednesday that bank officials are very aware of the risks of starting rate cuts too soon and the risk of going too late—and had a robust conversation during this week’s meeting on that very point.
“There was a real discussion back and forth of what the case would be for moving [on rate cuts] at this meeting,” Powell said. “The overall sense of the committee, as I mentioned, is that we're getting closer to the point at which it will be appropriate to begin to dial back restriction. We're not at the point yet. We want to see more good data.”
He reiterated that the decision to keep interest rates steady at this week’s policy meeting was unanimous.


...Bloomberg 8/2/24 The bond-market rally escalated Friday after a report showed that job growth slowed sharply last month, further stoking speculation that the Federal Reserve will start aggressively cutting interest rates to keep the economy from stalling.
The policy-sensitive two-year Treasury yield tumbled as much as 31 basis points to 3.84%, the lowest since May 2023, before paring the drop. Rates on Treasuries of all maturities declined, with the benchmark 10-year yield sliding 15 basis points to about 3.82%.
The employment figures — which showed job growth slowed to 114,000 in July from 179,000 a month earlier — kindled concerns that the US economy is at risk of a moving toward a recession.

Bloomberg 7/24/2024

The Bank of Canada cut interest rates by a quarter percentage point for a second consecutive meeting and signaled further easing ahead as inflation worries wane.
Policymakers led by Governor Tiff Macklem lowered the benchmark overnight rate to 4.5% on Wednesday, as widely expected by markets and economists in a Bloomberg survey. Officials see below-potential growth continuing to cool inflation, and said they’re spending more time discussing economic headwinds.
“With the target in sight and more excess supply in the economy, the downside risks are taking on increased weight in our monetary policy deliberations,” Macklem said in prepared remarks.
Macklem reiterated that it’s “reasonable” to expect further interest rate cuts, and that the bank will be taking its decisions “one at a time,” pushing back on expectations that the bank is on a predetermined cutting path.

Bloomberg 8/6/2024

Australia’s central bank kept interest rates at a 12-year high and all-but ruled out a rate cut in the next six months, splitting with global counterparts as it waits for inflation to abate.

Bloomberg 7/31/2024

Australia’s core inflation unexpectedly decelerated last quarter, supporting the Reserve Bank’s view
that prices will gradually ease and prompting traders to boost bets on an interest-rate cut. The currency and bond yields
dropped.

The closely-watched trimmed mean core measure, which smooths out volatile items, climbed 3.9% in the second quarter
from 4% three months earlier, data from the Australian Bureau of Statistics showed Wednesday. The consumer price index advanced
3.8% in the three months through June from a year earlier, matching estimates.

The currency fell as much as 0.8% and yields on policy sensitive three-year government bonds declined 18 basis points,
while stocks rallied. Traders scaled back bets on a rate hike at the RBA’s meeting next week and are now pricing a 50% chance of
a cut in December.