Dow Jones 6/5/2024 0952 ET - Bank of Canada cuts interest rates for the first time since early 2020. It lowered its target for the overnight rate to 4.75%, from 5%, and Governor Tiff Macklem says "it is reasonable," to expect additional cuts so long as inflation continues to ease. In prepared remarks, Macklem cites four CPI data points to bolster the rate-cut argument: inflation has slowed from 3.4% in December to 2.7% in April; BOC's preferred measures of core have, on average, slowed over 5 months to 2.75% from 3.5%; 3-month rates of core CPI are now running under 2%; and the share of components climbing 3% or faster in the CPI basket is closer to historical averages. "Monetary policy no longer needs to be as restrictive," he says.

Bloomberg 3/22/24

UK bonds rallied as traders amped up bets on
monetary easing after two of the Bank of England’s most hawkish
policymakers withdrew their support for interest rate hikes at
Thursday’s decision.
The yield on two-year gilts fell 12 basis points to 4.12%,
the largest move in over a month, on the dovish tilt. Sterling
extended its decline to 0.5%, trading as low as $1.2726, as
traders added to bets on monetary easing. BOE officials voted to
hold policy steady for a fifth straight meeting as widely
expected.
Traders now see around 80 basis points of rate cuts in 2024
compared to 75 basis points before the decision. While the first
cut is still fully priced by August, the market-implied chances
for a move by June rose to around 80%.

Bloomberg 3/20/24

Short-maturity Treasuries jumped after Federal Reserve policymakers stuck with their forecast for three quarter-point interest-rate cuts this year, putting to rest market concern that the central bank would crimp plans to ease monetary policy.
Yields on two-year debt briefly declined to session lows after the Fed’s policy announcement Wednesday, and traders now see about 77 basis points of cuts this year, up from 73 before the release. Policy makers’ revised rate forecasts showed a median of 4.625% for the end of this year, unchanged from December, while projecting higher rates in the future.

Investor's Business Daily 3/20/24

Major indexes soared in late afternoon trades Wednesday after the Federal Reserve held rates steady and indicated three rate cuts still are on tap for this year.
After hugging break-even territory much of the day, the Dow Jones Industrial Average surged nearly 400 points or 1% in late afternoon trades. The S&P 500 climbed 0.9% on the stock market today. Among S&P sectors, health care lagged but others gained. The Nasdaq gained 1.2% in the wake of the Fed meeting.

(1) Bloomberg 3/20/24

Federal Reserve officials maintained their outlook for three quarter-point rate cuts this year but forecast fewer cuts than before in 2025 following a recent uptick in inflation.
Officials decided unanimously to leave the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest since 2001, for a fifth straight meeting. Policymakers signaled they remain on track to cut rates this year for the first time since March 2020, but they now see just three reductions in 2025, down from four forecast in December, based on the median projection.
The Fed’s post-meeting statement was nearly identical to January’s, maintaining the guidance that rate cuts won’t be appropriate until officials have more confidence inflation is moving sustainably toward their 2% target.
Policymakers also lifted slightly their forecasts for where they see rates settling over the long term, boosting their median estimate to 2.6% from 2.5%, following speculation from economists that higher rates may persist in the post-pandemic environment. The change implies rates will need to stay higher for longer in the future.
Policymakers updated their projections for inflation and economic growth for 2024, raising their forecast for underlying inflation to 2.6% from 2.4%, and boosting the growth forecast to 2.1% from 1.4%. They also lowered their unemployment rate projection slightly, to 4% from 4.1%, for 2024.

(2) Bloomberg 3/20/2024

Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%
o 2024 median PCE inflation 2.4% vs 2.4%
o 2025 median PCE inflation 2.2% vs 2.1%
o 2026 median PCE inflation 2.0% vs 2.0%
• 2024 median core PCE inflation 2.6% vs 2.4%
• 2025 median core PCE inflation 2.2% vs 2.2%
2026 median core PCE inflation 2.0% vs 2.0%

(3) Bloomberg 3/30/34

Median assessment of appropriate pace of policy:
• 2024 4.625% (range 4.375% to 5.375%); prior 4.625%
• 2025 3.875% (range 2.625% to 5.375%); prior 3.625%
• 2026 3.125% (range 2.375% to 4.875%); prior 2.875%
• Longer Run 2.5625% (range 2.375% to 3.750%); prior 2.5%

(4) FOMC Press Conference Transcript 3/20/24

>> Thank you, Chair Powell. Not to harp too much more on confidence and inflation but you did say earlier in this press conference that the recent inflation data hasn't raised confidence but when you testified before the senate a couple weeks ago you told lawmakers you are not far from cutting rates. Are you still in that belief or not? What are we to take by those words? Not far. >> My main message in those days is that the committee needs to maintain confidence and we don't expect it will be appropriate to begin to reduce rates until we're more confident than that. I said that any number of times. Those are the main part of the message we repeated today in that statement. To the language you mentioned, I really pointed out that we had made significant progress over the past year and what we're looking for was confirmation that that progress will continue. We had a series of inflation readings over the second half of last year that were really much lower. We didn't over-react as I mentioned. But that is what I had in mind.

(5) FOMC Press Conference Transcript 3/20/24

CHAIRPERSON: It certainly hasn't raised anyone's confidence, but I would say that the story is really essentially the same. And that is of inflation coming down gradually toward 2% on a sometimes-bumpy path as I mentioned. I think that is what you still see. We've got 9 months of 2.5% inflation now. We've had 2 months of bumpy inflation. It's going to be a bumpy ride. We've consistently said that. Now we have bumps. We can't know that. That is why we are approaching this question carefully. It is very important for everyone that we serve that we do get inflation sustainably down. Every situation is different but the historical record is you need to approach that carefully and not have to come back and raise rates again if you cut it prematurely.

(6) FOMC Press Conference Transcript 3/20/24
At this meeting we discussed issues related to slowing the pace of decline in our securities holdings. While we did not make any decisions today on this, the general sense of the committee is that it will be appropriate to slow the pace of run-off fairly soon. Consistent with the plans we proefsly issued. The decision to slow the pace of run-off does not mean our balance sheet will shrink but allows us to approach that ultimate level more gradually. In particular, slowing the pace of run-off will help ensure the transition reducing the possibility of money markets and facilitating the ongoing decline in security holdings, increasing the ample reserves.

(7) Bloomberg 3/20/24
Short-maturity Treasuries jumped after Federal Reserve policymakers stuck with their forecast for three quarter-point interest-rate cuts this year, putting to rest market concern that the central bank would crimp plans to ease monetary policy.
Yields on two-year debt briefly declined to session lows after the Fed’s policy announcement Wednesday, and traders now see about 77 basis points of cuts this year, up from 73 before the release. Policy makers’ revised rate forecasts showed a median of 4.625% for the end of this year, unchanged from December, while projecting higher rates in the future.

Ivestor's Business Daily 3/20/24
Major indexes soared in late afternoon trades Wednesday after the Federal Reserve held rates steady and indicated three rate cuts still are on tap for this year.
After hugging break-even territory much of the day, the Dow Jones Industrial Average surged nearly 400 points or 1% in late afternoon trades. The S&P 500 climbed 0.9% on the stock market today. Among S&P sectors, health care lagged but others gained. The Nasdaq gained 1.2% in the wake of the Fed meeting.

Financial Review 3/14/24
A sharper-than-expected fall in inflation could lead the RBA to deliver interest rate cuts sooner than expected, as the central bank shifts to a more neutral stance on the outlook for monetary policy.
Announcing the cash rate had been left on hold at 4.35 per cent, RBA governor Michele Bullock said data suggested the central bank was “on the right track” in its battle against inflation, but stressed the outlook for the cash rate remained uncertain.
In a shift that economists widely viewed as dovish, the RBA board’s post-meeting statement pivoted toward a more neutral policy stance, saying “the board is not ruling anything in or out” on the next rate move. In February, the RBA board said, “a further increase in interest rates cannot be ruled out”.
Ms Bullock said, “if a number of things conspire, and we end up actually moving more quickly than the forecasts, then we might need to think about interest rate cuts”.
“But at the moment, we’re in the position where I don’t want to say either way. It’s basically not ruling it in, not ruling it out,” Ms Bullock said at the first press conference in the RBA’s temporary headquarters at 8 Chifley Square.

Bloomberg 3/19/24
The Bank of Japan scrapped the world’s last
negative interest rate, ending the most aggressive monetary
stimulus program in modern history, while also indicating that
financial conditions will stay accommodative for now.
The lack of signaling on any future rate hikes weighed on
the yen — which slid past the closely watched 150 mark versus
the dollar — while benchmark government bond yields edged lower.
The weaker currency supported Japanese equities, helping the
Nikkei 225 Stock Average reclaim the key 40,000 level.

Bloomberg 3/12/24
The European Central Bank presented a new framework for how it implements monetary policy, preserving the current system of steering interest rates while giving lenders more of a say over how much cash they need to operate.
The review acknowledges the “significant changes in the financial system and monetary policy in recent years,” President Christine Lagarde said in a statement. “The framework will ensure that our policy implementation remains effective, robust, flexible and efficient.”

Here are the main announcements from the ECB:
• Formalization of floor system, under which the lowest of the ECB’s three policy rates is the key lever to shift short-term borrowing costs
• Existing bond holdings to continue running off but ECB will provide liquidity through a new structural portfolio
• Refinancing operations to play central role in ensuring banks have sufficient cash
• Spread between the deposit rate and the main refinancing rate to be narrowed to 15 basis points — from 50 currently — on Sept. 18
o This will be done by reducing the MRO by 35 basis points
• Minimum reserve requirements for commercial lenders to stay at 1% but may still be adjusted down the line

Bloomberg 3/4/24

Federal Reserve Chair Jerome Powell reiterated to lawmakers that the US central bank is in no rush to cut interest rates until policymakers are convinced they have won their battle over inflation.
In prepared testimony to a House panel Wednesday, the Fed chief said it will likely be appropriate to begin lower borrowing costs “at some point this year,” but made clear they’re not ready yet.
The remarks echoed a consistent message from nearly every Fed official in recent weeks: The economy and labor market are strong, meaning policymakers have time to wait for more evidence that inflation is headed back to their goal before cutting interest rates.
“The committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” Powell said in brief prepared remarks to the House Financial Services Committee, where he is set to testify at 10 a.m. Wednesday.

Bloomberg 3/7/24

Traders stepped up bets on interest-rate cuts from the European Central Bank this year after policymakers lowered their inflation forecasts.

Money markets are betting on four quarter-point reductions by the end of the year, with a first cut by June fully priced. Before the meeting, wagers were on three cuts, with a 72% chance of a fourth.

Bloomberg 3/7/24

Lagarde Says ECB Will Know ‘Lot More’ About Inflation in June

“We clearly need more evidence, more detail, and we know that this data will come in the next few months,” ECB President Christine Lagarde says at press conference in Frankfurt on Thursday.
• “We will know a little more in April, but we will know a lot more in June,” she says
• “We have not discussed rate cuts for this meeting, we have just begun discussing the dialing back of our restrictive stance, but of course we need a lot more information coming in in the next few months to be sufficiently confident,” Lagarde says

Bloomberg 2/16/24

The Treasury market extended a slide Friday after US producer prices rose faster than forecast in January, dimming the chances the Federal Reserve will begin reducing interest rates before July and trimming expectations for cuts over the whole of 2024.

Yields of all maturities rose in the wake of a fresh dose of concern over inflation proving more sticky than some expected, with shorter tenors leading the march. This comes after a reading earlier this week showed consumer prices rose more than forecast.

The two-year yield, the most sensitive to changes in the outlook for US monetary policy, rose as much as 14 basis points to 4.72%. That came as short-term interest-rate swaps contracts trimmed odds of the Fed’s first rate cut coming in June down to only about 80%. For all of 2024, traders now see only about 85 basis points of easing, pushing the market as close as ever to three quarter-point hikes, which the median of Fed officials’ forecasts — known as the dot plot — signaled in the last quarterly update in December.

Bloomberg 2/13/2024
*FED SWAPS ASSIGN LOWER ODDS TO MAY, JUNE RATE CUTS
*US 2- TO 5-YEAR YIELDS RISE AT LEAST 15 BASIS POINTS ON DAY
*FED SWAPS PRICE IN LESS THAN 100 BASIS POINTS OF EASING IN 2024
*FED SWAPS SHIFT FULL PRICING OF RATE CUT TO JULY FROM JUNE

Bloomberg 2/5/24

Treasury yields extended Friday’s surge, pushing the two-year note’s toward its highest level this year, as strong economic data reinforced the message of Federal Reserve officials including Chair Jerome Powell that interest-rate cuts are unlikely to begin before May.

Yields across the maturity spectrum climbed as much as 10 basis points on the day, reaching session highs after the ISM gauge of service-sector activity for January exceeded economist estimates. Friday was the US bond market’s worst day in nearly a year after stronger-than-anticipated January employment data dashed hopes for a speedy pivot toward easier monetary policy.

The chance of a quarter-point cut in March dwindled to almost 10% after Powell said in an interview with CBS’s 60 Minutes which aired Sunday that Americans may have to wait beyond the Fed’s next meeting to cut interest rates. Minneapolis Fed President Neel Kashkari made similar comments Monday, and nine other central bank officials are slated to speak this week.

Federal Reserve Board Press Conference 1/31/2024
The current context, we will be data-dependent. We will be looking at this meeting by meeting. Based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March at as the time to do that, but that is to be seen. So, I wouldn't call it, you know -- when you ask me about in the near term, I am hearing that as March. I would say, I don't think that is -- it is probably not the most likely case, or what we would call the base case.

Federal Reserve issues FOMC statement 1/31/2024
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

Bloomberg 2/1/2024
European Union leaders struck a deal as Hungarian Prime Minister Viktor Orban yielded to their demands to lift his veto on a €50 billion ($54 billion) financial aid package for Ukraine. The forint reversed an earlier drop on the news.
“This locks in steadfast, long-term, predictable funding for Ukraine,” European Council President Charles Michel said in announcing the deal in a post on social media platform X Thursday.
As part of the accord, the member states agreed to debate the implementation of the Ukraine aid package every year and, “if needed,” the European Commission, the bloc’s executive body, could be asked to propose a review in two years, according to a draft document seen by Bloomberg News. The Hungarian leader’s demand for a veto was dropped.

Bloomberg 1/31/2024
*FED SWAPS CUT ODDS OF MARCH RATE CUT TO CONTRACT LOW NEAR 30%
The Federal Reserve held interest rates steady for a fourth straight meeting and signaled an openness to cutting them, though Fed Chair Jerome Powell threw cold water on investors’ hopes that reductions would begin in March.
The central bank’s policy-making Federal Open Market Committee showed it is in no rush to reduce rates, noting in a statement Wednesday that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”
Powell reinforced this message by saying, “Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting.”

Bloomberg 2/1/2024
The Bank of England opened the door to interest-rate cuts for the first time since the pandemic struck — affirming predictions that inflation will fall to target this spring — while warning that price pressures could reemerge.
The UK central bank removed key guidance that borrowing costs may have to rise again, with Governor Andrew Bailey acknowledging that keeping rates unchanged would push inflation “significantly” below the target of 2%. The nine-member Monetary Policy Committee split three ways on how to act, with a majority of six opting to leave the key rate unchanged at 5.25%.
Still, MPC member Swati Dhingra pushed to cut rates, the first vote for a reduction in almost four years. Catherine Mann and Jonathan Haskel stuck with their previous position to raise rates to 5.5%.
Traders held bets that the BOE will deliver at least four quarter-point interest-rate cuts this year, with the first coming in June. The chance of an earlier move in May remains at around 50%.

Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Federico Fubini
January 13, 2024

What is it that the market is getting so wrong by expecting ECB rate cuts by March or April, and for these to then continue rather aggressively in 2024? Do you believe the market discounts euro area recession, due in part to a more restrictive German budget, that were not included in the more recent ECB staff projections?
The inflation release for December was broadly in line with our projections – I’m not seeing some major downside surprise. It was in line with our signal that there would be a jump. And the continued progress on the easing of core inflation is welcome. But we do see some headwinds to services inflation this year and, for the time being, wages are still growing well above any kind of long-run equilibrium rate. We don’t expect energy prices to continue falling at the same rate as last year.
Our baseline staff projections include a significant recovery in the European economy this year due to stronger demand in Europe which is, on its own terms, inflationary. But we flagged in December that there are downside risks to our forecast. And that is one of the big data questions we have for these weeks: will we see a recovery or a continuation of the kind of stagnation we had for much of 2023? We remain very data dependent.
The ECB needs to assess wage settlements before getting an orientation on monetary policy in 2024. Many wage deals will happen this month and during the spring. Do you think you will have a clear enough idea by the governing council on April 11th?
I have a range of data I want to see. We do receive the data on the latest wage settlements every week. We have a wage tracker measure that we use as an early indication of the wage dynamics. We also look at market data on wages. But the most complete dataset is in the Eurostat national accounts data. The data for the first quarter will not be available until the end of April. By our June meeting, we will have those important data. But let me emphasise, we do have other data that we will be looking at every week, because, as you say, a lot happens every month and we look at all of the data available to us.
It will take time to have a good understanding of whether the wage settlements are decelerating. We expect that 2024 will still have high wage increases, and it is important for people to recover the losses from high inflation. But the scale of that will determine the timing and the scale of rate adjustment this year.

Bloomberg 1/23/2024
European Central Bank officials who until
recently had been wary of even discussing interest-rate cuts now
look increasingly open to commencing them in June.

Dow Jones 4/6/2024

The Reserve Bank of Australia moved to a more neutral
stance on interest rates Tuesday but pointedly reminded markets not to rule
out the prospect of a further interest rate increase if inflation remains
sticky.

The RBA kept the official cash rate on hold at 4.35% at the conclusion of its
first policy meeting for this year. While it said rates may rise more, the
central bank separately announced downward revisions to its inflation and
growth forecasts.

"The path of interest rates that will best ensure that inflation returns to
target in a reasonable timeframe will depend upon the data and the evolving
assessment of risks, and a further increase in interest rates cannot be ruled
out," the RBA board said in a statement.

In a press conference following the announcement, RBA Governor Michele Bullock
added that "the signs are good" about inflation but added "we've got to be
very vigilant."

The comments suggest the RBA is likely to lag the Federal Reserve and other
major central banks like the European Central Bank in moving to cut interest
rates.

Bloomberg -1/3/2024
Federal Reserve policymakers agreed last month that it would be appropriate to maintain a restrictive stance “for some time,” while acknowledging they were probably at the peak rate and would begin cutting in 2024.
“Participants viewed the policy rate as likely at or near its peak for this tightening cycle,” according to the minutes of the Dec. 12-13 Federal Open Market Committee meeting released Wednesday.
The minutes indicated increased optimism among participants about the path of inflation, noting “clear progress.” The committee expressed a willingness to cut the benchmark lending rate in 2024 should that trend continue, though they gave no indication easing could begin as soon as March, as futures traders expect.