U.S. Fed raises rates, unveils cuts to bond holdings

WASHINGTON - The U.S. Federal Reserve raised interest rates on Wednesday for the second time in three months, citing continued U.S. economic growth and job market strength, and announced it would begin cutting its holdings of bonds and other securities this year.

The decision lifted the U.S. central bank's benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent as it proceeds with its first tightening cycle in more than a decade.


In its statement following a two-day meeting, the Fed's policy-setting committee indicated the economy had been expanding moderately, the labor market continued to strengthen and a recent softening in inflation was seen as transitory.

The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.

"The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated," the Fed said in its statement.

The central bank said it would gradually ramp up the pace of its balance sheet reduction and anticipates the plan would feature halting reinvestments of ever-larger amounts of maturing securities.

The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.

For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month.

U.S. stocks rose after the Fed announcement, while the dollar reversed some of its earlier losses.

"The Fed announcing an update to their reinvestment principles leaves September open. The start of balance sheet runoff and the fact that they haven't slowed their projected path of rate hikes suggest they can do both balance sheet and rate hikes at the same time," said Gennady Goldberg, interest rate strategist at TD Securities.

Fed Chair Janet Yellen was holding a press conference at 2:30 p.m. EDT (1830 GMT).

EYES ON INFLATION

The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. The central bank had pushed rates to near zero in response to the financial crisis.

Policymakers also released their latest set of quarterly economic forecasts which showed temporary concern about inflation and continued confidence about economic growth in the coming years.

They forecast U.S. economic growth of 2.2 percent in 2017, an increase from the previous projection in March. Inflation was expected to be at 1.7 percent by the end of this year, down from the 1.9 percent previously forecast.

A retreat in inflation over the past two months has caused jitters among some Fed officials who fear that the shortfall, if sustained, could alter the pace of future rate hikes. Earlier on Wednesday, the Labor Department reported consumer prices unexpectedly fell in May, the second drop in three months.

The Fed's preferred measure of underlying inflation has retreated to 1.5 percent, from 1.8 percent earlier this year, and has run below the central bank's 2 percent target for more than five years.

Expectations of any fiscal stimulus in the near term from the Trump administration have also waned with campaign promises on tax cuts, regulation rollbacks and infrastructure spending either still on the drawing board or facing hurdles in Congress.

Interest rates are seen rising one more time by the end of this year, according to the median projection of the forecasts released with the Fed's policy statement, in keeping with the previous forecast.

Estimates for the unemployment rate by the end of this year moved down to 4.3 percent, the current level, and to 4.2 percent in 2018, indicating the Fed believes the labor market will continue to tighten.

The median estimate of the long-run neutral rate, which is seen as the level of monetary policy that neither boosts nor slows the economy, was unchanged at 3.0 percent.

Minneapolis Fed President Neel Kashkari dissented in Wednesday's decision.

source: news.abs-cbn.com

U.S. durable goods data points to pickup in business spending

WASHINGTON - New orders for key U.S.-made capital goods rose less than expected in March, but a second straight monthly increase in shipments suggested business investment accelerated in the first quarter amid a recovering energy sector.

While other data on Thursday showed a bigger-than-expected increase in first-time applications for unemployment benefits last week, the trend remained consistent with tightening labor market conditions.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.2 percent last month after gaining 0.1 percent in February.

Shipments of these so-called core capital goods rose 0.4 percent after jumping 1.1 percent in February. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement.

Economists had forecast core capital goods orders rising 0.5 percent last month. March's modest increase suggests a loss of momentum in the manufacturing sector after recent strong growth.

Manufacturing, which accounts for about 12 percent of the U.S. economy, is being underpinned by the energy sector revival.

Energy services firm Baker Hughes said last Friday that U.S. oil rigs totaled 688 in the week ending April 21, the most in two years. U.S. drillers have added oil rigs for 14 straight weeks and shale production in May was set for its biggest monthly increase in more than two years.

Business spending on equipment is expected to have accelerated from the fourth-quarter's annualized 1.9 percent growth pace and will likely be one of the few bright spots when the government publishes its advance first-quarter GDP estimate on Friday.

The Atlanta Federal Reserve is forecasting GDP increasing at a 0.5 percent rate in the first quarter, a sharp slowdown from the fourth-quarter's 2.1 percent pace. With the labor market near full employment, the anticipated slowdown in growth likely understates the health of the economy.

TIGHTENING JOBS MARKET

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 257,000 for the week ended April 22.

Claims have now been below 300,000, a threshold associated with a healthy labor market, for 112 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller.

Economists had forecast first-time applications for jobless benefits rising to 245,000 last week. Claims, however, tend to be volatile around this time of the year because of the different timings of spring and Easter holidays.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 500 to 242,250 last week, the lowest level since February.

U.S. financial markets were little moved by the data.

Manufacturing could get a lift from President Donald Trump's proposed tax plan, announced on Wednesday, that includes cutting the corporate income tax rate to 15 percent from 35 percent.

Last month, orders for machinery slipped 0.2 percent, but shipments increased 0.7 percent. Orders for primary metals rose in March as did shipments of these products. Electrical equipment, appliances and components orders and shipments also increased last month.

There were, however, declines in orders for fabricated metal products and computers and electronic products.

Last month, overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, increased 0.7 percent after surging 2.3 percent in February. Civilian aircraft orders increased 7.0 percent.

Orders for motor vehicles and parts fell 0.8 percent, declining for a second straight month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

source: news.abs-cbn.com

British PM orders employment law review as labor market changes

LONDON -- British Prime Minister Theresa May ordered a review of employment practices on Saturday, saying she wanted to ensure workers' rights were protected under changing business models and a growing trend towards flexible or self-employment.

The review comes ahead of the ruling Conservative Party's annual conference, May's first as prime minister, at which she is expected to make her pitch to reunite a country divided by June's European Union referendum and set our what a successful exit from the bloc will look like.

"We are building a new centre ground in British politics; improving the security and rights of ordinary working people is a key part of building a country and an economy that works for everyone, not just the privileged few," May said in a statement.

Britain's vote to leave the European Union was driven in part by a backlash against the political establishment among working class voters who believed their prospects had been badly damaged by the 2007/08 financial crisis and years of austerity.

The review will look at whether existing employment law can cope with the country's growing number of "non-standard forms of employment", such as self-employment, temporary work or "zero-hours" contracts, which offer employees flexibility, but no guaranteed work.

Earlier this year, politicians condemned British retailer Sports Direct for effectively paying workers less than the minimum wage, while working conditions at taxi firm Uber have come under legal scrutiny.

"New forms of employment have many advantages for workers and consumers but there are challenges and risks," said Matthew Taylor, head of an arts charity and former government policy adviser who has been asked to lead the review.

"We need to approach this issue with an open mind recognising that within our flexible system of employment the same type of contract can have a diverse range of impacts on the people who use them."

(Reporting by William James; Editing by David Gregorio)

source: www.abs-cbnnews.com