Paul Volcker, US Fed chief who led war on inflation, dead at 92

WASHINGTON — Former US Federal Reserve chairman Paul Volcker, who tackled American inflation in the 1970s and 80s and later lent his name to landmark Wall Street reforms, has died in New York.

Volcker, who headed the US central bank from 1979 to 1987, was 92. The cause of his death Sunday was complications from prostate cancer, his daughter Janice Zima told AFP.

Tall and known for his dead-pan humor, Volcker forged a career as a financier and fiercely independent public servant who wielded monetary policy with authority and acumen. 

A Democrat, he advised American leaders of both major parties, starting with Richard Nixon in 1971 at the US Treasury, where he helped guide the US exit from the gold standard.

His tenure ended with Barack Obama as Volcker promoted stricter banking regulation in the wake of the 2008 global financial crisis.

But it was as Federal Reserve chairman, first under Jimmy Carter and then Ronald Reagan, that he left his deepest mark, albeit during difficult times, and earned the respect of economists around the world. 

"I am deeply saddened by the passing of Paul Volcker. He believed there was no higher calling than public service," current Fed chairman Jerome Powell said in a statement. 

"His life exemplified the highest ideals -- integrity, courage, and a commitment to do what was best for all Americans. His contributions to the nation left a lasting legacy."

After announcing his candidacy for the White House in 2015, Donald Trump expressed admiration for Volcker, saying "there was something very solid about him."

Carter said Monday he was "deeply saddened" to learn of Volcker's death, calling him "a giant of public service," suggesting his actions may have helped cost Carter a second term but were still "the right thing to do."

President Barack Obama, House Speaker Nancy Pelosi and Bank of England Governor Mark Carney also issued statements paying their respects to Volcker.

Amid the oil crisis in the late 1970s, the American economy suffered rampant inflation. Carter bucked the advice of aides who said installing Volcker at the Fed would mean "tough medicine."

HOLDING FIRM 

With inflation -- which Volcker described as too much cash chasing too few goods -- hitting an eye-watering 14 percent annually, he made no secret of his plans to raise interest rates.

"I don't think there is any feeling or any evidence around at the moment that the economy is suffering grievously from a shortage of money," Volcker testified during his Senate confirmation.

With Volcker at the helm, the Fed raised interest rates from 11 percent to 20 percent (today, by comparison, they are in a range of 1.5 to 1.75 percent).

Such drastic tightening was especially painful and hit during a recession. Auto dealers sent him car keys in coffins. Building contractors mailed him wood planks they could not use, since homes were not selling. 

Farmers drowning in debt drove tractors to encircle the central bank's offices.

But the hard-nosed Volcker gave no ground. "He becomes intellectually stimulated by a crisis," his late wife Barbara said, according to the author William Neikirk.

The firm stance paid off, with inflation falling to 3 percent by 1983. Along with the Iranian hostage crisis, it also helped cost Carter his chances at reelection.

Volcker left the Fed in 1987 and joined James Wolfensohn's investment firm. Wolfensohn later became president of the World Bank.

The former Fed chief reemerged on the public scene 20 years later during the global financial crisis as an Obama adviser. 

A critic of banks' high-risk trading and their executives' gigantic pay packages, he proposed what would become known as "the Volcker rule," restricting so-called proprietary trading. 

The regulation was blasted by Frank Keating, then head of the American Banking Association, as too complex and onerous for implementation -- and came under fire again in the anti-regulation era of President Donald Trump.

The ABA on Monday offered its "deepest condolences," saying Volcker left "a giant legacy of dedicated public service."

A grandson of German immigrants, Volcker was born in 1927 in Cape May, New Jersey, developed a love of fly-fishing and studied at Princeton and Harvard.

A father of 2, he remarried at age 83 in 2010, taking his long-serving assistant as his bride, 12 years after the death of his first wife, Barbara.

Agence France-Presse 

US Fed lowers key interest rate as 'insurance' against economic risks

WASHINGTON — The US Federal Reserve cut its benchmark interest rate for the third straight time on Wednesday but is likely to hold off before providing more stimulus as it gauges economic risks.

Though President Donald Trump's trade war with China and Brexit concerns have created uncertainties that have crimped business investment and undermined manufacturing, the American economy has remained "resilient," and monetary policy is now "in a good place," Fed Chairman Jerome Powell said.

The Fed's policy-setting Federal Open Market Committee lowered the policy interest rate by 25 basis points to a target range of 1.5-1.75 percent, as expected, pulling back another of the four interest rate increases it implemented in 2018.

"We took this step to help keep the US economy strong in the face of global developments, and to provide some insurance against ongoing risks," Powell told reporters.

Added to a key change in the language of the statement issued by the policy-setting Federal Open Market Committee, the comments cement the view the Fed is for now unlikely to cut rates again in the final meeting of the year.

Pressed to explain under what conditions policymakers would consider another dose of stimulus as appropriate, Powell said, "if developments emerge that cause a material reassessment of our outlook, we would respond accordingly."

He pointed to trade tensions and Brexit as factors crimping business investment and manufacturing but "overall we see the economy as having been resilient to the winds that have been blowing this year."

Given signs of a possible "phase one" trade deal with China and the diminished risk of a no-deal Brexit, "there is plenty of risk left but I would have to say the risks seem to have subsided."

KEY CHANGE IN WORDING

In a key edit to the prior statement, the Fed removed the pledge to "act as appropriate to sustain the expansion."

Analysts who scrutinize every phrase the Fed utters read that as a leaving the door open to a pause in the easing cycle.

"In other words, they think they have done enough for now and that further easings will be contingent on a material weakening in growth and/or inflation," said Ian Shepherdson of Pantheon Macroeconomics.

As President Donald Trump's trade war with China has hit manufacturing and created uncertainty that, together with concerns about Brexit, have slammed the brakes on investment, economists expected this move to help bolster a softening American economy.

But GDP in the July-September quarter was surprisingly solid, growing 1.9 percent, boosted by a strong housing sector and healthy consumer spending, according to data released earlier Wednesday.

US hiring continues and unemployment is low, while inflation is creeping up to the Fed's 2.0 percent target.

However, the trade war uncertainty also has hit the global economy, and the US data contained concerning signs as well, even as American consumers continue to carry the weight of the expansion on their backs.

Several recent surveys show about a third of economists believe the US economy could slip into recession in the next 12 months. All show the number has increased in recent weeks.

Esther George, head of the Kansas City Federal Reserve Bank, and Boston's Eric Rosengren both opposed the latest move, just as they voted against the previous two rate cuts.

Wall Street was cheered by Powell's remarks, with the S&P 500 swinging to a record close. Analysts said the Fed's messaging matched investor expectations.

source: news.abs-cbn.com

Trump again attacks Fed, says central bank 'derelict in its duties'

WASHINGTON — President Donald Trump once again attacked the US Federal Reserve on Thursday, calling for more interest rate cuts to stimulate the American economy just days before a key policy meeting.

"The Federal Reserve is derelict in its duties if it doesn't lower the Rate and even, ideally, stimulate," he said on Twitter, a relatively mild epithet after Trump earlier called policymakers "boneheads" and "pathetic."

Trump has long argued that the Fed was too aggressive about raising the benchmark borrowing rate in 2018, which it did four times that year.

He has been especially critical of Fed Chair Jerome Powell, whom Trump appointed to run the central bank, breaking with tradition of refraining from public comment on monetary policy.

Powell insists Fed officials tune out politics and look only at economic factors when deciding the correct level of interest rates.

But the Fed has cut the rate twice this year and could do so again next week at its latest 2-day meeting, although some economists are calling for a pause.

Trump's blitz of insults and criticism directed at the Fed had slowed in recent weeks, with the most recent occurring 2 weeks ago when he said US central bankers "don't have a clue but I do."

"Take a look around the World at our competitors. Germany and others are actually GETTING PAID to borrow money. Fed was way too fast to raise and way too slow to cut!" Trump tweeted Thursday, pausing in his focus on the impeachment inquiry against him in Congress.

The European Central Bank left its policy interest rate unchanged on Thursday at -0.5 percent, while the Bank of Japan -- also set to meet next week -- has a -0.1 percent rate as sluggish economic growth persists.

MIXED ECONOMIC SIGNALS

Meanwhile, official government data and industry reports are giving mixed signals about the US economy.

Sales of American manufactured goods had a dismal September, hit hard by Boeing's woes and a protracted work stoppage at General Motors, the Commerce Department reported.

Total new orders fell 1.1 percent in September to $248.2 billion.

The result meant 2019 so far has been a year to forget, with sales in the first nine months of the year 0.8 percent lower than the same period in 2018.

The largest part of the damage last month was done by the transportation sector, with autos and parts falling 1.6 percent and civilian aircraft falling another 11.8 percent, extending August's decline.

New home sales also declined, falling 0.7 percent but they are up 15.5 percent compared to September 2018, according to a separate report on Thursday.

Amid rising wages, low interest rates and historically low unemployment, new home sales forged higher in June, July and August.

But the far larger market for existing homes also fell in September, according to industry data released earlier this week.

Scarce labor, high costs for materials in part due to tariffs, and fear that Trump's trade wars could scare off would-be buyers had previously made some homebuilders reluctant or unable to add to the supplies.

Economist Yelena Maleyev of GrantThornton noted home prices are rising due to high demand and low supply.

"Manufacturing counties, most of which are concentrated in the Midwest, have been hardest hit by the trade war and, more recently, the GM strike; those losses are spilling into the housing market," she said in an analysis.

"Housing activity is expected to contribute to overall GDP for the first time in more than a year and a half in the third quarter, but only modestly."

Meanwhile, manufacturing, including auto building, has been in steady decline. And though it is a much smaller share of the US economy than services, it has been the sector Trump promised to help with his aggressive tariff strategy.

source: news.abs-cbn.com

NY Fed boosts money market cash injection as banks' demand rises

NEW YORK - The Federal Reserve Bank of New York on Wednesday announced it will increase Thursday's money market cash injections as it seeks to keep short-term interest rates under control.

Banks this week have repeatedly asked for more overnight cash than the New York Fed offered to help financial institutions meet minimum reserve levels.

The New York Fed on Thursday morning will offer up to $100 billion in so-called repurchase agreements -- exchanges secure assets for cash over very short periods -- up from the $75 billion offered on prior days.

The New York Fed branch's open market trading desk will also double the amount of 2-week agreements offered Thursday to $60 billion.

Banks on Wednesday morning had asked the Fed for an aggregate of about $92 billion, outstripping the $75 billion on offer, a sign that the problem has not cooled off so far.

Amid hefty corporate tax payments and Treasury auctions, banks have struggled this month to find the cash needed to meet reserve requirements -- which threatened to push up short-term borrowing rates beyond the Fed's benchmark lending rates.

The scarcity of cash makes borrowing more expensive but the US central bank in recent months has moved benchmark rate lending rates in the opposite direction -- going lower to help stimulate the economy as global growth slows and US trade wars drag on.

The market interventions are the first since the global financial crisis, when credit markets seized up as banks feared borrowers would not be able to repay.

The New York Fed, the Federal Reserve branch which conducts repurchase operations, has since September 17 pumped short-term cash into money markets on a daily basis to help financial institutions that are short of liquidity meet reserve minimums.

The repurchases are due to continue until October 10.

Officials have said so far that the liquidity crunch was caused by a confluence of technical factors that do not reflect on the health and stability of the economy or monetary policy.

In congressional testimony on Wednesday, Federal Reserve Board Governor Lael Brainard said officials had the matter in hand.

"I would really say that the New York Fed is very focused," she said.

"They've been providing ample operations to relieve those temporary frictions."

source: news.abs-cbn.com

New York Fed steps into market to move interest rates

For the first time in more than a decade, the New York Federal Reserve Bank announced Tuesday it was pumping billions of dollars into financial markets to keep short-term interest rates in line with the Federal Reserve's target range.

The operations -- one early Tuesday and another scheduled for Wednesday morning -- came on the eve of a Fed decision that economists widely expect will result in a lower target range.

The target range influences the cost of borrowing across the financial system.

Analysts said earlier Tuesday the first operation appeared to have been successful. 

The New York fed authorized $75 billion in repurchase agreements -- known as "repos" -- in an effort to keep the Fed's benchmark lending rate "within the target range of 2 to 2-1/4 percent."

The New York Fed conducts regular market operations with government securities dealers as a way of implementing the policy set by the Fed's rate-setting Federal Open Market Committee.

But on Tuesday, as demand for cash rose amid falling bank reserves, the rate had moved to the top of the current range.

Bids in the short-term financing markets on Tuesday hit as high as five percent, well above the current 2-1/4 percent upper bound of the Fed's target range, The Wall Street Journal reported, citing traders.

'RIPPLE EFFECT' 

Kathy Bostjancic, Oxford Economics' chief US financial economist, told AFP earlier Tuesday there had been a "tsunami" of technical factors driving the demand for funds and pushing rates out of whack but the big injection helped.

It was the first such operation since September 2008.

"Any time the plumbing acts up it's a concern and it has a ripple effect throughout money markets," Bostjancic said, adding that reserves helped with the "dislocation in the repo market."

She explained that technical factors including September payments of corporate taxes, as well as a huge quantity of Treasury debt issuance, created the drop in bank reserves.

US lawmakers' delay in raising the federal debt ceiling earlier this year caused a backlog in Treasury debt issues since the government was not able to raise more funds. Treasury has had to play catch up, she said.

"So there is a lot going on. It's technical and it all kind of came together at once," she said, adding that the New York Fed has been "behind the curve in trying to estimate how much reserves should be in the system."

source: news.abs-cbn.com

Political pressure complicates Fed's expected rate cut

The Federal Reserve is set to "vaccinate" the US economy against a slowdown with the first interest rate cut in a decade, but the decision has been made more difficult by unrelenting political pressure.

President Donald Trump has constantly berated the Fed and its chairman, Jerome Powell, for failing to provide additional juice to the economy, which he has promised will grow by three percent and more each year.

"The E.U. and China will further lower interest rates and pump money into their systems, making it much easier for their manufacturers to sell product," Trump tweeted Monday.

"In the meantime, and with very low inflation, our Fed does nothing - and probably will do very little by comparison. Too bad!"

The central bank's challenge is to tune out politics ahead of Wednesday's announcement, and base the direction of monetary policy on the economic data.

WHY CUT RATES NOW?

Powell and other Fed officials have said repeatedly they expect the US economy to continue to grow and for inflation to eventually pick up, which makes the course correction now a bit unusual.

Unemployment, one of the 2 metrics the Fed is required by law to focus on, is at the lowest in nearly 50 years.

A strong jobs market would normally cause wages to rise, fueling inflation, the second key metric for the Fed.

However, inflation has been largely absent, hovering below -- sometimes well below -- the 2 percent target.

And Trump's aggressive trade tactics have brought business investment to a screeching halt, at a time when major economies like China are slowing, and Brexit is weighing on Britain and the European Union.

That gives the Fed space and justification to inoculate the US economy. Traders see a rate cut as a certainty, with less than a quarter still betting on a 50 basis point cut -- something usually reserved for a dire situation.

And many economists say another cut is likely this year, and as many as three by early 2020.

WHY DID THE FED HIKE IN DECEMBER?

The Fed raised the key lending rate 9 times from December 2015 to December 2018, including four times last year, as the US economy picked up steam.

Officials wanted to raise the policy rate to a more normal level, so it would have ammunition available to help stimulate a recovery with rate cuts.

The December hike was somewhat controversial given indications the trade wars were starting to impact the economy, and amid sharp declines in stock prices.

However, in the face of Trump's vocal attacks, the Fed may have wanted to show it could ignore the political pressure.

Now the Fed is caught in a dilemma of doing what Trump wants while convincing observers it is the right thing to do.

HOW DOES POLITICAL PRESSURE UNDERCUT FED CREDIBILITY?

The problem with a central bank doing the bidding of politicians, is markets no longer believe monetary policymakers will act as needed -- even if unpopular -- when prices start to rise.

Once that inflation-fighting credibility is lost, it takes years to recover, as the United States saw in the late 1970s and early 1980s, and many countries have seen since.

That means the Fed would have to hike rates much more aggressively to clamp down on price increases, which would be likely to harm businesses and slow the economy.

HOW DO RATE CUTS BOOST THE ECONOMY?

The federal funds rate is the interest banks charge each other for very short term loans, and sets the base for all other types of lending such as mortgages and credit cards.

Lowering borrowing rates makes it easier for businesses to get loans to invest in new projects, and for consumers to buy homes, cars and other items, which creates demand that keeps the economy humming.

US demand also helps support the global economy, through solid imports.

Powell's predecessor, Janet Yellen, said over the weekend that she favors a cut now given low inflation and a weakening global economy.

WHAT OTHER TOOLS DOES THE FED HAVE?

The Fed has limited weapons in its arsenal and has been struggling lately with a key one: communication.

Powell and other officials have stumbled recently with confusing and contradictory statements amid the changing economic environment.

Markets will be listening closely to Powell at the press conference Wednesday to see what signals he sends about future moves.

Wall Street finished mostly lower Monday, although investors also were looking at a full load of key corporate earnings reports.

source: news.abs-cbn.com

US Fed sees 'modest' growth despite 'widespread' trade fears

WASHINGTON - Fears that President Donald Trump's trade wars will harm the economy are pervasive, but for now, America keeps chugging along with steady job creation and tame inflation, the Federal Reserve reported Wednesday.

Worries about the trade outlook are likely to weigh on the Fed's thinking later this month, when it is overwhelmingly expected to cut interest rates for the first time in a decade.

"Economic activity continued to expand at a modest pace overall from mid-May through early July," the Fed said in its regular survey of business conditions across the country.

While the outlook for the coming months is "generally positive," the survey conducted in advance of the policy meeting found "widespread concerns" about possible harm caused by "trade-related uncertainty."

The United States is now in its 11th year of economic expansion, a record, and the report showed few signs a recession is on the horizon.

But Fed Chair Jerome Powell has cited a weakening global economy as an important reason some central bankers see a stronger case for easing monetary policy -- even with unemployment near 50-year lows and Wall Street hovering at records.

Washington and Beijing have been working this month to jump-start negotiations that stalled in May, but US officials warn progress to end the year-long battle with China is not guaranteed.

FEELING THE PAIN 

Flooded-out farms, also battered in the trade war, suffered declining output after unusually heavy rainfall, and oil-and-gas production fell, according to the survey of business activity in the Fed's 12 regions.

"I have been farming for 48 years and this is the worst spring/summer planting season we have experienced," said a contact of the Chicago Federal Reserve Bank.

Meanwhile, vehicle sales and home building were flat, while transportation began to weaken in some areas.

The exceptionally tight supply of workers has continued to drive up wages -- with some business contacts forced to resort to "significant increases" for entry-level employees.

And some employers worried about their ability to secure visas for foreign-born employees, which also could hurt job growth.

But companies said they were hard-pressed to pass on the higher costs of labor and inputs because of "brisk competition." As a result, inflation was "stable to down slightly" from a prior report.

Tariffs and trade policy were "major issues" for manufacturers in the Boston region and were holding down business investment in the Philadelphia district, the report said.

Economic growth was flat in the Cleveland and Chicago Fed regions and activity slowed in the New York area. But there were broad gains in tourism, which benefited the Atlanta and Richmond areas in particular.

The Fed reported earlier this month that the US manufacturing sector had entered a recession after two quarters of declining output, which was reflected in the survey, where manufacturers in several districts reported weakness.

In the report, a manufacturer in the Boston region said it had moved an assembly line to Germany to manufacture goods made from Chinese-made components because this allowed it to avoid tariffs on Chinese imports.

In the Cleveland region, home to a major US industrial base, manufacturers told the Fed that "broader economic forces" were causing a slowdown in addition to trade difficulties.

Overbuilt inventories in 2017 and 2018, slowing global demand, bad weather and other factors also weighed on the sector.

Wall Street finished the day lower, with the Fed report's talk of trade fears weighing on stocks. The benchmark Dow Jones Industrial Average fell 0.4 percent.

source: news.abs-cbn.com

Fed's Powell doubles down on rate cut signal

PARIS - Federal Reserve Chair Jerome Powell added more weight to expectations the central bank will cut interest rates later this month, stressing Tuesday that the US inflation outlook is near historic lows.

Economists and investors see it as a certainty that the Fed will lower the key borrowing rate at the policy meeting July 30-31, and Powell in recent statements has moved to solidify those predictions by pointing to some concerns about economic growth and persistent weak inflation.

Central bankers have "raised concerns about a more prolonged shortfall in inflation below our 2 percent target," Powell said in a prepared speech at a Bank of France event. 

And amid continued uncertainty about global growth amid rising trade tensions, Powell said inflation expectations "are near the bottom of their historical ranges."

Despite the Fed's confidence that the US economy will continue to grow, many officials feel "the combination of these factors strengthens the case for a somewhat more accommodative stance of policy."

The Fed raised the policy rate four times last year and a rate cut this month would be the first in a decade.

Powell repeated that the central bank "will act as appropriate to sustain the expansion," which after 10 years is finally reaching marginalized segments of US society. 

source: news.abs-cbn.com

Fed opens door to rate cut amid growing 'uncertainties'

WASHINGTON -- The Federal Reserve opened the door to an interest rate cut on Wednesday, vowing to act to keep the economy growing as uncertainties about trade and other issues mount.

US Federal Reserve chief Jerome Powell said trade friction and slowing growth worldwide have led many central bankers to feel the case for an interest rate cut has "strengthened" but most still want to see more data before making a move.

But one policymaker dissented in the vote, advocating for an immediate cut -- something President Donald Trump has been calling for loudly and which many economists say is necessary given the damage done by the escalating trade frictions.

The policy-setting Federal Open Market Committee kept the key rate in the 2.25-2.5 percent range but sent a strong signal of possible cuts ahead, saying "uncertainties about this outlook have increased" and the Fed "will act as appropriate to sustain the expansion."

After the meeting, Powell confirmed monetary policy could soon become more "accommodative," a byword for lowering the rate that serves as the basis for all types of lending from autos to homes to credit cards.

"Uncertainties surrounding the outlook have clearly risen since our last meeting" and officials are "mindful of ongoing cross currents, including trade developments and concerns about global growth," he told reporters.

"While the baseline outlook remains favorable," he said, "many FOMC participants now see that the case for somewhat more accommodative policy has strengthened."

But he cautioned that it is important they not overreact to single bits of data or a "short-term swing in sentiment."

Markets are almost universally predicting multiple Fed moves this year and seem to view the Fed stance as dovish enough for now, with the three major stock indexes closing with modest gains following the announcement.

However, Trump may be disappointed not to get a rate cut, since he has accused the Fed of undercutting his efforts to supercharge the economy.

He even hinted Tuesday he might remove Powell from his post, but the Fed chairman said Wednesday he believes the law is clear that he has a four-year term.

"I fully intend to serve it," he said.

Trump on Tuesday also bashed European Central Bank chief Mario Draghi, saying his signal of more stimulus ahead would put the United States at a disadvantage against a weaker euro, which would make American exports less competitive.

Powell declined to wade into that debate or comment on the exchange rate, saying only that the central bank does not use interest rate policy to influence the American currency.

He said "we don't target the dollar... we will target our domestic economic and financial conditions and not our exchange rate."

However, the dovish comments did impact the exchange rate, as the dollar weakened slightly against the euro and other currencies.

DOVISH TILT 

James Bullard, president of the Fed's St Louis regional branch, voted against the decision, saying he wanted to see the federal funds rate cut by 25 basis points at this meeting.

Bullard earlier this month was to first central banker to give voice to the expectations of financial markets that economic conditions would require the Fed to act, saying a rate cut could be needed "soon."

Diane Swonk, chief economist Grant Thornton, who before the meeting had called for an immediate move, said the Fed's language "suggests a willingness to cut rates in July."

But with Trump expected to meet China's President Xi Jinping next week at the Group of 20 summit in Osaka, Japan, there is a chance for good news to deflate trade tensions and clear away some of the gloom.

"There are some within the Fed who wanted to wait out the G20 meetings to see if the president levies additional tariffs on China but their mood about the economy has clearly darkened," Swonk said.

The quarterly forecasts issued by the central bankers on Wednesday revealed a decidedly more dovish tilt, with committee members were split on whether to keep the key rate where it is now or lower it.

But the projections did not reflect much change in the outlook for the economy: the median estimates for growth and unemployment were essentially unchanged compared to March, while the forecast for inflation was cut to 1.5 percent from 1.8 percent previously.

source: news.abs-cbn.com

US wages gains will get Fed's attention; no rate hike yet

WASHINGTON - Wage gains at long last have made an appearance in the US economy after a baffling absence amid robust job growth but the Federal Reserve is expected to hold its fire next week.

Central bankers certainly will take notice of the recent data, with especial focus on everything contributing to inflation, but have made it clear they are committed to a gradual pace of increases in the benchmark lending rate, meaning the fourth hike of the year will not come until December.

The Fed's rate-setting Federal Open Market (FOMC) meets Wednesday and Thursday but, in keeping with recent custom, economists do not expect any moves to be made since this meeting is not one that will be followed by a press conference with Fed Chairman Jerome Powell.

That dynamic will change next year when Powell will hold a briefing after every policy meeting, making economists' forecasts a bit more lively.

Fed officials have made it clear the economy can continue to perform well for some time with the current course of rate increases. 

Three more are expected next year as the central bank removes stimulus from the economy to prevent price pressures from accelerating.

The meeting takes place against the backdrop of President Donald Trump's repeated attacks on Powell for raising rates, which has injected an unwelcome political element into the deliberations.

Trump said the Fed has gone "crazy" and posed the greatest threat to his economic policies by moving too fast.

"He was supposed to be a low-interest-rate guy. It's turned out that he's not," Trump said.

But the Fed has made it clear more rate hikes will be needed, since as companies increasingly are having difficulty finding and keeping workers, which likely means wages will rise faster.

And firms also are facing price increases due to Trump's aggressive trade policies that have imposed steep tariffs on steel, aluminum and thousands of needed inputs.

DON'T KILL THE RECOVERY 

Diane Swonk of Grant Thornton said the central bank was trying to fine tune the economy so that it can continue to grow without igniting inflation.

"The Fed is not trying to kill the economy," she said in a research note.

Instead, the FOMC members "are trying to pace us so that we can extend the length of this marathon we are now running." 

The recovery from the 2008 global financial crisis is now in its 10th year, making it the second-longest of the post-World War II era. "The FOMC would like it to exceed the 1990s in length," Swonk said.

Able to declare victory with half of its dual mandate achieved -- full employment, as seen by the 48-year low in the jobless rate of 3.7 percent -- central bankers are watching closely for any buildup of inflation.

The Fed's preferred measure of inflation is right on target at two percent a year but policymakers will scrutinize the continued job creation, the 3.1 percent gain in average hourly wages and a 2.8 percent quarterly gain in total compensation.

Mickey Levy of Berenberg Capital Markets, said, "The moderate improvement in wage growth keeps the Fed on track to hike again in December and enables them to transition to a slower pace of rate increases next year."

Economist Joel Naroff notes that the pace of job creation "seems to be unsustainable."

But he cautioned that the 3.1 percent wage gain "will be the data point that catches the attention of the Fed members the most. And they will not be happy about it."

source: news.abs-cbn.com

As US raises interest rates, Fed may turn more hawkish

WASHINGTON - Under the cloud of an escalating trade war, the US Federal Reserve this week will raise the benchmark lending rate for the third time this year, moving to prevent inflation from mounting too quickly as the world's largest economy continues brisk growth.

The Fed's two-day policy meeting will begin Tuesday -- barely 24 hours after President Donald Trump is due to target another $200 billion in Chinese imports with punitive tariffs, bringing the total to over $250 billion.

That will deliver a blow to trade relations between the world's top two economies and cast a pall of uncertainty over the global economic outlook. 

But analysts say, so far at least, that the trade war has yet to make much of a dent in the US economic data that central bankers watch so closely.

Since the Fed's last meeting, job creation and GDP numbers have shown robust health, wages have risen and inflation has firmed, while measures of industrial activity and the housing market are among the few that have softened.

Among those sounding a warning, the International Monetary Fund has warned the escalating trade war could come at "significant economic cost," hitting US and China's growth.

But with the US economy robust, the Fed has repeatedly signaled it expects to continue "gradual" increases in the rate used to set everything from car loans to mortgages. By year end, the central bank is likely to have raised the key interest rate a total of four times and three more increases are expected in 2019.

This will mean the target rate will reach a range of 3.0-3.25 percent by December 2019 -- a notch above what policymakers currently view as "neutral," meaning it neither stimulates nor restrains the economy, which is the goal.

But will the Fed stop there? 

MOVING TO STAY NEUTRAL 


If there are signs inflation is accelerating, the Fed would certainly move to tighten policy to dampen prices. But even staying at neutral may be a moving target.

Fed Governor Lael Brainard, an intellectual center of gravity at the central bank who had long called for the Fed to proceed slowly with rate hikes, described an important change in her thinking in a speech earlier this month.

"With government stimulus in the pipeline providing tailwinds to demand over the next two years, it appears reasonable to expect the shorter-run neutral rate to rise somewhat," Brainard said.

This suggests she may not want the Fed to stop at 3.0-3.25 percent, but continue nudging the rate higher.

"It was a very important shift," Diane Swonk, chief economist at Grant Thornton, told AFP.

But Swonk said it remains unclear whether the Fed will move more aggressively next year, raising rates faster, or continue the gradual increases for longer.

"We don't yet know. I know it won't be resolved at this meeting," she said.

NEW HAWKS 

Meanwhile, some policymakers who in January will take a turn as voting members of the rate-setting Federal Open Market Committee also have begun to send more hawkish signals.

Boston Fed President Eric Rosengren, who favored the Fed's near-zero rate policy of in the years after the financial crisis, like Brainard has said in recent interviews FOMC estimates of neutral could go up.

He also noted that very low unemployment rates of the kind the United States is currently experiencing are historical harbingers of recession.

And even the Chicago Fed's Charles Evans, a longtime dove who will rotate onto the FOMC in 2019, has suggested monetary policy may need to become "restrictive."

Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, said the pace of Fed action is unlikely to change near term.

"I don't think there'll be an acceleration for at least the next six months," he told AFP, but that will change once inflation picks up.

The Fed's preferred measure of inflation is currently hovering at the two percent annual target, a level it has not exceeded in six years.

But Gagnon said: "I think by June the overshoot of inflation will be impossible to deny."

Joining the central bank deliberations for the first time will be Columbia University professor Richard Clarida, recently confirmed by the Senate as the Fed's new vice chairman, whose views may be hard to pin down but have been seen as dovish in the past.

But Swonk cautioned against easy dove/hawk labels.

"These are economists that move with the times and move with the economy," she said. "For the most part, you don't see a lot of ideologues in the Fed, you see people who are weighing the evidence."

source: news.abs-cbn.com

US businesses, farmers worried by China trade spat: Fed

WASHIGNTON - Despite continued economic growth, US businesses and farmers are increasingly concerned about the trade spat with China which already has pushed prices higher, according to a Federal Reserve survey released Wednesday.

In the wake of the steep tariffs imposed last month by President Donald Trump, steel and aluminum prices have risen around the country, in some cases doubling, the Fed said.

Industries and retailers across the country also continue to report difficulty finding skilled workers, which in some cases is holding back growth, although wages have risen only modestly in response, the nationwide survey showed.

The 12 Federal Reserve districts reported "modest to moderate" economic growth over the past 6 weeks and a generally upbeat outlook. But manufacturing, agriculture and transportation firms "expressed concern about the newly-imposed and/or proposed tariffs."

The trade tensions have escalated in recent weeks, with Washington and Beijing exchanging increasingly severe threats -- most recently with China's tariffs on US sorghum. The dispute centers on US complaints about investment restrictions, theft of American intellectual property and overproduction of metals.

The Cleveland Fed reported steel prices had increased at double-digit rates in some cases, while across the country there were reports of companies stockpiling steel against further price hikes.

In the Boston region companies said the trade dispute represented "a major risk" and that they were already seeing increased aluminum prices.

"These tariffs are now killing high-paying American manufacturing jobs and businesses," one said.

And a contact in the Dallas Fed's region said trade issues "continue to make agricultural producers and lenders nervous."

It is not the first time the Fed has cautioned about the impact of trade policy uncertainty on the economy.

WORKER SHORTAGE 

In a speech Wednesday, New York Federal Reserve Bank President William Dudley said the dispute complicates the work of the central bank.

"By increasing uncertainty around the economic outlook, these shifts in fiscal and trade policy could make it more difficult" for the Fed to balance its dual objectives of low inflation and full employment.

The Fed's so-called beige book survey, which gathers reports from businesses across the nation, was prepared for the central bank's next policy meeting, set for May 1-2.

The Fed raised its benchmark lending rate in March and is expected to hike twice more this year, after 3 increases in 2017 as it tries to guide the economy on a path of continued growth without letting inflation accelerate.

The shortage of workers continues to afflict business across sectors, regions and all skill levels, "restraining job gains in some regions," the beige book said.

Some firms, especially in regions where the labor shortages are most severe, have begun raising pay and benefits, and also have increased overtime, improved training and even turned to automation to replace human workers.

One manufacturer in the Chicago Fed region reported increasing production at its facility in China "because they couldn't find workers for their US operation." 

However, while the survey said wages and prices continued to rise at a "moderate pace," they "generally did not escalate," indicating the Fed does not need to raise the alarm about inflation just yet.

The central bank keeps a close watch on wages since those could feed into inflation, which has been running below the Fed's two percent target despite falling unemployment and economic growth that has picked up steam.

source: news.abs-cbn.com

Fed set to hike rates, policy outlook now hinges on Trump presidency

WASHINGTON - The Federal Reserve will conclude its two-day policy meeting on Wednesday afternoon with an interest rate increase all but assured and will issue new forecasts assessing whether the economic outlook has changed since the U.S. election.

The latest policy statement and projections are to be released at 2 p.m. EST (1900 GMT) with a press conference by Fed Chair Janet Yellen following at 2:30 p.m.

Markets are poised for the federal funds rate to rise to a target range of between 0.5 and 0.75 percent from the current range of 0.25-0.5 percent, where they have rested since the Fed approved its last rate increase a year ago.

Of more significance is the backdrop of the meeting. After years of the Fed fretting about low interest rates and weak inflation, the weeks since Donald Trump's victory have seen both bond yields and inflation expectations start to rise. The Dow Jones industrial average is up more than 11 percent since the vote.

Details of policymakers' new economic assessments, the first since the election, will be dissected closely to see if policymakers yet feel the arrival of the Trump administration has shifted the economic outlook or poses a risk of greater inflation. The president-elect has said he wants a major tax cut and infrastructure spending program, even as the economy approaches full employment and wages are rising.

"Inflation risks are more significant than they were three months ago," when the policymakers issued their last forecasts, sad Northern Trust chief economist Carl Tannenbaum. "Rates could well rise more than anticipated."

Despite the changed circumstances, it is not certain the Fed will budge on its assessments. The median forecast of policymakers as of September was for two interest rate increases in 2017, an outlook Tannenbaum and many analysts feel may remain the case.

Trump has not yet taken office, and any proposals would have to clear a Republican-controlled Congress that may be stricter about increasing public debt than Trump. In recent public appearances some Fed officials have said they see a chance Trump's policies may force them to speed the pace of rate increases, yet also said they are hesitant to change their outlook before he shares more details.

"Investors who are looking for clarity may be disappointed," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

source: news.abs-cbn.com