.
@SenWarren
to Powell: "You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with million of people out of work. I hope you will reconsider that before you drive this economy off a cliff"
First day in a new role at the
@FinancialTimes
, covering all things US economy, Federal Reserve, IMF and World Bank. Get in touch: colby.smith
@ft
.com
"Democrats have defied history tonight,"
@BenLaBolt
tells
@JamesPoliti
. "The story of Joe Biden’s political career is that people always count him out and he always defies expectation and these midterms are another example of that"
@FinancialTimes
In an interview with
@FinancialTimes
,
@GitaGopinath
of
@IMFNews
says the sanctions imposed on Russia could lead to a more fragmented int'l monetary system w/ small currency blocs emerging based on trade btwn separate groups of countries
@Jonthn_Wheatley
Mary Daly of the SF Fed tells
@lisaabramowicz1
that the recent surge in US Treasury yields is equivalent to roughly a rate hike, suggesting that if sustained, it could dim the need for another increase by the central bank
APOLLO: Events this past week correspond to a 1.5% increase in the Fed funds rate. In other words, over the past week, monetary conditions have tightened to a degree where the risks of a sharper slowdown in the economy have increased.
Policymakers at Jackson Hole traded last year’s angst about inflation/central bank credibility for fears that the upheaval of the last three years has rewired the global economy.
"You don’t have to throw out the old playbook, but you do need new models"
Asked about UST illiquidity, Waller says it's about prices and compares it to selling pumpkins post-Halloween: "On Oct 31, the liquidity for pumpkins is very high. But on Nov 1, the market liquidity for pumpkins goes to zero. I'm not going to step in and try to fix [that] market"
The Fed raises rates by 50bps and officials signal fed funds to rise to 5.1% next year. Seven policymakers saw the rate eclipsing 5.25%. Cuts expected in '24/'25 plus most forecast the unemployment rate eventually reaching 4.6%
On that hawkish pause, Fed veteran Vincent Reinhart describes it as a "policy mistake wrapped in a communication error"
"They can’t sell it as a prudential delay of policy to await more info when the info you got led you to revise up your forecast 50bps"
The Fed holds its benchmark rate steady for the first time in over a year following 10 consecutive increases, but signals its intention to implement two more hikes in '23 to lift the funds rate to 5.5-5.75%. Officials also raised their core inflation/growth forecasts for year-end
Fed raises rates by 75bps to a target range of 3-3.25%. Officials see fed funds reaching 4.4% at year-end, suggesting one more 75bp hike this year, before peaking at 4.6% in '23. Unemployment set to rise to 4.4% with growth slowing. Core inflation still not at 2% target in '25.
New big read w/
@katie_martin_fx
on the mystery of QT's impact on markets. One investor warns it's "not a given" it'll be absorbed easily: "It feels like we’re embarking on this in a rather casual way... We’re watching very carefully. It makes us nervous."
"Janet Yellen’s appointment will be universally welcomed, and rightly so, including by economists, foreign officials and markets, all of whom regard her as a highly experienced policymaker who delivered years of stability," says
@elerianm
@JamesPoliti
@FT
Powell's message today is that rates are heading higher and poised to stay at a restrictive level for "some time". Says a soft landing will be "very challenging" and that failure to restore price stability is not an option
@FinancialTimes
In March, cracks emerged in the biggest, deepest and most essential bond market on the planet.
@RobinWigg
and I unpack what went wrong and why it matters
"Shrinkage of the central bank balance sheet is not likely to be an entirely benign process," warns NYU's Viral Acharya during his Jackson Hole presentation. Full paper here:
At Jackson Hole, officials grapple with a changed economic landscape that is poised to make the job of central bankers more difficult.
@GitaGopinath
tells
@FinancialTimes
, “there’s a lot of humility in the room [about] what we know and what we don’t know”
Central banks take further action on Sunday to improve dollar liquidity. Weekly operations via dollar swap arrangements will now be daily "at least through the end of April"
Persistent inflation/monetary policy tightening is the top risk market participants polled by the Federal Reserve flagged, according to the central bank's latest financial stability report
@FinancialTimes
The Federal Reserve will have to wind down its pandemic-era stimulus programme quickly and raise rates in 2022 in response to higher inflation, according to a new
@FT
poll conducted with
@ChicagoBooth
's Initiative on Global Markets w/
@christinezhang
Very happy to say that
@colbyLsmith
will be joining the DC bureau of the
@FT
starting this week as US economics editor including coverage of the Fed ! Welcome to the team Colby !
Evercore: "While the UK situation is idiosyncratic in many respects we see a larger lesson here for govts and investors globally: for a period at least, the bond market vigilantes are back." Says UK example reduces the risk that Italy’s new govt will take similar "reckless steps"
Officially back from parental leave and covering Powell's congressional testimony today.
In opening remarks, he hails the "considerable progress" made in beating back inflation, although signals the Fed needs more good data before cutting rates
"The financial system is being tested by the stresses that are being triggered by monetary policy tightening,"
@TobiasAdrian1
at
@IMFNews
tells
@FT
. "The risk going forward is that the situation could create more stressors for the financial system"
For the week ending Wed March 15, US banks tapped the Fed's emergency facilities to the tune of $160bn, with record usage of the discount window and $12bn in loans via the new lending facility announced Sunday
"The nature of scandals like this is that the damage only increases with every day that the public doesn’t hear the full story and how the Fed plans to fix it," says
@KalebNygaard
of the new disclosures from vice-chair Clarida about his trading activity
The Fed says its new lending facility is big enough to cover all US uninsured deposits and that it is "prepared to address any liquidity pressures that may arise"
@FinancialTimes
The main takeaway today is that the Fed may soon call time on its rate-rising campaign. Powell said there's vast uncertainty re the economic impact from ongoing banking stress and that a pause was even considered
SVB's failure stemmed from weakened regulations during the Trump admin and missteps by internal supervisors who were too slow to correct management's blunders, the Fed concludes in its long-awaited review w/
@brookeamasters
@stephengandel
@markvdvd
The cost of buying insurance against a US default has shot to its highest level in more than a decade, in an early sign of market concerns about the political impasse in Washington over the debt ceiling
@kateduguid
@LaurenFedor
Goldman on the X-date: "While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June." Previously they forecast early August.
Elevated inflation will compel the Federal Reserve to raise US interest rates at least twice by the end of 2023, according to a new
@FT
poll conducted with
@ChicagoBooth
's Initiative on Global Markets -- w/
@christinezhang
&
@brookefox91
Spoke w/ John Williams at
@NewYorkFed
for the
@FT
Economists Exchange series. To get inflation to 2%, he forecasts "pretty slow growth" and the unemployment rate eventually peaking at 4.5%. Further tightening is needed, even though policy lags are in play
As the SVB fallout continues, despite emergency measures announced yesterday by the US gov't, attention has turned to regulators who oversee the financial system and how the country’s 16th-biggest bank was allowed to become so vulnerable
w/
@stef_palma
Raphael Bostic of
@AtlantaFed
tells reporters his baseline is a 75bp rate rise in November and a 50bp hike in December: "I'm just going to have that as a starting point and let the data and the reality take me where they will"
Fed minutes: "Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent"
New
@FT
piece on buoyant US consumers again defying odds of a more substantive retrenchment to fuel explosive growth over the summer.
But such a blistering pace will be difficult to sustain going forward, warn economists
Powell uses his Jackson Hole speech to deliver his most hawkish message to date about the Fed's commitment to restore price stability. Harking back to the '70s, he hit back at concerns the Fed lacked the resolve to squeeze the economy to root out inflation
Fed trading scandal reignited as Atlanta's Bostic is found to have violated the rules. The Board's ethics officer said he filed "materially incomplete annual disclosures during all prior years in office". Transactions were also made during blackout periods
A top concern raised at Jackson Hole was what to do about ballooning public debts.
@pogourinchas
of
@IMFNews
told
@FT
another shock requiring big fiscal aid could pose problems for US/Europe
"We don’t have an insurance policy anymore. We are at the edge"
Powell's message today is that there is still a ways to go in this policy tightening cycle. He warned there could be more upward revisions to the terminal rate forecast, which now points to the funds rate peaking at 5.1% next year
@FinancialTimes
Some 50 money market funds and banks parked $485.3bn at the Fed through its RRP facility, underlining the dearth of options for investors given the collapse in yields for the ultra-safe, short-term securities that they typically invest in
@FT
@EricGPlatt
Excited to continue working with
@JamesPoliti
and the rest of the team! Any thoughts on the US economy, Federal Reserve, IMF or World Bank? Email me here: colby.smith
@ft
.com
Jay Powell is set to speak next Friday at 10:05am ET in Jackson Hole. The Fed chair is expected to leave the door open to additional tightening even though some officials seem cautious about further hikes. He is also expected to tout a commitment to a higher for longer stance
Investors are trapped in what
@elerianm
calls a "massive tug of war" between pricing in the spectre of renewed economic pain and the "light shining brighter at the end of the Covid tunnel with the vaccine"
Pimco, BlackRock and Franklin Templeton are among firms snapping up US inflation-linked bonds, as the Fed embraces the idea of letting consumer price-rises run above target w/
@jennablan
SCOOP: Venezuela's opposition gov't plans to treat equally creditors ensnared in the country’s $150bn web of defaulted debt. No preferential treatment to creditors with court judgments. w/
@RobinWigg
"The ethics rules were not written for a moment like in the spring of 2020," says former Fed staffer
@Claudia_Sahm
. "It absolutely wasn’t enough when the Fed was doing emergency meetings and financial markets were in incredible distress"
@FinancialTimes
In prepared remarks, John Williams at
@NewYorkFed
says the unemployment rate could reach 5% next year as the Fed prioritizes its fight against inflation
New big read on the high stakes for the Fed as it charts the next phase of tightening. As
@jc_econ
put it: "It’s one thing to be starting from zero and playing catchup, its another to be in the territory where you're clearly closer to a restrictive stance"
Powell's overarching message today is that even if the Fed slows the pace of rate rises, it is not backing down from its fight against inflation and its too premature to be thinking about a pause: "We've got some ground left to cover here, and cover it we will"
Waller on the inflation forecast: "I got burned last year. We all did, and I'm cautious about getting burned again." Says if MoM inflation comes down to 0.3% and stays that way, "we're not making progress"
The World Bank (!) warns that interest rate hikes by central banks in advanced economies are “ill-suited to address the supply-related inflationary pressures that are driving a significant portion of the recent inflation surge.“
Ahead of Friday's jobs report,
@TaylorNRogers
,
@evawxiao
and I looked at the rebound in labor force participation among US mothers
"It’s not just that women are benefiting from a strong labor market, they’re also driving the strength of the labor market"
Thrilled to have
@senoj_erialc
covering for me while I’m on parental leave! Reach out to her at claire.jones
@ft
.com for all things Fed, US economy, IMF and World Bank
Rising oil prices pose fresh headache for president Biden
"The danger for the White House is that rising gasoline prices have the power to reverse the sense that the situation is improving and inflation is coming down" w/
@OilSheppard
@mylesmccormick_
Zambia, Ecuador and Rwanda have announced recently they are struggling to repay their debts. Many other developing countries are not too far behind. But resolving these debt workouts will be harder than in the past. Big read w/
@RobinWigg
@FT
The worst of the global inflation shock may be behind central bankers as they descend on Jackson Hole this week, but policymakers are wary of declaring victory.
"They’re really in a place where they have to feel their way forward carefully"
The Biden administration has already blocked Taliban access to any Afghan central bank reserves held in US banks, and Republican lawmakers are now looking to stop some $460m of SDRs set to be disbursed by the IMF on Monday
@FinancialTimes
"You are gambling with people's lives",
@SenWarren
tells Powell as she highlights the costs of the Fed's hikes. Asked if Americans are just supposed to "bear it", Powell said: "Will working people be better off if we just walk away from our jobs and inflation remains above 6%?"
Kamala Harris is already embracing the most popular parts of Biden’s economic agenda and legislative wins while drawing a sharp contrast with Trump’s proposals — and hoping that she will be less tarnished than the president by high inflation
@JamesPoliti
“What you don’t know, you don’t ask, and the point of having diversity at the table is someone needs to know enough to say, ‘this could be a problem,’” says
@WSpriggs
ahead of Thursday’s confirmation hearing for the Fed nominees
@FT
In an interview with the
@FinancialTimes
on Friday, Thomas Barkin of
@RichmondFed
says he is "open to any outcome" for the upcoming policy meeting
"Just because you’ve moved it 25 at one meeting doesn’t mean that is what you have to move at every meeting"
Fed gov Chris Waller backs a 25bp hike at the next meeting and spells out a "case for cautious optimism" about the inflation outlook, even as he warns there's still a "considerable way to go" to get to the 2% target
"I expect to support continued tightening of monetary policy."
Powell/Clarida cleared in probe investigating top officials' trading activities, but the gov't watchdog found that Clarida failed to report several trades and that a FA of a Powell family trust executed 5 trades during blackout before the Dec '19 meeting
Goldman changes its call to no hike at the March FOMC meeting (previously say a 25bp move)
"In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March"
"Everything points in the same direction when it comes to monetary policy, which is the need to cool down the economy to bring down inflation,"
@GitaGopinath
of
@IMFNews
told
@FT
in an interview on the WEO update
@ChrisGiles_
ICYMI: Most economists polled by
@FT
&
@ChicagoBooth
's IGM think the Fed will plough ahead w/ rate rises. SVB-related turmoil shaved 25bps off expectations, but fed funds still projected to peak +5.5%. No cuts until '24
Speaking w/
@FT
,
@GitaGopinath
of
@IMFNews
urged the Fed to "stay the course" in terms of its tightening plans given that US inflation has not “turned the corner yet”. She says wage growth/services-related price pressures suggest there's more work to do
Fed officials' new eco forecasts "implicitly" signal a recession, says ex-staffer Vince Reinhart. But he warns the unemployment rate will likely need to rise more than the 4.4% projected in '23/24. Also likely fed funds peaks above the median 4.6% estimate
IMF's gloomy prognosis highlights just how difficult of a task govts and CBs face to manage trade-offs that
@pogourinchas
says are becoming "hugely challenging". Says risk of monetary/fiscal/financial policy "miscalibration" has sharply risen
@ChrisGiles_
"Investors have always worried about government debt and it’s never been a problem, but this time it feels like it’s for real"
From our weekend piece on the fiscal reckoning underway from global bond markets, with
@marymcdougall13
@Sam1Fleming
@kateduguid
The Fed faces one of the tougher decisions of its rate-raising campaign this week as it consider whether to implement another increase w/out knowing if efforts to shore up the banking sector will work in the long term
In the Q&A portion of the event, Wallers says September is a "live" meeting, and it depends on the data.
Adds that if the next two CPI reports look like the last one, that may suggest stopping after a July hike.
"The time has come for policy to adjust," says Jay Powell in Jackson Hole. "The timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks"
The Fed will do "everything we can" to support the labor market
At Jackson Hole, Powell warns the job vanquishing inflation is not yet done and raises the prospect of more hikes should price pressures persist or the economy continues to prove more robust than expected. Says Fed will “proceed carefully" w/ any decisions
Speaking w/
@FT
,
@hboushey46
says she's optimistic about a soft landing, citing "private sector investments on top of public sector investments in the real economy and in the industrial base of the US", which have "strong multiplier effects"
@JamesPoliti
"This is as close as IMF language comes to calling a set of policies irresponsible, ill advised and ill timed,"
@EswarSPrasad
says. Calling the statement "unusual in its sharpness",
@MarkSobel_OMFIF
backs the IMF being "more of a ruthless truth teller"
"Every option is on the table for every meeting,"
@AtlantaFed
's Bostic tells
@FT
, despite sticking w/ his 2022 call for three 25bp hikes. "If the data say that things have evolved in a way that a 50bp move is required... then I’m going to lean into that."
New research by economists at the
@KansasCityFed
shows that monetary policy lags have shortened: The proxy funds rate had already risen to about 2ppts in Feb '22 before the FOMC increased the actual target for the funds rate in March
Susan Collins of
@BostonFed
on Friday signals support for smaller rate increases, saying it's "time to shift focus from how rapidly to raise rates, or the pace, to how high". Later on, "we’ll need to shift again to focus on how long to hold rates at that level"
@BrookingsInst