US inflationary pressures are unlikely to rise enough to justify lifting interest rates in June according to a key member of the US Federal Reserve, adding to hopes that the central bank will defer its first rate rise in nearly a decade until at least autumn.
Charles Evans, a voting member of the Federal Reserve’s policy committee and one of its most cautious members, warned that there were considerable risks in raising rates too early in an environment where core inflation is persistently below 2 per cent.
“Some say we are behind the curve, that interest rates are unusually low but we’re not at a point of business as usual,” Mr Evans said during an interview with the Financial Times.
The Fed’s interest-rate setting committee comprises 12 voting members, although there are two vacancies currently.
Unlike fellow committee member James Bullard, Mr Evans did not worry about the danger of loose monetary policy blowing financial bubbles. >> Read More
The US risks inflating asset price bubbles with “devastating consequences” if it leaves interest rates at zero, according to a senior Federal Reserve official.
James Bullard, head of the Reserve Bank of St Louis, told the Financial Times on Monday the Fed “should get on with normalisation” as soon as possible so that it does not have to raise rates more aggressively later causing significant market volatility.
The policy maker’s concerns underscore the nervousness among many central bankers about interest rates remaining at rock bottom rates even as unemployment in the US and UK returns to normal levels.
Mr Bullard, who is not currently a voting member of the Federal Open Market Committee, said the die was already cast and the US would have “super easy” monetary policy even as unemployment dropped further. The unemployment rate dipped to 5.5 per cent in February, its lowest rate since 2008, and was poised to go below 5 per cent by the third quarter of the year, Mr Bullard said. >> Read More
- but the slowdown is stabilizing
- economic growth must be kept within a reasonable range
- employment and services among the bright spots
The downward pressure on China’s economy increased somewhat since the start of this year
But while growth in industrial output and investment continued to slow, the government sees some signs of the slowdown stabilizing
There are also bright spots; for example, employment, services, high-tech industries, new industries, private investment and innovations
It’s impossible and unnecessary for us to maintain the high-speed growth seen in the past
China’s Vice Premier speaking at a conference in Beijing continuing the recent cautious theme by the govt and central bank.
The comments support the two interest rate cuts since November on top of a cut in bank reserve requirements in February, amid concerns about growing deflationary risks. More easing is expected.
Reuters carries more here
Atlanta Federal Reserve President Dennis Lockhart says he expects the Federal Reserve to raide interest rates in either June, July or September …. unless there is a significant slow down in the US economy
More from Reuters. Lockhart says:
- The lower economic forecasts issued by the Fed this week reflect mostly “transient” issues that neither fundamentally change its outlook for continued U.S. growth nor are likely to push back an initial rate hike
- “I continue to believe that mid-year or a little later is appropriate timing. That would allow the June meeting to clearly be taken seriously as a meeting for the ‘lift-off’ decision. I would add to that July … And, of course, September”
- “I can’t be certain it is going to happen in those three months … But I think it is realistic to assume that is the period in which we will be taking on this decision with a high likelihood of pulling the trigger”
The Federal Reserve junked its low rates guidance on Wednesday, but another signalling device took on greater prominence in its place.
The US central bank’s so-called “dot plot”, setting out officials’ expectations for interest rates, proved to be one of the main drivers of market movements in the hours after the Fed statement was released.
The Fed’s chart sets out projections of future movements in the Fed’s key rate made by each member of the Federal Open Market Committee for 2015, 2016 and 2017, as well as the longer run.
Dramatic reductions in median forecasts for official interest rates led to a sharp sell-off in the dollar and a pushback in expectations for when the Fed will tighten monetary policy.
While the Fed has blown hot and cold about the importance of the dot plot, Janet Yellen, its chairwoman, did not talk down the significance of the numbers on Wednesday.
She said the cuts in officials’ rate estimates reflected weaker forecasts of inflation and a downgrade to people’s assessments of the long-run normal unemployment rate.
Economists said Fed officials were using the dots as a way of reassuring markets that they did not intend to be aggressive in lifting rates — and that the first move might not come as soon as June. >> Read More
U.S. stocks rallied sharply after the Federal Reserve ruled out interest rate hikes at next month’s meeting and said it had not “decided on the timing” of the first rate increase in nearly nine years.
The Dow Jones industrial average ended up 227 points, a gain of 1.3%, shooting past the 18,000 mark to settle at 18,076.19. The Nasdaq composite touched the 5000 threshold before retreating a tad, still ending up 0.9% to 4982.83.
Gaining 1.2% was the S&P 500, which settled at 2099.50.
The yield on the 10-year Treasury plummeted from 2.05% at the end of the day Tuesday to 1.92%.
Stocks were lower ahead of the Fed’s announcement Wednesday afternoon, but rose sharply after the highly anticipated policy statement was released at 2 p.m. ET at the end of its two-day meeting. >> Read More
The currency war salvos just keep on coming. Moments ago the BOK unexpectedly (the move was predicted by just 2 of 17 economists polled by Bloomberg) cut its policy rate from 2.00% to a record low 1.75%, in what is clearly a full-blown retaliation against the collapse currency of its biggest export competitor, Japan, whose currency has cratered to a level that many in South Korea believe has become a direct subsidy for its competing exports. As such the only question is why the BOK didn’t cut earlier.
The Korean Won reacted appropriately, if only in the first millisecond: then it seems the algos forgot what easing is, and the BOK may need to cut again shortly.
And following the surprise rate cut by Thailand earlier today, the “surprise” South Korean rate cut means there are now 24 easing policy actions by central banks in 2015 alone.
Here is the full list of the 24 central bank rate cuts so far in 2015: >> Read More
When Howard Marks graduated from the Booth School of Business of the University of Chicago, he was turned down for the one job he really wanted. That, he said, was the luckiest moment of his career. The firm that turned him down was Lehman Brothers.
Marks is the co-chairman and founder of Oaktree Capital Management. He spoke to an audience of investment professionals and MBA students at the annual MIT Sloan Investment conferencein Cambridge on February 20th.
His talk was moderated by Randy Cohen, a senior lecturer at the Sloan School. Marks and Cohen discussed a range of topics, including his luck and skill in career choices, the lack of efficacy in forecasting, the importance of second-level thinking, investing in the current interest rate environment and the ingredients for investment success.
On luck and skill in career choices
Marks said he was not the kid who started reading prospectuses at nine years old and then invested his bar mitzvah money. Before deciding on a career in finance, he considered being a history professor, an architect, an advertising man and an accountant. Before graduating from the University of Chicago, he interviewed for jobs in corporate treasury, banking, investment management, investment banking, accounting and consulting. >> Read More
Reserve Bank of India Governor Raghuram Rajan said the central bank could not afford to cut interest rates to reduce foreign flows into the country because of high inflation, according to a domestic media report.
“We have got an avalanche of capital inflows. Our problem is we also have high inflation,” according to a Press Trust of India report carried by The Economic Times newspaper.
“We cannot cut interest rates very quickly to the bone in order to tell those countries: don’t come here expecting high interest rates.”
The RBI unexpectedly cut interest rates in January but held rates steady at its policy review in February.
Although the RBI is broadly expected to cut interest rates further, India has attracted $10.26 billion net inflows into debt and shares this year because of confidence that inflation will remain low and expectations for an economic recovery.