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Jay Powell yesterday signalled his support for a speedier withdrawal of the Federal Reserve’s massive asset purchase programme and was significantly more hawkish on inflation than in recent appearances, suggesting the Fed should drop the word “transitory” to describe the current price surge.
The comments, the first to Congress since Powell was nominated for a second term as Fed chair, led to a plunge in global equity markets.
The S&P 500, which was already lower following negative comments from Moderna’s chief executive about the effectiveness of vaccines to tackle the new Omicron strain, ended down 1.9 per cent. The technology-heavy Nasdaq Composite share index closed 1.6 per cent lower.
Yields on shorter-dated Treasury securities, which move with interest rate expectations, rose while longer-dated Treasury yields that track economic growth and inflation expectations fell.
Traders also modified their bets on how hawkish a stance they expect the Fed to take in the coming months — a U-turn on the previous few days, when investors had wagered that the emergence of the Omicron variant would prompt the central bank to take a more patient approach to raising rates. Implied rates on federal funds futures jumped, with markets pricing in just over two quarter-point rate rises by the end of next year.
“The economy is very strong and inflationary pressures are high,” Powell told lawmakers. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases . . . perhaps a few months sooner.”
Powell said he expected the Federal Open Market Committee to discuss a speedier taper at its next meeting on December 14 and 15. Equity markets in Europe and Asia have rebounded today and Wall Street is expected to open higher.
Do you agree with Powell or has Omicron changed the outlook for the US economy? Email me at firstft@ft.com. Here’s the rest of today’s news — Gordon
Five more stories in the news
1. Microsoft shareholders rebel and back protest vote Nearly four-fifths of Microsoft shareholders yesterday voted against the software company’s management and backed a protest vote calling for more details to be released about recent sexual harassment claims. The shareholder revolt followed years of complaints from some workers that Microsoft had brushed pervasive claims of harassment under the carpet.
2. New York City’s future ‘not guaranteed’ David Solomon, chief executive of Goldman Sachs, warned New York City’s leaders that they cannot take its position as a global business destination for granted and that higher taxes threaten to make it less appealing for companies and their employees.
In other banking news: UBS has poached a top executive from JPMorgan Chase to be its chief financial officer.
3. Executive leading Meta’s faltering digital currency project quits David Marcus, who joined the company formerly known as Facebook seven years ago from PayPal, yesterday announced he was leaving. The departure comes after the social media network suffered a string of setbacks in its attempts to launch ambitious cryptocurrency products, including a new digital token called Diem.
More bad news for Meta: The UK’s competition authority has blocked the $315m acquisition of online image platform Giphy by Meta.
4. Holmes defends response to Theranos reporting Prosecutors interrogated Elizabeth Holmes about her response to the investigative article that pierced her rosy image in 2015, as the Theranos founder took the stand for a fifth day of testimony in her criminal fraud trial.
5. CNN suspends host Chris Cuomo CNN has suspended star news host Chris Cuomo “indefinitely” after New York’s attorney-general released transcripts showing that he was far more involved in the defence of his brother, the embattled former state governor, than had previously been known.
Coronavirus digest
The Omicron coronavirus variant threatens to intensify imbalances that are slowing growth and boosting inflation, the OECD has warned in its latest economic forecast.
Seth Berkley, one of the leading members of the UN-backed Covax scheme, has urged rich countries to divert jabs to the developing world.
Scientists are racing to stress-test existing Covid-19 vaccines against the new Omicron variant.
Experts on a US Food and Drug Administration panel voted by a narrow margin to give a green light to Merck’s antiviral pill. Meanwhile, early testing indicates mutations of Omicron may hamper the effectiveness of Regeneron’s Covid antibody drug, the company said.
European populists are casting themselves increasingly as the torchbearers of vaccine scepticism and anti-lockdown libertarianism.
The day ahead
US Supreme Court to weigh challenge on abortion rights Justices will hear oral arguments in the biggest challenge to abortion rights in the US for generations. A ruling is expected in the Mississippi case by June 2022.
Lawmakers take Powell and Yellen questioning into day two Federal Reserve chair Jay Powell and Treasury secretary Janet Yellen face a second day of questioning from US lawmakers. Yellen is expected to urge lawmakers to reach a deal on raising the debt limit. The Federal Reserve will also release its latest Beige Book report.
Data With Americans quitting their jobs in record numbers, the latest ADP employment report will be closely watched ahead of Friday’s November non-farm payrolls and unemployment data.
Exxon update The US energy supermajor is expected to release new targets on reducing greenhouse gas emissions. It will be the first capital spending update since Exxon lost board seats in a proxy battle with the activist hedge fund Engine No 1, which had argued the company was ill prepared for a lower-carbon future.
FT and McKinsey Business Book of the Year The winner of the 17th annual award will be revealed at a ceremony in London. Here is the short list of titles chosen by the esteemed panel. The winner of the £15,000 Bracken Bower Prize for young authors will also be announced.
Join more than 100 influential leaders and the FT’s top journalists from across America and around the world for the Global Boardroom conference as they discuss how to build resilient, sustainable, inclusive economies and businesses in a world transformed by crisis. Register for free here.
What else we’re reading
The future of work WFH, presenteeism, the “Big Resignation” — Emma Jacobs reviews a new novel and two searching non-fiction books that shine a spotlight on dramatic changes in working culture.
Go deeper: In the latest episode of Working It, the new FT podcast on the world of work, host Isabel Berwick explores the topic of flat hierarchies with an expert on organisational design.
Lessons in ‘levelling up’ from the Basque country How are declining regions to be revitalised? This question arises wherever erstwhile bastions of heavy industry have collapsed in high-income countries. The Basque country in Spain has succeeded in regenerating. Martin Wolf examines how.
Russia’s Arctic ambitions In a remote Siberian port lies the world’s first floating nuclear power plant, a sign of Vladimir Putin’s ambitions to open up a major shipping lane through the Arctic. Could it offer an alternative to the Suez Canal?
UK stock market risks becoming a global backwater Britain is falling behind as US and Chinese markets forge ahead and fund managers obsess over dividends rather than growth. London has largely failed to take part in the global rally that began in 2015, writes Paul Marshall, chair of hedge fund Marshall Wace.
Food and drink
High-end hot chocolate can be as nuanced as coffee or wine. Single-origin specialist Cartografie makes four sustainably sourced hot chocolates that spotlight different terroirs. Its Venezuelan is soft and creamy, with notes of Earl Grey. The Tanzanian is fruitier: caramelised banana, pineapple and espresso.
Source: Economy - ft.com
