Aurelia Butler

“If the CPI data next week comes in on the cooler side once again (which is our expectation), then the Fed may move to signal a rate cut as soon as the September meeting,” Jefferies said in a Friday note, ahead of Thursday’s consumer price index report for June. Economists expect headline CPI to have risen 0.2% in June from a pace of 0% a month earlier, while core CPI, a more closely watched measure, which strips out food and energy prices, is expected to remain unchanged at 0.2%. The softer CPI would mark the second month of slowing inflation and add further confidence that upside surprises seen in Q1 were a mere aberration from the deflationary trend seen last year. Bets on a September rate cut received a major boost in the wake of Friday’s job report showing that April and May’s job gains were revised lower, overshadowing the better-than-expected payroll gains in June and pointing to signs of slowing in the labor market. As well as the downward payroll revisions, an unexpected uptick in the unemployment rate in June to 4.1% and slowing average hour wages slowed added further credence to expectations for the job the market to slow.The nonfarm payroll data supported Fed chairman Powell’s remarks earlier this week that the U.S. labor markets have seen “a pretty substantial move toward better balance than we had a couple of years ago.” Both the jobless rate and wage levels are approaching a more “sustainable” level, he added.Traders now see a 70% of a rate cut in September, down from 60% in the prior week, according to Investing.com’s Fed Rate Monitor Tool.   Economic data since April has helped the Fed’s “good news” counter tick higher, just ahead of Powell’s testimony before Congress and July Fed meeting — two events that could provide the Fed chief with the opportunity to lay out the carpet for September rate cut.   Fed officials have recently signaled that more confidence is needed before dropping the axe on rates, but “their tune could change at the next meeting on July 31, or perhaps as soon as Powell’s testimony before Congress next week,” Jefferies added. Powell begins two days of testimony before Congress on Tuesday. More

The China Securities Regulatory Commission (CSRC) and five other government agencies jointly published a set of guidelines against capital markets cheating, their latest efforts to address a deep-rooted issue that has plagued the world’s second-biggest stock market.The statement, which promised coordinated crackdowns against corporate fraudsters and their accomplices, comes as regulators are investigating the role of PricewaterhouseCoopers (PwC) as the auditor of China Evergrande (HK:3333) Group, whose main China unit was found cheating.”Financial fraud seriously disturbs capital market order and shakes investor confidence,” the CSRC said in the joint statement.Regulators will “go after chief evils”, “punish accomplices”, and make coordinated, systemic and comprehensive efforts against fraud, it said. As part of the efforts to head off misbehaviour, the CSRC said it has been working to revise laws toward harsher punishment.For example, laws have been revised to fine a company up to 10 million yuan ($1.38 million) for dishonest disclosures, compared with 600,000 yuan ($82,568) previously, the watchdog said.Meanwhile, those who violate disclosure rules could be imprisoned for up to 10 years, compared with three years previously. Intermediaries who publish false documents can also be subject to 10-year imprisonment, the CSRC said. ($1 = 7.2667 Chinese yuan renminbi) More

(Reuters) -Federal Reserve policymakers got more evidence of U.S. labor-market cooling on Friday that could boost their confidence they are winning their fight on inflation, and open the path to a more active debate on interest-rate cuts when they next meet in late July. The Labor Department report showing a rise in unemployment and a decline in job creation is just the latest in a string of recent data offering more evidence of slowing than what U.S. central bankers had in hand at their June meeting. At that time, many of them felt inflation progress was so lacking and the economy still so strong that they would likely cut rates only once this year, if at all.     Since then, the data has marched in the opposite direction. A couple of inflation reports have shown prices did not rise at all from April to May; other reports have signaled a slump in services and manufacturing activity and rising job openings and layoffs. Friday’s job report did not show big cracks in the labor market – indeed, job gains in June, at 206,000, outpaced economists’ expectations. But the unemployment rate rose to 4.1%, and large revisions to prior-month estimates of job creation meant the average monthly payroll gain over the most recent three months has downshifted to 177,000. That’s below the 200,000-a-month gain that Fed Governor Lisa Cook recently estimated the economy now needs just to keep up with immigration and other increases to the population. Average hourly earnings were up 3.9% from a year earlier, and 0.3% from a month earlier, Friday’s report showed. That puts annualized wage growth for the last three months at about 3.6%, nearing a pace consistent with the Fed’s 2% inflation objective. U.S. central bankers meeting July 30-31 are not expected to change their policy rate from the 5.25%-5.5% range it has been in since last July.But the new data, which suggests the labor market is nearing a healthier balance, could put a rate cut at the following meeting in their sights. “Overall, a moderation in payrolls in Q2 coupled with a rise in the unemployment rate and a slower growth path suggested by recent data bolster the case for rate cuts this year,” said Rubeela Farooqi, chief U.S. economist of High Frequency Economics. “We think the Fed could certainly start the discussion about cutting rates at the upcoming FOMC meeting, and lower the policy rate in September, if the data continue to show moderation.” Fed policymakers at their June meeting signaled they see just one interest-rate cut this year, a forecast that pointed to a December start to any policy easing. Fed Chair Jerome Powell said they would need to be confident inflation is heading to their 2% goal before cutting rates. He also said any unexpected weakening in the labor market could also trigger a rate cut.The increase in the unemployment rate last month from 4% still leaves that widely used gauge of labor-market health below levels historically associated with a downturn. But the rising rate, which was 3.7% in January and 3.5% last July, paints an economy on a more fragile footing than the raw number might suggest. Unless it declines in July, it would trigger what’s known as the Sahm rule, an indicator for recession. And while the post-pandemic economy has repeatedly bucked expectations and undercut long-held correlations, analysts are wary.”We now have definitive evidence of U.S. labor market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers ‘more confidence’ that consumer inflation will soon return to the 2% target on a sustainable basis,” said BMO Chief U.S. Economist Scott Anderson. Powell is slated to address Congress on Tuesday and Wednesday, and investors will be paying close attention to his views on the latest data and what it means for the Fed’s policy path. On Thursday investors will get the June reading on the consumer price index, which last month showed inflation had resumed its cooling trend.Financial markets are pricing in a 78% chance of a September rate cut, up from about 72% before the June jobs report. Traders are also pricing in a second rate cut in December more firmly than previously. More

(Reuters) -Inflation is easing and the job market has returned to the “tight but not overheated” situation seen before the COVID-19 pandemic threw the U.S. economy into disarray, the Federal Reserve said on Friday in a report to Congress that documented the steady emergence of more normal conditions in the aftermath of the health crisis. “Inflation eased notably last year and has shown modest further progress so far this year,” the Fed said in its latest Monetary Policy Report to Congress, noting that in the key area of housing services it is likely just a matter of time before the pace of price increases settles back to where it was before the health crisis. The job market, meanwhile, “continued to rebalance over the first half of this year,” the report noted. “Labor demand has eased, as job openings have declined in many sectors of the economy, and labor supply has continued to increase, supported by a strong pace of immigration.””The balance between labor demand and supply appears similar to that in the period immediately before the pandemic, when the labor market was relatively tight but not overheated. Nominal wage growth continued to slow,” the report said.The twice-yearly report to Congress comes ahead of two days of testimony by Fed Chair Jerome Powell, set for Tuesday and Wednesday next week, that is likely to focus on the Fed’s plans for monetary policy heading into a sensitive election season.Job growth has been slowing, and the unemployment rate has risen steadily from 3.5% last July to 4.1% as of June. Inflation remains around 2.6% by the Fed’s preferred Personal Consumption Expenditures Price index, still regarded as “elevated” by policymakers but edging towards a point where that may no longer be the case.New inflation data will be released on Thursday, and if price pressures continue easing it may prompt Fed officials to at least open the door to interest rate cuts as soon as September – a call Powell and his colleagues say will be based solely on the economics of the situation, not how it affects the political prospects of either party ahead of November elections.POLICY INDEPENDENCEIn a possible nod to the political sensitivities of the moment – including speculation that likely Republican presidential nominee Donald Trump may, if he wins, try to force out Powell before his term is up in 2026 – the report included as one of its “Special Topics” a short essay titled “Monetary Policy Independence, Transparency, and Accountability.”The message: The Fed is accountable first and foremost to Congress, which gave the central bank “operational independence” in setting interest rates precisely so those decisions would be “insulated from short-term political influences.” “It is widely understood that the monetary policy actions that deliver maximum employment and price stability in the longer run may involve restraining measures that entail short-run economic costs, while actions that raise output and employment to unsustainable levels have no long-run real benefits and may lead to elevated inflation rates,” the Fed wrote, noting that central bank independence was a well-established “international norm.”Yet both Democrats and Republicans are likely to quiz Powell on whether the Fed is holding true to that standard during the two days of testimony. The Fed at its most recent policy meeting in June left interest rates unchanged at 5.25%-to-5.50%, and fresh projections from policymakers showed them dialing back expectations for rate cuts this year from three to just one. Financial markets and some policymakers, however, still expect the Fed to deliver two cuts of a quarter-point each by year end.A number of congressional Democrats have already been hounding Powell over high rates, complaining they are exacerbating housing affordability for low- and middle-income households. Republicans, meanwhile, have been critical about the Fed’s initially slow response to inflation and could chastise Powell over any indication he may lower rates ahead of the election.But whether rate cuts start now or later, the moment is likely approaching.Indeed in a now standing chart in the report, included at the urging in particular of Republican lawmakers, several monetary policy rules suggest that rate cuts are overdue.”The current prescriptions from these rules are close to or below the current target range for the federal funds rate,” the report noted in its discussion of different variations of what is known as the Taylor Rule for setting the Fed’s benchmark policy rate. More

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