Aurelia Butler

The Federal Reserve concludes its latest two-day policy meeting later in the session – the marquee event for markets this week.The U.S. central bank is widely expected to hold its benchmark overnight interest rate steady, and thus the main focus will be on what Chair Jerome Powell has to say in his news conference, particularly given the bank won’t be updating economic projections this time around.Progress towards the Fed’s 2.0% medium-term inflation target has somewhat stalled of late, as typified by Tuesday’s release of the Employment Cost Index, which rose at an elevated 4.2% rate on a year-over-year basis in the first quarter, matching the rise in the fourth quarter.Investors will be awaiting indications about whether the Fed still expects to cut interest rates at some stage this year, given the sticky nature of recent inflation data releases.”The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence” and proceed with rate cuts, Powell said on April 16 in what were his last public comments before this week’s meeting. Futures markets now just barely see a single quarter-point rate cut by year-end, from as many as five of those at the start of the year.U.S. stock futures drifted lower Wednesday, amid caution ahead of more corporate earnings and the Federal Reserve’s latest policy decision.By 04:10 ET (08:10 GMT), the Dow futures contract was 35 points, or 0.1%, lower, S&P 500 futures dropped 12 points, or 0.2%, and Nasdaq 100 futures fell by 80 points, or 0.5%.The major Wall Street indices struggled in April, as sticky inflation data prompted investors to rein in expectations of early interest rate cuts by the Federal Reserve.The S&P 500 and the Nasdaq Composite posted losses of more than 4% last month, while the Dow Jones Industrial Average fell 5% for its worst monthly performance since September 2022.The Fed concludes its latest policy-setting meeting later Wednesday [see above] and this is likely to keep volatility low.Focus will also be on the continuing quarterly earnings season, with results due from the likes of drugmaker Pfizer (NYSE:PFE), food giant Kraft Heinz (NASDAQ:KHC) and pharmacy chain CVS Health (NYSE:CVS) before the opening bell, with chipmaker Qualcomm (NASDAQ:QCOM) and food delivery service DoorDash (NASDAQ:DASH) later in the session.Investors are also likely to keep an eye on the job openings and labor turnover survey for March as well as ADP’s private employment data for April, especially ahead of Friday’s nonfarm payrolls report.Amazon (NASDAQ:AMZN) became the latest tech giant to release its latest quarterly results late Tuesday, and largely beat expectations as interest in artificial intelligence helped drive cloud-computing growth.First-quarter sales increased 13% to $143.3 billion, higher than the $142.5 billion consensus, while net income more than tripled to $10.4 billion in the quarter.Importantly, Amazon Web Services, its cloud revenue segment, grew 17% to $25 billion, topping consensus estimates of 14.7% growth, with the division’s annual revenue run rate now at $100 billion.”The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate,” the company said Tuesday.There was a blip in the strong results, however, as the company forecast revenue of $144.0 billion to $149.0 billion for the current quarter ending June, below the consensus expectations of $150.1 billion.That said, Stifel remains a fan of the group, keeping a ‘buy’ rating, and lifting its 12-month target price to $228 from $224.“Despite an uneventful quarter, the company made progress on the margin story (more to go), AWS is largely past digestion phase, and advertising continues to ramp,” analysts at Stifel said, in a note.Amazon stock closed Tuesday at $175, and gained 1.3% in aftermarket trade.Officials at the Federal Reserve may be laser-focused on the inflation level, but they may also be minded to listen to comments from some of America’s largest consumer-focused corporations who are saying their customers are struggling.“It is clear that broad-based consumer pressures persist around the world,” McDonald’s (NYSE:MCD) CEO Chris Kempczinski said on the fast-food chain’s earnings call early Tuesday. “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending.”The fast-food chain reported a sequential drop in sales growth for the fourth straight quarter as low-income customers reined in spending.Elsewhere, Starbucks (NASDAQ:SBUX) cut its annual sales forecast on Tuesday after reporting a fall in same-store sales for the first time in nearly three years.”We still see the effects of a slower-than-expected recovery, and we see fierce competition among value players in the market,” CEO Laxman Narasimhan said on a post-earnings call.Away from the food retail sector, 3M Company (NYSE:MMM) topped expectations for its first quarter, but the maker of Scotch tape and Post-it notes still said it’s seeing “continued softness in consumer discretionary spend.” Crude prices fell Wednesday, continuing the recent weak tone after a surprise build in U.S. stockpiles and strong crude production sparked doubts over tight supply conditions. By 04:15 ET, the U.S. crude futures traded 1.1% lower at $81.03 a barrel, while the Brent contract dropped 1.1% to $85.42 per barrel.The American Petroleum Institute indicated late Tuesday that U.S. crude inventories grew by 4.9 million barrels in the week to April 26, a sharper jump than the 1.5 million barrels increase expected.This suggested that oil supplies were not as tight as initially expected in the world’s biggest fuel consumer, a notion reinforced by separate data showing U.S. domestic crude output rose to 13.15 million barrels per day in February from 12.58 million barrels in January, just short of the record high and its biggest jump since October. Crude prices slid to over three-week lows on Monday on growing expectations that a ceasefire agreement between Israel and Hamas could be in sight, reducing tensions in the region and cutting the likelihood of oil supplies being disrupted. More

TOKYO (Reuters) -Japan’s ruling Liberal Democratic Party (LDP) is examining the possibility of introducing measures to provide tax breaks for companies converting foreign profits into the yen, two senior party officials told Reuters.The tax holiday may be deployed as a policy tool to stem the yen’s sharp declines, incentivising firms to return overseas profits to Japan, according the officials, who declined to be named as the information is not public yet.The measures, if supported broadly, may be included in the government’s annual mid-year policy blueprint compiled in the summer as part of the government’s efforts to prop up the Japanese currency, the officials said.But the LDP is yet to kick off full-fledged discussions on such measures and the course of the policy talks remains unclear, the officials added.A finance ministry official was not immediately available for comment on Wednesday.The yen has slumped about 11% against the dollar so far this year as currency traders bet Japanese interest rates will remain low for some time in contrast to relatively high U.S. interest rates.The Sankei newspaper reported on Tuesday that Japan may introduce tax breaks for repatriation of corporate profits into the yen and may include the plan in the annual mid-year policy blueprint.The tax break would be applied for about 20 trillion yen ($126.74 billion) worth of “foreign direct investment earnings” from companies’ overseas subsidiaries, the Sankei said.Japan in 2009 introduced tax treatment for companies that excludes 95% of dividends earned from foreign subsidiaries from taxable income.Since only the remaining 5% of dividends would be subject to the potential new tax breaks, the impact of such relief is likely to be limited, government officials told Reuters prior to the Sankei reports.That scepticism is held by some within the ruling party, one of the LDP officials said.The government sees spurring domestic investment to achieve durable economic growth as one of top policy priorities.Many Japanese firms tend to reinvest offshore profits in overseas operations due to slim prospects of growth in the ageing home market.Against this backdrop, Japanese top currency diplomat Masato Kanda has launched a panel of private-sector experts to review Japan’s balance of payments and aims to compile opinions in June.($1 = 157.8000 yen) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an onsite version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Unhedged is very happy to be back after a week and a half away. Most of last week I was in Switzerland, at a Bank for International Settlements conference. (Unhedged is now just me, until I find a replacement for the irreplaceable Ethan.) There, I learned a lot about how the Basel global banking standards are negotiated. The short version: it’s hard going, but it gets done because everyone involved has a pressing interest in a banking system that doesn’t break all the time. On Friday, I’ll publish an interview with Agustín Carstens, head of the BIS and the central bankers’ central banker. Meanwhile, email me: [email protected] Fed is stuck, and so are stocksI won’t flatter myself with the notion that Unhedged is its readers only source of financial news. All the same, it is worth summing up what has happened over the last 10 days or so, while the letter was on hold. Over that time, the overall picture has not so much changed direction as consolidated significantly, in a way that will inform what we hear from the Federal Reserve’s meeting today.There is now even stronger evidence that the US real economy is growing at an above-trend pace, and inflation is stuck above target. So expectations for lower interest rates have receded still further, causing stock markets to lose their giddiness.Last Thursday’s first-quarter gross domestic product report showed growth of 1.6 per cent, suggesting a slowdown. This was deceptive. Both the trade deficit and inventories were a drag, but demand is undiminished. Final sales to domestic purchasers grew at an annual rate just a shade under 3 per cent, only a bit slower than the previous quarter. Real personal consumption expenditures (last Friday) confirmed the signal.Investment is adding to demand, too. Real private investment, both residential and non-residential, are rising nicely. The manufacturing sector, as we have noted before, is finally expanding, if slowly. This is all great, except that the Fed’s preferred measure of inflation is just plain old going in the wrong direction:A measure of wage inflation the Fed cares about, the employment cost index, came out yesterday, and it ticked up sequentially, too.The markets saw the outlines of this picture before the recent data filled it in. The furious stock rally that began last October ended as April began, and except for a short sharp bounce driven by tech stocks, it’s been sideways-to-down since:It has been suggested that the market malaise is down to worries about growth, or even stagflation. I do not think the data support this reading. Andrew Brenner of NatAlliance suggested a bad consumer confidence reading from the Conference Board and a poor Dallas Fed Services Survey, both released yesterday, are evidence of creeping softness. But the majority of the data points the other way. Yes, companies that cater to lower-income households continue to report weakening demand, as the FT reported yesterday. But as Unhedged has pointed out before, distress among low-income, high-debt consumers is consistent with a US economy that is strong in aggregate.Most importantly, if markets were responding to a rising risk of a slowdown, we would expect to see that reflected in corporate bonds’ yield spreads over Treasuries, which respond to even slight changes in the probability of recession. But junk spreads remained pinned at lows not seen since 2007:What we are seeing is the stock market move from pricing in a strong economy and falling rates, to pricing in a strong economy and high and stable rates, at least in the near term (For a measured argument in favour of falling inflation and rates in the medium-term, look at Chris Giles’s latest central banking newsletter; his core argument, as I see it, is the US labour market continues to loosen up).The Fed has no choice to await an improvement in the data before cutting rates, and stocks could be stuck in a sideways pattern until that happens. Making predictions about the short-term behaviour of equities is folly, of course. But it’s not just the receding chances of a rate cut that is applying downward pressure. Stocks remain expensive, and earnings have not been great, despite the strong economy. As of Friday, S&P 500 stocks that have reported first quarter results have managed 3.5 per cent growth in earnings and 4 per cent revenue growth, on average, according to FactSet. Margin expansion has been hard to come by as inflation has lingered. As of now, stocks are sailing into some fundamental headwinds.What might break the impasse the Fed finds itself in? The obvious candidate, given where the current robust growth is coming from, is softening demand from consumers. There is some reason to think this might happen because — as almost everyone agrees — US households’ excess pandemic savings are exhausted. Below, for example, is a chart from Nancy Vanden Houten of Oxford Economics. Excess savings are hard to measure. She follows the more or less standard methodology, calculating excess savings as the actual level of savings (accumulated income less expenditure) less what savings would have been, had pre-pandemic trends persisted.Vanden Houten notes “consumers are continuing to spend at a healthy clip” despite the diminishing stock of savings. That is to say, the savings rate is low, a sign of confidence. I asked her if that might make consumer spending vulnerable to a confidence shock. She replied:You have to ask how long consumers will maintain such a low savings rate. We think for now that a healthy labour market and gains in wealth from equities and real estate will bolster spending, but see a risk households start to boost savings. I think that there is a risk that lower income households will cut back on spending — perhaps they already have. They are most likely to have depleted any savings and also haven’t enjoyed the same increases in wealth as other households.In other words, there is a risk that the stress and parsimony we see among a small minority of poorer households will spread upwards. That will help solve the Fed’s inflation problem, but not in a way shareholders will enjoy.One good read“Biden is to Obama what Johnson was to Kennedy.”FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereDue Diligence — Top stories from the world of corporate finance. Sign up here More

LONDON (Reuters) – U.S. investors are buying up London commercial property at the fastest rate in eight years, data compiled by BNP Paribas (OTC:BNPQY)’s real estate arm showed, lured by signs the market in Britain is recovering faster than the harder-hit United States.Commercial property values and sales have plunged globally in recent years – including in Britain – as soaring borrowing costs and emptying post-pandemic offices have eroded investments. Vacancy rates have jumped, especially in the U.S.U.S. investor interest in Britain is growing, helped by more appealing “leasing fundamentals” and a stronger dollar versus the pound, BNP Paribas Real Estate said.U.S. property markets remained mired in concerns about sticky interest rates, a slower return to the office and political uncertainty before the U.S. election, it added.U.S.-based investors spent 1.9 billion pounds ($2.4 billion) on London commercial property in January-March – up six-fold on the prior year and the most since the final quarter of 2015, according to the data.”This positive uplift into this new cycle tells us U.S. capital is firmly back in the market,” said Fergus Keane, BNP Paribas Real Estate’s head of central London capital markets.High-profile deals included MCR Hotels’ 275 million pound purchase of the BT Tower in central London, with the prominent former telecoms tower to be converted into a luxury hotel, and Elliott Management and Oval Real Estate’s 300 million pound acquisition of a mixed-use portfolio in the capital’s West End.Across Britain, U.S. investors spent 3.1 billion pounds on property in the quarter, up two-thirds on 2023 and the most since early 2022, BNPP said.U.S. domestic political tensions were “certainly at play” in the upswing in investment, Keane added.Britain is poised to be the biggest beneficiary of U.S. investment into real estate overseas, with $13 billion waiting to be deployed, up from $10 billion in 2023, according to separate Knight Frank research covering 19 major markets.($1 = 0.7957 pounds) More

WASHINGTON (Reuters) – U.S. central bank officials will conclude their latest two-day policy meeting on Wednesday with a new statement and comments from Federal Reserve Chair Jerome Powell that could give a clearer sense of how recent disappointing inflation readings have changed the expectation for interest rate cuts this year.The Fed is almost certain to hold its benchmark overnight interest rate steady, with investors placing nearly a 100% probability on that outcome and no support for any changes to the policy rate offered by officials ahead of the meeting.But a new policy statement issued at 2 p.m. EDT (1800 GMT) and Powell’s press conference half an hour later should provide insight into how deeply – if at all – a stretch of three lost months in the inflation battle has affected the likelihood that borrowing costs will fall any time soon. Fed policymakers will not be updating their quarterly economic projections at this week’s meeting, so any fresh guidance rests on the statement and Powell’s press conference.The Fed made significant headway in lowering inflation back to its 2% target after it had surged to a 40-year high in 2022. But progress has stalled this year, and even threatened to reverse, pushing central bank officials to downplay when rate cuts might begin.As the latest Fed meeting began on Tuesday, two sets of data further undermined the outlook. The Employment Cost Index (ECI), an important measure of labor market conditions because it is measured quarterly and accounts for changes in the mix of occupations, rose at a 4.2% rate on a year-over-year basis in the first quarter, matching the rise in the fourth quarter and above what’s considered consistent with the Fed’s inflation target.Two national measures of home prices also showed unexpected strength, a blow to longstanding Fed hopes that shelter inflation would ease and help lower the headline inflation rate.”Recent data has not been what the Fed is looking for,” said Tuan Nguyen, a U.S. economist at RSM, with the ECI in particular perhaps steering policymakers towards a more hawkish view of recent data they still hope will prove a bump on the way to lower inflation as opposed to a sign that progress is stalling.Investors in contracts tied to the Fed’s policy rate responded to the data by further pushing out their expectations of when it might fall, according to data from CME Group’s (NASDAQ:CME) FedWatch Tool, with an initial quarter-percentage-point reduction at the central bank’s Sept. 17-18 meeting given about even odds as of Tuesday.The likelihood that the benchmark rate won’t be cut at all from the current 5.25%-5.50% range this year was roughly one in four – up from close to zero as of early April.The Fed last raised rates in July, and while officials have said they’d be unlikely to hike again, Powell’s assessment of that issue at his press conference will be important – even if it is only to restate that the expectation is to simply leave the current policy rate in place for longer than anticipated.”The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence” and proceed with rate cuts, Powell said on April 16 in what were his last public comments before this week’s meeting. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work.” More

Visiting Beijing late last year, the EU’s chief diplomat Josep Borrell complained that China’s trade deficit with Europe was soaring even as its market became tougher for European companies to enter. “Either the Chinese economy opens more, or you may have a reaction from our side,” Borrell warned. Last week, the response came. The EU wielded new anti-subsidy powers for the first time in a raid on the Warsaw and Rotterdam offices of Nuctech, a Chinese manufacturer of airport and port security scanners.The raid, the latest in a series of trade-related investigations by the EU against Chinese companies, comes as China’s trading partners protest against what they argue is a flood of underpriced exports from the world’s second-largest economy. While Beijing incentivises investment in manufacturing, it does too little to spur household consumption, they charge. China’s seeming reluctance to rebalance its economy is one of the great challenges facing global financial systems, threatening to worsen Beijing’s trade and diplomatic relations not only with western countries but also with developing nations. Both inside and outside China, there is a strongly held view among many economists that the country could secure a further period of robust growth if it were able to boost consumption by its own citizens. Indeed, faced with a property crisis, President Xi Jinping has taken some one-off measures to stimulate consumption to offset a fall in domestic demand. But Xi has eschewed more radical medicine, such as cash transfers to consumers or deeper economic reforms. His latest campaign is instead to unleash “new quality productive forces” — more investment in high-end manufacturing, such as EVs, green energy industries and AI. According to analysts, the reasons for the lack of more radical action on consumption range from a need to generate growth quickly by pumping in state funds — this time into manufacturing — to the more deep-seated difficulties of reforming an economy that has become addicted to state-led investment.Ideology and geopolitics also play roles. For Xi, China’s most powerful leader since Mao Zedong, the greater the control his country exerts over global supply chains, the more secure he feels, particularly as tensions rise with the US, analysts argue. This leads to an emphasis on investment, particularly in technology, rather than consumption. Under Xi, security has also increasingly taken precedence over growth. Self-reliance in manufacturing under extreme circumstances, even armed conflict, is an important part of this, academics in Beijing say. “China should be prepared for war,” says Liu Zhiqin, senior researcher at the Chongyang Institute for Financial Studies at Renmin University of China. “The conflicts in Europe and currently in the Middle East have repeatedly proven the importance of maintaining a robust manufacturing capacity and ample inventory.”The pressure on Beijing to find a new growth model is becoming acute, analysts say. China has become too big to rely on its trading partners to absorb its excess production.“The exit strategy has to be, at the end of the day, consumption — there’s no point producing all this stuff if no one’s going to buy it,” says Michael Pettis, a senior fellow at the Carnegie Endowment in Beijing.Few projects capture Xi’s vision for 21st-century Chinese development as well as Xiongan, a new city being built on marshlands about 100km from Beijing.At a lake in the “modern socialist prototype city”, the voice of Chinese opera singer Yin Xiumei singing “my motherland and I, never shall we part” blasts out from hidden speakers across the water while a system of intricate fountains simulates ballet dancers. The display is an example of how no expense has been spared to impress visitors to what Xi has called China’s “1,000-year project”.Xiongan unites many of Xi’s favourite development themes. Through vast investment in mega-infrastructure projects such as a high-speed rail hub, Xiongan aims to bring state-owned enterprises, universities and entrepreneurs together to concentrate on high-technology innovation, from autonomous vehicles and life sciences to biomanufacturing and new materials. As of last year, about 1mn people were living there, $74bn had been invested and 140 companies had set up there, Beijing says.The Sungrow Power Supply headquarters in Hefei. China’s premier Li Qiang in his annual work report listed numerous schemes to encourage people to spend, such as incentives to upgrade home appliances and buy electric vehicles More

(Reuters) – Australia’s biggest banks are likely to report weaker first-half profit as high operating costs and competition to sell mortgages and deposits squeeze margins, setting up a possible reversal of a stock rally that analysts said has left the sector overheated.Traditionally beneficiaries of rising interest rates, the country’s so-called Big Four lenders have instead spent the past year sacrificing margins to write new home loans and paying more to depositors, narrowing their closely watched “net interest margin” and putting downward pressure on profit, analysts said.That may undermine a share price run-up in the sector since late 2023 that was based on signs that 13 interest rate hikes had tamed inflation and hopes of a return to rate cuts in 2024. Some analysts now expect a longer wait for rate cuts, with some suggesting the next move could be upwards.”We expect further margin erosion in the first half of fiscal 2024, as the sector continues to be impacted by deposit/mortgage competition and adverse deposit mix shifts,” analysts at investment and advisory firm Jarden wrote in a client note.National Australia Bank (OTC:NABZY) (NAB), the second-biggest mortgage lender and biggest business lender, is set to report a nine-basis-point narrowing in its first-half net interest margin when it begins the reporting season on May 2, with cash likely falling as much as 13%, analysts estimated.”As the economy slows at some juncture, we expect that NAB as the largest business bank will be at a structural disadvantage versus peers,” wrote Citi analysts, who recently downgraded their recommendation on Big Four shares to “sell”.”As business credit slows and becomes more competitive, relative momentum will disappoint and put pressure on (NAB’s) expanded premium valuation.”Similar decline in margin and underlying profit is expected for Westpac Banking (NYSE:WBK) and ANZ Group, according to market data aggregator Visible Alpha and other brokerages. Westpac and ANZ, the third- and fourth-biggest banks, announce half-year earnings on May 6 and 7 respectively.Commonwealth Bank of Australia (OTC:CMWAY), Australia’s biggest lender, gives a third-quarter trading update on May 9, with analysts expecting margin decline of as much as 11 basis points and profit decline of as much as 10%.The lenders’ shares have risen around one-fifth since October when investors began forecasting that economic data indicating inflation was being tamed would prompt central banks to start cutting rates from mid-2024.However, as unfavourable economic data poured in from the start of the year, bets were dialled down, with total easing expectation now at 3 basis points, and even a small chance of a rate hike being now priced in. [0#RBAWATCH]”This pause in rates would leave the bank rally exposed, with little reconciliation between multiples and the dour earnings outlook currently in consensus,” Citi analysts said. More

NEW YORK (Reuters) – An announcement from the Federal Reserve to kick off the end game for its balance sheet runoff could come as early as this week’s policy meeting, a number of economists say, though an uncertain outlook for interest rates amid sticky inflation could push a “tapering” declaration back to June.Tapering involves slowing the pace of the Fed’s quantitative tightening program, under which it has been allowing up to $95 billion a month of Treasuries and mortgage bonds to mature from the central bank’s portfolio and not be replaced. Fed officials have been signaling they would soon like to slow QT, noting that by downshifting the pace they can reduce the risk of market stress and perhaps shrink its holdings by a greater degree. The Fed has been cutting the size of its balance sheet since June 2022 after doubling it to $9 trillion in the wake of the onset of the coronavirus pandemic, as it sought to stabilize markets and provide stimulus to the economy. The Fed fired up QT as it raised interest rates aggressively to bring inflation back to its 2% target. Fed bond holdings have dropped to around $7.5 trillion, and while it has not specified where it wants holdings to end up, the central bank is seeking a level of market liquidity that fosters limited interest rate volatility and allows it firm control over the federal funds rate, its main tool for achieving its policy mandates. A recent New York Fed report said it’s likely the QT process will run into 2025 before holdings level off. Minutes of their last meeting in March signaled officials favor a QT taper that focuses only on slowing the runoff of Treasuries, as mortgage bonds have been expiring at well below their $35 billion a month target, and ultimately they’d prefer only to hold government bonds. “The next step in the Fed’s balance sheet reduction plan is pretty clear: cut the monthly cap on Treasury runoff from $60 billion to $30 billion,” J.P. Morgan economists said in a research note. “The only real question is when: at the May meeting or at the June meeting.””We lean toward (May),” they said, as it is a meeting with no expectations for a change in interest rate policy, and no policymaker forecast updates.The Fed has gone to lengths to separate its balance sheet and interest rate policies, though both have worked in the same direction to make Fed policy overall more restrictive. Wrightson ICAP (LON:NXGN) analysts also see a QT taper announcement at the end of the Fed’s two-day policy meeting on Wednesday as “there is also no obvious reason to wait.” Bank of America economists also believe the Fed will announce a runoff slowdown this week because it will help it manage liquidity needs stemming from how banks and the Treasury manage cash flows. SUMMER START?But others see the can kicked down the road a month. “In a close call, we now expect an announcement of reduced QT caps to be delayed until the June meeting,” Deutsche Bank economists said. “While officials appear broadly agreed on the parameters around this tweak, we suspect they will want to avoid any dovish misinterpretation from slowing QT that could inadvertently ease financial conditions.” The June meeting will bring the next round of Fed forecasts on interest rates and key economic variables, and “pairing the announcement with a more hawkish signal from the dot plot at the June meeting might be preferred” to avoid any mixed policy messages, the bank said. Analysts at LH Meyer also favor a June announcement on the balance sheet, noting “the FOMC could decide on the broad contours (‘Principles and Plans’) and publish them after the May meeting to give the markets some confirmation of what the process would look like, without prejudging when it would then take that step.” More