Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Topsy-turvy US economic data released this week left markets in a pickle, but still just outside the danger zone. Official figures revealed on Thursday that the US economy was not necessarily streaking ahead of the rest of the developed world as thought. It turns out that growth was running at an annualised pace of 1.6 per cent in the first quarter — far behind the 3.4 per cent clip in the fourth quarter of last year and a big miss from the 2.5 per cent that economists had been expecting.For a tiny moment, benchmark government bonds popped higher in price in response — a typical reaction to a nasty shock on growth. But other data blurred the picture, in particular on inflation. On Friday, the Federal Reserve’s go-to measure of price fluctuations — personal consumption expenditures figures — showed a small increase to 2.7 per cent in the year to March, a nose above forecasts and above the previous month’s reading. For months, holdouts hoping that the Fed will cut interest rates aggressively, and soon, have derived comfort from relatively becalmed PCE inflation data, and sought to dismiss bracingly strong readings from other measures. Figures such as Friday’s really underline that the direction of travel is not pointing that way. “Which ever way you crunch the numbers, this clearly isn’t the sort of inflation momentum where the Fed could be comfortable cutting rates,” noted Jim Reid at Deutsche Bank.The result is that bond prices have slid back again, and benchmark 10-year bond yields are right back up to where we were in November, a little under 4.7 per cent, as if the whole frenzy around expected rate cuts in late 2023 and at the start of this year was all a weird dream. Let us never speak of it again.The big winners here are the macro hedge funds that have placed their bets on few if any rate cuts from the Fed this year and a related sweep higher in bond yields. I’m sure we’re all delighted to see the downtrodden billionaires enjoy a stroke of luck.For the rest of us, humble mere mortals, this combination of slower growth and nagging inflation is an unsettling mix. Bond markets have already taken the death of the rate-cut trade badly. “Fixed income has not gotten the joke,” said Michael Kelly, global head of multi-asset at PineBridge Investments. “It’s an earthquake.”Stocks, meanwhile, can take this in their stride as long as higher interest rates are the result of a stronger economy, he said, and as long as investors are sure the next move in rates, whenever it comes, is a cut. “I really don’t think the stock market falls out of bed as long as the prognosis is down, not up,” he said. But it is that little bit harder to be certain on either of those fronts in light of the latest data, hence a bracing pullback in stocks on Thursday that was rescued only by upbeat results from Alphabet and Microsoft.A rise in US interest rates this year remains a long shot. But it is still a prospect that some investors are starting to take more seriously. To put it mildly, “that really would be a problem for the equity market”, said Robert Alster, chief investment officer at Close Brothers Asset Management.Right now, the market mood is somewhat downbeat, especially as the clingy nature of inflation has caught even canny economists off guard. But unlike last autumn, when the notion that rates would be higher for longer last really set in, it is calm. Some investors are even relishing the chance to load up on more stocks after a rare recent dip in prices. The key to what might make that change is the number five.Round numbers should not matter in markets, but the reality is that they do, and the closer the benchmark 10-year Treasury bond yield rises towards 5 per cent, the louder the noise will become.If you cast your mind back to October, approaching and then hitting that point unleashed a moment of panic around the really big questions. Who will buy all the US government bonds? How will the world’s pre-eminent superpower fund itself? Will the dollar remain the key global reserve currency?As ever, the answers to those questions were — 1: everyone, just at a lower price; 2: see 1; and 3: yes. But it is never a comfortable experience when those are the debates.The current reset in bond yields is different from last year’s. Inflation, while higher than desired, is markedly lower. But when yields hit those sorts of notable highs, the question around whether it is really worth buying stocks when you can bake in those returns on risk-free bonds becomes sharper. At the same time, the gold bugs and fiscal crisis enthusiasts come out of the woodwork, putting a cap on broader enthusiasm for risky assets.Investing is never as simple as “big number, sell everything”. But when the mood is jittery, these mind games can have a real impact.“Five is a really good number,” said Alster at Close Brothers. “As long as we’re under five and the inflationary data is not deteriorating . . . we can convince ourselves that the next move is down, and I think we’re going to be OK.”[email protected] More

The Fed both manages monetary policy – most notably through setting benchmark interest rates that influence the direction of the overall economy – and is a top U.S. bank regulator. The Trump allies drafting the plan aim to hobble its relatively free rein on both fronts, according to the Wall Street Journal report.Installing policymakers who favor loyalty to Trump as president over the institution’s prized independence would be central to that effort, according to the report. Here’s a look at the Fed system’s structure and how the selection of policymakers works.THE FED SYSTEMThe Federal Reserve System, created by Congress in 1913, comprises the Washington-based Federal Reserve Board; 12 regional Federal Reserve banks dotted across the country; and the Federal Open Market Committee, including both Fed board members and regional bank heads.The Fed board has seven members, including an overall chair, two vice chairs – one for monetary policy and one for bank oversight – and four other governors. All are appointed by the president subject to confirmation by the Senate.Trump succeeded in appointing four board members during his presidency and elevated Jerome Powell, who was already a governor through an appointment by Trump’s predecessor, Democrat Barack Obama, to be the Fed chair. All of his successful appointees – including Powell and current governors Michelle Bowman and Christopher Waller – have hewn to the tradition of Fed independence. Three others who were seen by many as pushing that envelope – Stephen Moore, Judith Shelton and Herman Cain – withdrew or failed to win full Senate confirmation.Each regional Fed bank is run by a president appointed by a subcommittee of each bank’s board of directors. The FOMC, which has the all-important role of setting interest rate policy, comprises all seven board governors, the president of the Federal Reserve Bank of New York, and four other regional bank presidents on a rotating basis.THE BOARD NOWFed governors are appointed by the president and confirmed by the Senate for 14-year terms, or for the unexpired remainder of a 14-year term for a previous incumbent. Term expirations are staggered at two-year intervals, with the next one due in 2026.Fed chairs and vice chairs are appointed for four-year terms that run concurrently with their governorships, and typically do not stay on as governor if not re-appointed to their leadership role. Powell’s position as chair expires in May 2026, and both vice chairs’ positions expire during the term of the next U.S. president.The following is a list of current governors, in order of their term expirations with the nearest listed first.Board Member Joined board, Board term Became chair /vice Chair/ vice term extended ends chair, reappointed chair term ends Adriana Kugler 9/13/2023 Jan 2026 Jerome Powell, 5/12/2012, Jan 2028 2/5/2018, May 2026 chair 6/14/2014 5/23/2022 Christopher Waller 12/18/2020 Jan 2030 Michael Barr, vice 7/19/2022 Jan 2032 7/19/2022 July 2026 chair for supervision Michelle Bowman 11/26/2018, Jan 2034 1/23/2020 Philip Jefferson, 5/23/2022 Jan 2036 9/13/2023 Sept 2027 vice chair Lisa Cook 5/23/2022, Jan 2038 9/8/2023 THE BANK PRESIDENTS NOWFed bank presidents are picked by the six non-banker members of their boards of directors, and must be approved by the Fed Board. They can serve until the mandatory retirement age of 65 or, if appointed after the age of 55, for 10 years or until they reach age 75.The terms of all current bank presidents end in February 2026, when they will be considered for a fresh five-year appointment by the Board of Governors. This reupping process historically has not resulted in any change in leadership, but this is custom not law. The following is a list of the Fed regional bank presidents with the term limit dates listed for the five whose terms will expire over the course of the term of the next U.S. president.Bank President Expected end of term CLEVELAND Loretta Mester June 2024 PHILADELPHIA Patrick Harker June 2025 RICHMOND Thomas Barkin Jan 2028 NEW YORK John Williams June 2028 SAN FRANCISCO Mary Daly Oct 2028 ATLANTA Raphael Bostic After 2028 BOSTON Susan Collins After 2028 KANSAS CITY Jeffrey Schmid After 2028 ST LOUIS Alberto Musalem After 2028 CHICAGO Austan Goolsbee After 2028 MINNEAPOLIS Neel Kashkari After 2028 DALLAS Lorie Logan After 2028 (This story has been corrected to fix Stephen Moore’s name in paragraph 7) More

The allies named envoys last month to launch early talks for a new deal to take effect in 2026. South Korean media said the aim was for an agreement before any November election comeback by former President Donald Trump, who during his presidency accused Seoul of “free-riding” on U.S. military might.Ahead of a first round of talks in Hawaii from Tuesday to Thursday on a so-called 12th Special Measures Agreement (SMA), chief U.S. negotiator Linda Specht said Washington was seeking “a fair and equitable outcome.”In a brief statement on Friday, Specht said: “The United States and Republic of Korea outlined their respective visions for the 12th SMA … We will continue to consult whenever necessary to further strengthen and sustain the Alliance under the 12th SMA.”A senior Biden administration official told Reuters last month the talks were on track and ahead of schedule but the U.S. did not see November as a “hard deadline.”More than 28,000 American troops are stationed in South Korea as part of efforts to deter nuclear-armed North Korea.South Korea began shouldering the costs of the deployment, used to fund local labor, the construction of military installations and other logistics support, in the early 1990s. During Trump’s presidency, the sides struggled for months to reach a deal before Seoul agreed to increase its contribution by 13.9% over the previous 2019 pact under which Seoul had paid about $920 million annually. It was the biggest annual rise in nearly two decades.Trump had demanded Seoul pay as much as $5 billion a year.According to the U.S. Government Accountability Office, from 2016 through 2019, the U.S. Defense Department spent roughly $13.4 billion in South Korea to pay military salaries, construct facilities, and perform maintenance, while South Korea provided $5.8 billion to support the U.S. presence.The current deal expires in 2025, with negotiations on a successor pact usually held just before the end of the existing one. More