Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A top US monetary policymaker has said the strength of the US economy means that interest rates are unlikely to fall as far as expected in the longer term, as she all but ruled out a cut as soon as May. Loretta Mester, president of the Cleveland Federal Reserve and a voting member of the Federal Open Market Committee, revealed in a speech on Tuesday that she had raised her estimate of the longer-run federal funds rate from 2.5 per cent to 3 per cent. Mester also said she needed to see more evidence of inflation falling towards the central bank’s 2 per cent goal before moving to lower borrowing costs from their current 23-year high of 5.25-5.5 per cent. “It’s hard for me to get there by May,” she said during a press briefing, referring to the policy vote scheduled for May 1. A cut at the Fed’s mid-June vote would be a possibility, she added. “I wouldn’t rule that out. We just need to see more evidence that inflation is on that sustainable downwards path towards 2 per cent.” While investors’ expectations for the timing of a first cut have already drifted out towards June, Mester is the first member occupying the committee’s centre ground to rule out a move until June so explicitly. Inflation surged to a multi-decade high in 2022, sparking 525 basis points’ worth of rises from the central bank. A sharp slowdown in price pressures during the second half of 2023 led rate-setters to shift away from rate rises and towards considering cuts. However, recent price data has been disappointing, showing inflation edging up. The US economy, meanwhile, remains resilient, enabling policymakers to take a patient approach towards cutting rates. Nine FOMC members still expect three quarter-point rate cuts this year, leaving the Fed’s benchmark rate at 4.5-4.75 per cent by the end of the year. “I think three is still reasonable, but it’s a close call,” Mester said during the briefing. Separately, Mary Daly, president of the San Francisco Fed and another voting member of the FOMC, told an event in Las Vegas that three cuts remained “a very reasonable baseline”. She added, however: “A projection is not a promise.”Markets are also expecting three cuts. Mester said the change in her longer-term rate forecasts reflected “the continued resilience in the economy despite high nominal interest rates and higher model-based estimates of the equilibrium interest rate”. The equilibrium interest rate, or R-star, is the rate at which the Fed can consider borrowing costs to be neutral, neither inflating nor deflating demand in the economy. Mester said during the briefing that higher productivity growth and greater investment, notably in technologies relating to climate change, had led her to shift her view after spending “a long time” at 2.5 per cent. The FOMC’s projections show members’ estimates for interest rates at the end of 2024, 2025, 2026 and for an unspecified longer term. The median longer-term estimate rose slightly, from 2.5 per cent to 2.6 per cent, in its most recent projections, unveiled last month.While Mester will leave the FOMC in June, economists expect more debate between the committee’s members on longer-term interest rates later this year. More

OTTAWA (Reuters) -Prime Minister Justin Trudeau on Tuesday launched a C$6 billion ($4.42 billion) Canada Housing Infrastructure Fund to accelerate the construction and upgrading of housing.WHY IT’S IMPORTANTCanada faces a housing affordability crisis as a rapidly increasing immigrant population has far outpaced the number of available homes, leading to increases in prices and rents. High inflation and 22-year high interest rates have also driven up mortgage costs.The opposition has slammed the government for being slow to build more homes and the crisis is seen as one of the reasons for a slump in Trudeau’s polling numbers.CONTEXTThe fund is one of the many schemes proposed by the government to spur construction of houses and will be a part of the upcoming budget on April 16. The government will allocate around one-fifth of the money to municipalities to build critical infrastructure around houses and the rest will go to provinces and territories to build houses for the middle class.KEY QUOTES”We need more affordable homes, and we need the infrastructure to help build these homes. That’s why in Budget 2024, we’re building more infrastructure, building more homes, and helping more Canadians find a place to call their own,” Trudeau said.”Since we launched the Housing Accelerator Fund last year, we have cut enough red tape to build 750,000 new homes over the next decade. It is working, so we are investing another$400 million,” Finance Minister Chrystia Freeland said.BY THE NUMBERSC$1 billion to be allocated to municipalities to support urgent infrastructure needs such as water, sanitation etc. The remaining C$5 billion will be for agreements with provinces and territories to support long-term priorities. The government also announced topping up of the C$4 billion housing accelerator fund launched last year by C$400 million.($1 = 1.3565 Canadian dollars) More

NEW YORK (Reuters) -Federal Reserve Bank of Cleveland President Loretta Mester said on Tuesday she continues to expect the central bank will be able to cut rates this year and noted the June policy meeting might be when the easing kicks off if the data allows it. “If the economy evolves as expected, then in my view it will be appropriate for the [Federal Open Market Committee] to begin reducing the fed funds rate later this year, as inflation continues on its downward path toward 2%, and labor markets and economic growth remain solid,” Mester said in a speech given before a gathering held by the National Association for Business Economics, Cleveland Association for Business Economics, and Team NEO. As for the pace of that action, it could occur “gradually” if the economy meets the forecast, she said. Mester cautioned that to pave the way for an easing in the stance of monetary policy she needs to see upcoming inflation data meet her forecast of further declines. Because that could take some time, “I do not expect I will have enough information by the time of the FOMC’s next meeting to make that determination” of an easing in rates. The next Fed policy meeting is scheduled for April 30 and May 1But that could change by the time the FOMC meets on June 11-12. “We have to be data dependent so I don’t want to rule that out,” she told reporters after her speech, in regards to an early summer rate cut. Officials at the last FOMC meeting in March maintained their overnight target rate range at between 5.25% and 5.5% and continued to pencil in three rate cuts this year. Strength in inflation data at the start of the year has called into question when the Fed will kick off rate cuts and how far it will be able to go. Mester, who will retire at the end of June, is currently a voting member of the FOMC. She told reporters that three rate cuts for this year remain a “reasonable” forecast while deeming it a “close call.” In her speech Mester said monetary policy is in a good place right now because a strong economy gives the central bank room to take in data before making a change in rates. She expects continued declines in inflation albeit at a slower pace than last year. She also cautioned against premature rate cuts. “Moving rates down too soon or too quickly without sufficient evidence to give us confidence that inflation is on a sustainable and timely path back to 2% would risk undoing the progress we have made on inflation,” Mester said, adding “at this point, I think the bigger risk would be to begin reducing the funds rate too early.” Mester also said in her remarks that she’d revised up her expectation for growth this year to just above 2%, and she said the job market will likely see higher unemployment rates. Mester said she also revised at the FOMC meeting her view of the longer-run federal funds rate to 3% from her prior estimate of 2.5%. “I don’t think the equilibrium interest rate will be as low as it was” in the future, Mester said following her formal remarks. The current situation plus the outlook suggests that, “although we’ve raised interest rates quite a bit, and they’re at a high level, maybe we don’t have as much restraint on the monetary policy side as we were thinking.” More

BRASILIA (Reuters) – Brazil’s central bank has asked the government for a 20.4% increase in its 2024 discretionary budget, a letter seen by Reuters on Tuesday showed, arguing that a lack of funds would bear operational and security risks.The monetary authority sent the letter to Brazil’s Planning Ministry in March requesting an additional 66.6 million reais ($13.2 million) in the discretionary part of its budget, which the government is not legally obliged to pay, as that would allow it to “properly maintain its operations”.The bank noted that an insufficient budget could increase its exposure to operational risks and even affect its ability to organize and participate in meetings of the G20 group of the world’s largest economies, which Brazil is presiding over this year.The central bank’s discretionary budget of 326.1 million reais for 2024 is lower than last year’s amount of 360.7 million reais.The Planning Ministry, which decides over demands for extra money along with three other ministries, did not comment on the matter, while the central bank did not respond to a request for comment.The central bank’s letter comes as the monetary authority and its governor, Roberto Campos Neto, try to gather congressional support for a bill that would grant it financial autonomy, after it gained operational autonomy in 2021.Finance Minister Fernando Haddad, however, has already said he disagrees with parts of the bill.The request for extra money also follows the government’s move to block 2.9 billion reais in expenses this year to comply with the spending cap outlined in its new fiscal rules.The central bank has recently been grappling with stoppages as employees campaign for career improvement, often delaying the release of key economic indicators. The extra money requested by the bank, however, does not include the workers’ wage demands.($1 = 5.0498 reais) More

NEW YORK (Reuters) – Ken Griffin’s hedge fund Citadel capped the first quarter with a positive performance in all its funds strategies, with the flagship Wellington fund posting gains of 5.75%, according to a source familiar with the matter.Citadel Global Equities was up 6.3% in the quarter, while the firm’s Tactical Trading and Global Fixed Income funds rose 7.6% and 2.05%, respectively. Citadel, which manages $59 billion in assets, declined to comment.Hedge funds are starting to unveil to investors their performances for the first quarter, a period when most stocks indexes rallied, along with a rise in the dollar and a rise in yields of the 10-year U.S. Treasury.The MSCI World index gained 7.08% in the first quarter, while the S&P 500 advanced 9.09%. Schonfeld Strategic Advisors, with $10 billion in assets, ended the first quarter with a 6.2% gain in its flagship fund Strategic Partners, a source familiar with the matter said.Schonfeld’s Fundamental Equity fund rose 5.9% in the quarter, the source added. Quantitative strategies, tactical trading and Asia helped boost both funds’ performance in the period. More

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