Aurelia Butler

NEW YORK (Reuters) -Changes last week to a Federal Reserve lifeline for banks should not impair the facility’s ability to provide liquidity to banks that still genuinely need the cash, and also have appeared to deter a steady rise in borrowing over recent months, market analysts believe. That is because the facility, known as the Bank Term Funding Program, or BTFP, still offers fairly easy terms conditions to access it even as it now costs more to borrow from the central bank, the analysts said. That is important, since over recent days some regional Fed banks have run into challenges that have in turn stoked worries about the sector, thus raising questions whether the central bank was premature in tightening access to the BTFP. Just over a week ago, the Fed raised the borrowing rate on the BTFP, an effort launched in March to provide easy cash to eligible banks amid the high-profile implosion of Silicon Valley Bank, which in turn had raised fears of broader banking sector stress. The BFTP borrowing rate now matches the interest on reserves rate at 5.4%, representing around an immediate half-percentage-point rise in borrowing costs for those aiming to take on new BTFP loans. The Fed also affirmed the program would shut down as planned on March 11.Raising the rate was widely viewed as a way to arrest a vexing rise in borrowing at the facility despite no apparent signs of bank stress. The change appears to have had some impact, with banks borrowing $165.2 billion from the facility as of Jan. 31, from $167.8 billion on Jan. 24. By raising the rate, the Fed in theory closed off what had been an ability by banks to borrow cheap cash from the Fed and lend at higher rates in private markets or even to the Fed itself. The BTFP borrowing rate is now higher than the rate seen on many private money market securities and matches what the Fed pays banks to park reserves at the central bank.Borrowing at the BTFP has “probably peaked” given the new terms and the retreat in usage was “what you would have expected,” said Steven Kelly, associate director of research at the Yale School of Management’s Program on Financial Stability. Raising the rate “was the right move,” said Joseph Wang, chief investment officer at Monetary Macro. Moving the BTFP rate to the interest on reserve rate “weeds out the opportunistic borrowing and leaves those that actually need the cash.” Derek Tang, an analyst with forecasting firm LH Meyer, also believes the facility remains in a good place to provide support, noting banks have been using it “not because of the lower BTFP rate…but because BTFP was so much looser with collateral valuation and margin, and that hasn’t changed.”Despite jittery markets, Fed officials do not themselves appear concerned about the health of the banks. That confidence appeared to embolden policy makers to take out of the Federal Open Market Committee policy statement released Wednesday language describing the banks as “sound and resilient,” words first employed in the March 2023 statement and carried forward until the latest FOMC gathering. More

(Reuters) – A look at the day ahead in Asian markets.Asian markets on Friday will look to take heart from Wall Street’s bounce on Thursday, ending a rocky week on a steadier footing as investors digest the latest twists in the U.S. rate outlook, China’s travails and Japan’s solid start to the year.China’s CSI 300 index of blue chip stocks will likely close in the red this week, but a gain of around 0.5% will avert the biggest weekly fall since October, while the MSCI Asia ex-Japan index is on track for a slender weekly gain.Japan’s Nikkei 225 fell on Thursday but still closed out January with a gain of 8.5% and a series of fresh 34-year highs, while the yen’s 3.6% fall was its biggest monthly depreciation in almost a year. A bit of consolidation on both fronts on Friday and into next week would not be a huge surprise. Or shouldn’t be. The regional economic and policy calendar on Friday is light with only South Korean consumer inflation, Australian producer price inflation and Singapore’s manufacturing PMI on tap, leaving investors to take their cue from global markets.That should mean a feel good factor runs through Asia at the open on Friday after Wall Street’s big three indices rebounded 1% or more on Thursday. Earnings reports from tech giants Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) after the bell on Thursday generally beat analysts’ expectations, which should add to that positive sentiment.All this will help wash over the flurry of worry around U.S. commercial real estate and regional banks – at least for now – although that part of the market remains under pressure. The KBW Regional Banking index fell 2%, following its 6% slide the day before. Asian currencies, meanwhile, end the week better bid as the dollar’s gentle drift lower continues. The decline has been nothing major, but the momentum that pushed the greenback higher across the board in the early part of the year has definitely faded.The main reason is probably the slide in U.S. bond yields – the 10-year yield retreated to 3.86% on Thursday, its lowest this year – although there appears to be a bit less conviction in the market’s dovish outlook for the Fed this year. A higher-than-expected reading of South Korean inflation could give the won a shot in the arm on Friday. Here are key developments that could provide more direction to markets on Friday: – South Korea inflation (December)- Australia PPI inflation (December)- Singapore manufacturing PMI (January) (By Jamie McGeever; Editing by Bill Berkrot) More

NEW YORK/LONDON (Reuters) -The International Monetary Fund said Argentina is committed to accumulating international reserves and stemming a central bank financing of government debt under the latest review of its $44 billion loan program, as the global lender backed a set of reforms proposed by President Javier Milei’s new administration. The IMF called Milei’s stabilization plan for Argentina’s embattled economy “bold” and “far more ambitious” than those put forth by his predecessors in the South American country, citing the reform mandate of his landslide election victory late last year as a positive given the challenges of its implementation.”The authorities’ strong ownership and electoral mandate to eliminate fiscal deficits and long-standing impediments to growth (many benefiting vested interests) mitigate implementation risks,” the IMF said in a staff report on Argentina published on Thursday.Yet the IMF acknowledged that risks to the program’s success are high, given the “very difficult inheritance” from failed policies and a “complex political and social backdrop, with a fragmented Congress, falling real wages, and high poverty.”The fund said Argentina also committed “in the near term” to eliminate “distortive exchange restrictions and multiple currency practices” and to ban central bank credit to the government.Separately on Thursday, the fund’s Managing Director Kristalina Georgieva said Argentina and the IMF are at this point “not discussing a new program.”She said the government “correctly decided to bring the existing program back on track” and a recent review “felt like review number one, because there is a dramatically different approach to policy making.”CHALLENGE AHEADMilei, a right-wing libertarian who became a lightning rod for voter anger last year as Argentina faced its worst economic crisis in decades, faces a major challenge to push an omnibus reform bill through Congress, with his coalition having only a minority in both chambers. His government yanked a divisive fiscal section from the bill last week to boost support.The fund expects the economic recovery to gather pace late this year as initial negative macro reaction to the new policies fades, although policy will need to remain tight.Earlier this week the IMF slashed its forecast for Argentina’s 2024 GDP to a 2.8% contraction from a previous view of a 2.8% expansion, mostly due to the expected effects of the new government’s proposed reforms.The fund on Thursday highlighted Argentina’s 2024 goal to achieve a primary surplus of 2% of GDP mainly through a combination of temporary taxes and thinning out the cost of running the government, as well as reducing energy and transport subsidies and infrastructure spending.The IMF review set new central bank reserve accumulation targets, moving to a target of $6.0 billion by the end of March from a previous one of $4.3 billion; the end-June target rose to $9.2 billion from $7.3 billion and the goal for the end of September was set at $7.6 billion.Wednesday’s board approval and $4.7 billion disbursement brings the current total within the $44 billion program to $40.6 billion, the fund said.The global lender extended the duration of its $44 billion program by three months to allow for time to implement the government’s current stabilization plan and build out reserves, with the program now running through Dec. 31, from an earlier Sept. 24 cut-off.The remaining program reviews, as previously reported by Reuters, have been delayed to May, August and November of this year. More

WASHINGTON (Reuters) -U.S. worker productivity gains running well above the long-term average may help buttress the Federal Reserve’s faith that inflation is contained and further open the door to interest rate cuts policymakers anticipate will start in coming months.Output per worker, a key gauge of how fast the economy can grow without rising inflation, increased 3.2% in the last quarter of 2023, the third quarter of productivity gains above 3% in a series that averaged about 1% from 2010 through 2019.Fed Chair Jerome Powell spoke at his Wednesday press conference about the advantages rising productivity holds for the Fed’s inflation fight, offering the prospect of more jobs and stronger economic growth with less pressure on prices.But while the productivity numbers may be more an explanation of why inflation has been falling as opposed to a signal about what comes next, Powell no longer says the economy needs to go through a period of sluggish, below-potential growth for the pace of price increases to decline from a level still described by the Fed as “elevated.”The need for weak growth to cool inflation had been a working premise of Fed policy for much of its fight against rising prices. Its disappearance from Powell’s rhetoric points to some faith that output per worker will remain healthy, and unit-labor costs will stay muted. Beyond lowering inflation pressures, rising productivity leaves more room for wage gains since each worker hour is providing more goods and services.”Whereas a year ago we were thinking that we needed to see some softening in economic activity that hasn’t been the case…We don’t look at it as a problem,” Powell said. “I think at this point, we want to see strong growth, we want to see a strong labor market. We’re not looking for a weaker labor market. We’re looking for inflation to continue to come down as it has been coming down for the last six months.”‘ELEVATED’ FOR HOW LONG?The Fed at its meeting this week finished a policy evolution that began last year, removing a presumption of further rate hikes in favor of a neutral stance and an acknowledgment that rates could fall once policymakers are more confident inflation will continue moving toward its target.”The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said in its statement.Investors expect a first rate cut in May, but on the way there policymakers will have to make a judgment – and likely reflect it in public comments – that the pace of inflation is no longer elevated.That may just be a matter of time. While the Personal Consumption Expenditures price index used by the Fed to set its target was last at 2.6% on a yearly basis, the eight-month pace since April annualizes to a below-target 1.9%.Powell on Wednesday said he did not think there will be enough data in hand by the March 19-20 meeting to reduce rates. But by the April 30-May 1 meeting policymakers will have received a full suite of first-quarter data on consumer inflation, PCE, jobs, wages, and an estimate of economic growth for the first quarter of the year.All will be watched as policymakers consider when to finally remove the word “elevated” from the description of inflation in their policy statement.Also important are survey and market measures of inflation expectations, something policymakers feel need to remain consistent with the 2% target for them to trust that inflation will “settle” there, not just “tap” it, as Powell said.While currently at 2.9%, the most recent University of Michigan survey of household inflation expectations for the next year is within the range seen before the pandemic, and Fed officials consider them largely consistent with their target. Officials also see market measures of inflation, such as the breakeven rates on Treasury Inflation Protected Securities, as well “anchored.”ACHIEVING ‘GREATER CONFIDENCE’Other data on the job market, like measures of layoffs, quit rates, and labor turnover, are near where they were before the pandemic. “The labor market by many measures is at or nearing normal,” Powell said, though wages were still “not quite back to where they would need to be in the longer run.”New hourly wage data for January will be released on Friday. But after Powell noted how much recent disinflation hinged on actual declines in the prices of some goods, meaning future headline inflation could rise even if goods prices simply stay stable, analysts pointed to two longstanding inflation concerns as key to Fed confidence-building: housing and services. Declines in housing inflation should be almost mechanical in coming months as easing market rents make their way into the inflation indexes. Services price increases may prove stickier and be the final hurdle to clear for officials to describe inflation as something other than elevated.Wage growth still above a level Fed officials see compatible with 2% inflation could also come into play.”There may be enough voices on the (Federal Open Market) Committee that remain concerned about services inflation – and shelter inflation in particular – and wage growth to keep the Fed on hold for longer,” Bank of America analysts wrote. “We think achieving ‘greater confidence’ requires more evidence that services inflation is consistent with 2% outcomes in the event that goods price declines stop, and a further slowing in wage growth to 3.5%.” More

WASHINGTON (Reuters) -International Monetary Fund Managing Director Kristalina Georgieva on Thursday said she anticipates that the Federal Reserve would begin to cut U.S. interest rates in “a matter of months” but cautioned that there was a risk to the global economy of waiting too long to ease policy.Georgieva told reporters at IMF headquarters that she thinks the U.S. central bank made the right decision on Wednesday to hold rates steady but remain cautious on declaring victory against inflation.”If you carefully assess the Fed posture, it is one that recognizes the job is not quite yet done, but we are near the end,” Georgieva said.At the same time, she said the U.S. economy was poised for a “soft landing,” with a strong job market, but “it’s not done. We’re still 50 feet above the ground and we know that until you land it’s not over.”But she said there was a delicate balance on getting the timing right for beginning to ease rates, adding that keeping them higher for longer than necessary could hurt growth in both the U.S. and emerging market economies.If the Fed waits too long to cut rates, some emerging market countries with lower rates could see their currencies come under pressure, exacerbating inflation, Georgieva said. “So the timing of U.S. easing monetary policy is indeed very important – not too early, but also not too late,” she said, adding that she did not think this would be “many months” or a year. “You’re talking about timing that is a matter of months.”Traders on Thursday continued to pare bets for a March Fed rate cut to 36.5% from almost 90% a month ago, while increasing the likelihood of a May rate cut to 93.3%, according to the CME Group’s (NASDAQ:CME) FedWatch Tool. More