Aurelia Butler

(Reuters) – Federal Reserve Bank of Cleveland President Loretta Mester said Friday that very strong hiring data for last month didn’t change her view on the state of the employment sector, while noting upcoming data will drive her views of whether the Fed needs to hike rates again. “With this one report, [the data] continues to say it’s a strong labor market, but it is getting a little bit less tight than we saw before,” Mester said in an interview on CNN International. “We also in that report saw that wage growth is tempering a bit,” the official added. Mester spoke to the television channel following the release of the September jobs report, which showed the U.S. added a bigger-than-expected 336,000 jobs last month and upwardly revised the prior month’s job gain, with a steady 3.8% unemployment rate. The strength of the jobs data renewed bond market worries about additional Fed rate hikes which had receded among many investors. Several economists noted the softening earnings data in the report, evidence that inflation pressures continued to ebb, reducing pressure on the Fed to hike rates further. In recent comments Mester has noted that she penciled in at the September Fed meeting one more increase by year end in the current 5.25% to 5.5% federal funds target rate range, noting she would likely favor pulling the trigger if the economy presses forward on its current path. In the interview, Mester gave no firm hints on her outlook. “We are basically at or near” the peak of the tightening campaign and the main question is how long the Fed should keep rates high to bring inflation back to 2% by the end of 2025, she said. “What we’ve seen in the economy so far is that it’s been a very resilient economy,” Mester said, adding “economic growth has been strikingly strong and yet we’re still making progress on inflation.” “We’re data dependent but not data point dependent,” and there are more numbers between now and the next Fed meeting, Mester said, noting she wants to see that data before making her own call on what needs to happen with monetary policy. More

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WASHINGTON (Reuters) -U.S. employers in September turned their back on Federal Reserve officials who have been expecting job growth to cool, adding 336,000 positions in a return to the fevered hiring seen during the coronavirus pandemic and potentially bolstering the case for another interest rate increase.Upward revisions to the July and August job totals showed stronger job gains in those months as well, to the tune of 119,000 additional positions, enough to turn what had seemed like a slowdown in hiring into an analytical headache for the U.S. central bank.Investors only slightly boosted bets that the Fed will lift the target federal funds rate by another quarter of a percentage point to the 5.50%-5.75% range by the end of this year, as economists noted that wage growth remained muted and upcoming inflation data was expected to show continued slowing.The Fed will hold its next policy meeting on Oct. 31-Nov. 1. “Payroll growth was impressive in September, but the underlying details are not as robust. Wage growth has downshifted,” with average hourly earnings rising only 0.2% on a month-to-month basis, said Thomas Simons, a senior economist at Jefferies. “We do not think that this is going to sway the Fed towards a rate hike on Nov. 1, but the inflation data next week could push the scales.”But the September report still highlighted just how resilient the U.S. economy has remained in the face of the fastest Fed rate hikes in a generation. Using the central bank’s rough estimate that the economy needs to generate about 100,000 new jobs each month to stay even with population growth, September’s nonfarm payrolls gain finished filling the gap left when the onset of the pandemic threw millions out of work.It left the Fed to feed on a stew of conflicting signals, with job growth speeding forward, wages remaining contained on a month-to-month basis, hiring surging in industries that have been expected to cool, but growth in the labor force providing more bodies to fill the jobs – a reason the unemployment rate remained steady at 3.8%.Bond markets took the data to justify another jump in the interest rate demanded to buy long-term U.S. government debt, with the yield on the 30-year Treasury bond rising 10 basis points after the release of the jobs data and again breaching 5% – a level not seen since before the 2007-2009 financial crisis – before easing somewhat.Indeed, the recent action in bond markets, coupled with signs the job market remains hot, show the sensitive moment the Fed and the economy may be approaching as the central bank tries to engineer a “soft landing” that slows inflation without fracturing employment and growth. The possibility of that outcome, rare in recent U.S. history, has been seemingly on the rise in recent months as inflation declined even as the unemployment rate remained steady near historically low levels.FUNDAMENTAL REEVALUATIONFast recent rises in long-term borrowing rates, however, may pose a fresh risk, with the shifting relationship between short- and long-term yields often a precursor to recession as financing costs rise more than expected for businesses and households, and spending and investment are depressed.Acting U.S. Labor Secretary Julie Su downplayed concerns the September employment report reflected an unsustainably strong jobs market, noting that the three-month average employment gain of just over 266,000 from July through September was far below the year-ago pace of more than 400,000.”This is no longer … overheated,” she said. “It is strong, stable growth.” While the data may not sway the outcome of the Fed’s next policy meeting, it will likely accentuate a debate over how labor markets impact inflation, and over just how much tighter financial conditions need to be given the recent swift rise in Treasury yields. The one might argue for tighter Fed policy; the other that conditions already risk growing too strict.In a report done for Evercore ISI, John Roberts, a former top researcher at the U.S. central bank, said recent Fed economic projections indicate policymakers are in the midst of reevaluating fundamental aspects of the economy, and have seemingly concluded the U.S. can support lower levels of unemployment without inflation, but may need higher interest rates to keep prices in check due to strong underlying demand.The challenge now is to determine whether recent moves in long-term bond yields are imposing more restraint on the economy than needed, a risky call for a central bank that does not want to throw the economy into recession, but also does not intend to leave prices or price expectations room to surge.”It is far from clear to us that the Fed actually needs to pile on further with an additional rate increase, given the severity” of the rises in bond yields, which feed through to the rates consumers and businesses pay on mortgages and other forms of credit, said Krishna Guha, vice chairman of Evercore. “The idea that the bond market will simply adjust to a new equilibrium as opposed to run yields higher until something – the data, financial stress or the Fed – calls time on the move seems implausible, with clear and present danger of overshooting.”Economists polled by Reuters had expected job growth of only 170,000 positions in September. The breadth of hiring also countered arguments made recently by some Fed officials that job gains had become so narrowly focused on the healthcare and social assistance sector that the rest of the economy seemed weak.The big gainer in September was the leisure and hospitality industry, which added 96,000 jobs, about 50% higher than its monthly average for the past year.Coupled with an unexpected jump in job openings in August, the jobs report provided the sort of outcome that could shift sentiment toward higher rates given an economy that continues to surprise with above-trend growth.The Fed held its benchmark overnight interest rate steady in the 5.25%-5.50% at its policy meeting last month. It will meet two more times in 2023.The steady job growth and persistently low unemployment rate this year has surprised many economists and policymakers who expected the fast rate hikes since March of 2022 would have done more to slow demand, economic growth and hiring.Fed officials delving into the details in recent weeks thought they were seeing a cooldown take shape – with quit rates, for example, returning nearly to pre-pandemic levels and the number of jobs for each unemployed person falling sharply. Still, when Fed officials met in mid-September, they issued economic projections that continued to see another quarter-percentage-point rate hike needed by the end of the year.”The jobs data increase the risk of another rate hike,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, though the rise in bond yields will make policymakers “proceed cautiously. We think it would take an upside surprise to next week’s CPI (Consumer Price Index) report to tip the scales.” More

NEW YORK (Reuters) -The U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run, after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve. Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation. That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields move inversely to bond prices. “It’s quite a report,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The likelihood of a Fed hike in November has risen. This is not what the market was looking for.”Two-year yields, which move more closely in line with monetary policy expectations, jumped by about six basis points after the report while benchmark 10-year yields surged over 10 basis points to nearly 4.9%, although they later pared some of the gains. On the long end of the curve, 30-year yields surged above 5% hitting their highest since 2007. They were recently at 4.9%.The S&P 500 dropped in early trade but turned positive later and was recently up 1%. It was still down nearly 8% off from its July high. Indeed, some saw positive elements in the report, where the unemployment rate was unchanged at an 18-month high of 3.8% in September and monthly wage growth stayed moderate.“We’re downplaying the headline number a bit given that you aren’t seeing the same job gains” across the jobs surveys, said Jake Schurmeier, a portfolio manager at Harbor Capital. “The market is taking this as a further signal that growth remains strong despite the impressive hiking cycle we’ve seen.” Alex McGrath, chief investment officer for NorthEnd Private Wealth, said markets might “question the veracity of this report” because of its sharp contrast with the ADP National Employment Report, which showed U.S. private payrolls grew far less than expected in September. “That aside, this move in yields will continue to serve as a gale force headwind to equities through the end of the year should they remain elevated at these levels,” he wrote. The Cboe Volatility Index – an options-based gauge of investors’ expectation for near-term stock market gyrations – on Friday approached a five-month high hit earlier this week before reversing.Still, the index’s level of 17.54 remains well off past highs. Some analysts said that could suggest the selloff in the market is far from exhausted.MORE TIGHTENING?Fed funds futures traders on Friday added to bets that the Federal Reserve will raise interest rates before the end of the year, and keep them elevated for longer next year.Implied yields on contracts tied to the Fed policy rate pointed to a nearly 50% chance the Fed will lift the benchmark short-term borrowing rate a quarter of a percentage point to the 5.50%-5.75% range at its December meeting. Despite those increased expectations, some investors said the selloff in Treasuries had tightened financial conditions for the Fed, potentially precluding the need for more rate hikes. “While this report clearly makes it a closer call whether or not they will hike again this fall, tighter financial conditions are doing much of the work for them,” wrote PIMCO economist Tiffany Wilding.However, Craig Ellinger, head of Americas fixed income at UBS Asset Management, believes more rate increases could be in store. Real rates – which show how much investors can earn on Treasuries after stripping out inflation – may not yet be restrictive enough, he said, despite their recent surge to 15-year highs.“There needs to be probably a little bit more pressure to contain and constrain growth if the Fed does in fact want to reduce inflation,” he said. Ellinger plans to maintain exposure to short-term Treasuries and corporate bonds. “My plan is to not have a long-term plan … Once the Fed becomes less data dependent, I will become more confident in longer term strategies around fixed income,” he said. More

In her announcement, Georgieva highlighted the economic challenges faced by sub-Saharan Africa due to Russia’s invasion of Ukraine and the ongoing COVID-19 pandemic. Despite these adversities, she praised countries in the region for managing inflation and prioritizing public spending. She further championed direct support to poorer populations over measures such as price caps or fuel subsidies, which she said disproportionately benefit the wealthy.The IMF has been supporting these nations through zero-interest loans and intends to continue this assistance. Georgieva also expressed optimism about brighter prospects for sub-Saharan Africa by 2024.However, the World Bank painted a less optimistic picture for the region, forecasting a “lost decade of growth” due to its bleak economic outlook and escalating instability. The institution pointed out increasing attempts to destabilize governments and a jihadist insurgency in the Sahel region as significant challenges.Despite recent coups in Niger, Mali, and Burkina Faso, humanitarian aid from the IMF has been maintained due to “humanitarian concerns”. On a related note, Christine Lagarde warned against taking the international status of the dollar and euro for granted. She highlighted the fragile state of the U.S. economy and suggested that a digital dollar could bolster Greenback’s primacy. She also noted China and Russia’s role in challenging the dollar and euro status. Lagarde additionally pointed out calculations from the San Francisco Fed indicating that pandemic savings could be depleted by September.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More