Aurelia Butler

US President Joe Biden is set to choose Philip Jefferson as vice-chair of the Federal Reserve, elevating him from his current role as a governor at the central bank to the crucial post in Jay Powell’s inner circle. Two people familiar with the matter said Jefferson had emerged as the top choice for the job, though it would not be final until a formal announcement. Biden is also expected to tap Adriana Kugler, an economist who represents the US on the board of the World Bank, to become a Fed governor, which would make her the first Latina to the board of the central bank. Jefferson will fill a position left vacant by Lael Brainard, who left the Fed in February after serving as vice-chair for less than a year to join the Biden administration as the president’s top economic adviser. Jefferson is a relatively new member of the Federal Open Market Committee, having been confirmed with bipartisan support as a governor last year. Prior to joining the Fed, Jefferson served as the dean of faculty at Davidson College and was formerly a research economist for the central bank’s board.In his time at the Fed, Jefferson has emerged as a centrist, backing each interest rate increase of its historic monetary tightening campaign.In a speech in February, he underscored his commitment to getting inflation back down to the Fed’s longstanding 2 per cent target, noting “persistently high inflation hurts everyone”.Kugler formerly served as the chief economist of the labour department between 2011 and 2013, and previously worked in the economics department at the University of Houston.If confirmed, Kugler would join the Fed at a critical juncture as it charts out how much more to raise interest rates, having lifted the federal funds rate a full 5 percentage points in a little over a year. The New York Times had previously reported the expected nominations. Powell on Wednesday hinted the Fed may soon pause its rate-rising campaign as it grapples with a highly uncertain economic backdrop. The US banking sector remains under pressure in the wake of multiple failures among midsized lenders, prompting concern of a more severe downturn. Fed staffers already forecast a mild recession later this year, as banks exacerbate a credit crunch that was under way as the Fed ploughed ahead with its tightening campaign. More

WASHINGTON (Reuters) – The Federal Reserve moved its management of the post-pandemic economic recovery into a new phase on Wednesday with what may be the last in a historic series of interest rate hikes and heightened attention to credit and other economic risks.The U.S. central bank raised its benchmark overnight interest rate by a quarter of a percentage point to the 5.00%-5.25% range, as expected by financial markets, but in doing so dropped from its policy statement language saying that it “anticipates” further rate increases would be needed.The change doesn’t foreclose the central bank’s policy-setting committee from hiking rates again when it meets in June, but Fed Chair Jerome Powell said it was now an open question whether further increases will be warranted in an economy still facing high inflation, but also showing signs of a slowdown and with risks of a tough credit crackdown by banks on the horizon.”We’re closer, or maybe even there,” Powell said of the end-point of rate increases that have boosted the Fed’s policy rate by a full 5 percentage points in the 10 meetings since March 2022, a torrid pace for the central bank and one that may now warrant allowing some time for the impact to be felt in full.Using language reminiscent of when it halted its tightening cycle in 2006, the Fed said that “in determining the extent to which additional policy firming may be appropriate,” officials would take into account how the impact of monetary policy was accumulating in the economy.Top of mind: inflation and the impact of a credit tightening Fed officials feel is still evolving in the wake of both higher interest rates and a financial sector rattled by the recent failure of three U.S. banks.At a press conference following the release of the statement, Powell said inflation remains the chief concern, and that it is therefore too soon to say with certainty that the rate-hike cycle is over.”We are prepared to do more” he said, with policy decisions from June onward to be made on a “meeting-by-meeting” basis. He also pushed back on market expectations that the policy-setting Federal Open Market Committee would cut rates this year, saying such a move was unlikely.”We on the committee have a view that inflation is going to come down not so quickly, it will take some time,” he told reporters, and “in that world, if that forecast is broadly right, it would not be appropriate to cut rates” this year. (Graphic: Traders see Fed rate cut in September – https://www.reuters.com/graphics/USA-RATES/FEDWATCH/gdpzqjaeqvw/chart.png) ‘SOFT LANDING’Powell, however, agreed “policy is tight,” and said that makes it possible the central bank has done enough with rates, particularly given the developing strains in the economy, the possibility that credit tightening by banks may slow the economy more than expected, and a remaining Fed hope that a recession can be avoided. The Fed’s policy rate is now roughly the same as it was on the eve of a destabilizing financial crisis 16 years ago, and is at the level which a majority of Fed officials projected in March would in fact be “sufficiently restrictive” to return inflation to the central bank’s 2% target. Inflation is currently still more than twice that target.Economic growth remains modest, but “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation,” the Fed said in its statement. (Graphic: Fed hikes rates to levels last seen before financial crisis – https://www.reuters.com/graphics/USA-FED/dwvkdqyynpm/chart.png) Yet job gains “have been robust,” the Fed said, and Powell noted that some recent data on falling job openings and lower earnings growth, coupled with historically low unemployment, supported the idea that the economy could slow without a dramatic rise in joblessness. “The case of avoiding a recession is in my view more likely than that of having a recession,” Powell said.Risks around a U.S. debt limit standoff between Republicans in Congress and Democratic President Joe Biden have added to the sense of caution about trying to tighten financial conditions further.The shift in the Fed’s approach was reflected in U.S. interest rate futures, which showed broad expectations for no hikes at either of the central bank’s next two policy meetings.U.S. stocks initially held onto gains after the release of the Fed statement, but fell later in the afternoon and closed lower. Yields on U.S. Treasury securities dropped sharply, while the dollar weakened against a basket of trading partner currencies.”For me the key was a change of a single word, saying that they believe that they will be determining whether future raises are necessary, whereas last time they said that they are anticipating that further rate hikes will be necessary,” said Sam Stovall, chief investment strategist at CFRA Research. “With the word ‘determining’ in place of ‘anticipating,’ (it) is essentially telling the markets that the Fed is now on pause.” More

WASHINGTON (Reuters) -U.S. President Joe Biden is expected to nominate Federal Reserve Governor Philip Jefferson as the next vice chair, two sources familiar with the matter said on WednesdayIn addition, economist Adrian Kugler is expected to be nominated to an open Fed board seat, with an announcement anticipated in coming days, the sources said. More

Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar.The Fed raised interest rates by a quarter of a percentage point and signalled it may pause further increases, giving officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the U.S. debt ceiling and monitor the course of inflation. More

Chinese airlines will be allowed to expand their flights to the US, in a small concession from Washington to Beijing that comes as the two countries struggle to stabilize their turbulent relationship.The Department of Transportation on Wednesday issued an order allowing Chinese carriers to boost their weekly round-trip flights from eight to 12, matching the number of flights to China that US carriers have.The department told the Financial Times it would “continue to assess how and when to further modify its posture towards PRC [People’s Republic of China] carrier flights in a manner that offers a competitive operating environment for the air carriers in the US”.Beijing had been pushing the US to approve the change, partly to boost tourism but also to encourage more foreign investment in the wake of the decision to scrap its zero-Covid policy late last year. But the two sides had been bogged down in a dispute related to Chinese carriers’ ability to fly over Russia, giving them a cost advantage over US airlines, which have been banned from doing so by Moscow.The decision marks a minor thaw in relations between the countries, which have reached their lowest point since they established relations in 1979. US secretary of state Antony Blinken on Wednesday said President Joe Biden and his Chinese counterpart, Xi Jinping, agreed to “set a floor” under the relationship when they met in November. But those efforts fell apart when a suspected Chinese spy balloon flew over the US in February.The two countries are also in the middle of negotiations about potential visits to China by US cabinet officials. Blinken cancelled a visit in February because of the balloon, but his efforts to resurrect the trip have been complicated by Chinese concerns that the FBI will release the results of its investigation into the incident.US officials have visited Beijing in recent months to try to pave the way for trips by Treasury secretary Janet Yellen and commerce secretary Gina Raimondo. Several people familiar with the situation said Chinese commerce minister Wang Wentao will soon visit the US, but it remains unclear whether his visit will include Washington.US carriers had lobbied against approving more flights for their Chinese rivals. Robert Isom, chief executive of American Airlines, last week said there could not be an “unlevel playing field”. He said US carriers should be able to fly to China without having to bear higher fuel costs or cope with longer flight times than their Chinese rivals.Follow Demetri Sevastopulo on Twitter More

FRANKFURT (Reuters) – The European Central Bank will raise interest rates for the seventh meeting in a row on Thursday as its long fight against stubborn inflation continues, with only the size of the move still open to debate. The central bank for the 20-country euro zone has already lifted rates by a record 350 basis points since July in the hope of stopping runaway price growth. But getting inflation back to its 2% target is still years away, leaving policymakers with no choice but to tighten policy again this month and beyond. A 25 basis point move, a slowdown after three straight 50 basis point hikes, appears the most likely outcome, although the bigger increase is still a possibility at what is almost certainly not the end of a historic tightening cycle. The clincher could be a compromise among policymakers on what signals to send about future increases. Conservative “hawks”, who hold a comfortable majority in the Governing Council, are leaning towards a bigger increase.But they have signalled they could compromise on a smaller move as long as the ECB indicates that May is not the end of its hikes, even if some peers – notably the U.S. Federal Reserve – may be reaching their own interest rate peaks. ECB hawkishness to moderate https://www.reuters.com/graphics/GLOBAL-MARKET/THEMES/lgvdkazlxpo/chart.png Another issue will be just how big a majority ECB President Christine Lagarde wants backing the decision. Many hawks could live with a smaller move given the right guidance but their dovish colleagues are likely to voice loud dissent if the hike is bigger, leaving the ECB once more speaking with many voices, seen as a weakness for years. Part of the compromise could be a deal to end reinvestments from July of maturing debt bought under the ECB’s 3.2 trillion euro Asset Purchase Programme – a modest step that would shrink further the bank’s bloated balance sheet, even if the inflation impact would be small.Markets see an 80% chance of a 25 basis point move while the vast majority of economists polled by Reuters were also betting on the smaller hike. Supporting a possible ECB downshift, the U.S. Federal Reserve lifted rates by 25 basis points on Wednesday and signalled it may pause further increases. Euro zone core inflation remains sticky https://www.reuters.com/graphics/GLOBAL-MARKETS/znpnbngmkpl/chart.png ALL ABOUT INFLATIONEconomic fundamentals provide plenty of fodder for both sides of the argument. Supporting the case for a smaller move, the euro zone economy barely grew last quarter and lending figures showed the biggest drop in credit demand in over a decade, suggesting past rate hikes are starting to work their way through the economy. If squeezed hard, this credit downturn could morph into a full-blown credit crunch, weighing on growth which is barely in positive territory to begin with. At 3%, the ECB’s deposit rate is already restricting economic activity, and underlying inflation has also stopped rising – at least for the time being. Euro zone banks tighten credit https://www.reuters.com/graphics/EUROZONE-MARKETS/ECB/znvnbnaqwvl/chart.png “Inflation figures and results of the ECB’s latest Bank Lending Survey cement the case for a downshift to 25 bps,” BNP Paribas (OTC:BNPQY) said in a note. “At the same time, today’s data also underscore that rates have to rise further – we affirm our 3.75% terminal rate expectation.”Hawks argue that underlying price growth remains far too high and suggests that inflation could level off above the ECB’s target unless the bank acts more aggressively. They says these risks are exacerbated by a tight labour market, especially since wage growth has been quicker than predicted and the jobless rate has fallen to an all-time-low despite the near-recessionary environment.”Business surveys show a pickup in growth, potentially exacerbating labour market tightness, while the level of the policy rate is only 1%-point above our estimate of neutral,” JPMorgan (NYSE:JPM) economist Greg Fuzesi said, predicting a 50 basis point move.The ECB will announce its policy decision at 1215 GMT and Lagarde will hold a press conference at 1245 GMT. More