Aurelia Butler

NEW YORK (Reuters) – Tighter lending conditions after recent bank failures will likely drive the U.S. economy into a shallow recession in the second half of this year, bolstering the case for a gradual increase in exposure to long-term bonds in anticipation of a decline in interest rates, a Vanguard executive said on Monday.”That backdrop of tightening lending standards is what we think drives the economy into recession in the second half of this year,” said Roger Hallam, global head of rates at Vanguard, the world’s second-biggest asset manager, speaking during an online event.U.S. Treasury Secretary Janet Yellen said this weekend banks are likely to become more cautious and may restrict lending further, possibly negating the need for further interest rate hikes by the Fed.Traders in money markets on Monday were largely expecting the U.S. central bank to increase rates by an additional 25 basis points at its next rate-setting meeting in May.But there was less conviction on subsequent steps with investors pricing in multiple scenarios, including potentially a rate cut as early as June, according to CME Group (NASDAQ:CME) data.”There’s a lot of policy uncertainty right now,” said Hallam, who expects volatility in rates to remain high in the short term, with potentially still some upward pressure on yields on the short-end of the U.S. Treasury curveBond yields, which move inversely to prices, tend to decline during economic downturns.Current levels for benchmark 10-year Treasuries – which on Monday were yielding nearly 3.6% – would be a “reasonably good opportunity” for investors to start extending the duration of their portfolios, Hallam said, to offset declines in risk assets such as stocks that are likely to occur in a recession. More

The so-called reservation wage — the lowest pay a worker would accept for taking a new job — rose to $75,811 a year in March, according to the New York Fed’s latest Survey of Consumer Expectations. That’s up about $2,100 from the bank’s last survey in November. Keeping wages in check is a key goal for the Fed as it tries to cool inflation below its current 5% rate without triggering a recession. The central bank got some welcome news earlier this month, when the number of available positions in the US fell below 10 million for the first time since 2021. Still, the New York Fed’s survey illustrates the tough task of taming expectations for pay and price increases.Men especially are looking for top dollar. The reservation wage for men climbed to $88,900 in March, up $3,200 from the previous survey in November. Women, meantime, said they’d be willing to take a new job for $63,100, up by $1,400.Another gap that has widened recently has been between those with a college degree and those without one. From the start of the pandemic through March 2022, the reservation wage for people with less than a college degree soared from $48,800 to $62,100, but it has declined slightly over the past year to $59,700.Meantime, those with at least a college degree now demand $97,300 a year, up from $81,800, with their reservation wage continuing to increase over the year. More

(Reuters) – Contrary to how many Federal Reserve officials have tended to focus on longer-run inflation expectations data as a tool to divine real world price pressures, a Cleveland Fed report released on Monday said shorter-run expectations may be the more important factor to watch right now. In the present environment “the relationship between current inflation and short-term inflation expectations is much stronger than the relationship between current inflation and longer-term inflation expectations,” Ina Hajdini, an economist at the Cleveland Fed, wrote in a commentary posted on the regional Fed bank’s website. She said the annualized trend rate of inflation was 3.3% between the start of 2021 and the end of 2022, but hit 3.4% in the fourth quarter of last year, well above the Fed’s 2% target. Short-term inflation expectations readings are above the fourth-quarter reading, and “these data imply that heightened short-term inflation expectations – above trend inflation – can feed into higher inflation, and this channel has become even stronger recently.” That could put the U.S. central bank in a tough spot as the end of its interest rate hiking campaign comes into sight. Over the last year the Fed has boosted rates aggressively to help quell some of the highest inflation pressures seen in decades. While policymakers still view inflation as too high, they nevertheless see evidence that the worst of the problem might be over, and reckon that as the economy moves forward, inflation pressures should ease further. New York Fed President John Williams said last week that he sees inflation, now at 5% based on the Fed’s preferred gauge, hitting 3.75% by the end of this year and 2% sometime in 2025. Fed officials, at their most recent policy meeting, penciled in one more rate increase before a shift to holding rates steady for the remainder of the year. Part of the Fed’s confidence that inflation will moderate revolves around the relative stability of longer-term inflation expectations data throughout the current episode. While those measures have been above 2%, they’ve also been more stable than shorter-run expectations. At his news conference after the end of the March 21-22 policy meeting, Fed Chair Jerome Powell said longer-run expectations were “well-anchored” across a broad array of measures, be they surveys or market prices. Fed officials, as well as many private-sector economists, believe that where the public projects inflation will be in the future exerts a strong influence on where it is now. So the focus on longer-term expectations has given officials confidence they will eventually prevail in getting inflation back to target. NEAR-TERM EXPECTATIONS QUICKEN The Cleveland Fed report suggests that narrative may need revision. And what’s more, some of the most recent inflation expectations data showed jumps in near-term price pressure expectations. On Friday the University of Michigan consumer sentiment index for March revealed that year-ahead expected inflation was 4.6% in April, a full percentage higher than in March, while New York Fed data for March also showed higher year-ahead expected inflation. Both releases had largely steady longer-run inflation projections. Meanwhile, additional New York Fed data, also released on Monday, showed that the wages people will accept for a job, as well as the wages they are being offered, are also on the rise, which could in turn increase inflation risks. The regional Fed bank said the average full-time wage offered in the past four months has increased to $62,088 from $59,834 in November 2022, while the lowest wage a worker would accept to take a job hit a record high of $75,811 in March. For Fed policy, the heightened importance of short-term inflation expectations “implies that there might be added benefits to responding aggressively to current inflation so that trend inflation cools more substantially,” Hajdini wrote. “In that case, even if inflation expectations remain elevated for some time in the near future, they will not be contributing as much as they are now to current inflation because the link between the two would weaken.” More

NEW YORK (Reuters) – The head of the U.S. Securities and Exchange Commission (SEC) plans to defend its rulemaking and policing of market misconduct at a Tuesday hearing led by Republican lawmakers who have accused it of overstepping its authority.Having won control of the House of Representatives last year, Republicans now have a pulpit to try to constrain President Joe Biden’s administrative oversight of key financial issues. Some in the finance industry have joined in the criticism, saying the SEC is going too far in its reforms and not taking time for industry feedback.But SEC Chair Gary Gensler, who has helmed the agency since April 2021, underscored the agency’s rulemaking work as “grounded in legal authorities granted by Congress” in testimony prepared for Tuesday’s House Financial Services Committee hearing.The SEC has proposed a stock market overhaul and laid out plans to require companies to disclose climate-related risks, among numerous other reforms.”Forsaking investor protection puts real people’s life savings at risk. The goal is to protect our ‘clients’: U.S. investors,” he said in the prepared remarks.But the U.S. Chamber of Commerce, which represents businesses, in a letter last week said the agency’s rulemaking under Gensler is “torrential, disjointed and rushed.”Republican SEC Commissioner Hester Peirce has also criticized the agency’s agenda and engagement with industry. “Today’s Commission treats the notice-and-comment rulemaking process not as a conversation, but as a threat,” she said at a public meeting to discuss a proposed reform that could usher in major change for cryptocurrency firms.The SEC has also actively policed market misconduct, levying record penalties in the last fiscal year.Progressive lawmakers and investor advocates have praised the SEC and pushed for Congress to give the agency more resources.The “SEC is making significant progress in its mission to protect investors and maintain fair, orderly, and efficient markets,” Stephen Hall, legal director and securities specialist at Better Markets, said in a statement. More