Aurelia Butler

“That would suggest inflation was in fact more persistent than a lot of people are forecasting,” Barkin told reporters after a talk at the Stanford Institute for Economic Policy Research in which he outlined why he personally worries inflation will be slow to cool, forcing the Fed to raise rates more.”It’s not what I’m hoping for but I could certainly imagine it,” he said. “My hypothesis has been that now that we have gotten ourselves into restrictive territory, as we did last year, we have the opportunity to, I’ll call it, test and learn what happens to the demand, what happens to employment, what happens to inflation, as rates go up at a more gradual pace than they did last year.” Barkin said it’s “entirely possible” that inflation cools faster than he expects, which would imply a shallower rate path. “But I think it’s entirely possible that it persists, which would require us to do more,” he added. “I think when you are on a more deliberate rate increase path it does give you a lot more flexibility in terms of the ability to move for longer, or to higher, if you need to.” By this time next year, Barkin said, he does not expect the Fed to have started any rate cuts. More

PALO ALTO, California (Reuters) – Richmond Federal Reserve Bank President Thomas Barkin said on Friday that he does not understand the case for pausing interest rates now, although delivering rate increases in smaller increments means that if the Fed does end up going too far it won’t have gone much too far. Rates are currently restrictive, meaning that they are slowing the economy, but the Fed still needs to “feel” its way to a level of rates that is high enough to bring inflation back down, Barkin said at the Stanford Institute for Economic Policy Research. More

WASHINGTON (Reuters) -The United States and European Union are working toward agreement in principle on a deal to make European minerals eligible for tax credits, a senior EU official said Friday.The $430 billion U.S. Inflation Reduction Act passed in August requires rising percentages of battery minerals to come from the United States or a Free Trade Agreement (FTA) partner.The EU official said an agreement could come as early as next week, in time for a visit by European Commission President Ursula von der Leyen to Washington, on a deal that would give the EU “free trade agreement-like status.”White House press secretary Karine Jean-Pierre declined to say if a high-level deal that would provide free trade-like status to the EU could be reached before von der Leyen’s visit, removing an irritant in U.S.-EU ties, but underscored Washington’s desire to maintain a strong working relationship with the EU. “Of course, we want to make sure there’s a good working relationship,” she said. Up to $3,750 per vehicle of the available tax credits relate to critical minerals for batteries, taking effect when the U.S. Treasury issues guidance, which is expected later this month.The EU official said it was critical to reach an agreement soon, given moves by some European companies to shift production to the United States.”We need to react now, and we need to at least avoid as much as possible these disturbances, by granting an FTA-like status, and having better access when it comes to raw materials, battery production, for example.”He said the U.S. side was pressing for the agreement to be “legally binding,” but it would be difficult have that in place ahead of von de Leyen’s visit. “I think that commitment to do this, and to do it quickly, could well be an outcome of next week’s discussions.”The agreement would be limited, the official said.​ “We’re not talking about market access here … This would be very reduced and certainly not a free trade agreement in the classical way,” the official said.The EU, South Korea, Japan and other U.S. allies have harshly criticized the IRA’s provision requiring EVs to be produced in North America to qualify for consumer EV tax credits.But the EU in December praised a U.S. Treasury Department decision to allow EVs leased by consumers to qualify for up to $7,500 in commercial clean vehicle tax credits. More

“I think it will take time to return to target, and, as a consequence, believe we still have work to do,” Barkin said in remarks prepared for delivery to the Stanford Institute for Economic Policy Research’s annual economic summit. Policymakers have forecast “additional rate increases” and have been clear “we don’t anticipate rate cuts this year,” he said. Inflation by the Fed’s preferred year-over-year gauge was 5.4% in January, an increase from the 5.3% pace in December. The Fed’s target is 2% inflation. Barkin said he is not sure that the strength in spending that bolstered inflation is sustainable. Still, he said, the labor market is “quite tight.”The unemployment rate as of January was 3.4%, the lowest since 1969, and employers added more than half a million workers to their payrolls.That’s putting some upward pressure on inflation, he said, as workers ask for more pay. And two years of high inflation is prompting businesses to bank on the ability to continue to raise prices, he said, and meanwhile is “exhausting” for consumers seeking better deals and workers whose paychecks no longer go as far. After raising the Fed’s policy target from near zero to its current 4.5%-4.75% range in less than 12 months, “it makes sense to move more deliberately than we did last year,” he said. “Here’s where I come back to data dependence. If I’m right and inflation persists, we can react by raising rates further. And, of course, I’d be happy to be wrong.” He did not say how high he expects rates to need to rise. Policymakers in December projected a top Fed funds rate of 5.1% this year, though many analysts and financial market participants now think the Fed will need to push it higher. In the end, he said, the Fed needs to bring down inflation.”I am confident it will in time but doubtful the process will be quick,” he said. More

(Reuters) – Wall Street stocks posted strong gains while Treasury yields and the dollar pulled back on Friday as data pointing to U.S. economic growth boosted risk appetite, even as expectations for rate hikes kept bond yields near multi-year highs.The U.S. services sector grew at a steady clip in February, with new orders and employment rising to more than one-year highs, suggesting the economy continued to expand in the first quarter.U.S. shares jumped, with the Dow Jones Industrial Average up 1.17%, the S&P 500 1.61% higher, and the Nasdaq Composite adding nearly 2%.”Following weeks of relentless upward pressure on interest rates, the S&P 500 got a bit of a reprieve today,” said Bill Sterling, global strategist at GW&K Investment Management in Boston. He added that the small differential between shorter-term bonds indicated lower recession risk: “Market participants seem to be saying that the economy – and corporate profits – can withstand a higher-for-longer interest rate path.”Asian stocks already jumped on investor optimism of a Chinese economic rebound. The positive market sentiment continued during the European session, with Europe’s STOXX 600 up 0.92%.The recovery in euro zone business activity gathered pace last month, PMI survey data showed, in the latest piece of data to suggest the bloc would avoid a recession.But euro zone government bond yields were still near their highest levels in years after euro zone inflation data on Thursday drove market expectations for the European Central Bank’s (ECB) terminal rate to around 4%. At 2.688%, the benchmark 10-year German yield was near its highest level since 2011. U.S. Treasury yields paused their rally. The U.S. 10-year Treasury yield fell to 3.960%, down from Thursday’s high of 4.091%. The two-year Treasury yield, which typically moves in step with interest rate expectations, dipped 4.3 basis points at 4.859%.Federal Reserve Bank of Boston President Susan Collins reiterated in comments made public Friday that more central bank rate rises will be needed to lower high inflation levels.Investors are trying to gauge that exact path for Federal Reserve rate hikes, after strong U.S. data in recent weeks suggested rates may need to be higher for longer.”Our overall view is still more consistent with slow disinflation amid some further improvement to global growth,” Goldman Sachs (NYSE:GS) market strategists wrote in a note late Thursday. “That mix should maintain the upward pressure on yields but ultimately limit the damage to equities and provide an overdue tailwind to commodities.”The MSCI world equity index, which tracks shares in 47 countries, jumped 1.47% on the day, up 5.8% for the year.DOLLAR RETREATSThe euro ticked up 0.33% on the day, while the U.S. dollar slid from a 2-1/2-month high versus the Japanese yen on Friday, its largest weekly loss since mid-January against a basket of six major currencies.Analysts polled by Reuters were unfazed by the dollar’s recent strength, up about 7% over the last 12 months, and predicted a weaker greenback in a year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the ECB.Oil prices rose, recovering from an early slump after Reuters reported that the United Arab Emirates is not planning an exit from the Organization of Petroleum Exporting Countries (OPEC). U.S. crude rose 2% to $79.73 per barrel and Brent was at $85.86, up 1.31% on the day.Spot gold added 1% to $1,854 an ounce. Bitcoin was down nearly 5% at around $22,381, its lowest price since Feb. 15. More