Aurelia Butler

The Federal Reserve’s preferred measure of inflation rose more than expected in January, triggering a Wall Street sell-off as investors weighed the prospect of interest rates staying higher for longer as the central bank fights stubborn price pressures.The personal consumption expenditures (PCE) price index, which measures how much consumers are paying for goods and services, increased 0.6 per cent month on month, after rising 0.2 per cent in December. The annual rate increased to 5.4 per cent in January from an upwardly revised figure of 5.3 per cent a month earlier.The so-called core PCE index, which strips out volatile food and energy costs and is the Fed’s preferred inflation metric, rose 0.6 per cent in January, up from 0.4 per cent in December. The annual rate increased to 4.7 per cent from an upwardly revised figure of 4.6 per cent in December, missing economists’ expectations for a moderation to 4.3 per cent.The figures were the latest in a string of new data releases including on employment, retail sales and other price gauges that have come in hotter than expected, prompting markets to factor in the prospect of US interest rates going higher and staying there for longer than they had expected.Following Friday’s figures, investors priced in a 39 per cent chance of a half-point rate rise at the Fed’s March meeting, compared with an 18 per cent likelihood a week ago, according to CME Group’s FedWatch tool. Bets on a quarter-point rise dropped from 82 per cent to 61 per cent over the same period. Cleveland Federal Reserve president Loretta Mester on Friday said the Fed should lean towards pushing interest rates higher to get inflation back down to the central bank’s 2 per cent target.“In my view, at this point with the labour market still strong, the costs of undershooting on policy or prematurely loosening policy still outweigh the costs of overshooting,” said Mester at the annual US Monetary Policy Forum hosted by the University of Chicago Booth. Following the February Fed meeting, Mester had said that she would have supported a half-point increase, versus the quarter-point raise that was announced. According to the minutes from that meeting, “a few” officials said they would have preferred a larger increase in rates, or could have been persuaded to support one.US president Joe Biden said in a statement that the latest figures showed that “we have made progress on inflation, but we have more work to do”. He insisted that the economy had “continued to make progress since the data in this report”, pointing to a recent downward trend in petrol prices. Stocks were under pressure on Friday as investors adjusted their interest rate expectations. The S&P 500 closed 1.1 per cent lower on the day, taking the blue-chip index’s loss for the week to 2.7 per cent, which marked the biggest weekly drop since December. The Nasdaq Composite finished Friday’s session 1.7 per cent lower.“[The data] underscores the difficulty the Federal Reserve has in restoring price stability as consumers continue to spend at a healthy pace,” said Quincy Krosby, chief global strategist at broker LPL Financial.Bonds fell and yields moved higher as investors factored in the latest upward pressure on borrowing costs. Yields on benchmark 10-year notes rose 0.07 percentage points to 3.95 per cent, close to a three-month high hit earlier this week. Rate-sensitive two-year yields also rose and, at 4.81 per cent, were at their highest since the summer of 2007.“It is far too early . . . to buy the dips in bond prices, let alone trying to continue to buy the dips in the stock market,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “We have been exercising much more caution and have advised our clients to be careful and not aggressive at this point in the economic cycle.”Fed chair Jay Powell warned earlier this month that taming inflation would take a “significant period of time”. Friday’s PCE data is consistent with the January consumer price index that registered a smaller monthly decline than expected as services inflation remained elevated.Personal consumption rose in January to 1.8 per cent from a revised decrease of 0.1 per cent in December, according to Bureau of Economic Analysis data on Friday. That missed economists’ expectations for an increase of 1.3 per cent. Inflation-adjusted personal spending increased 1.1 per cent in January. The PCE data showed that personal income growth quickened to 0.6 per cent in January from 0.3 per cent in December, but below economists’ expectations for a 1 per cent increase. The personal savings rate increased to 4.7 per cent in January, from 4.5 per cent in the previous month. More

Former far-right Jair Bolsonaro unveiled the fuel tax cut last year as he sought to ease inflation and win over voters ahead of the election which he eventually lost to Lula. Since Lula’s victory, debate has raged within his Workers Party (PT) over what to do with the costly and popular measure. Lula’s Finance Minister Fernando Haddad has long opposed the waiver, arguing privately that it hurts public coffers and undermines Lula’s green agenda, according to two sources from the ministry who requested anonymity to speak candidly. Publicly, Haddad has said ultimately it would be up to Lula to decide.”The decision (to extend the tax waiver only to February) was taken by the president, who, obviously, can revisit the matter,” he said after a January meeting with Febraban, the lobbying group representing Brazilian banks. Others in Lula’s circle have convinced the president to extend the waiver on diesel and biodiesel until December of this year, and on gasoline and ethanol until February. Tensions are now mounting over whether to extend further the gasoline and ethanol tax waiver. In his fiscal plan, presented in January, Haddad included the reintroduction of taxes on gasoline and ethanol starting in March. That would generate 29 billion reais ($5.6 billion) in federal revenue and add fiscal backing to Lula’s social spending plans. But this stance is seen as too market-friendly by some of the leftists in Lula’s camp, and on Friday that debate broke out into the open. In a series of Twitter posts, Congresswoman Gleisi Hoffmann, president of Lula’s Workers Party (PT), said fuel taxes should only resume once state-run oil giant Petrobras defines a new pricing policy.”This will be possible starting April when the Board of Directors is renewed with people committed to the reconstruction of the company and its role for the country,” she said.Hoffmann added that a “fairer pricing policy” is needed for Petrobras, which currently pegs domestic fuel prices to international oil rates, which makes pump prices more expensive when the commodity and the U.S. dollar appreciate. “We are not against taxing fuels, but doing so now penalizes consumers, generates more inflation, and violates campaign commitments,” she wrote.The Finance Ministry and the Presidential Palace did not immediately respond to requests for comments.Vice-President Geraldo Alckmin said on Friday the government had not yet made a decision on fuel taxes.Central bank governor Roberto Campos Neto, who is under pressure from Lula and his allies to reduce interest rates, has said the re-taxation of fuels would add short-term inflationary pressure, but would improve Brazil’s fiscal situation, arguing it would have “a beneficial effect going forward.” More

NEW YORK/SAN FRANCISCO (Reuters) -Expectations that the U.S. Federal Reserve will need to push interest rates higher and keep them elevated longer than previously projected rose on Friday after data showed a key inflation gauge accelerated last month. Even so, Fed policymakers speaking on Friday did not push for a return to the kind of aggressive action that marked last year’s interest-rate hikes, suggesting that for now central bankers are content to stick to a gradual tightening path despite signs that inflation is not cooling as they had hoped.The Commerce Department reported that the Personal Consumption Expenditures price index, the metric by which the Fed measures its 2% inflation target, rose 5.4% last month from a year earlier, a pickup from an upwardly revised 5.3% annual pace in December. Underlying “core” inflation climbed a faster-than-expected 4.7% from a year earlier, compared to December’s upwardly revised 4.6% pace. The report “is another indication that the impulse of inflation and price pressures is still with us,” Cleveland Fed President Loretta Mester told Reuters on the sidelines of a conference in New York. “It’s going to take more effort on the part of the Fed to get inflation on that sustainable downward path to 2%.”Even so, Mester — who had wanted a half-point hike at the Fed’s last meeting — said she could not yet say if she would support such a large hike at the Fed’s upcoming meeting. She is among the minority of Fed policymakers who in December thought they would need to lift the policy rate to 5.4% to stop inflation, while most believed 5.1% would suffice. Earlier on Friday she said she had not revised her view.Similarly, none of the other Fed policymakers who spoke on Friday, including the normally hawkish Governor Christopher Waller and St. Louis Fed President James Bullard, focused on the fresh inflation data to argue for a more muscular Fed response. Boston Fed President Susan Collins said more rate hikes will be needed, but did not specify a particular stopping point.Implied yields on federal funds futures contracts rose on Friday as traders firmed up expectations for at least three more rate hikes through June, a path that would push the U.S. central bank’s benchmark overnight interest rate to the 5.25%-5.50% range, from the current 4.50%-4.75% range. Pricing also now puts about a 40% chance of an even higher stopping point for that rate, up from about 30% prior to the release of the PCE data. And traders largely erased what had been consistent bets on Fed rate cuts toward the end of the year, pricing in a year-end Fed policy rate of 5.26%.”There are inflationary pressures in the economy, the level of inflation is still too high, and it’s going to take more on the monetary policy side to get inflation down, Mester said.Economic data in recent weeks has generally come in stronger than expected, with job growth still robust and wage gains exceeding what Fed Governor Phillip Jefferson said on Friday was consistent with a timely return to 2% inflation. Revisions to data from prior months in Friday’s Commerce Department report showed inflation did not cool in November and December as much as had been thought, and spending in January rose more than expected even as the savings rate increased. All told, the economic readings may throw doubt on Fed Chair Jerome Powell’s assessment this month that the “disinflationary process” had begun, a view that seemed to justify the central bank’s decision at its Jan. 31-Feb. 1 policy meeting to deliver a quarter-percentage-point rate increase after a string of bigger hikes in 2022. “If the Fed had this data at the last meeting, they probably would’ve raised by 50 (basis points) and the tone from the press conference would’ve been a lot different,” said Gene Goldman, chief investment officer at Cetera Investment Management. Goldman said he expects the next round of Fed projections, to be published in March, to signal rates will rise father and stay there longer than previously thought. “It looks like the Fed will have to be more aggressive,” said Yelena Shulyatyeva, an economist at BNP Paribas (OTC:BNPQY). “They will probably overdo it, in our view, and that will eventually lead to a recession; the question is more like when, not whether, it will be a recession.” More

BRUSSELS (Reuters) -TikTok accused the European Commission on Friday of failing to consult it over a decision to ban the Chinese short video sharing app from staff phones on cybersecurity grounds, a move subsequently followed by another top EU body.The app, which is owned by Chinese firm ByteDance, is facing growing scrutiny from Western authorities over concerns that China’s government could use it to harvest people’s data. Beijing has regularly denied having any such intentions.The EU executive and the EU Council, which brings together representatives of the member states to set policy priorities, said on Thursday staff will also be required to remove TikTok from personal mobile devices that have access to corporate services.TikTok, which has in the past said that data on its service can not be accessed by Beijing, said it had not been told or contacted by either institution ahead of their decisions.”So we are really operating under a cloud. And the lack of transparency and the lack of due process. Quite frankly one would expect, you know, some sort of engagement on this matter,” Caroline Greer, TikTok’s director of public policy and government relations, told Reuters.She said she cold not respond to the bodies’ cybersecurity concerns because they had not spelled them out.The European Commission pointed to EU industry chief Thierry Breton’s comments at a news conference on Thursday where he said the EU executive does not have to give reasons for decisions taken to ensure its proper functions.”To suspend the use of TikTok is a purely internal decision for cybersecurity reasons to protect the Council General Secretariat’s (GSC) data and staff. As the GSC has no contractual relationship with TikTok, there is no obligation to consult or inform them,” an EU official said. Greer said TikTok CEO Shou Zi Chew, who met Breton and other commissioners in Brussels in January, was “concerned and a little puzzled”.”He has always been very available, you know, responding to the Commission … We have reached out for a meeting in whatever shape or form they would like that to happen.”Other EU institutions should do their own research before making decisions on the app, Greer said.TikTok is banned on U.S. Senate employees’ government-owned devices and also in India. The European Parliament has not taken such a step. More