Aurelia Butler

Under a recently revised central bank law, President Joko Widodo must submit at least one name to parliament by February, to allow time for lawmakers to conduct a fit-and-proper test for candidates before selecting the best person for the job.Bank Indonesia’s (BI) current governor Perry Warjiyo was also being considered for a second and last term, Detik.com reported, citing an unnamed source. The news portal also listed the head of the Indonesia Deposit Insurance Corporation, Purbaya Yudhi Sadewa, and BI’s senior deputy governor, Destry Damayanti, as other potential candidates.Kumparan.com reported Purbaya, Sri Mulyani and Warjiyo as names under consideration but did not cite any sources.Purbaya declined to comment on his potential candidacy when contacted by Reuters on Monday. The president’s office and others named by the media did not immediately respond to requests for comment.Warjiyo, in an interview with Bloomberg News last week, said he believed Widodo would choose the best person to lead BI, but did not provide details.BI has lifted interest rates by 225 basis points since August as part of the central bank’s post-pandemic tightening cycle. More

(Reuters) – U.S. central bankers have unambiguously telegraphed this week’s policy decision: a quarter-of-a-percentage-point increase in their benchmark interest rate, the smallest since they kicked off their tightening cycle 10 months ago with one the same size.Less clear is whether they will continue to signal “ongoing increases” ahead for the policy rate as evidence mounts that inflation and the economy are both losing momentum.The Federal Reserve has included that phrase in every policy statement since March 2022, when officials had just started raising borrowing costs from near zero and wanted to signal there was a lot more tightening ahead. The rate increase expected at the Federal Open Market Committee’s Jan. 31-Feb. 1 meeting would bring the policy rate to the 4.5%-4.75% range. That’s two quarter-point rate hikes short of the level most Fed policymakers in December thought would be “sufficiently restrictive” to bring inflation under control. “Does the word ‘ongoing’ really capture just two more hikes? It’s a close call,” said III Capital Management’s Karim Basta. At the same time, he said, “there’s going to be some caution” about doing anything that could feed market expectations that a pause in rate hikes is imminent.That’s exactly what financial markets are already pricing in: An end to rate hikes in March, with the policy target in the 4.75%-5% range, followed by rate cuts starting in September in the face of what many economists forecast will be easing inflation and a recession. Fed policymakers, as of December at least, all see no rate cuts until 2024. “Any signal to the market that they are near to being done is just giving markets a green light that the next move is a rate cut,” said ING Chief International Economist James Knightley. That could ease the financial conditions the Fed has fought hard to make more stringent and potentially kindle more inflation, he said, undermining its efforts to tame it. “Why rock the boat? Why risk unsettling the situation?” Knightley said. “The key question is how committed they are to further rate hikes.”HONORABLE DISCHARGEThere is little question the Fed’s most intense tightening – highlighted by a run of four straight 75-basis-point hikes to deal as swiftly as possible with inflation hitting 40-year highs – is giving way to something more gradual. But there is still a lot of uncertainty over how much more tightening is needed. Inflation is coming off the boil. The core personal consumption expenditures price index, which the Fed uses to gauge underlying inflation momentum, rose 4.4% in December from a year earlier; for the most recent three months it averaged 3.2% on an annualized basis. Still, that’s well above the Fed’s 2% target.The Fed’s aggressive response also appears to have registered with U.S. consumers, who as recently as last summer had begun to view higher inflation as a more lasting phenomenon, a worrying development that had been among the catalysts for the rapid ramp-up to those outsized rate hikes. Data on Friday from the University of Michigan showed consumers’ near-term inflation views have fallen to the lowest since April 2021 and longer-term price growth expectations have receded from last year’s decade highs.The economy is starting to slow but the unemployment rate at 3.5% hasn’t been lower in more than 50 years. Wage growth is much stronger than Fed officials feel is consistent with stable prices.Historically, Fed policymakers often signal an increase in uncertainty and potential turning points with subtle changes in policy statement language designed to sketch out the likeliest path forward without locking them in. In late 2005, for instance, after more than a year of steady interest-rate increases, policymakers wanted to “honorably discharge” some words from long service in their post-meeting statement, transcripts show, including flagging the likelihood of “measured” rate hikes to remove “accommodation.” By January they settled on “further policy firming may be needed,” a phrase Fed Chair Alan Greenspan told fellow policymakers reflected the fact that the Fed no longer had a set plan but would instead be “largely” guided by incoming data. In late 2018, Fed policymakers similarly wanted to show increased data-dependency and relatively limited additional tightening. The tweak to their December statement to say the committee “judges that some” rather than “expects” that “further gradual increases” in the target rate would be consistent with its goals turned out to mark the end to that round of rate hikes.Whether either of those changes serves as a blueprint for next week is unclear. Fed policymakers in recent public comments have offered up their own descriptions of the rate hike path, including “continued tightening of monetary policy” from the often-influential Fed Governor Christopher Waller. Fed Vice Chair Lael Brainard and New York Fed President John Williams, who both work closely with Fed Chair Jerome Powell to craft official verbiage, for their parts offered no new rate-hike guidance in recent speeches, though both Brainard and Williams stressed the Fed must “stay the course” on its inflation fight – a turn of phrase Powell has also often used. And analysts are divided on whether the Fed plans to retire “ongoing” in favor of something that sounds less like policy is on autopilot and but still headed higher, as BNP analysts suggested this week.”It’s a very delicate problem. It’s a delicate language issue, but I think they’d be best not to change it,” says Nationwide Chief Economist Kathy Bostjancic, taking the other side. “They don’t want financial conditions to become markedly easier than they are currently.” More

The Federal Reserve is this week set to signal it will press ahead with its campaign of interest rate rises, even as it slows the pace of increases amid signs inflation has peaked.Policymakers at the US central bank are expected to implement a quarter-point increase at their first gathering of the year, lifting the fed funds rate to a new target range of 4.50 per cent to 4.75 per cent.The Fed previously raised the federal funds rate by unusually large increments — including four consecutive 0.75 percentage point rises last year — in an attempt to tame spiralling prices. At its previous meeting in December, it opted for a half-point increase.However, lingering scepticism about how quickly inflation will keep falling has put pressure on the central bank to maintain a hawkish stance to ward off speculation that it plans to pause its monetary tightening campaign imminently.“I expect the step down to a 25-basis-point rate hike to come with ‘we have more work to do’ language,” said Jonathan Pingle, a former Fed economist now at UBS. “This is going to be a meeting where they’re going to try not to be too dovish.”The policy statement that accompanies the rate decision will be closely scrutinised for any changes to the guidance provided since last March, which has said the Federal Open Market Committee expects “ongoing increases in the target range will be appropriate”. Many expect the Fed to hold that line or tone it down minimally, and for chair Jay Powell to double down on the message at Wednesday’s press conference. Fed officials want to buy time to assess economic data, which has become more mixed as their previous tightening measures have taken effect.Lael Brainard, the vice-chair who is among the most dovish FOMC members, recently cautioned the “full effect on demand, employment, and inflation of the cumulative tightening that is in the pipeline still lies ahead”.Business activity, especially in manufacturing, has already taken a hit alongside the housing sector, while Americans are both spending less readily and more often dipping into savings or taking on debt to cover expenses. Companies are beginning to cut costs, slashing hours for workers and reducing temporary help.Wage growth has slowed but still remains strong amid a tight labour market, keeping pressure on prices across the services sector. Fed governor Christopher Waller has warned against being “head-faked” by positive data while underlying inflation remains too high, saying he needs to see a full six months’ worth of evidence to feel confident in pausing rate rises.“The hard decision [of when to pause] isn’t quite here yet,” said Ellen Meade, who served as a senior adviser to the Fed’s board of governors until 2021. “Powell probably doesn’t want to stop until he thinks he’s ready to stop and hold for a while.”Most officials say the fed funds rate will need to go above 5 per cent and for that level to be maintained through 2024. However, traders on Wall Street disagree, pricing in a peak policy rate of less than 5 per cent, with roughly half a percentage point of cuts by December. Financial conditions have also loosened, threatening to counteract some of the tightening under way.“Market-determined rates are where the rubber really meets the road in transmitting tighter conditions and where some of the strongest impact on the economy occurs,” said Dennis Lockhart, former president of the Atlanta Fed.

“A step down to a quarter of a point move could encourage the narrative in the markets of a decline in rates in the second half of the year. This is not necessarily what the committee wants as a total inflation-fighting package.”Donald Kohn, a former Fed vice-chair, said the central bank can defend against easier financial conditions with its rhetoric and, if necessary, higher interest rates than it has signalled.Lorie Logan, president of the Dallas Fed and a voting member on the FOMC, acknowledged as much in a recent speech, when she said the central bank “can and, if necessary, should adjust our overall policy strategy to keep financial conditions restrictive even as the pace slows”. “Their mission this year is to wring excess inflationary pressures thoroughly out of the economy [and] I don’t think they are of a mind to let up too early,” said Lockhart. “The Fed is playing a big-stakes, long-term game.” More

Unions have called for a nationwide day of strikes and demonstrations and hope to repeat the large turnout seen on the first major protest on Jan. 19, when more than a million people marched against the reform. Strikes that day also halted trains, blocked refineries and curbed power generation. “It will be a difficult, very difficult day for public transport… We expect major disruptions,” Transport Minister Clement Beaune said on LCI TV.National railway operator SNCF said in a statement that traffic would be seriously disrupted on its entire network on Tuesday due to the strike, and recommended that people cancel or delay their travel or work from home. Tickets already bought for the period between 6 p.m. on Monday Jan. 30 and 8 a.m. on Wednesday Feb. 1 will be fully reimbursed, SNCF said. RATP, the public transport operator for the Ile-de-France region around Paris, also said metro lines and suburban trains will be heavily disrupted on Tuesday.French civil aviation authority DGAC said in a statement it had asked airlines to reduce their flight programmes by 20% at the Paris Orly airport on Tuesday, but added that despite this preventive measure delays and disruptions could be expected. Transport minister Beaune said the government remained open to further talks with unions but he said President Emmanuel Macron’s government would maintain the reform’s key target of increasing the retirement age by two years to 64. “The heart of the reform will not change,” he said. The government wants to gradually increase the retirement age by three months per year from September, until 2030, and also plans to increase the length of time workers make social security contributions.Unions – including the moderate CFDT union – are united against the reform and have vowed to continue strikes and demonstrations until the government drops its plans. Macron has said he was elected on a platform to reform pensions and that without the changes France’s pension system cannot remain financially viable. More

WELLINGTON, New Zealand (Reuters) – More than 30 years ago, some relatively youthful central bank and Treasury economists in New Zealand were grappling with how to bring two decades of double-digit inflation under control in an economy less than 1% the size of its U.S. counterpart.What if, they asked, they just told everyone the rate should be much lower – say roughly 2% – and then aim for that? “It was a bit of a shock to everyone, I think,” said Roger Douglas, the Labour Party finance minister at the time who worked with the Treasury and Reserve Bank of New Zealand (RBNZ) to pioneer the policy. “I just announced it was gonna be 2%, and it sort of stuck.”Like that, inflation targeting was born.Since it’s arrival in 1990, the 2% inflation target phenomenon has sailed from Wellington around the globe to become the accepted norm among central banks, large and small, for grounding public expectations for what inflation ought to be. But the price spikes spawned by the COVID-19 pandemic are set to test their devotion to it in the months ahead as inflation looks set to remain stubbornly above 2% for some time.As some observers question whether that level remains valid today – in most cases debating if it should be raised to blunt the blows to growth and employment from the high interest rates being employed by central banks in order to achieve it – the inflation-targeting pioneers in New Zealand are standing by it. In fact, Arthur Grimes, a former chief economist and senior official at the RBNZ who was seen as one of the key architects of the policy, would like the target to include a lower range. “Zero’s the obvious sort of place to head for – it is basically saying, on average, prices in 10 years time should be roughly the same as prices now. Why would you want anything different?” he said.Graphic: Inflation remains above target everywhere https://www.reuters.com/graphics/GLOBAL-CENBANKS/INFLATION/lbvggoqwgvq/chart.png ‘MOST DESPISED MAN’When New Zealand became the first country to mandate inflation targeting, the upper limit was 2% and the lower one just 0%. At the time, inflation was running at 7.6% but had tracked above 10% on average between 1970 and 1990, and few people thought the target was realistic.There “were some pretty vicious internal debates, not everyone I think was particularly convinced that we should be aiming for something as low we were,” said Michael Reddell, a former RBNZ economist, who at the time headed the economics department’s monetary policy section.”It wasn’t the most scientific process in the entire world … we had limited resource. Nobody had done this before us,” he added.The adoption of the inflation target was followed by aggressive monetary tightening, with 90-day rates climbing to 15% in 1990. A year later, inflation had fallen to 2% and New Zealanders’ inflation expectations adjusted quickly to the new paradigm.But there were severe short-term costs for businesses and workers, with the economy stagnating between 1989 and 1994 and the unemployment rate rising into double-digit figures. Since that time, the target has been shifted twice, initially to a range of 0% to 3% and then in 2002 to the 1%-3% range. The decision – and the resulting policy – was driven largely by politics.Governments had engaged in spending sprees to win votes at the expense of inflation. Douglas, the former finance minister, asked the central bank and Treasury to pioneer the policy to prevent that from happening again.Initially there was debate about whether interest rates or money supply should be the target, but it was decided it was better to target the ultimate goal: inflation.”They did all the hard work and I just got all the glory and the title of being the most despised man in New Zealand,” Douglas said.IN THE SPOTLIGHTBut to New Zealanders used to high inflation, a 2% rate seemed unbelievable. Don Brash, then the RBNZ governor and later the leader of the opposition National Party, said he held grueling meetings with everyone from news organizations to grassroots bodies to get them on board. New Zealand faced rising unemployment, with wages failing to keep up with the cost of living. Reuters reported in 1994 that 13 protesters were dragged from the foyer of the RBNZ in Wellington and arrested after demanding the central bank let inflation rise.”The conclusion from our history about that, is that if you don’t want to damage the real economy don’t let inflation get away in the first place. Because the path back to low inflation, from embedded inflation always involves output losses,” said Graham Scott, who was the secretary of the Treasury from 1986 to 1993.After the changes were introduced, New Zealand found itself under a spotlight. It attracted better economic event speakers, and the architects of the policy were invited to major gatherings including the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming. Other central bankers were keen to understand what had happened.”‘How did we do it?’ became the bigger question than ‘what we did,” Douglas said. “I mean, most people didn’t really argue with what we were doing but they wondered how the heck we managed to get away with it.” More