Aurelia Butler

“My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year,” Mester said in prepared remarks to a local chamber of commerce in Dayton, Ohio.The Fed currently targets its policy rate in the 2.25%-2.5% range. Mester also repeated previous comments that she will be basing her decision on whether to back a third straight 75-basis point interest rate hike next month primarily on the inflation outlook, rather than the closely watched monthly jobs report.The Cleveland Fed chief said that the Fed has to guard against “wishful thinking” and it was far too soon to conclude inflation has peaked. Bringing inflation back down to the Fed’s 2% target would take a lot of fortitude, Mester added.”This will be painful in the near term but so is high inflation,” Mester said. More

Europe’s bond market is on course for its worst month on record as investors have bet on big rate rises from the European Central Bank and Bank of England at a time of unprecedented inflation.The region’s market for high-grade government and corporate debt posted a fall of 5.3 per cent in the month to Tuesday, the biggest drop since the Bloomberg Pan-European Aggregate Total Return index began in 1999. The decline has been broad, with UK, German and French debt all hit by heavy selling in a reversal of July’s gains. The continent’s bond markets have been knocked as investors brace for more aggressive central bank rate rises in the face of surging food and fuel prices triggered by Russia’s war in Ukraine. The selling picked up speed on Wednesday after a fresh round of data showed the rate of consumer price growth in the euro area hit a record high of 9.1 per cent in August. The report underlined how high inflation is becoming embedded more broadly across the economy. The higher than expected inflation figure puts further pressure on the ECB to accelerate the pace of interest rate rises when policymakers next meet in September. The central bank in July raised its main interest rate for the first time in more than a decade but economists expect it will need to pursue further increases as it battles intense inflation. The BoE is engaged in a similar effort to quell surging inflation in Britain, which is running at the highest level in more than 40 years.“The one single factor that’s driven bond yields higher in August is the explosion of energy prices in Europe,” said Antoine Bouvet, senior rates strategist at ING. This month, investors ramped up their expectations of interest rate rises from the ECB and BoE as energy prices continued to spiral. Markets expect the ECB’s borrowing costs to hit 2 per cent by March from zero currently while the BoE is being priced to raise rates to 4.1 per cent in March from a current level of 1.75 per cent, according to Bloomberg data based on pricing in money markets. “Clearly the hawks have the momentum in their favour,” said Bouvet.Germany’s central bank president Joachim Nagel has said that soaring inflation will require “a strong interest rate hike in September”, leaving markets anticipating a big 0.75 percentage point rise.“It’s a whites of the eyes situation . . . even if inflation does pass its peak, the central banks are going to remain hawkish,” said Richard McGuire, head of rates strategy at Rabobank. The yield on Germany’s benchmark 10-year Bund has risen more than 0.7 percentage points to 1.54 per cent in August, its biggest monthly jump since 1990. The yield on the UK’s 10-year gilt has climbed from 1.8 per cent at the start of August, to 2.8 per cent on Wednesday. The prospect of steep borrowing costs has also triggered worries about a potential recession across Europe and the UK next year, with some expecting central banks to be forced to cut interest rates come spring.“Everything is aligned in the same direction and it all spells disaster for the consumer,” said McGuire.Additional reporting by Ian Johnston More

MADRID (Reuters) – After struggling a bit with the ticket machine at Madrid’s grand 19th century Atocha railway station, 26-year-old Jennifer Bernard Quintana and her sister became the happy owners of free travel passes valid from Thursday.With inflation near record highs of above 10% year-on-year, Spain’s Socialist-led government hopes to alleviate living expenses and encourage more people to take public transport by providing them with free monthly passes for all local and medium-range intercity routes. Long-haul trips and single tickets are excluded. “I think it’s a great initiative,” Jennifer, who works in social media, told Reuters.”I’d love this to be a permanent thing as it would help to make things in general less expensive and we’d have more mobility… this is a good way for the government to invest the money we pay in taxes.” Her mother Toni, 55, said the discount would help the family save more than 80 euros ($80) a month on her two daughters’ transport cards. “We need more initiatives like this,” she said. “We parents can’t pay anymore. We don’t have the same budget for doing the same things with our children as we did before.”Almost half a million people have already pre-ordered the free transportation cards, and state-owned railway operator Renfe expects the scheme, in force until year-end, to result in 75 million free railway journeys. “It’s very easy to apply and to use. Given the economic situation, for us this is a great help,” said 18-year-old student Anastasia Adamova.Germany has promoted a similar initiative, starting in June and ending in September, which was a huge success and reduced traffic jams in major cities.The Spanish scheme, which also includes discounts on other types of public transport, will cost 221 million euros. It is part of the latest aid package to mitigate price rises, approved in June, worth a total of 9.5 billion euros, including value-added tax reductions and Social Security exemptions.($1 = 0.9976 euros) (This story refiles to fix date) More

Eurozone inflation rose to a record 9.1 per cent in the year to August, intensifying fears that soaring prices are becoming embedded in the economy and bolstering calls for the European Central Bank to raise interest rates more aggressively next week.The flash estimate of consumer price growth published by Eurostat, the European Commission’s statistics bureau, on Wednesday was up from 8.9 per cent in July, which was itself the highest level in the 23-year history of the euro. It was also higher than the 9 per cent expected by economists polled by Reuters. The fallout from Russia’s invasion of Ukraine has sent wholesale gas and electricity prices surging to record levels in Europe in recent weeks and pushed up the cost of fertiliser and other agricultural commodities, such as wheat. The latest rise in food and energy prices is set to exacerbate a cost of living crisis that has hit households and businesses across the 19-country bloc. Germany’s central bank president Joachim Nagel responded to the news by saying high inflation was “becoming an enormous burden for more and more people”. He added: “We need a strong interest rate hike in September. And further interest rate hikes can be expected in the coming months.”Eurozone government bonds sold off, sending their yields higher after the data was released, reflecting growing expectations that the ECB will raise rates by 0.75 percentage points for the first time in its history on Thursday next week. The central bank, which targets inflation of 2 per cent, currently has a benchmark deposit rate of zero. Germany’s 10-year bond yield rose 7 basis points to 1.58 per cent after the inflation number was published, while Italy’s 10-year bond yield rose more than 10 basis points to 3.93 per cent. The euro fell back below the value of the US dollar to $0.9979, adding to inflationary pressure by raising the price of imports in the eurozone.The EU is preparing emergency measures to curb the price of electricity by separating it from the soaring cost of gas. News of the preparations has helped to bring wholesale energy prices down from their record highs in recent days.But a growing number of ECB rate-setters worry the inflationary shock caused by the disruption of the invasion of Ukraine has been accentuated by the reopening of European economies as coronavirus restrictions were ended earlier this year. The removal of stimulus measures to cushion the blow of higher prices are also expected to lead to more price pressures in the coming months. Economists expect inflation to accelerate further in September, when several of the German government’s measures expire, including a fuel duty rebate and a subsidised €9 monthly train ticket. “Before the end of the year, we expect headline inflation to hit 10 per cent,” said Jack Allen-Reynolds, an economist at Capital Economics. “With ECB policy rates a long way below appropriate levels, it is clear that the bank will raise interest rates by a larger-than-normal increment next week. A 75 basis point hike looks increasingly likely.”Further upward pressure on prices is likely, said Commerzbank economist Christoph Weil, “because many companies have not yet fully passed on their higher production costs to consumers”.Eurostat said energy price inflation decelerated slightly, but still rose 38.3 per cent in the year to August. Price rises of processed food, alcohol and tobacco accelerated to hit 10.5 per cent, their first double-digit increase.The closely tracked measure of core inflation, which excludes more volatile energy and food prices to give economists a clearer idea of underlying price pressures, rose 4.3 per cent in August, up from 4 per cent in July.There are also signs of inflationary pressures becoming more broad-based, after goods prices rose 5 per cent — up from 4.5 per cent in July — while services price increases accelerated slightly to 3.8 per cent. Compared with the previous month, overall prices were up 0.5 per cent.Several ECB governing council members have warned inflation risks becoming entrenched well above target if more consumers and businesses expect it to stay elevated, even if the eurozone slides into a recession this year as many economists are forecasting. Some rate-setters have called for the central bank to counter this risk with a “front-loading” of the expected path of rate rises by stepping up from an initial half percentage point rise in July to increase its deposit rate from zero to 0.75 per cent at their meeting next week. But others, including chief economist Philip Lane, have said a “steady pace” of rate rises would be less risky and allow for a future downward adjustment in inflation forecasts. More