Aurelia Butler

(Reuters) – Minneapolis Federal Reserve Bank President Neel Kashkari on Thursday said he has “dramatically” shifted his view of inflation over the last six months, and he has now penciled in seven quarter-point interest rate hikes this year to help rein it in.”We need to adjust,” Kashkari told the Fargo-Moorhead Chamber of Commerce’s Midwest Economic Outlook Summit, because inflation is not proving as temporary as he had thought it would be. “The data just keeps coming in in that direction, and we just have to respond.” More

“With housing costs gaining an ever-larger weight in the inflation Americans experience, I will be looking even more closely at real estate to judge the appropriate stance of monetary policy,” Waller said in prepared remarks for a webinar on housing organized by Tel Aviv University and Rutgers University.He noted that real estate comprises a big share of key inflation gauges as well as making a sizeable contribution to gross domestic product. Measures of market rent have risen more than 6.5% over the past two years while house prices are up a cumulative 35% since the beginning of the COVID-19 pandemic, according to the Zillow Home Value Index.Waller also said he hoped some pandemic-specific factors pushing up home prices and rents would ease in the next year or so, but cautioned that overall rising costs in the “red-hot” housing market are due to demand far exceeding supply and are not fueled by excessive leverage or easy lending.He did not specifically address the general U.S. economic outlook or monetary policy in his speech. In an interview last week, Waller said economic data suggests the central bank should do a bigger interest rate hike in the next two policy meetings to begin to tame inflation, which at above 6% is more than three times the Fed’s target.Only economic uncertainty caused by Russia’s invasion of Ukraine prevented Waller from supporting the larger half-percentage-point increase he had been advocating for ahead of the Fed’s last policy meeting.Fed policymakers raised the benchmark overnight interest rate by a quarter of a percentage point from the near-zero level on March 16 as they began to close the chapter on loose monetary policy measures put in place to bolster the economy through the pandemic. But since then, Fed Chair Jerome Powell and several other central bank policymakers have indicated an increasing willingness to raise rates by 50 basis points when they gather again on May 3-4, at which time they may also begin to reduce the Fed’s nearly $9 trillion balance sheet. More

The European Central Bank will end most of the more relaxed bank funding rules it introduced in response to the coronavirus pandemic, further reducing its economic and financial support despite fears the war in Ukraine will cause significant disruption.The move indicates that while the war in Ukraine is expected to slow growth and increase inflation, ECB officials are confident that the eurozone’s financial system shows few signs of excessive stress, having come through the Covid-19 crisis in better shape than expected. The ECB said that from July it would phase out over three years many of the changes it introduced in April 2020. The relaxed rules were designed to avoid the pandemic turning into a debt crisis by increasing by over €240bn the collateral banks could use to raise cheap funds from the central bank.However, it said Greek government bonds would continue to be accepted as collateral until at least the end of 2024, despite the fact that they do not meet its minimum credit quality requirements because their rating is below investment grade.The central bank has already announced plans to stop all net bond purchases in the third quarter of this year ahead of a potential increase in interest rates for the first time in over a decade. It also plans to stop lending to banks at the most generous rate in its history of minus 1 per cent from June.“This gradual phasing out allows ample time for the euro system’s counterparties to adapt,” the ECB said, adding that its governing council had “taken into account in a forward-looking manner” the impact of its latest decision on banks’ ability to access its refinancing facility.The phaseout will start in July when the ECB will increase the valuation discounts, or haircuts, it applies to the assets that banks use as collateral and it will no longer accept “fallen angel” bonds that lost their investment grade rating after the pandemic hit.The process will end in March 2024 when the ECB will stop accepting extra forms of collateral such as loans guaranteed by governments and public sector institutions.The ECB has already said it will stop much of its net asset purchases at the end of this month when they stop under its €1.85tn pandemic emergency scheme, which allowed it to buy Greek government bonds for the first time in almost a decade. Investors have worried this could mean the ECB stops buying Greek bonds or accepting them as collateral. But it said this month that it would continue to buy some Greek bonds using the proceeds of maturing bonds until those reinvestments end in 2024.The central bank also sent a clear signal that if other governments were downgraded below investment grade it could still buy their bonds, saying it “reserves the right to deviate also in the future from credit rating agencies’ ratings if warranted, in line with its discretion under the monetary policy framework, thereby avoiding mechanistic reliance on these ratings”.Eurozone government bonds have been hit by a heavy sell-off since the start of this year, underlining investors’ concern over the ECB and other central banks’ plans to remove much of the extra stimulus they provided in response to the pandemic, including vast bond purchases.This article was republished to correct the size of the ECB’s pandemic emergency scheme More

LONDON (Reuters) – The Bank of England on Thursday began sketching out Britain’s first regulatory framework for cryptoassets, saying that although the sector remained small, its rapid growth could pose risks to financial stability in future if left unregulated.Cryptoassets have come under the regulatory spotlight amid concerns they could be used to circumvent financial sanctions imposed on Russia since its invasion of Ukraine.”While cryptoassets are unlikely to provide a feasible way to circumvent sanctions at scale currently, the possibility of such behaviour underscores the importance of ensuring innovation in cryptoassets is accompanied by effective public policy frameworks to… maintain broader trust and integrity in the financial system,” the BoE’s Financial Policy Committee (FPC) said in a statement https://www.bankofengland.co.uk/financial-stability-in-focus/2022/march-2022 on Thursday.Cryptoassets, such as bitcoin and ether, are largely unregulated as they fall outside the regulatory ‘perimeter’ and a change of law would be needed to bring them under the full scope of UK securities rules, a step Britain’s finance ministry is looking at.”This would likely require the expansion of the role of existing macro and microprudential, conduct, and market integrity regulators, and close co-ordination amongst them,” the FPC said.The FPC said direct risks to financial stability from crypto were currently limited, but if the recent pace of growth is maintained, there would be risks in future.The sector globally grew tenfold between early 2020 and November 2021, and now stands at $1.7 trillion or 0.4% of global financial assets, with over 17,000 different cryptoasset tokens in circulation.Regulation for the sector should be based on “equivalence”, meaning that crypto-related financial services that perform a similar function to existing financial services should be subject to the same laws, the FPC said.Until cryptoassets are brought fully under the regulatory net, the BoE is focusing on ensuring that risks from crypto are controlled in the banking sector. The Financial Conduct Authority on Thursday told firms they must fully explain to consumers the risks from unregulated crypto.Regulators across the world are also trying to grapple with cryptoassets and their offshoots. STABLECOIN CONDITIONSBoE Deputy Governor Sam Woods wrote https://www.bankofengland.co.uk/prudential-regulation/letter/2022/march/existing-or-planned-exposure-to-cryptoassests to lenders on Thursday, noting increasing interest from banks and investment firms in the sector.Risks from crypto should be “considered fully” by the boards of banks and they would likely need to adapt their existing risk management strategies and systems, Woods told them.”We would also expect firms to discuss the proposed prudential treatment of cryptoasset exposures with their supervisors,” Woods said in reference to the amount of capital needed to cover any losses.The BoE launched a survey of banks’ existing exposures and future crypto plans, setting a June 3 deadline for responses.Stablecoins, which are backed by assets or cash, that became systemically important would need to be backed by high-quality, liquid assets and loss-absorbing capital similar to that held by banks, the FPC said.Using deposits with commercial banks to provide backing for stablecoins would pose significant financial stability risks if pursued at scale, the FPC said.The BoE and the Financial Conduct Authority will carry out further work on rules for stablecoins and consult on a regulatory “model” for systemic stablecoins in 2023, the FPC said. (Graphic: Bank of England Graphic on Stablecoins, https://fingfx.thomsonreuters.com/gfx/mkt/znpneqzdwvl/Bank%20of%20England%20Graphic%20on%20Stablecoins.PNG) More

ZURICH (Reuters) – The Swiss National Bank will take “all necessary measures” to tackle higher prices in Switzerland, SNB Chairman Thomas Jordan said on Thursday, indicating a shift in tone at the central bank that for years has battled to tame the strong Swiss franc.The SNB doubled its inflation forecast for this year, citing higher energy costs, production bottlenecks and the Ukraine war.It now sees 2022 inflation at 2.1%, lower than in many countries but still exceeding its target for limiting annual price increases to 0-2%.Unlike the U.S. Federal Reserve and the Bank of England, the SNB held off hiking interest rates, sticking with the world’s lowest interest rate of minus 0.75% as expected.Certainly, Switzerland’s relatively tame inflation rate gives the SNB some flexibility.Still, Jordan said the central bank was determined to control inflation, indicating potential readiness to shift from the ultra-expansive monetary course pursued over the last seven years.”We are not at all powerless, we look at these inflation forecasts and we will take all necessary measures in order to maintain price stability over the medium to long term,” Jordan told journalists.The SNB steers monetary conditions via the franc’s exchange rate and interest rates, and would adjust tools if necessary, he added.The franc strengthened versus the euro after the SNB’s announcement, with the EUR/CHF exchange rate reaching 1.0213 at one point, its highest valuation since March 14.”We are in the business of that for a very long time and if necessary we have to adjust those monetary conditions so inflation remains or returns to the range of price stability.”We also have to look we do not fall into a situation where we have the opposite problem where inflation becomes too low.”The franc strengthened as the market interpreted the SNB’s comments to mean the bank could cope with the currency’s current strength, indicating it may intervene less in future to weaken the currency.Economists said the higher inflation forecasts and Jordan’s comments indicated a more flexible approach at the SNB.”Jordan’s comments … carry a hint of hawkishness and seems to me to be preparing the grounds for days when the SNB no longer maintains the status quo as a matter of course,” said David Oxley at Capital Economics.”The end of its prolonged period of policy stasis is drawing closer.”With the SNB forecasting inflation of 0.9% in both 2023 and 2024, the central bank also had to prevent the country falling into deflation, said Karsten Junius, an economist at J.Safra Sarasin.”The SNB has to monitor risks to its definition of price stability on both sides,” Junius said. “It therefore has to indicate that it stands ready to adjust its policy in both directions.”While keeping policy unchanged, the SNB retained its description of the franc as “highly valued”, despite the currency recently hitting its highest level against the euro in seven years.Jordan said the SNB did not have a particular “pain threshold” for the franc’s valuation, which was being driven by higher inflation abroad as well as the franc’s safe-haven status.The franc’s strength also helps Switzerland overcome rising inflation by making imports cheaper, he said.Many analysts expect the SNB to wait for the European Central Bank to raise rates before starting its own round of hikes, although Jordan stressed Switzerland’s independence.”We never wait for another central bank, we make monetary policy with the goal of maintaining price stability,” he said. More

ZURICH (Reuters) -Switzerland has frozen around 5.75 billion Swiss francs ($6.17 billion) worth of Russian assets covered by sanctions, and that amount is likely to rise, a government official said on Thursday.”Today, for the first time, I can give you an indication of the amount of frozen funds. To date, SECO has been notified of funds and assets totalling around 5.750 billion Swiss francs,” said Erwin Bollinger, a senior official at the State Secretariat for Economic Affairs (SECO) agency overseeing sanctions.That included a number of properties in cantons which served as tourism resorts, he told a news conference in Bern.SECO had until now declined to estimate the extent of assets frozen or potentially subject to sanctions since the neutral country began adopting European Union sanctions against Russia over its invasion of Ukraine.”The cited number of far over 5 billion francs relates to a snapshot in time,” Bollinger noted. “With further reports coming in and potential additions to EU sanctions lists, which Switzerland would also assume, it is likely this number will rise further.”Ukraine President Volodymyr Zelenskiy has heaped pressure on Switzerland — a popular destination for Moscow’s elite and a holding place for Russian wealth — to more quickly identify and freeze assets of hundreds of sanctioned Russians.Its banks hold up to $213 billion of Russian wealth, Switzerland’s bank lobby estimates.However, actually finding assets to freeze is a bureaucratic headache. SECO has faced criticism for being underprepared and understaffed to handle the reports swamping the agency, even as journalists quiz officials over further assets likely slipping through the cracks.”We can’t just go on a fishing expedition and collect material from every government department,” Bollinger said.”It’s the same as in road traffic: there are rules that have to be followed, even without a police officer standing at every traffic light.”Regional officials have expressed confusion over implementing the sanctions, pointing to a lack of clear directives. Bollinger acknowledged improvements could be made.Banks are combing through records to ensure no one under sanctions slips through the cracks. Credit Suisse (SIX:CSGN), for instance, has sought permission to let 20 compliance staff work nights, weekends and holidays.Bollinger cautioned against assuming that the hundreds of billions of Russian wealth parked in Switzerland was all subject to sanctions.”Not every sanctioned individual or entity has assets in Switzerland,” he said. “And, on the other hand, not every Russian who holds assets in Switzerland is simultaneously on the sanctions lists.”($1 = 0.9320 Swiss francs) More

European stocks steadied and government bond prices dropped as US President Joe Biden met Nato leaders to discuss the allied response to Russia’s invasion of Ukraine.The Stoxx Europe 600 index, which is more than 7 per cent lower for the year, was broadly flat. Germany’s Xetra Dax was steady, while the UK’s FTSE 100 added 0.2 per cent.Eurozone, UK and US government bonds came under renewed pressure, as higher energy prices driven by supply fears exacerbated concerns about surging inflation, reducing the appeal of fixed-income paying securities.The yield on Germany’s 10-year Bund rose 0.06 per cent to 0.54 per cent, its highest since October 2018, as the benchmark debt security’s price fell. The 10-year UK gilt yield added 0.07 percentage points to 1.7 per cent, following a shortlived price gain on Wednesday when the UK cut its debt issuance plans.But futures markets implied Wall Street’s S&P 500 share index would gain 0.5 per cent in early New York dealings, with the technology-focused Nasdaq 100 on track to gain 0.6 per cent, as traders switched money out of a global bond market that is undergoing its deepest downturn since at least 1990.The Stoxx meanwhile was trading at around its closing level of February 23, the day before Moscow launched an invasion of its neighbouring country.Equity markets were showing “a remarkable level of complacency”, said Unigestion investment manager Olivier Marciot, arguing that “it is hard to see how corporate earnings can be maintained alongside higher inflation and lower economic growth”.“There’s a clear divergence between the bond guys and the equity guys,” he said. “I think the bond guys have it right.”Biden was meeting Nato heads of state on Thursday in Brussels to discuss further responses to Russia’s invasion of Ukraine. He will also meet G7 leaders to address “consequences we are imposing on Russia for its war of choice”, a White House statement said.German Chancellor Olaf Scholz has warned that blocking Russian energy “would mean plunging our country and the whole of Europe into a recession”. Germany imports a third of its oil from Russia and more than half of its gas and coal. Consumer price inflation in the eurozone hit a record 5.8 per cent in February, with economists expecting it to rise further.Brent crude oil wavered at just below $122 a barrel, now up around a quarter since February 23. The benchmark could exceed $200 this year, traders warned at a Financial Times event in Switzerland.Futures tied to Europe’s wholesale gas price added almost 13 per cent to €127 per megawatt hour, having topped €130 on Wednesday after Russian President Vladimir Putin said “unfriendly” nations should pay for Russian gas in roubles, injecting doubt into existing supply deals. Prices are almost seven times higher than a year ago.The yield on the 10-year US Treasury note, which underpins global financing costs, rose 0.05 percentage points to 2.37 per cent, close to its highest level since May 2019. Italy’s 10-year bond yield rose 0.05 percentage points to 2.05 per cent, around its highest point since spring 2020.In Asia, Hong Kong’s Hang Seng share index fell 0.9 per cent. The Japanese yen, which is trading at around a six-year low against the US currency, weakened a further 0.4 per cent to ¥121.6 per dollar. More