Aurelia Butler

Federal Reserve officials are set to raise interest rates next month and would be willing to tighten monetary policy more quickly than they currently anticipate if US inflation does not come under control, according to the minutes of their latest meeting. The account of the January gathering of the Federal Open Market Committee said officials were on board for the first interest rate increase since 2018 to be implemented “soon” in the face of soaring inflation. Economists interpreted that to be a confirmation of a “lift-off” in March.Most Fed officials acknowledged that a faster pace of rate rises was “likely warranted” compared to the last tightening cycle, when the Fed increased its main policy rate by a quarter-point in December 2015 and then held off on another adjustment until the end of 2016. A majority of officials noted that if inflation does not abate sufficiently, there is scope to tighten monetary policy “at a faster pace than they currently anticipate”. That could mean either raising rates more quickly or shrinking the size of the Fed’s balance sheet, which swelled to almost $9tn during the pandemic as it hoovered up bonds to prop up the economy. Markets appeared to view the minutes as less hawkish than expected, given the lack of detail surrounding the balance sheet reduction and path forward for monetary policy from March.Short-dated Treasuries, which are most sensitive to shifts in Fed policy, rallied after the minutes were released, with traders slightly dialling back their expectations for how aggressively the central bank would tighten this year.The yield on the two-year Treasury fell 0.04 percentage points to 1.53 per cent. The yield on the benchmark 10-year note ticked higher, up less than 0.01 percentage points to 2.04 per cent. Yields fall when a bond’s price rises.Overnight funding markets showed traders were pricing in just over six quarter-point interest rate increases this year, down from six-and-a-half earlier in the day.US stocks pared losses from earlier in the day to briefly trade in positive territory. The S&P 500, which had been under pressure as investors weighed developments between Russia and Ukraine, was 0.4 per cent lower after the minutes were released.At his post-meeting press conference last month, Jay Powell, the Fed chair, refused to rule out an aggressive cycle of rate rises, including a jumbo half-point increase at some point if inflation does not ease sufficiently. When asked whether the Fed would consider raising rates at each subsequent policy meeting this year, which would result in seven increases in 2022, he said no decision had been made.The minutes of the meeting did not mention any discussion about a half-point move.

The latest inflation report showed US consumer prices surging at an annual pace of 7.5 per cent last month, the fastest increase in four decades. James Bullard, president of the St Louis Fed and a voting member of the FOMC this year, appeared to suggest in an interview with Bloomberg last week that he would support a half-point rise in March or even an increase before next month’s scheduled meeting. He clarified his stance on Monday by saying he would defer to Powell on how quickly to tighten monetary policy. “The minutes show that the committee is preparing for both balance sheet and interest rate normalisation, but they fail to ratify the hawkishness of Bullard’s most recent comments on his views,” said Thomas Simons, money market economist at Jefferies.Fed officials had another in-depth discussion about the balance sheet, according to January’s minutes, and established several principles for scaling it back. According to the minutes, Fed officials agreed a “significant reduction” in the size of the balance sheet would “likely be appropriate”, but no details about the timing or the monthly pace were disclosed.Additional reporting by Eric Platt and Kate Duguid More

The plan targets water management, helping farmers and agricultural insurance as well as ensuring wheat and animal feed supply, the palace said in a statement.Morocco is experiencing the worst drought in 30 years as the country has registered a rainfall deficit of 64% so far this year. More

Investing.com — Federal Reserve officials were in favor of reining in accommodative monetary policy measures with a faster pace of rate increases and a “significant” reduction in the size of balance sheet that could begin later this year, the Fed’s January meeting minutes showed Wednesday. “With inflation well above 2 percent and a strong labor market, members expected that it would soon be appropriate to raise the target range for the federal funds rate,” according to the minutes.  The faster pace of rate hikes, however, is conditional on whether the pace of inflation continues to trend above target or eventually dissipates.       “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes showed. The odds of a 50 basis point rate hike at the Fed’s meeting has eased slightly to about 50%, 25% last week, according to Investing.com’s the Fed rate monitor tool.On the balance sheet, fed members noted that “a significant reduction” in the size of the balance sheet would likely be appropriate, which could get underway “sometime later this year.” Following its previous Jan. 25-26 meeting, the Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25%, but teed up the prospect of increasing interest rates at its next meeting in March.In his press conference following the monetary policy statement, Federal Reserve Chairman Jerome Powell stoked fears of aggressive Fed rate hikes, saying there was “quite a bit of room to raise rates without hurting jobs.”Since the meeting in January, inflation has continued to trend well above the Fed’s 2% target, the labor market is inching closer to maximum employment, and the once low prospect of a 50 basis point rate hike is being priced in.The odds of a 50 basis point rate hike jumped to about 60% this week, from about 30% last week, according to Investing.com’s the Fed rate monitor tool.The St. Louis Fed president, who tends to lean more hawkish on monetary policy, has been one of the more audible members among his peers calling for aggressive Fed rate hikes.“I’d like to see 100 basis points in the bag by July 1,” James Bullard said in an interview with Bloomberg. “I was already more hawkish but I have pulled up dramatically what I think the committee should do.”An increasing number of market participants, however, are bemused as to why the Fed, despite acknowledging concerns about elevated inflation, has continued to persist with its monthly bond purchases, albeit at a reduced pace of $30 billion a month.Most fed members, however, preferred to continue to “reduce the committee’s net asset purchases according to the schedule announced in December, bringing them to an end in early March,” according to the minutes. The U.S. central banks’ balance sheet has swelled to nearly $9 trillion. Previous attempts, however, to cut the size of its balance sheet, or engage in quantitative tightening, haven’t been well received in markets.In 2018, the Fed allowed certain bonds to mature each month without reinvesting the principal of the bonds in new securities.But the central bank was soon forced to halt the process in the latter part of 2019 after a key short-term overnight lending rate, which supports the plumbing of the financial system, surged and threatened the stability of funding markets.Powell, however, believes today’s economy is on more of a solid footing, and likely able to cope better with quantitative tightening. More

BRASILIA (Reuters) -Brazil’s government is considering an income tax exemption for foreigners investing in domestic corporate bonds, hoping to lower financing costs for local firms at a time of rising interest rates, the Economy Ministry said on Wednesday.In a statement to Reuters, it said officials are drafting regulations aimed at “expanding the access of Brazilian companies to foreign capital” by aligning the tax treatment given to corporate bonds with the one already applied to equity investments by non-residents. Foreigners currently pay a 15% tax on capital gains from local private-sector bonds, but are exempt from the tax when they invest in Brazil’s stock market and public debt. Brazilians pay a 15-22.5% income tax rate on returns from corporate bonds, depending how long they are held.Two Economy Ministry officials said an executive order is being drafted with the change as part of a minor capital markets reform, which was confirmed by two other ministry sources.By opening the door for more foreign investment in Brazil’s capital markets, the country hopes to attract dollars and strengthen the local currency, which would help to ease double-digit inflation, one of the sources said. The Brazilian real has strengthened more than 7% against the U.S. dollar this year, boosted by net financial inflows of just over $10 billion.In 2006, Brazil exempted foreigners from income taxes on their investments in public bonds, helping the government to extend its debt maturities while boosting financial inflows.An executive order providing a similar exemption for private bonds should be ready soon, one source said, following studies by Brazil’s Treasury and tax service. The move would require approval from Congress to become permanent.An initial review has shown little revenue impact from the proposed exemption, the source added, given relatively small foreign holdings of corporate debt in the country. A second source said the tax change would apply to local debt issued by non-financial companies, a market currently worth about 1 trillion reais ($194 billion) according to central bank data, with foreign investors now holding just 2.7% of the total.($1 = 5.158 reais) More