Aurelia Butler

(Reuters) – U.S. President Joe Biden’s nominees to the Federal Reserve’s Board of Governors have completed their first official step in the confirmation process with nomination hearings before the Senate Banking Committee. Here’s what’s next for the new leadership of the U.S. central bank as it girds for its battle with high inflation. THIS WEEKEND: FED CHAIR POWELL’S TERM EXPIRES Jerome Powell’s four-year term as Fed chair ends this weekend. On Friday, the Fed’s board appointed him chair pro tempore, effective Saturday, so he can continue to carry out his job while the Senate considers his renomination.The last time a Fed chief’s term expired before a Senate confirmed a new term was in 1996. The Fed’s board voted to appoint Alan Greenspan as chair pro tempore on Friday, March 1 of that year, the last business day before his term expired. The Senate confirmed his third term as Fed chair on June 20, 1996.Powell remains in charge of monetary policy. In January, he was reelected as chair of the Federal Open Market Committee by the members of the policy-setting panel, the Fed said on Friday. FEB 15: SENATE BANKING COMMITTEE VOTEFormer Federal Reserve Governor Sarah Bloom Raskin, Michigan State University’s Lisa Cook, and Davidson College’s Philip Jefferson had their confirmation hearings on Thursday. Hearings on Powell’s renomination as chair and the elevation of Fed Governor Lael Brainard to the post of Fed vice chair were held in January.Democratic Senator Sherrod Brown, the committee’s chair, has set Feb. 15 for the committee vote on all five nominees. The panel’s membership is evenly split between Democrats and Republicans. During the hearings at least one Republican, and in some cases more than one, indicated support for the nominations of Powell, Brainard, Jefferson and Cook, signaling those four could be “reported favorably” for confirmation consideration to the full Senate. The outlook for Raskin, Biden’s pick for vice chair of supervision, was less clear. “She tried to convince Republicans that she would not be heavy-handed, but I don’t think she was very successful,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics. If the committee “fails to report favorably” on any nominee, Senate Majority Leader Chuck Schumer can have the full Senate vote on “discharging” the Senate banking panel from considering Raskin’s nomination further. A confirmation vote could be held a week or so later, once a couple other technical procedures are complete. The process was used last fall to move forward on the stalled nomination of Bureau of Consumer Financial Protection Director Rohit Chopra. DATE TO BE ANNOUNCED: CONFIRMATION Brown has said he has spoken to Schumer about getting the Fed nominations quickly to the Senate floor. With the Senate split evenly between Democrats and Republicans, the Fed nominees may find their fates hinge on the vote of Senator Joe Manchin, a moderate Democrat from West Virginia. Asked earlier this week for his views, Manchin said the nominees were “extremely qualified,” but the rest of his response indicated he was referring to potential nominees to the U.S. Supreme Court, not the Fed. Manchin has said he is concerned about inflation. Cook, Jefferson and Raskin all said they viewed fighting inflation to be the top job for the Fed. Manchin also opposes aggressive climate action, which is what Republicans say Raskin’s confirmation would mean. One further twist: the vote may also depend on attendance. President Donald Trump’s attempt to get his one-time economic adviser and controversial Fed nominee Judy Shelton confirmed failed in 2020 in part because a couple of Republicans were quarantining due to COVID-19 exposure and could not come to the Senate floor to vote.Senator Ben Ray Luján, a Democrat from New Mexico, suffered a stroke last week, and his absence has already forced the postponement of several nominations. His recovery will reportedly take four to six weeks, putting off the earliest likely confirmation vote on the Fed nominees until March. WHAT ABOUT POWELL’S UPDATE TO CONGRESS?The Fed chief typically gives Congress a monetary policy update in February and November each year. But even if that testimony is delayed at this critical moment in U.S. monetary policy, the Fed chair pro tempore has plenty of other venues by which to get out his message. More

“The Federal Reserve Board on Friday named Jerome H. Powell as Chair Pro Tempore, pending Senate confirmation to a second term as Chair of the Board of Governors,” the Fed said in a statement Friday. “The action, effective February 5, enables him to continue to carry out his duties as Chair after the expiration of his term on the same day, and while the confirmation process is underway.”A Senate Banking committee vote on the renomination of Powell and on four other Fed nominees is set for Feb. 15. The full Senate is to consider the nominations at some point after that.The last time a Fed chair’s term expired before the Senate confirmed a new term was in 1996. Alan Greenspan served as Fed chair pro tempore from March 3 to June 20.Powell began his four-year term as Fed chair on Feb. 5, 2018. Biden announced his renomination in November, and at a January hearing, Senate Banking committee members from both sides of the aisle said they will support him for another term. Powell remains in charge of monetary policy. The Federal Open Market Committee separately named him as its chair at its January meeting, the Fed said Friday. More

WASHINGTON (Reuters) – The International Monetary Fund said on Friday it has appointed Germany’s former Bundesbank president Jens Weidmann to lead a new external panel to strengthen institutional safeguards in the wake of a data scandal involving IMF Managing Director Kristalina Georgieva during her time at the World Bank.The IMF expert panel will conduct an independent review to identify “how the Fund can ensure that it has in place robust and effective channels for complaint, dissent and accountability,” the IMF said in a statement.It added the work includes reviewing the Fund’s current framework for addressing complaints applicable to IMF managing director and executive board officials.The external panel was formed as a part of efforts to strengthen research and institutional safeguards that included a new IMF Executive Board steering group formed in December, about two months after the board cleared Georgieva of any wrongdoing in the World Bank data-rigging scandal following a weeks-long review.Georgieva was accused in September of putting “undue pressure” on World Bank staff in 2017, when she was the lender’s CEO, to alter data in its flagship “Doing Business” report to boost China’s ranking. The allegations were published in the investigation report of a law firm hired by the World Bank’s Board of Executive Directors, but vigorously denied by Georgieva. A second report on the incident is expected in coming months.U.S. Treasury Secretary Janet Yellen, who supported the IMF keeping Georgieva in her job, had called for “proactive steps” to reinforce the IMF’s credibility.Appointment of the external panel comes two days after Reuters reported that an initial sentence critical of Japan’s continued financing of high-emission coal projects was deleted from the final published version of a staff mission statement on the Japanese economy, irritating climate activists.Weidmann, a critic of the European Central Bank’s ultra easy monetary policy, stepped down from the Bundesbank in October, five years before the end of his term. He was previously the board chairman of the Bank for International Settlements and an economic advisor to former German chancellor Angela Merkel.Other members of the panel include:– Susan Raines, professor at Kennesaw State University’s School of Conflict Management , Peacebuilding and Development in Georgia.– Olufemi Elias, a judge in the Islamic Development Bank’s Administrative Tribunal and law professor at Queen Mary University of London– Ruben Lamdany, a panel advisor who is a former deputy director of the IMF’s Independent Evaluation Office and a former World Bank senior economist. More

(Reuters) – Poorer ’emerging market’ countries are facing the headwind of rising global interest rates this year, which in the past has prompted international investors and their capital to up anchor and sail out.The issue is that when big developed economies like the United States jack up rates, the returns on investments like government and corporate bonds and higher interest rates offered by developing countries no longer look quite so worth the extra risk.And financial markets now expect U.S. interest rates – which tend to drive EM borrowing costs – to go up 5 times this year and some Wall Street analysts are even predicting seven.The last time that happened within such a short window was August 2005 to June 2006. The 10-year Treasury yield is now at 1.85% from just over 1.5% at the start of the year, which has pushed up EM rates. The average cost for an emerging market government to borrow in its own currency is now almost 6%.(Graphic: EM sovereign bond yields, https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkawwlvx/Pasted%20image%201643738218207.png) The International Monetary Fund has made a point of warning developing economies to prepare for potential bouts of turbulence if U.S. rates go up rapidly and/or if the coronavirus pandemic worsens again.It also says that those with strong inflation pressures or weak institutions should be ready to let their currencies drop and raise their own interest rates. Brazil’s real, Colombia’s peso and, in eastern Europe the Czech crown and Hungarian forint, have all risen this year as their central banks have raised interest rates. (Graphic: Performance of emerging countries’ currencies this year, https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/klpykmqdapg/chart.png) These charts show some of the other metrics which traditionally make a developing country vulnerable to rising global interest rates.1/ DEFICIT NUMBER 1Colombia, Chile and Egypt have the biggest current account deficits as percentage of their gross domestic product (GDP), according to data from Oxford Economics, which makes them more likely to borrow the money to pay for their imports. (Graphic: Emerging markets’ current account balance ( % of GDP ), https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/lgpdwxoemvo/chart.png) 2/ DEFICIT NUMBER 2 Colombia, South Africa and Thailand have the biggest budget deficits, meaning they have to borrow more to fill the gap.(Graphic: Emerging countries’ budget balance ( % of GDP ), https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/egpbklogkvq/chart.png) 3/ ORIGINAL SINNERSQatar, United Arab Emirates and Hungary have higher levels of dollar and other ‘hard currency’ debt, making up more than 80% of their GDP. Borrowing in another country’s currency is described by economists as the ‘original sin’ as a falling local currency can make it very expensive to pay back that debt very quickly.(Graphic: Emerging countries’ external debt ( % of GDP ), https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/movanyqzdpa/chart.png) 4/ RESERVE JUDGEMENTArgentina, Qatar and Egypt are among the countries with the lowest stockpiles of foreign exchange reserves which can be used to bolster domestic currencies and pay for goods, if needed. (Graphic: Emerging economies’ foreign currency reserves, https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/klpykmnlgpg/chart.png) 5/ PAINFUL PAYMENTS Sri Lanka spends far more than it brings in in taxes and other revenues just paying the interest on its debt, let alone the underlying amount. Ghana uses 44% of its revenues while Egypt, Pakistan and Kenya use 30%-40%.(Graphic: Drowning in debt, https://graphics.reuters.com/EMERGING-DEBT/zjvqkanzrvx/chart.png) 6/ GET REALIn real effective exchange rate terms (REER), the Brazilian real and Colombian peso are currently trading at a more than 20% discount to their 10-year averages, according to Bank of International Settlements data. In contrast, the Czech crown’s REER is at a 10% premium. (Graphic: Emerging markets’ real effective exchange rates, https://graphics.reuters.com/EMERGING-ECONOMIES/EMERGING-ECONOMIES/gdpzynmaevw/chart.png) REER is calculated on a trade-weighted basis against a basket of currencies and adjusted for inflation.Economists say that higher and lower REERs are misalignments and both come with associated risks. In the case of higher REERs, the risk could be economic overheating, excess and unhedged borrowing and excess capital inflows, analysts at DBS explain. With lower REERs the risk would include high imported inflation, loss of purchasing power, and external debt service difficulties. (Graphic: Emerging economies’ combined foreign flows into equity and debt markets, https://graphics.reuters.com/EMERGING-FLOWS/EMERGING-FLOWS/zgpomjnyxpd/chart.png) More

(Reuters) – Bigger-than-expected U.S. job gains last month are fueling market bets that the Federal Reserve will kick off its interest rate hikes in March with a hefty half-point jump. That’s likely a bridge too far, given what Fed policymakers have said, where the jobs market is now, and what history suggests. But they do cement expectations that the Fed will raise rates at most of its remaining seven meetings this year as it moves to battle high inflation without undermining the labor market recovery.Interest-rate futures traders largely expect Fed policymakers to raise the target range of the overnight borrowing rate between banks by a quarter-of-a-percentage point, to 0.25%-0.50%. But they are also pricing in a 31% chance of a bigger, half-point rate hikeThat’s up from about a 13% chance priced in before the U.S. Bureau of Labor Statistics reported employers added 467,000 jobs in January. The job gains surpassed even the most optimistic of economist estimates in a Reuters poll; most had expected that the surge in COVID-19 cases would dent demand for workers.But the report suggested the opposite, as average hourly wages rose 5.7% from a year earlier, and the number of people employed or looking for work increased, a metric closely watched as a sign of labor market health. There are still 2.8 million fewer jobs than before the pandemic hit the U.S. economy in March 2020, but the jobs gap is narrowing steadily.(Graphic: The jobs hole facing Biden and the Fed, https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png) Since the 1990s, when the Fed is considered to have largely tamed inflation, 50 basis-point hikes have been the exception and have never been used to start a tightening cycle.To St. Louis Federal Reserve President James Bullard, one of the Fed’s most strident supporters of earlier and faster policy tightening, it wasn’t clear what starting with a bigger bang would accomplish.Since late last year markets have been tightening financial market conditions on their own, anticipating Fed actions that have not been taken yet. The yield on the benchmark 10-year Treasury note rose Friday to 1.9%, the highest it’s been in over two years. (Graphic: Financial conditions tighten, https://graphics.reuters.com/USA-FED/FINANCIALCONDITIONS/byvrjxmabve/chart.png) At this point “It is not clear what you are buying with a 50 basis point move,” Bullard told Reuters Tuesday. “In a way we have done a lot of the work already and I am not sure it behooves us to do a dramatic funds rate increase” in March. But the January data might cause the Fed to reassess somewhat. Policymakers had expected the recent surge of coronavirus cases to at least slow hiring. Instead the economy powered through and wages continued rising. Labor force participation, which the Fed had worried might be permanently stuck low, rose to 62.2%. (Graphic: Labor market progress, https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/yzdvxmmmdpx/chart.png) Several industries, including transportation and retail, today employ more people than they did before the pandemic, though the workforce in the leisure and hospitality industry – hit harder than other sectors – remains 10% below its pre-pandemic level. (Graphic: Jobs by industry, https://graphics.reuters.com/USA-FED/INDUSTRY/qmypmdoolvr/chart.png) The strong January hiring – along with big upward revisions for past months – “completely changes the narrative about the labor market and the broader economy,” writes Jefferies’ Aneta Markowska. “What looked like a summer surge followed by a winter freeze, now looks like a very steady growth momentum that’s not abating at all,” Markowska wrote. That could signal the Fed may need to continue its tightening cycle well into 2023 and even 2024 to keep a grip on inflation, she said. Others agreed.”We still think that a slowdown in first-quarter GDP growth will persuade officials to start slow, although they could project a bigger cumulative tightening over the next few years,” economists at Capital Economics said after the jobs report. More