Aurelia Butler

The Fed could supersize a rate increase to half a percentage point if inflation remains stubbornly high, a leading US central bank official said.Raphael Bostic, president of the Fed’s Atlanta branch, stuck to his call for three quarter-point interest rate increases in 2022, with the first coming in March, in an interview with the Financial Times. But he said a more aggressive approach was possible if warranted by the economic data.That could mean rate rises at each of the seven remaining policy meetings in 2022, or even the possibility of the Fed increasing the federal funds rate by half a percentage point, double its typical amount and a tool it has not used in roughly two decades.“Every option is on the table for every meeting,” Bostic said on Friday. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that.“I do think that a view has emerged that we have some meetings that we really just dial it in and that there’s no ability of action at, and that’s just never been my mindset.” He added that he would be watching closely for a deceleration in monthly consumer price gains and further evidence that rising wages are not feeding meaningfully into higher inflation when thinking about his forecast for interest rates. He said he was encouraged by the latest employment cost index (ECI) report, which was published on Friday and tracks wages and benefits paid out by US employers, and expects a moderation in wage growth going forward.Bostic’s comments echo those of Jay Powell, chair of the central bank, who refused this week to rule out even the most forceful policy responses to quell inflation, which is running at the fastest pace in roughly 40 years.Powell instead said the Fed would be “humble and nimble” as it looks to “move steadily away from” the ultra-easy monetary policy it put in place in early 2020 to shield the economy from the Covid-19 shock.Market expectations have shifted as a result, with traders now pricing in one more quarter-point interest rate increase this year, for a total of five. The Fed’s embrace of a much more hawkish stance has rattled global financial markets, leading to extreme volatility this month and steep losses for US stocks. The Atlanta Fed chief expressed little concern about the recent gyrations, and said it was a natural response to a Fed that was beginning to withdraw its support.

“The reduction of accommodation should translate into tighter financial markets,” Bostic said. “The developments that we’ve seen on that front are comforting in the sense that markets are still functioning the way they’re supposed to, and they are responding to conditions in ways that are rational and appropriate.”He said, however, that he was closely monitoring overnight borrowing markets, in particular, for signs of stress akin to the episode in 2018 when financial markets seized up as the Fed tightened monetary policy further despite fears of a growth slowdown.Bostic, who also supports the Fed reducing its $9tn balance sheet “as quickly as” possible without impairing market functioning, said he was “optimistic” about how the economy was going to perform in the coming months, despite elevated inflation. He also rejected claims that the Fed would raise interest rates far too aggressively and in a manner that would prove damaging.“Our policy path is not a constriction path. It’s a less accommodative path,” he said. “If we do the three [interest rate increases] that I have in mind, that’ll still leave our policy in a very accommodative space.“I don’t think there’s going to be a lot of constraint on growth as we remove these emergency actions.” More

Economists have scrambled to update rate hike expectations since the Fed on Wednesday said it was likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what Fed Chairman Jerome Powell pledged will be a sustained battle to tame inflation.At the conclusion of Wednesday’s meeting, Powell said a decision would be made in coming months on when to start shrinking the central bank’s government bonds and mortgage-backed securities.Goldman economists David Mericle and Jan Hatzius said in the note they expect the Fed to hike rates in March and May and announce the start of its balance sheet reduction in June, then follow with hikes in July and September. They subsequently expect the Fed to return to a quarterly pace in the fourth quarter with one hike in December to end the year at 1.25-1.5%. The economists said they had revised up their inflation path expectation following data this week while in addition, “Chair Powell’s comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening.” Goldman said it continues to expect three hikes in 2023 and for the Fed to reach the same terminal rate of 2.5-2.75% in 2024.Earlier in January, Goldman said it expected four hikes this year and for the process of balance sheet reduction to start as soon as July. More

LONDON (Reuters) -CVC Capital Partners co-Chairman Steve Koltes will step down this year as Europe’s biggest buyout firm prepares for a stock market listing that a source familiar with the matter told Reuters could value it at more than 20 billion euros ($22 billion). Koltes, who co-founded CVC in 1993 as a spinout from Citibank, will leave in October “to focus on his private interests,” the firm said in a statement. He will remain on CVC’s board in a non-executive capacity.CVC recently lined up banks to work on an initial public offering (IPO), following in the footsteps of rival funds including Bridgepoint Group and TPG which recently floated after decades in private hands.In preparation for the IPO, CVC brought in outside capital in September when it sold a stake of roughly 10% to investment firm Blue Owl Capital Inc in a deal that valued the company at 15 billion euros ($16.7 billion).That valuation could surge beyond 20 billion euros in the upcoming listing, considering the strong market debuts of rival firms, the source said.CVC is looking to go public in the second half of the year with Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) working on the plan. It may opt to float on the London Stock Exchange, although a final decision on the listing venue has yet to be made, the source said.After Kotles’s departure, co-Chairmen Donald Mackenzie and Rolly van Rappard – who worked closely with him in the early 1990s to establish CVC when it was still known as Citicorp Venture Capital London – will continue with the firm.The pair praised Koltes for his “wisdom and determination” in transforming the firm into a global private equity powerhouse invested in more than 100 companies worldwide.CVC, with $125 billion of assets under management, has been one of the most active investors during the pandemic, buying Unilever (NYSE:UL)’s tea business for 4.5 billion euros in November and then clinching a 1.9 billion euro deal to invest in Spain’s top soccer league in December.The firm is well known in the world of sports having backed both Formula One and the Six Nations rugby tournament. It is also one of the bidders in talks for a stake worth some 1.5 billion euros in the French soccer league’s media rights business, four sources told Reuters in December.($1 = 0.8974 euros) More

Embroiled in a currency crisis fuelled by the central bank’s move to slash rates by 500 basis points since September as part of an economic model engineered by Erdogan, Turkey saw December inflation soar to its highest level in Erdogan’s 19-year rule. A Reuters poll on Friday showed it is expected to hit a near 20-year high of 47% in January.”You know of my battle with interest rates. We are lowering interest rates and we will lower them. Know that inflation will fall too then, it will fall more,” Erdogan told supporters in the Black Sea province of Giresun. “Exchange rate will stabilise and inflation will fall, prices will fall too, all of these are temporary.” More