Aurelia Butler

SAN FRANCISCO (Reuters) – Seven years ago white men made up the majority of directors on the boards of all but one of the 12 U.S. Federal Reserve banks. This year, white men are for the first time in the minority at every one.Of the 105 directors on the newly named 2022 boards, 44% are women, and a record 40% are Black, Hispanic, or otherwise nonwhite, a Reuters review found. Board chairs and vice chairs were for the first time both majority female and majority people of color, and also for the first time included two labor leaders. A related graphic: Fed bank boards are increasingly diverse: https://graphics.reuters.com/USA-FED/DIVERSITY/egpbkjlqavq/chart.png The changing face of the Fed’s directors comes at a critical juncture for the U.S. economy, with raging inflation and slowing jobs growth creating hardship for families particularly of lesser means.And it’s a critical moment for the institution responsible for steering the nation’s monetary policy response: a third of Fed banks will need new presidents over the next year or so.Among the influential subgroup of directors eligible to pick new Fed bank presidents who in turn set interest rates for the nation, a majority are women for the second year running, and a majority are people of color for the first time, Reuters data shows. A related graphic: On Fed bank boards, some classes more diverse than others: https://graphics.reuters.com/USA-FED/DIVERSITY/zdpxoqakevx/chart_eikon.jpg The Dallas and Boston Fed are currently seeking replacements for two recently resigned presidents, both white men, with the Dallas Fed on Thursday holding a town hall to solicit public feedback on the search process. The presidents of the Fed’s reserve banks in Chicago and Kansas City, a white man and white woman respectively, will reach their mandatory retirement ages next January. Their boards are expected to begin searches in coming months. Against that backdrop, those strides in diversity at the regional boards are a milestone for the Fed. For most of its 108 years, its leadership has not come close to reflecting the demographics of the country for which it is the most powerful force in economic policymaking.The gains are the result of a years push by Fed officials to attract more women and minorities to serve on boards in order to better mirror the nation as a whole, build credibility in communities particularly vulnerable in economic downturns, and both promote better decisionmaking on policy and attract more diverse talent to senior Fed roles.”I’m really proud of what we’ve done,” Fed Chair Jerome Powell told the National Community Reinvestment Coalition last May. “We’ve worked hard at that.” There’s still a long way to go. The Fed Board led by Powell, with five members currently, is all white with only two women, and the normally seven-seat panel has never had more than three female members serve at one time and just three Black members ever. While nominations expected by U.S. President Joe Biden as early as this week are seen changing the face of the Fed Board in Washington, the ranks of the regional bank presidents – half of whom are white and male – remain beyond the direct reach of presidential appointments. Those choices are the purview of the regional bank boards, with input from and approval by the Fed Board.At the regional level, the boards of the San Francisco Fed and the Philadelphia Fed are the least diverse: each of their boards is one-third women and one-third minority. Boston – whose presidential search is underway – Chicago – whose search is expected to begin later this year – and Cleveland have boards that are majority women. The Dallas Fed, which is also seeking a new chief, is the only bank with a majority of board members who are people of color. A related graphic: 2022 regional Fed bank boards: https://graphics.reuters.com/USA-FED/DIVERSITY/zjpqknaoapx/chart_eikon.jpg PATH TO BETTER POLICYDiversity at the Fed bank boards is important, Fed bank presidents say, noting that having directors with different backgrounds offers important insight into the economy and the real-world effects of their policies. “We make better policy when we have a diverse team,” San Francisco Fed President Mary Daly said earlier this month at a Central Bank of Ireland event, echoing research that cuts across industries.With regard to the Fed in particular, a study published in early January suggested diverse Fed bank boards strongly correlated with increased lending by local banks to lower-income neighborhoods. And Fed leaders hope that having more diverse boards of directors at the regional Fed banks is a step towards getting a more diverse group of Fed presidents. To be sure, it’s no magic formula. The Cleveland Fed, in 1988, was the last Fed bank to get a female director, data published by Brookings Institution shows, but the first, in 1982, to hire a woman president and three of the seven women ever to serve as Fed presidents led the Cleveland Fed. The Minneapolis Fed’s board was second to last to get a nonwhite director but has hired two of what has been only three ever nonwhite bank presidents. “I do believe that going forward this will be much more important and the (board of directors) will be more cognizant of diversity, but it definitely doesn’t map one-to-one,” said Kaleb Nygaard, senior research associate at the Yale Program on Financial Stability who along with Peter Conti Brown has been studying the Fed bank boards and is among those calling out the Fed for lack of diversity. “Our country’s central bank should be led by people that not only look like our diverse country, but also that have backgrounds that represent all areas of the economy,” he said. More

MOSCOW (Reuters) – Russian President Vladimir Putin called on Wednesday for an 8.6% rise in public pensions this year, slightly above the inflation rate, further increasing state social spending from last year as consumer price inflation hovers near six-year highs.Ahead of parliamentary elections last year Putin ordered one-off social payments and public sector salary hikes worth at least 500 billion roubles ($7 billion), which analysts said may further fuel inflation.Inflation in Russia accelerated to 8.4% last year, preliminary data showed, nearly its highest level since early 2016 and double the central bank’s target of 4%, forcing the regulator to tighten monetary policy. Rising consumer prices are hitting living standards, while Putin has for years promised to boost real disposable incomes. Last year, he called for pre-emptive measures to stop inflation from spiralling. On Wednesday, he said pensions in Russia should be increased by 8.6%, slightly above the preliminary inflation reading for last year.”Previously taken decisions will not cover for people’s expenses resulting from accelerated inflation last year,” Putin told a government meeting. “So I propose… to increase pensions by slightly more than inflation.”The central bank expects inflation to slow to 4%-4.5% by the end of this year. It raised its benchmark interest rate to 8.5% from 4.25% over the course of last year and has said more than one rate hike is still possible in coming months. More

LONDON (Reuters) – Banks in Britain should be “ambitious” in properly quantifying risks from climate change or face intervention by regulators if they fall short, the Bank of England (BoE) said on Wednesday.Banks should also pay particular attention to how they incorporate climate-related risks into business strategies, decision-making and risk-taking, the BoE said in a letter to bank CEOs about its supervisory priorities for the coming year.”Furthermore, we will keep a range of supervisory tools under review for use where we deem progress to be insufficient,” the letter said.The BoE said most banks were focused on the business opportunities presented by climate change even though it also presents an increasing business risk that is foreseeable and requires action now.”From 2022, we will incorporate supervision of climate-related financial risks into our core supervisory approach,” the letter said.Branches of foreign banks in London should also focus on climate change and the BoE said it would increase its engagement with their home state supervisors on this issue.The BoE made similar requests on climate change to insurers in a separate letter, adding they could conduct further research on the potential impact of litigation risk related to climate change, and on the impact of physical risks on assets and liabilities.The full impact of COVID 19 on insurers’ credit portfolios had yet to be felt, the BoE added.”We expect you to consider the potential impact of general and social inflation on financial resilience across a range of scenarios and factor into prudent reserving decisions,” the BoE said. More

LONDON (Reuters) -If the world’s big central banks are convinced the economic emergency is over and policy should start to return to pre-pandemic settings, the ECB is likely to beat the Fed to it.Facing the highest inflation rates in decades, caused mainly by the distortions and bottlenecks related to rapidly reopening economies after serial COVID-19 lockdowns, central banks fear those rates will be slower to subside than first thought.The Omicron wave around year-end again muddied the economic picture and could prolong supply chain and labour market distortions that keep inflation rates higher for longer, as well as raising the risk of them becoming embedded in household, worker and company expectations.If in doubt, the message seems to be, stop adding stimulus, return to square one and assess the lay of the land.U.S. Federal Reserve officials have entered 2022 with all guns blazing. Most now insist they will not only stop buying new bonds by March, but the first of at least three interest rate rises this year will come at that point and unwinding of the Fed’s bloated balance sheet commence shortly after.Fed chair Jerome Powell spoke on Tuesday of ‘normalizing’, policy while being ‘humble and nimble’.While the picture for the European Central Bank is different, it faces a similar inflation and communications headache and the message from its top officials is one of both caution over inflation risks and a restatement of its central price stability mandate.ECB Chief Economist Philip Lane said this week he still sees inflation back below the 2% target next year and in 2024, while its President Christine Lagarde spoke on Tuesday of an “unwavering” commitment to stable prices and new Bundesbank boss Joachim Nagel said he sees a “danger” inflation stays high.For many in the markets, faced with a more modest economic rebound, higher jobless levels, lingering credit problems and ageing demographics that threatened deflation for a decade, the ECB will be deeply dovish for far longer than the Fed. An almost 10% swoon in the euro/dollar currency rate in the second half of last year illustrates some of that.ECB policy rates and long-term benchmark sovereign bond yields were negative pre-pandemic and remain so. And the size of its accumulated balance sheet is both higher than the Fed’s in nominal terms as well as being, at more than 65%, almost twice the share of gross domestic product than Washington’s.But as UniCredit economist Marco Valli points out, much of the ECB’s stance was in place before the pandemic.”When the different starting points of monetary policy are taken into account, the ECB’s stance looks less dovish than generally thought,” he wrote.’HUMBLE AND NIMBLE’ Valli reckons that based on its Dec. 16 decisions – which aims to wind down emergency pandemic bond buying stimulus by March, end new special lending facilities by June and taper long-standing asset purchases to pre-COVID levels by the fourth quarter, the ECB would be back to pre-pandemic settings by October, a year ahead of the Fed on existing plans.Of course, the Fed cut its policy interest rate by more than 150 basis points and revamped its net bond buying from scratch when COVID hit. The ECB by contrast relied mostly on the PEPP bond purchase programme as its key support flooring long-term interest rates. Its repo rate was already at 0% since 2016 and its deposit rate had already been cut to the current -0.5% in 2019.But Valli says it is still worth noting that the ECB will be back to pre-COVID levels long before the Fed despite fewer labor market distortions feeding wages, less exchange rate weakness on import prices and less concern over equity valuations.Either the Fed has been too slow to normalize – and judging by its frantic speechifying this year, some Fed officials appear to think that – or the ECB is being too cautious. “The former appears more likely,” Valli concluded.Market pricing for a small 10bp rise in ECB deposit rates by year-end still seems excessive to most economists. Deutsche Bank (DE:DBKGn)’s ‘House View’ published on Tuesday says this ‘liftoff’ is unlikely until 2023, but it sees net asset purchases dropping by about 70% this year. On the flip side, even if the Fed were to hike rates four times this year, as market pricing now suggests, it would still leave them well below pre-pandemic levels. A rapid wind down of the Fed’s balance sheet this year might even up the relative stances somewhat as shrinking the ECB’s appears a much longer way off. But the Fed’s Powell said on Tuesday no decision on that had been taken yet.So while the ECB may seem more of a tortoise to the hare-like Fed, it may also find it wins the race. Whether that’s a good result for the euro zone economy is less clear.The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own (by Mike Dolan, Twitter (NYSE:TWTR): @reutersMikeD; Editing by Alexander Smith) More

MUMBAI (Reuters) – Bond markets in Asia are likely to stay resilient even as the U.S. Federal Reserve begins to unwind stimulus and hike interest rates this year, economists said.More measured inflation will keep financial conditions relatively easier in Asia, where bond supply is also more adequately matched to demand, said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.Asian bond markets are likely to be more resilient in terms of risk appetite, and there is less upside risk for rates, “despite the situation in China,” Tipp told the Reuters Global Markets Forum (GMF). Analysts at Morgan Stanley (NYSE:MS) wrote China’s shifting policy stance from “over-tightening” to easing will drive recovery there.Staying “more constructive than the consensus” on Asia’sgrowth outlook, Morgan Stanley also cited exports and capex driving a strong and productive cycle in the region.”U.S. real rates have not risen by a significant extent and Asia’s starting point of macro stability means that Asia willbe able to manage the Fed tightening cycle,” they wrote.Japan is widely expected to maintain its ultra-loose policy, China’s further easing is likely to take yields lower, while South Korean yields, which have already fallen sharply, will see the Bank of Korea tightening beyond Friday’s expected hike.”Asia isn’t going to go crazy on rates locally, so may not be too affected by U.S. rates,” said Robert Carnell, chief economist and head of research at ING Asia.”In contrast, Australian bonds (are) likely to more closely track those of the U.S., and we may see the Reserve Bank of Australia hinting about their own end of taper and eventual roll-off,” Carnell said.The U.S. yield curve has flattened following the Fed minutes last week, as investors brace for rate hikes as soon as March that will push short-term rates higher.U.S. two-year Treasury yields rose to their highest level in nearly two years of 0.945%, but fell to 0.9089% after Fed Chair Jerome Powell’s Tuesday Congressional hearing.Brian Coulton, chief economist at Fitch Ratings, wrote in a note that a full normalisation could see U.S. nominal interest rates rise to about 3% over the medium-to-long term, potentially pushing up global rates.(Join GMF, a chat room hosted on Refinitiv Messenger: https://refini.tv/33uoFoQ) More

BEIJING (Reuters) – China’s central bank is set to unveil more easing steps to support slowing growth, though it will likely favour injecting more cash into the economy than cutting interest rates too aggressively, policy insiders and economists said.While some analysts think modest rate cuts could still be on the cards if business activity cools further, expectations that the U.S. Federal Reserve will start tightening monetary policy soon will raise worries about capital outflows from China.Chinese leaders have pledged more support for the economy as a property downturn weighs on investment and strict COVID-19 curbs hit consumption, with the recent local spread of the highly-contagious Omicron variant posing a fresh challenge.Cities across the country are imposing tougher virus curbs, with the northern metropolis of Tianjin mass testing its 14 million people, prompting some economists to cut 2022 growth outlooks.”We need a relatively loose monetary policy. How much we loosen depends on economic conditions, but the policy direction is clear,” Yu Yongding, an influential economist who previously advised the People’s Bank of China (PBOC), told Reuters. The PBOC is likely to cut banks’ reserve requirement ratios (RRR) further in the coming months, alongside other quantitative tools, such as boosting credit via relending schemes and the medium-term lending facility, the insiders and economists said. More support is also expected for small businesses.The PBOC last cut the RRR – the amount of cash that banks must hold as reserves – by a standard 50 basis points (bps) on Dec. 15, its second such move last year. That was followed by a 5 bp cut in the one-year loan prime rate (LPR), the benchmark lending rate, on Dec. 20. Lian Ping, chief economist at Zhixin Investment, has penciled in one or two RRR cuts this year, while Xu Hongcai, deputy director of the economic policy commission at the China Association of Policy Science, expects sharper cuts. “We definitely need to loosen policy as the downward pressure on the economy is relatively big,” said a policy insider, who spoke on condition of anonymity.Tao Wang, chief China economist at UBS, told reporters on Tuesday that she expected the next RRR cut to come in March or April, but she also expects the PBOC to keep the LPR steady.Room for cutting the LPR will be limited given that real interest rates are already low considering current price rises, economists said.December factory-gate inflation slowed more than expected to 10.3% after government measures to contain high raw material prices, while consumer inflation slowed to 1.5%, official data showed on Wednesday.The one-year benchmark lending rate stands at 3.8%.The PBOC has said it will steer policy in line with China’s own economic situation, although economists believe expected Fed rate rises could reduce the China-U.S. rate spread, stoking capital outflows and weighing on the yuan currency.Some of Wall Street’s biggest banks expect four U.S. interest increases this year, starting in March, a more aggressive call than a week earlier.China’s solid trade surplus and its capital controls could shield the economy from sharp capital flight that could plague other emerging economies such as Turkey, economists said.”Although it (Fed rate rises) could create some constraints on our monetary policy, we can maintain our policy independence,” said Yu, the former PBOC adviser. “In other words, if we want to cut interest rates or loosen policy, we can do it,” he said.China’s fourth-quarter growth likely slowed to 3.1% year-on-year, from 4.9% in the third quarter, according to a BofA Global Research report. The data will be reported on Jan. 17. Goldman Sachs (NYSE:GS) has cut its 2022 China growth forecast to 4.3% from 4.8% due to the latest COVID-19 developments. It expects a 50 bps RRR cut in the first quarter, and a 10 bp cut in the one-year LPR in the first half.’A POLITICAL ISSUE’Chinese policymakers focused on curbing property and debt risks last year which exacerbated the economic slowdown. But they have sought to fend off a sharper slowdown that could fuel job losses ahead of a key Communist Party Congress late this year.New bank loans hit a record 19.95 trillion yuan ($3.13 trillion)in 2021, data showed on Wedesday.”All regions and departments should shoulder the responsibility of stabilising the economy, which is not only an economic issue, but also a political issue,” Han Wenxiu, deputy director of the Office of the Central Commission for Financial and Economic Affairs, said in an article published last week.”All parties should actively introduce policies conducive to economic stability and carefully introduce policies with contractionary effects,” Han wrote in state-run Outlook Weekly.China’s leaders aim to achieve economic growth of at least 5% in 2022 to keep a lid on unemployment, policy sources said. China is likely to step up fiscal outlays this year to spur infrastructure investment, with annual budget deficit ratio and a special local government bond quota largely in line with those of 2021.Analysts at Morgan Stanley (NYSE:MS) also expect another round of tax cuts for businesses. In 2021, China set a budget deficit of 3.2% of GDP and a quota of 3.65 trillion yuan ($573.44 billion) on special bonds.Policymakers are likely to ease some property curbs to avoid a hard landing, but any fundamental policy shift looks unlikely as they remain worried about property bubbles, they said.($1 = 6.3651 Chinese yuan renminbi)($1 = 6.3648 Chinese yuan renminbi) More

The State Council set several targets for 2025, namely the increase of the digital economy’s share of the national GDP from 7.8% in 2020 to 10% in 2025. Other targets included accelerating the construction of big data centers and increasing the number of users of gigabit broadband, the fastest connection speed available, from 6.4 million in 2020 to 60 million in 2025. The State Council also pointed out structural issues in China’s digital economy that needed to be addressed. “The development of China’s digital economy also faces some problems and challenges: the lack of innovation capacity in key areas…data resources are huge, but the potential has not been fully released; the digital economy governance system needs to be further improved,” according to the plan. More

US consumer price growth is expected to have risen at the fastest pace in almost four decades in December, as the Federal Reserve worries about the threat of elevated inflation and its consequences for the economic recovery.The consumer price index (CPI) is estimated to have increased at a 7 per cent annual clip last month, a step up from the 6.8 per cent rate registered in November, according to a consensus forecast compiled by Bloomberg. However, month-over-month price gains are expected to have moderated to 0.4 per cent between November and December, down from 0.8 per cent in the previous period. The data will be released at 8.30am Eastern time on Wednesday. “Core” inflation, which strips out volatile items such as food and energy, is expected to have accelerated by an even larger magnitude compared with the last reading. Economists forecast core CPI will have jumped to 5.4 per cent, well above the earlier 4.9 per cent annual pace. That translates to another monthly increase of 0.5 per cent.The new data come just a day after Jay Powell, chair of the US Federal Reserve, warned high inflation was a “severe threat” to the labour market recovery and affirmed the central bank’s intentions to rapidly reduce its monetary policy support.Senior officials have begun to sketch out their plans to raise interest rates from their near-zero levels once they reach their dual goals of maximum employment and inflation that averages 2 per cent over time.December’s data is expected to show further signs that inflation is picking up in a broader cross-section of the economy and is at greater risk of becoming entrenched. The inflation reading for December is expected to put pressure on the Biden administration over its management of the economy heading into the 2022 midterm elections. While the US president has presided over a booming economy that created more than 6m jobs last year while the unemployment rate fell to 3.9 per cent, the perception of a strong recovery has been undermined by the spike in prices and supply chain disruptions. “This is obviously an area of real challenge . . . Americans feel the price squeeze,” a senior White House official told the Financial Times. “While projections expect moderation [of inflation] across the year, the president and the administration are focused and trying to pull that forward as much as possible.”The White House has been trying to reduce bottlenecks at key ports, crack down on anti-competitive behaviour in certain markets such as the meat industry and encourage more oil production globally to reduce petrol prices. It has refrained from adopting other inflation-fighting measures, however, such as removing tariffs on Chinese imports.

Coupled with recent progress in the jobs market — with the unemployment rate plummeting below 4 per cent and wage gains picking up amid a near-record shortfall of workers — economists now expect the Fed to raise interest rates in March, with two or three more adjustments occurring later in the year. The Fed has also signalled its willingness to begin reducing the size of its $9tn balance sheet at some point in 2022 by no longer reinvesting the proceeds from its maturing Treasuries and agency mortgage-backed securities.This process, called run-off, was likely to happen “sooner and faster” than when the central bank last attempted to pare down its portfolio in 2017, Powell said on Tuesday. No firm plans have yet been decided on when the balance sheet may begin to shrink and how quickly the Fed could proceed.Raphael Bostic, president of the Atlanta Fed, on Tuesday said he supported the balance sheet declining by at least $100bn each month after the first expected interest rate increase in March. At least two more interest rate adjustments would be appropriate in 2022, he said. More