Aurelia Butler

“The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate,” Kashkari said in an essay, referring to the bank-to-bank overnight lending rate that is the Fed’s main policy lever. “Even after that cut, the overall stance of policy remains tight.”Last week the Fed cut its target range for its policy rate by a half-of-a-percentage point, to 4.75%-5.00%, a bigger-than-usual move that caught many analysts by surprise.Kashkari is not among the Fed’s 12 voting rate-setters this year, so his view on the recent decision was not previously known. He had until recently been among the more hawkish of Fed policymakers, arguing that Fed policy will likely need to stay tighter for longer to bring down inflation.In August he had said he was open to a rate cut, but indicated his preference for a smaller rate cut unless there was a quick deterioration in the labor market.Monday’s essay shows his views are now in synch with the bulk of his fellow Fed policymakers, and includes a chart that indicates he, like them, feels they will probably need to reduce the policy rate by another half-of-a-percentage point over the central bank’s final two meetings of the year. The chart also indicates he projects a further full percentage point reduction in the policy rate over the course of next year, to 3.4%.That would put the policy rate just a half-a-percentage point above what he now sees as the “neutral” rate at which borrowing costs neither bolster nor brake a healthy economy. The actual path, though, he said will depend on the incoming data. Inflation by the Fed’s preferred measure has dropped to 2.5%, a level that does not indicate victory in the inflation fight but does mark substantial progress, he said. The trend in recent months show “the disinflationary process appears to be on track,” he said, with little evidence inflation could surprise to the upside ahead. The labor market meanwhile has softened, he said, with the unemployment rate at a still-low 4.2% but up from last year, and other data on labor conditions showing a slowdown. Even so, he said, consumer spending and economic growth has been surprisingly resilient, a “confusing” mix of data that he said does not suggest recessionary pressures are building. More

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The US central bank cut its target range for its policy rate by 50 basis points to 4.75%-5.00% last week, after leaving borrowing costs at a more than two-decade high for over a year. This was the first reduction since March 2020, and the decision wasn’t unanimous as Fed Governor Michelle Bowman preferred to lower rates by just 25 basis points.”The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate,” Kashkari said in an essay, referring to the bank-to-bank overnight lending rate that is the Fed’s main policy lever. “Even after that cut, the overall stance of policy remains tight.”Kashkari is not among the Fed’s 12 voting rate-setters this year, but until recently had been seen as being among the more hawkish of Fed policymakers.In August he had said he was open to a rate cut, but indicated his preference for a smaller rate cut unless there was a quick deterioration in the labor market.There are more Fed speakers due this week, including Atlanta Fed President Raphael Bostic on Monday, ahead of Fed Chair Jerome Powell on Thursday at the 10th annual US Treasury Market Conference. More

BUENOS AIRES (Reuters) – Argentina’s foreign currency deposits have jumped by around $8 billion since libertarian President Javier Milei took office in December, driven by a series of pro-market austerity measures and incentives to lure dollars back into the financial system.The latest central bank data available on Monday show that total foreign currency deposits now exceed $24 billion, up from around $16.5 billion when Milei, an economist and former TV pundit, took power amid a major economic crisis.The government needs an injection of funds into Argentina’s economy and financial system to help drag the country out of recession, as well as to shore up creaking state finances after years of fiscal deficits, draining reserves and high inflation.Milei has offered an amnesty until Sept. 30 for people to bring funds back into the formal system without penalty after years of savers looking to hoard dollars outside the formal banking system, offshore, or even stuffed under mattresses. More

WASHINGTON (Reuters) – The U.S. economy is close to normal rates of inflation and unemployment and the Federal Reserve needs monetary policy to “normalize” as well, Atlanta Federal Reserve president Raphael Bostic said Monday in comments that suggested openness to a quick pace of interest rate cuts in coming months.”Progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer,” Bostic said in comments prepared for delivery to the European Economics and Financial Centre. “In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago.””Normalizing” refers to returning the Fed’s policy rate of interest to a level that neither encourages or discourages investment and spending, a level felt to be somewhat below the range of 4.75% to 5% set last week after the Fed began easing policy with a half-point cut.Bostic said disagreement over the precise normal or “neutral” rate of interest was of little importance while rates remained this high, with balanced risks to both inflation and the unemployment rate, currently 4.2%. He said he supported the half-point cut approved last week as a compromise between the fact that inflation remains a half-point above the Fed’s 2% target, with housing prices still rising faster than hoped for, and the sense the economy and the job market are slowing.Bostic earlier in the year expected a less aggressive pace of cuts and a later start, and said the larger cut last week “does not lock in a cadence for further moves” that will depend on incoming data.But, he said, “inflation has fallen faster than I had expected, and the most recent data solidify my conviction that the US economy is indeed sustainably on the path back to price stability.” He noted businesses said their pricing power had “all but evaporated” and some important recent measures of inflation were below the Fed’s target. Firms, meanwhile, are taking a more deliberate approach to hiring as well, he said, though they do not yet seem to be at the point of laying off workers.”We have made sufficient progress on inflation, and the labor market has exhibited enough cooling, that the time has come to shift the direction of monetary policy to better reflect the more balanced risks,” he said. More

BENGALURU – The Swiss National Bank will cut its benchmark interest rate by 25 basis points on Thursday for a third straight meeting, according to a significant bulk of economists polled by Reuters, a slight majority of whom said the SNB would hold in December.The central bank raised interest rates more modestly than major peers following the pandemic and started cutting in March, also much earlier than others.Swiss inflation fell to 1.1% last month – the lowest among G10 economies, almost exactly in the middle of the SNB’s preferred 0-2% range.But the franc has stayed strong, up more than 5% against the euro from the year’s low in late May.Almost all economists, or 30 of 32, in the Sept. 18-23 Reuters poll predicted the central bank will reduce its main interest rate on Thursday by 25 basis points to 1.00%, in line with market pricing. One expected a 50 basis-point cut and one said no change.Policymakers are unlikely to deliver a bigger 50 basis-oint rate cut like the U.S. Federal Reserve did last week due to limited policy space, according to most analysts, as the key rate is only 1.25%.”The SNB is almost certain to cut its policy rate by 25bp to 1.00% this coming Thursday,” said Karsten Junius, chief economist at J. Safra Sarasin.”We are aware that the SNB is not afraid to front-load policy changes if deemed necessary…(but) we still believe that a 50bp cut in September would display unnecessary panic.”Around a 55% majority of economists, or 18 of 32, expected the SNB to hold rates in December. Sixteen said the rate will be at 1.00% by year-end, 15 said 0.75% and one said 1.25%.Poll medians showed the central bank would then cut in March to 0.75% and make no more changes until at least 2026.If the poll is correct about this week’s decision, the SNB will have cut rates by a cumulative 75 basis points this year, matching what is expected from the European Central Bank. The ECB reduced its deposit rate by 25 basis points this month for a second time and is expected to deliver another in December, according to a separate survey.But the Swiss currency has broadly strengthened in recent months, partly on expectations of more reductions from the ECB.SNB Chairman Thomas Jordan, who will step down at the end of September, recently said the strength of the franc was making it difficult for Swiss industry.”Policymakers will be unhappy with the franc’s recent appreciation and will use rate cuts to try and stifle its ascent. Further ahead, if the franc continues to appreciate the SNB may revert to using large FX interventions,” said Adrian Prettejohn, Europe economist at Capital Economics.”We think the SNB will not want to cut the policy rate much further, if at all, in response to a strong franc as policymakers will want to reserve some space to loosen policy in case a domestic shock occurs in the future.”Swiss inflation will average 1.2% this year, according to the poll, before easing to 1.0% in 2025, broadly above the government’s latest projections.(Other stories from the Reuters global economic poll) More