Aurelia Butler

Interest rate futures show a 65% chance of the Fed reducing rates by 50 bps on Wednesday, compared with 35% odds of a 25 bps cut, according to data on the CME’s FedWatch tool.Last week, a Reuters poll found that a majority of 101 economists expected the Fed to cut rates by 25 bps at the meeting, while only nine expected a half-percentage-point cut at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting. Here are the latest forecasts from major brokerages ahead of the Fed’s decision due on Wednesday:Rate cut estimates (in bps) Sept Nov Dec Goldman Sachs 25 25 25 BofA Global Research 25 25 25 UBS Global Wealth 50 25 25 Management J.P.Morgan 50 50 25 Wells Fargo 50 50 25 Nomura 25 25 25 Deutsche Bank 25 25 25 Morgan Stanley 25 25 25 Citigroup 25 50 50 Wells Fargo 50 25 25 Investment Institute Barclays 25 25 25 UBS Global Research 25 25 25 HSBC 25 25 25 Macquarie 25 25 25 * UBS Global Research and UBS Global Wealth Management are distinct, independent divisions in UBS Group* Wells Fargo Investment Institute is a wholly owned subsidiary of Wells Fargo Bank More

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STRASBOURG, France (Reuters) -European Commission chief Ursula von der Leyen on Tuesday named a new team to lead the European Union’s most powerful institution for the next five years, focused on tackling challenges to the region’s security, competitiveness and growth.Lithuania’s Andrius Kubilius will be the EU’s first defence commissioner, with the new role designed to build up European military manufacturing capacity in the face of Russian aggression in Ukraine, on the bloc’s eastern flank.Spain’s Energy and Environment Minister Teresa Ribera will be the new antitrust chief tasked with reining in the power of Big Tech and also ensuring that the EU achieves its green goals.”The whole college (Commission) is committed to competitiveness,” von der Leyen told a press conference, with the aim being “building a competitive, decarbonised and circular economy, with a fair transition for all.”Climate change “is the major backdrop of all what we are doing,” von der Leyen said.But, compared to her first five-year term, “the topic of security, triggered by the Russian war in Ukraine, but also the topic of competitiveness, have … much more impact,” she said. The European Commission has the power to propose new EU laws, block mergers between companies and sign free trade deals.All candidates will undergo hearings with lawmakers in the European Parliament who have to sign off on their nomination.Each of the 27 member states will have one seat at the Commission’s table, a role comparable to a government minister, although its political weight varies greatly depending on the portfolio.The EU’s two biggest countries have top jobs in the Commission – von der Leyen is German, and France’s outgoing foreign minister Stephane Sejourne will be in charge of the key portfolio of industrial strategy.Poland’s nominee Piotr Serafin was appointed to the powerful job of overseeing the EU’s budget.HOT-BUTTON ISSUESRibera, with a record as one of Europe’s most ambitious policymakers on climate change, could step up outgoing antitrust chief Margrethe Vestager’s crackdown against Big Tech. She will also seek to ensure the EU’s single market is not distorted by companies benefiting from foreign subsidies.Key jobs have also gone to smaller member states. Estonia’s Kaja Kallas will be in charge of foreign policy. She has used her position as Estonia’s prime minister to become one of the most vocal critics of neighbouring Russia among European leaders – and one of the staunchest supporters of Ukraine’s bids to join the EU and NATO.Slovakia’s Maros Sefcovic will oversee trade policies, the Netherlands’ Wopke Hoekstra will tackle climate policies, Latvia’s Valdis Dombrovskis will have the economy portfolio and Finland’s Henna Virkkunen will oversee tech-sovereignty, security and democracy. All commissioners will report to von der Leyen, who this summer was handed a second term as EU chief executive by member states after her political camp won the most votes in EU elections. The next EU Commission is expected to take office by the end of the year, meaning one of its first tasks will be fielding the outcome of the U.S. presidential election in November.A second presidency for Donald Trump could sharply alter Western unity on supporting Ukraine against Russia’s invasion and up-end EU-US trade relations.There are 11 women in the Commission team von der Leyen proposed on Tuesday, well short of the gender balance she targeted. She said the imbalance was even worse before she negotiated with member states so they proposed more women for the jobs.Each new commissioner will need to pass a hearing in the European Parliament, expected in the coming weeks, in which EU lawmakers will attempt to extract promises from the nominees on what they will deliver if they get the job. The EU Parliament can block Commission nominees – with Hungary’s Oliver Varhelyi among the candidates EU officials expect to be put under pressure during his hearing.There was some drama on Monday on the Commission’s line-up, when, in order to secure a hefty portfolio, French President Emmanuel Macron picked Sejourne as its new candidate instead of the incumbent, Thierry Breton, who had repeatedly clashed with von der Leyen. More

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With markets pricing in the beginning of an easing cycle that will bring rates down from a 23-year high of 5.25% to 5.5%, investors’ focus has centered around the scope of September’s decision.According to the CME Group’s (NASDAQ:CME) closely-monitored FedWatch Tool, the odds of a 50-basis point cut this week — rather than a more traditional 25-basis point drawdown — currently stand at 65%.The probabilities were even heading into last weekend, but bets for a jumbo cut were bolstered by media reports suggesting that such a reduction was still an option. Former New York Fed President Bill Dudley has also argued that a bumper cut was needed because short-term interest rates are “far above” a neutral level that neither helps nor hinders economic activity.Indications of waning activity could spur the Fed act more aggressively to help prop up the economy. Officials are currently weighing lingering stickiness in recent consumer price growth data, as well as figures pointing to a loosening in the American labor market.Fed Chair Jerome Powell said in August that the “time has come” to adjust monetary policy due to potential “downside risks” facing the jobs picture.Even still, the StanChart analysts said in a note to clients on Monday that they are maintaining their forecast for a 25-basis point cut this month accompanied by a “clear message” from the rate-setting Federal Open Market Committee that it is on the lookout for reasons to slash borrowing costs by 50 basis points in the future.The analysts said they would only support a deeper 50-basis point reduction in September if “all incoming labor and activity data were as clearly negative” as a gradual increase in the US unemployment rate throughout 2024. In August, the jobless rate in the world’s largest economy was at 4.2%, up from 3.7% in January.”[T]he [unemployment rate] is isolated in showing an alarming deterioration,” the analysts said.The StanChart analysts added that a half-point cut will not make sense until the the core personal consumption expenditures index — one of the Fed’s preferred measures of inflation that strips out volatile items like food and fuel — decelerates closer to 2% on an annualized basis. The figure stood at 2.6% in July, matching the pace of the prior month.They also dismissed concerns that a shallower 25-basis point drawdown could dent asset markets, saying it is unlikely that trading conditions are “so fragile that a message of ‘not quite yet’ on a 50-basis point cut would lead to extended disappointment.”Finally, they warned that a 50-basis point cut in September would dampen the impact of a more aggressive reduction later this year should labor demand weaken further.”Starting the cutting cycle with 50 [basis points] will probably add to market pricing that is already aggressive on the easing side. There will be more subsequent confusion and market disruption if the unemployment rate remains in the low 4s and core PCE is flat,” the analysts said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe Federal Reserve will cut interest rates on Wednesday. Until last Thursday, guidance from Fed officials had been that there was no need for anything dramatic at the meeting where the US central bank would pivot to rate cutting with a quarter point cut amid growing signs of a soft landing. In the late July meeting, chair Jay Powell said a 0.5 percentage point rate cut in September was “not something we’re thinking about right now”. Financial markets expected a series of cuts and loosened financial conditions. In the Fed’s quiet period on Thursday evening, both the FT and Wall Street Journal carried unsourced news reports saying the Fed was weighing up whether to be more forceful early and start with a 0.5 percentage point rate cut. While I do not know the sourcing of these reports, I do know, having been an FT economics reporter for many years, that both news organisations put strict sourcing requirements on their journalists. Whatever the sourcing, financial markets have interpreted the simultaneous news reports as the equivalent of a “drop”, a briefing from within the Fed. The reports said the Fed was weighing up a decision between a quarter- and a half-point cut. Here is the case for and against. A big cut early allows the Fed to bring interest rates down quickly from between 5.25 and 5.5 per cent to something closer to neutral at a time when the inflation threat is receding and unemployment has risen. Not cutting in July was probably a mistake, so why wait?The economic case against is that the US economy is not falling off a cliff, inflation is still somewhere around 2.5 per cent and financial conditions have already loosened significantly. The Fed can accelerate the pace of cuts easily if required. Neither of these is decisive. But I worry about communications. A large cut demonstrates the Fed was behind the curve in July. It signals a crisis of confidence in the central bank and has a whiff of panic about it, even if stock markets are jubilant (they love the idea that the Fed will underpin values). September 2024 is also a highly sensitive time to cut rates when one candidate for president, Donald Trump, has already said it is “something that they know they shouldn’t be doing” before an election. The Trump campaign loves to invoke conspiracy theories of the deep state and the media ganging up to stop his ability to make America great again. According to the Trump campaign, the media has not reported immigrants eating dogs and cats in Springfield, Ohio, and the presidential debate was rigged by ABC News against Trump. These two baseless conspiracy theories were from the past week alone. There is an appetite for this stuff, however absurd, and I am concerned the Fed will feed it on Wednesday.I’ll repeat. The economics do not matter much, but the communication does. Cheap oilIt’s late summer. Global demand is weakening and oil supply is rising as non-Opec countries increase output. A particularly large rise in US shale oil production has put pressure on Opec states as to whether to maintain cuts in supply or seek to increase their market share and hurt US producers with lower prices. I am, of course, describing 2014, but I could be talking about today, especially with recent rises in US oil production. A decade ago, the nominal oil price fell from above $100 a barrel to an average of about $50 during 2015. Some content could not load. Check your internet connection or browser settings.This year, Opec+ nations said they would begin to unwind output cuts made to keep oil prices high, but have postponed action until later this year because the market responded quickly. Last week, the Brent crude price fell below $70 for the first time since 2021. Futures prices have also dropped sharply, highlighting the similarity with 2014. Central bankers love a scenario. Generally, these tend to model the risk of higher energy prices. There will be a prize for the first central bank that produces a scenario based on 2014 and the possibility that the decline in current and future oil prices continues through next year. Some content could not load. Check your internet connection or browser settings.Decisions, decisionsThe European Central Bank surprised no one with its decision last Thursday to cut rates a second time to 3.5 per cent. In her press conference, ECB president Christine Lagarde warned people to not necessarily expect another cut at the next meeting in October and to discount the September headline rate of inflation, which will drop due to lower energy prices. Domestic inflation was highlighted as a greater concern. “It is not satisfactory. It is resistant. It is persistent,” she said.The path for the rest of the year looks pretty clear. The ECB pauses in October and cuts again in December, with more to come in 2025. What was not said by Lagarde was that underlying ECB staff projections were dovish. Based on conditioning assumptions of lower interest rates in 2025 and 2026 than in June, the ECB still expects core and headline inflation to fall to target with an economy weaker than previously hoped. Lower growth, same inflation and lower interest rates is not a great combination for the Eurozone. Some content could not load. Check your internet connection or browser settings.What I’ve been reading and watchingTiff Macklem, governor of the Bank of Canada, spoke to the FT and opened the door to accelerating the pace of interest rate cuts. The BoC has a much weaker economy than the US and one that is more dependent on high energy prices The Kent A Clark Center at the University of Chicago Booth School of Business regularly surveys top US academics on policy matters. In the past week, they mirrored my past two newsletters on the US election. Large majorities said weakening Fed independence, tariffs and price controls were bad while there was little evidence that price gouging was responsible for inflation. A sister survey, run in conjunction with the FT, projects that the US economy is heading for a soft landingItaly is in a panic about coffee prices. Unlike most other raw commodity prices, these are going through the roofInflation of a different sort. Gary Stevenson claims to have been the best trader in the world. His old colleagues disagree. It’s a great read A chart that mattersThe Bank for International Settlements published its quarterly review on Monday and, indirectly, put its finger on the extreme data dependence in financial markets.Using rolling regressions, the BIS calculates that since 2022, two-year bond markets have become much more sensitive to surprises in US inflation and jobs data. The most recent data (not shown in the chart) suggests markets now only care about non-farm payroll surprises and had an extreme reaction to the weak July data, released in early August. When Powell says the Fed “will be data dependent but not data point dependent”, it should be concerned that financial markets are not listening. Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. 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Each of the EU’s 27 member states gets a seat at the Commission table. Here are some of the key posts and nominees:BUDGETPiotr Serafin (Poland)Poland’s ambassador to the European Union was head of cabinet of current Prime Minister Donald Tusk when Tusk was president of the European Council in 2014-2019, during which the bloc was shaken by Britain’s vote to leave the EU.He also served as a secretary of state from 2008 to 2014 during Tusk’s first term as Polish prime minister.His main job will be to draw up the EU’s next seven-year budget – a highly complex and politically sensitive task.Serafin will expect to draw from his experience as deputy head of cabinet to EU budget commissioner Janusz Lewandowski, when he worked on the EU’s multi-annual 2014-2020 budget.COHESION POLICYRaffaele Fitto (Italy)The European affairs minister is one of the more moderate members of Prime Minister Giorgia Meloni’s hard-right Brothers of Italy party but his appointment to a senior post has raised questions among EU lawmakers, who could block it.Fitto has been in charge of Italy’s sluggish efforts to spend EU COVID-19 bailout funds and meet the reform targets tied to the money.The 55-year-old has experience as a former EU lawmaker and comes from a family of politicians. Both he and his father were presidents of their native southern Puglia region.Italy had hoped for a heavyweight position despite Meloni’s party voting against von der Leyen when the EU parliament approved her second term as Commission president in July.CLIMATEWopke Hoekstra (Netherlands)Hoekstra has been serving as the EU’s Climate Commissioner since October 2023 and will stay on in that role, with the addition of “clean growth” in his title an indication of the EU’s push to produce its own green products, rather than relying on imports, notably from China.At 48, the father of four brings a varied background, having worked at oil firm Shell (LON:SHEL) and consulting firm McKinsey, along with serving as finance and foreign minister in his home country.    European lawmakers put Hoekstra through a tough approval process when he was appointed as the EU’s climate chief because of his stint at Shell and as he hails from the centre-right European People’s Party political group, which had opposed some EU environment laws.COMPETITIONTeresa Ribera (Spain)    A long-time advocate for ambitious climate action, Teresa Ribera has been Spain’s minister for the ecological transition since 2018 and has sped up the country’s shift to clean energy.    Ribera – who has clashed with Spanish companies over her energy policies – will be tasked with ensuring a level economic playing field in Europe’s single market. Like incumbent antitrust chief Margrethe Vestager, part of her task is likely to include reining in Big Tech.Ribera, 55 and with two daughters, is set to be one of the most powerful women in a male-majority Commission, after most governments ignored von der Leyen’s request to nominate both male and female candidates.DEFENCEAndrius Kubilius (Lithuania)Kubilius, 67, has twice served as prime minister of Lithuania, from 1999 to 2000 and from 2008 to 2012. Both times, he pushed through painful reforms – including spending cuts and tax hikes – to deal with economic crises. He lost the subsequent elections.He reduced retirement pensions twice in the wake of the 2008 financial crisis, which saw Lithuania’s economy shrink by 15%. His domestic ratings tanked and did not recover and he lost the leadership of his party in 2015.He is currently a member of the European Parliament. In the defence post, his task will be to get European governments and arms firms to cooperate to reduce fragmentation in the sector and increase defence production capacity.ECONOMYValdis Dombrovskis (Latvia)The former Latvian prime minister and finance minister will be serving a third term as commissioner, to date focused on financial services and the EU economy.He also took on the trade file, seeking to ease transatlantic trade tensions after the U.S. presidency of Donald Trump.Dombrovskis will retain the economy file and will be in charge of trying to reduce or simplify the EU’s myriad regulations and directives.ENERGYDan Jorgensen (Denmark)    Denmark aimed to install a strong advocate for climate action in the new Commission in the form of its minister for development and global climate policy.    Jorgensen, 49 and a socialist, was behind laws that committed Denmark to reduce emissions by 70% from 1990 levels within 10 years and to phase out North Sea oil and gas extraction by 2050. Denmark has traditionally opposed nuclear power.    Jorgensen has been active in global climate talks and is no stranger to the EU, having served as a member of the European Parliament from 2004 to 2013.FOREIGN POLICYKaja Kallas (Estonia)Kallas, 47, used her position as Estonia’s prime minister to become one of the most vocal critics of neighbouring Russia among European leaders – and one of the staunchest supporters of Ukraine’s bids to join the European Union and NATO.Under her premiership, from 2021 to 2024, the country of 1.4 million people became one of the highest per-capita military donors to Ukraine.In February this year, Russian police placed her on a wanted list for destroying Soviet-era monuments in Estonia. Kallas vowed the move would not stop her supporting Ukraine.However, her popularity at home suffered when Estonian media revealed last year that her husband was involved in a business which continued operations in Russia, even as Kallas publicly criticised all who did so.INTERNAL AFFAIRS/MIGRATIONMagnus Brunner (Austria)As Austria’s finance minister, Brunner’s flagship achievement has been a law to counteract the so-called “cold progression” whereby taxpayers slide into higher income-tax brackets through inflation.    The 52-year-old from the mountainous province of Vorarlberg that borders Switzerland has implemented classic conservative policies though political opponents have accused him of spending too loosely and failing to do enough to counter inflation.INDUSTRIAL STRATEGYStéphane Séjourné (France)France’s foreign minister was a late addition to the line-up after Thierry Breton abruptly quit on Monday.Sejourne, 39, is a loyalist of President Emmanuel Macron, their ties dating back to his spell as adviser when Macron was French economy minister from 2014 to 2016. Sejourne chairs Macron’s party Renaissance and also served as a member of the European Parliament, leading the centrist Renew Europe group.He has only led France’s foreign ministry since January, again loyally sticking to Macron’s policies.TRADE Maros Sefcovic (Slovakia)A former diplomat who was Slovakia’s ambassador to Israel and to the EU, the 58-year-old has been a commissioner since 2009, most recently in charge of relations with other EU institutions.Sefcovic took on the EU-U.K. file, helping improve EU ties with former EU member Britain and to seal the Windsor Framework agreement that eases post-Brexit trading arrangements for Northern Ireland.The Slovak commissioner has also taken charge of EU relations with Switzerland, trying to encourage the Alpine nation to accept a broader agreement governing its economic ties with the European Union.Sefcovic will be commissioner for trade and economic security, a nod to the EU executive’s policy to have stronger controls on the export of technologies that could be put to military use by rivals such as China. 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This sentiment was gathered in the firm’s monthly Business Conditions Index (MSBCI) survey, conducted from September 9-11.The survey polled company management teams across various sectors, including oil and gas services, financials, life insurance, and technology hardware, with most respondents predicting a 25bp cut.According to Morgan Stanley, “The majority of respondents expect a 25bp rate cut at the September FOMC meeting.” This sentiment is said to be shared across multiple industries, including mid-cap financials, telecommunications, chemicals, and property and casualty insurance.Meanwhile, the bank says a smaller number of respondents from sectors like hardline retail and large-cap financials anticipate a 50bps reduction.Since the survey concluded, market expectations for a 50bps cut have risen, with the probability now around 65%, up from approximately 30% earlier.Despite this shift, Morgan Stanley remains aligned with the majority view, stating: “We expect the Federal Reserve to move ahead with its first 25bp cut at the September meeting.”In addition to the rate cut, Morgan Stanley expects the FOMC statement to acknowledge progress in taming inflation and recognize growing risks in the labor market.However, the firm predicts that Fed Chair Jerome Powell will avoid committing to specific future rate cuts, emphasizing the Fed’s data-dependent approach.The upcoming meeting is also likely to include updates to the Fed’s Summary of Economic Projections (SEP), with expected upward revisions to unemployment and downward revisions to core PCE inflation in 2024. The median dot is projected to shift from indicating one to three cuts this year, according to Morgan Stanley. More