Evelyn Reynolds

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    No ‘economic collapse’: Top Citi strategist says healthier economic growth is coming

    Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the last two years.
    Wieting told CNBC’s “Squawk Box Europe” on Monday that he is optimistic the global economy does not need an “economic collapse” to rein in inflation.
    Investors will be closely watching Friday’s personal consumption expenditure (PCE) inflation figure, the Fed’s preferred metric, for further clues as to when the central bank will begin cutting rates.

    Jim Dyson | Getty Images News | Getty Images

    The global economy does not need a “collapse” in order to bring inflation back to target and return to sustainable growth, according to Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth.
    Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the last two years. This has been particularly evident in the U.S., with recession thus far avoided and the labor market remaining robust.

    Talk has now turned to rate cuts as inflation remains on a downward trajectory toward central banks’ targets, while growth has slowed.
    Wieting told CNBC’s “Squawk Box Europe” on Monday that he is optimistic the global economy does not need an “economic collapse” to rein in inflation.
    “We had one massive shock — one pandemic, one collapse. We didn’t need two recessions to ultimately cure our inflation problem,” he said.
    “It’s holding down parts of our economy now — manufacturing and trade declines are happening around the world — but these are likely to bottom within the year.”

    U.S. headline inflation came in at an annual 3.4% year-on-year in December, remaining above the Federal Reserve’s 2% target but down considerably from a peak of 9.1% in June 2022.

    Investors will be closely watching Friday’s personal consumption expenditure (PCE) inflation figure, the Fed’s preferred metric, for further clues as to when the central bank will begin cutting rates.
    Meanwhile, a preliminary estimate of fourth-quarter GDP is scheduled for Thursday, with the economy expected to have grown by 1.7%, its lowest rate since the 0.6% decline in the second quarter of 2022.
    “This period of slower global growth and slowing employment growth in the United States we think can pass and lead to a healthier growth period if we take a look particularly at the next year and beyond, and that’s this year’s business for investors,” Wieting said.
    He highlighted that while there is excess that needs to be worked out of the economy, this was not the result of a “true overheating” or prolonged “boom,” but instead of excess government fiscal stimulus related to the pandemic recovery that wasn’t going to be repeated.
    “If you take a look at money supply in the United States, it declined 4% over the past year. Take a look at the 1970s, it was almost 10% growth for the entire decade, important prices surging 14% every single year — that’s … sustained inflation,” Wieting said.
    “This story with just all of this government spending coming and going — upheaval in supply and demand, consumer spending going up or down 30% between goods and services, during the pandemic period — that’s not the environment we’re in any longer.” More

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    Two important events this week could determine the future of Fed rate policy

    Two big economic reports coming up this week could go a long way toward determining at least which way the central bank policymakers could lean on policy.
    Gross domestic product will be released Thursday and the personal consumption expenditures prices reading on inflation is out Friday.
    ” “It’s not about secret meetings or decisions. It’s fundamentally about the data” that will determine policy, Chicago Fed President Austan Goolsbee told CNBC.

    Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 19, 2024. 
    Brendan Mcdermid | Reuters

    Markets have become less convinced that the Federal Reserve is ready to press the button on interest rate cuts, an issue that cuts at the heart of where the economy and stocks are headed.
    Two big economic reports coming up this week could go a long way toward determining at least which way the central bank policymakers could lean — and how markets might react to a turn in monetary policy.

    Investors will get their first look at the broad picture of fourth-quarter economic growth for 2023 when the Commerce Department releases its initial gross domestic product estimate on Thursday. Economists surveyed by Dow Jones are expecting the total of all goods and services produced in the U.S. economy to have grown at a 1.7% pace for the final three months of 2023, which would be the slowest since the 0.6% decline in Q2 of 2022.
    A day later, the Commerce Department will release the December reading on the personal consumption expenditures price index, a favorite Fed inflation gauge. The consensus expectation for core PCE prices, which exclude the volatile food and energy components, is 0.2% growth for the month and 3% for the full year.

    Both data points should garner a lot of attention, particularly the inflation numbers, which have been trending towards the Fed’s 2% goal but aren’t there yet.
    “That’s the thing that everybody should be watching to determine what the Fed’s rate path will end up being,” Chicago Fed President Austan Goolsbee said during an interview Friday on CNBC. “It’s not about secret meetings or decisions. It’s fundamentally about the data and what will enable us to become less restrictive if we have clear evidence that we’re on the path to get” inflation back to target.

    Lowered rate-cut outlook

    The releases come amid a market snapback about where the Fed is heading.

    As of Friday afternoon, trading in the fed funds futures market equated to virtually no chance the rate-setting Federal Open Market Committee will cut at its Jan. 30-31 meeting, according to CME Group data as indicated through its FedWatch Tool. That’s nothing new, but the odds for a cut at the March meeting fell to 47.2%, a steep slide from 81% just a week ago.
    Along with that, traders have taken one expected cut off the table, reducing the outlook for easing to five quarter percentage point decreases from six previously.
    The change in sentiment followed data showing a stronger-than-expected 0.6% growth in consumer spending for December and initial jobless claims falling to their lowest weekly level since September 2022. On top of that, several of Goolsbee’s colleagues, including Governor Christopher Waller, New York Fed President John Williams and Atlanta Fed President Raphael Bostic, issued commentary indicating that at the very least they are in no hurry to cut even if the hikes are probably done.

    “I don’t like tying my hands, and we still have weeks of data,” Goolsbee said. “Let’s take the long view. If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness.”
    Goolsbee noted that one particular area of focus for him will be housing inflation.
    The December consumer price index report indicated that shelter inflation, which accounts for about one-third of the weighting in the CPI, rose 6.2% from a year ago, well ahead of a pace consistent with 2% inflation.
    However, other measures tell a different story.
    A new Labor Department reading known as the New Tenant Rent Index, indicates a lower path ahead for housing inflation. The index, which measures prices for new leases that tenants sign, showed a 4.6% decline in the fourth quarter of 2023 from a year ago and more than double that quarterly.

    Watching the data, and other factors

    “In the very near term, we think the inflation data will cooperate with the Fed’s dovish plans,” Citigroup economist Andrew Hollenhorst said in a client note.
    However, Citi foresees inflation as stubborn and likely to delay the first cut until at least June.
    While it’s unclear how much difference the timing makes, or how important it is if the Fed only cuts four or five times compared to the more ambitious market expectations, market outcomes have seem linked to the expectations for monetary policy.
    There are plenty of factors that change the outlook in both directions — a continued rally in the stock market might worry the Fed about more inflation in the pipeline, as could an acceleration in geopolitical tensions and stronger-than-expected economic growth.
    “By keeping the potential alive for inflation to turn up, these economic and geopolitical developments could put upward pressure on both short-term rates and long-term yields,” Komal Sri-Kumar, president of Sri-Kumar Global Strategies, said Saturday in his weekly market note.
    “Could the Federal Reserve be forced to raise the Federal Funds rate as its next move rather than cut it?” he added. “An intriguing thought. Don’t be surprised if there is more discussion along these lines in coming months.” More

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    War Has Already Hurt the Economies of Israel’s Nearest Neighbors

    The impact on global growth of the Middle East violence has so far been contained. That’s not the case for Egypt, Lebanon and Jordan, which were already struggling.In the Red Sea, attacks by Iranian-backed Houthi militants on commercial ships continue to disrupt a crucial trade route and raise shipping costs. The threat of escalation there and around flash points in Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan ratchets up every day.Despite the staggering death toll and wrenching misery of the violence in the Middle East, the broader economic impact so far has been mostly contained. Oil production and prices, a critical driver of worldwide economic activity and inflation, have returned to pre-crisis levels. International tourists are still flying into other countries in the Middle East like Saudi Arabia, the United Arab Emirates and Qatar.Yet for Israel’s next-door neighbors — Egypt, Lebanon and Jordan — the economic damage is already severe.An assessment by the United Nations Development Program estimated that in just three months, the Israel-Gaza war has cost the three countries $10.3 billion, or 2.3 percent of their combined gross domestic product. An additional 230,000 people in these countries are also expected to fall into poverty.Iranian-backed Houthi militants have been attacking commercial ships in the Red Sea.Sayed Hassan/Getty Images“Human development could regress by at least two to three years in Egypt, Jordan, and Lebanon,” the analysis warned, citing refugee flows, soaring public debt and declines in trade and tourism — a vital source of revenue, foreign currency and employment.That conclusion echoed an update last month by the International Monetary Fund, which said that it was certain to lower its forecast for the most exposed countries when it publishes its World Economic Outlook at the end of this month.The latest economic gut punches could not come at a worse time for these countries, said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma.Economic activity across the Middle East and North Africa was already on a down slide, slipping to 2 percent growth in 2023 from 5.6 percent the previous year. Lebanon has been enmeshed in what the World Bank calls one of the world’s worst economic and financial crises in more than a century and half. And Egypt has been on the brink of insolvency.Since Hamas fighters attacked Israel from Gaza on Oct. 7, about 25,000 Palestinians have been killed by Israel, according to the Gazan health ministry. The strip has suffered widespread destruction and devastation. In Israel, where the Hamas attacks killed about 1,200 people, according to officials, and resulted in 240 being taken hostage, life has been upended, with hundreds of thousands of citizens called into military service and 200,000 displaced from border areas.In Jordan, Lebanon and Egypt, uncertainty about the war’s course is eating away at consumer and business confidence, which is likely to drive down spending and investment, I.M.F. analysts wrote.Rising prices in Egypt continue to gnaw at households’ buying power.Mauricio Lima for The New York TimesEgypt, the Arab world’s most populous country, has still not recovered from the rise in the cost of essential imports like wheat and fuel, a plunge in tourist revenue, and a drop in foreign investment caused by the coronavirus pandemic and the war in Ukraine.Lavish government spending on showy megaprojects and weapons caused Egypt’s debt to soar. When central banks around the world raised interest rates to curb inflation, those debt payments ballooned. Rising prices within Egypt continue to gnaw away households’ buying power and business’s plans for expansion.“No one wants to invest, but Egypt is too big to fail,” Mr. Landis said, explaining that the United States and I.M.F. are unlikely to let the country default on its $165 billion of foreign loans given its strategic and political importance.The drop in shipping traffic crossing into the Red Sea from the Suez Canal is the latest blow. Between January and August, Egypt brought in an average of $862 million per month in revenue from the canal, which carries 11 percent of global maritime trade.James Swanston, an emerging-markets economist at Capital Economics, said that according to the head of the Suez Canal Authority, traffic is down 30 percent this month from December and revenues are 40 percent weaker compared to 2023 levels.“That’s the biggest spillover effect,” he said.For these three struggling economies, the drop in tourism is particularly alarming. In 2019 tourism in Egypt, Lebanon and Jordan accounted for 35 percent to nearly 50 percent of their combined goods and services exports, according to the I.M.F.Displaced Palestinians on their way from the north of the Gaza Strip to its south last year.Samar Abu Elouf for The New York TimesIn early January, confirmed tickets for international arrivals to the wider Middle East region for the first half of this year were 20 percent higher than they were last year, according to ForwardKeys, a data-analysis firm that tracks global air travel reservations.But the closer the fighting, the bigger the decline in travelers. Tourism to Israel has mostly evaporated, further hammering an economy upended by full-scale war.In Jordan, airline bookings were down 18 percent. In Lebanon, where Israeli troops are fighting Hezbollah militants along the border, bookings were down 25 percent.“Fears of further regional escalation are casting a shadow over travel prospects in the region,” Olivier Ponti, vice president of insights at ForwardKeys.In Lebanon, travel and tourism has previously contributed a fifth of the country’s yearly gross domestic product.“The number one site in Lebanon is Baalbek,” said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. The sprawling 2,000-year-old Roman ruins are so spectacular that visitors have suggested that djinns built a palace there for the Queen of Sheba or that aliens constructed it as an intergalactic landing pad.Now, Mr. Abdallah said, “it is totally empty.” Mr. Abdallah said that since Oct. 7, his bookings have dropped 90 percent from last year. “If the situation continues like that,” he said, “many tour operators in Beirut will go out of business.”Travel to Egypt also dropped in October, November and December. Mr. Landis at the Middle East Center in Oklahoma mentioned that even his brother canceled a planned trip down the Nile, choosing to vacation in India instead.The top tourist site in Lebanon is the 2,000-year-old Roman ruins of Baalbek, said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. Now, he said, “it is totally empty.”Mohamed Azakir/ReutersKhaled Ibrahim, a consultant for Amisol Travel Egypt and a member of the Middle East Travel Alliance, said cancellations started to pour in after the attacks began. Like other tour operators he offered discounts to popular destinations like Sharm el-Sheik at the southern tip of the Sinai Peninsula, and occupancy hit about 80 percent of normal.He is less sanguine about salvaging the rest of what is considered the prime tourist season. “I can say this winter, January to April, will be quite challenging,” Mr. Ibrahim said from Medina in Saudi Arabia, where he was leading a tour. “Maybe business drops down to 50 percent.”Jim Tankersley More

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    Where Textile Mills Thrived, Remnants Battle for Survival

    In his 40-year career, William Lucas has seen nearly every step in the erosion of the American garment industry. As general manager of Eagle Sportswear, a company in Middlesex, N.C., that cuts, sews and assembles apparel, he hopes to keep what’s left of that industry intact.Mr. Lucas, 59, has invested hundreds of thousands of dollars training his workers to use more efficient techniques that come with financial bonuses to get employees to work faster.But he fears that his investments may be undermined by a U.S. trade rule.William Lucas has invested hundreds of thousands of dollars training his workers at Eagle Sportswear to use more efficient techniques.The rule, known as de minimis, allows foreign companies to ship goods worth less than $800 directly to U.S. customers while avoiding tariffs. Mr. Lucas and other textile makers in the Carolinas, once a textile hub, contend that the provision — nearly a century old, but exploding in use — motivates retailers to rely even more on foreign producers to keep prices low.Defenders of the rule say it is not to blame for a lack of U.S. competitiveness. But domestic manufacturers say it benefits China in particular at the expense of American manufacturers and workers.Irma Salazar working on an order of shorts at Eagle Sportswear. The company pays bonuses for meeting production goals.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    The U.S. Seems to Be Dodging a Recession. What Could Go Wrong?

    Economists have become increasingly optimistic about the odds of a soft landing. But as 2024 begins to unfold, risks remain.With inflation falling, unemployment low and the Federal Reserve signaling it could soon begin cutting interest rates, forecasters are becoming increasingly optimistic that the U.S. economy could avoid a recession.Listen to This ArticleOpen this article in the New York Times Audio app on iOS.Wells Fargo last week became the latest big bank to predict that the economy will achieve a soft landing, gently slowing rather than screeching to a halt. The bank’s economists had been forecasting a recession since the middle of 2022.Yet if forecasters were wrong when they predicted a recession last year, they could be wrong again, this time in the opposite direction. The risks that economists highlighted in 2023 haven’t gone away, and recent economic data, though still mostly positive, has suggested some cracks beneath the surface.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    American Express CEO says spending is strong, delinquencies are down from 2019

    American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.
    In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner.
    The signs of resilient consumer spending run somewhat counter to persistent inflation.

    Stephen Squeri, chair and CEO of American Express, speaks during an Economic Club of New York event in New York on Nov. 10, 2022.
    Stephanie Keith | Bloomberg | Getty Images

    American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.
    In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner in an interview at the American Express PGA Tour event in La Quinta, California.

    “Our customers are high-spending premium customers, and they are continuing to spend,” he said.
    The signs of resilient consumer spending run somewhat counter to persistent inflation. December’s consumer price index increased 0.3%, hotter than the 0.2% expected by economists.
    But Squeri said he’s not surprised, adding he’s of the opinion that the U.S. is in the middle of a “soft landing,” slowing spending and bringing inflation down — without spurring a recession.
    JPMorgan Chase CEO Jamie Dimon said earlier this week that he remains cautious on the U.S. economy, along with Goldman Sachs CEO David Solomon, who said it’s hard to imagine the number of Federal Reserve rate cuts that the market seems to be calling for in 2024.
    “I mean look, recessions do happen,” Squeri said Friday. “The nice part about recessions is there’s always a recovery. … We’ll get through whatever we need to get through, and part of that is because of our customer base, and our colleagues that are supporting our customers.”

    American Express reports its fourth-quarter earnings Jan 26.

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    Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows

    The University of Michigan’s Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021.
    On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director.
    Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains.

    An employer representative at a Veteran Employment and Resource Fair in Long Beach, California, on Jan. 9, 2024.
    Eric Thayer | Bloomberg | Getty Images

    Consumers have grown more confident about the direction of the economy and inflation at the onset of 2024, despite persistent worries about a looming slowdown, a survey released on Friday showed.
    The University of Michigan’s Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021 and up 21.4% from a year ago. That followed a big jump in December and comes despite public opinion surveys showing concern about the nation’s direction.

    On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director.
    “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said. “Democrats and Republicans alike showed their most favorable readings since summer of 2021. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.”
    Along with the improved outlook on general conditions, survey respondents displayed more confidence that inflation is coming down.
    The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in December for the lowest reading since December 2020. The Federal Reserve has boosted short-term interest rates to their highest level in more than 22 years and inflation has followed suit lower, though it remains above the central bank’s 2% target.
    At the same time, the survey’s index of current conditions also leaped higher, rising to 83.3, or 21.6% higher than a year ago.

    Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains. The price at the pump for a gallon of regular gas is about 30 cents lower than it was a year ago, according to AAA, and the S&P 500 is near a record high.
    The survey is “another sign that the economy is on track for a soft landing,” said Andrew Hunter, deputy chief economist at Capital Economics. However, he noted that such surveys don’t always feed through to consumer behavior.
    Stocks rose slightly following the release while Treasury yields also were higher.
    Markets have been tethered to expectations for where the Fed will take interest rates this year. The prevailing outlook is for a series of up to six quarter-percentage-point cuts this year. But the timing of those cuts is unclear, with market pricing now pointing to a toss-up as to whether the Fed eases in March or waits until May.Don’t miss these stories from CNBC PRO: More

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    The Farmers Had What the Billionaires Wanted

    In Solano County, Calif., a who’s who of tech money is trying to build a city from the ground up. But some of the locals whose families have been there for generations don’t want to sell the land.When Jan Sramek walked into the American Legion post in Rio Vista, Calif., for a town-hall meeting last month, everyone in the room knew that he was really just there to get yelled at.For six years a mysterious company called Flannery Associates, which Mr. Sramek controlled, had upended the town of 10,000 by spending hundreds of millions of dollars trying to buy every farm in the area. Flannery made multimillionaires out of some owners and sparked feuds among others. It sued a group of holdouts who had refused its above-market offers, on the grounds that they were colluding for more.The company was Rio Vista’s main source of gossip, yet until a few weeks before the meeting no one in the room had heard of Mr. Sramek or knew what Flannery was up to. Residents worried it could be a front for foreign spies looking to surveil a nearby Air Force base. One theory held the company was acquiring land for a new Disneyland.Now the truth was standing in front of them. And somehow it was weirder than the rumors.The truth was that Mr. Sramek wanted to build a city from the ground up, in an agricultural region whose defining feature was how little it had changed. The idea would have been treated as a joke if it weren’t backed by a group of Silicon Valley billionaires who included Michael Moritz, the venture capitalist; Reid Hoffman, the investor and co-founder of LinkedIn; and Laurene Powell Jobs, the founder of the Emerson Collective and the widow of the Apple co-founder Steve Jobs. They and others from the technology world had spent some $900 million on farmland in a demonstration of their dead seriousness about Mr. Sramek’s vision.Rio Vista, part of Solano County, is technically within the San Francisco Bay Area, but its bait shops and tractor suppliers and Main Street lined with American flags can feel a state away. Mr. Sramek’s plan was billed as a salve for San Francisco’s urban housing problems. But paving over ranches to build a city of 400,000 wasn’t the sort of idea you’d expect a group of farmers to be enthused about.As the TV cameras anticipated, a group of protesters had gathered in the parking lot to shake signs near pickup trucks. Inside, a crowd in jeans and boots sat in chairs, looking skeptical.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More