Evelyn Reynolds

Former Fed Vice Chair Richard Clarida said policymakers need to be on guard against sticky prices that could thwart plans to ease monetary policy this year.
“If the Fed were targeting CPI right now, we wouldn’t even be discussing rate cuts,” he said.

Stubbornly high inflation could push the Federal Reserve into a more cautious stance this year regarding interest rate cuts, the central bank’s former vice chair said Friday.
Richard Clarida, who served as Fed governor until January 2022 and is now a global economic advisor at asset management giant Pimco, said his former colleagues need to be on guard against sticky prices that could thwart plans to ease monetary policy this year.

At its meeting earlier this week, the rate-setting Federal Open Market Committee indicated it would likely decrease rates three times this year, assuming quarter percentage point intervals. Chair Jerome Powell said receding inflation and a strong economy give policymakers room to cut.
“This may be more of a hope than a forecast,” Clarida said during an interview on CNBC’s “Squawk Box.” “I do hope that the Fed really moves into data-dependent mode, because there can be a very good case if inflation is sticky and stubborn that they shouldn’t deliver three cuts this year.”
Markets also are expecting three cuts this year, though that pricing has been scaled back after data to start the year showed inflation higher than expected.
Fed officials are banking that elevated shelter inflation is on its way down, paving the way to lower their key borrowing rate from its highest level in more than 23 years. Clarida, however, said the extent to which the Fed can cut is unclear.
“Under a pretty broad range of scenarios, they’re going to get at least one cut in this year,” he said.

However, the calculus gets different as inflation data provides mixed signals.
The Fed prefers the Commerce Department’s measure of personal consumption expenditures prices, with a particular focus on the core reading that excludes food and energy. The headline 12-month PCE reading for January was 2.4% and core was at 2.8% — both above the Fed’s 2% goal but headed in the right direction.
However, the more commonly followed consumer price index in February was at 3.2% for headline and 3.8% for core, both well above the central bank target. Moreover, the Atlanta Fed’s measure of “sticky” inflation was at 4.4% on a 12-month basis and even higher, at 5%, on a three-month annualized basis, which marked the highest since April 2023.
“If the Fed were targeting CPI right now, we wouldn’t even be discussing rate cuts,” Clarida said.
He also noted that even though Powell on Wednesday said financial conditions are tight, they in fact are “a lot easier than they were in November.” A Chicago Fed measure of financial conditions is at its loosest since January 2022.
“What I think is going on here is a delicate balance that [Powell is] trying to navigate,” Clarida said. “Financial conditions will very naturally start to ease when they get the sense the Fed is done and [will start] cutting. Then of course that improves the economic outlook and potentially makes it harder to get inflation down to 2” percent.

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Falling fertility rates are set to spark a transformational demographic shift over the next 25 years, with major implications for the global economy, according to a new study.
By 2050, three-quarters of countries are forecast to fall below the population replacement birth rate of 2.1 babies per female.
By 2100, just six countries are expected to have population-replacing birth rates.

Terry Vine | Getty Images

Falling fertility rates are set to spark a transformational demographic shift over the next 25 years, with major implications for the global economy, according to a new study.
By 2050, three-quarters of countries are forecast to fall below the population replacement birth rate of 2.1 babies per female, research published Wednesday in The Lancet medical journal found.

That would leave 49 countries — primarily in low-income regions of sub-Saharan Africa and Asia — responsible for the majority of new births.
“Future trends in fertility rates and livebirths will propagate shifts in global population dynamics, driving changes to international relations and a geopolitical environment, and highlighting new challenges in migration and global aid networks,” the report’s authors wrote in their conclusion.
By 2100, just six countries are expected to have population-replacing birth rates: The African nations of Chad, Niger and Tonga, the Pacific islands of Samoa and Tonga, and central Asia’s Tajikistan.
That shifting demographic landscape will have “profound” social, economic, environmental and geopolitical impacts, the report’s authors said.
In particular, shrinking workforces in advanced economies will require significant political and fiscal intervention, even as advances in technology provide some support.

“As the workforce declines, the total size of the economy will tend to decline even if output per worker stays the same. In the absence of liberal migration policies, these nations will face many challenges,” Dr. Christopher Murray, a lead author of the report and director at the Institute for Health Metrics and Evaluation, told CNBC.
“AI (artificial intelligence) and robotics may diminish the economic impact of declining workforces but some sectors such as housing would continue to be strongly affected,” he added.

Baby boom vs. bust

The report, which was funded by the Bill & Melinda Gates Foundation, did not put a figure on the specific economic impact of the demographic shifts. However, it did highlight a divergence between high-income countries, where birth rates are steadily falling, and low-income countries, where they continue to rise.
From 1950 to 2021, the global total fertility rate (TFR) — or average number of babies born to a woman — more than halved, falling from 4.84 to 2.23, as many countries grew wealthier and women had fewer babies. That trend was exacerbated by societal shifts, such as an increase in female workforce participation, and political measures including China’s one-child policy.
From 2050 to 2100, the total global fertility rate is set to fall further from 1.83 to 1.59. The replacement rate — or number of children a couple would need to have to replace themselves — is 2.1 in most developed countries.
That comes even as the global population is forecast to grow from 8 billion currently to 9.7 billion by 2050, before peaking at around 10.4 billion in the mid-2080s, according to the UN.
Already, many advanced economies have fertility rates well below the replacement rate. By the middle of the century, that category is set to include major economies China and India, with South Korea’s birth rate ranking as the lowest globally at 0.82
Meantime, lower-income countries are expected to see their share of new births almost double from 18% in 2021 to 35% by 2100. By the turn of the century, sub-Saharan Africa will account for half of all new births, according to the report.
Murray said that this could put poorer countries in a “stronger position” to negotiate more ethical and fair migration policies — leverage that could become important as countries grow increasingly exposed to the effects of climate change. More

The Swiss National Bank on Thursday surprised the market with a decision to lower its main policy rate by 0.25 percentage points to 1.5%.
Economists polled by Reuters had expected the Swiss central bank to hold rates at 1.75%.
Switzerland is the first advanced economy to cut interest rates following a prolonged period of high inflationary pressures.

The Swiss national flag hangs from the Federal Palace, Switzerland’s parliament building, in Bern, Switzerland, on Thursday, Dec. 13, 2018. The Swiss National Bank cut its inflation forecast and showed no inclination of moving off its crisis-era settings, citing the francs strength and mounting global risks. Photographer: Stefan Wermuth/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images

The Swiss National Bank on Thursday surprised the market with a decision to lower its main policy rate by 0.25 percentage points to 1.5%, saying national inflation is likely to stay below 2% for the foreseeable future.
Economists polled by Reuters had expected the Swiss central bank to hold rates at 1.75%.

“For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. According to the new forecast, inflation is also likely to remain in this range over the next few years,” the bank said. Swiss inflation continued to fall in February, hitting 1.2%.
The SNB also reduced its annual inflation forecasts. The bank now sees average inflation reaching 1.4% in 2024, down from its 1.9% estimate in December, and 1.2% for 2025, trimmed from the previous 1.6% estimate. Its first forecast for 2026 puts average inflation at 1.1% over the period.
Following the announcement, analysts at Capital Economics said they expect two more SNB rate cuts over the course of this year, “with the Bank sounding more dovish and inflation likely to undershoot its forecasts.”
“We think inflation will come in even lower than the new SNB forecasts imply and remain around the current level of 1.2% before falling to below 1.0% next year. Accordingly, we forecast the SNB to cut rates at the September and December meetings taking the policy rate to 1%, where we think it will remain throughout 2025 and 2026,” Capital Economics analysts said in a note.
The September meeting is likely to be the last under the stewardship of SNB Chairman Thomas Jordan, who will step down at the end of that month after 12 years at the helm.

The SNB said Swiss economic growth is “likely to remain modest in the coming quarters,” with the GDP poised to expand by roughly 1% this year.
“Our forecast for Switzerland, as for the global economy, is subject to significant uncertainty. The main risk is weaker economic activity abroad. Momentum on the mortgage and real estate markets has weakened noticeably in recent quarters,” the SNB said. “However, the vulnerabilities in these markets remain.”
On a macro level, the SNB flagged “moderate” global economic growth in the coming quarters, along with likely falls in inflation partly thanks to restrictive monetary policy strategies. It nevertheless acknowledged “significant risks” and geopolitical tensions that could cloud the international economic horizon.

In a TV interview with CNBC’s Silvia Amaro, Jordan said that the improved inflation forecast has given the bank the breathing room to lower rates, but refused to be drawn on the inevitability of three cuts this year.
“We will see in June whether the situation is different, whether inflationary pressure continues to decline, then we’ll make a new decision in June,” he said, acknowledging that the bank remains ready to intercede in the foreign exchange market “if necessary” to defend the Swiss franc. High interest rates typically prop up currencies and weaken the relative value of other coins against them.
“We said very clearly that we remain … available to intervene in the foreign exchange market, if necessary. So we can use this instrument in order to make sure that monetary conditions remain appropriate,” Jordan noted.
He fell short of commenting on whether other central banks will take a page from the SNB’s trailblazing book and loosen their monetary policy, but signaled no concerns over the potential impact their moves may have on the Swiss currency.
“We will profit from a situation where we have price stability globally. Of course, it could have an impact on interest rate differentials, but I think a situation where the price stability is re-established everywhere, this is something that is positive for the global economy, and so also for Switzerland,” he said.

First to blink

Switzerland is the first advanced economy to cut interest rates following a prolonged period of high inflationary pressures, exacerbated by the Covid-19 pandemic’s impact on global trade and Russia’s war in Ukraine. Switzerland was also affected by jitters in the banking space last year, when the government stepped in to facilitate UBS’ takeover of fallen rival Credit Suisse.
Jordan on Thursday stressed to CNBC the importance of liquidity to the Swiss banking sector.
“A key message from us is always that they have to prepare their collateral, so that this collateral … in case they need additional liquidity,” he said.
Asked whether Swiss lenders are doing enough in this direction, Jordan said there were “very good discussions in Switzerland at the moment” between banks and the SNB.
“The situation of March last year and also in the United States made it very clear also to smaller banks that liquidity issues could be a problem,” he said. “I think we are on the good way in order to make sure that sufficient collateral will be available in an emergency case … but it’s very important that we continue to go in that direction.”
The Swiss National Bank’s rate announcement emerged just before Norway’s central bank refused to blink, holding rates steady at 4.5%. 
“The rate path we’re presenting today indicates… an autumn rate cut, most likely in September,” Norges Bank Governor Ida Wolden Bache told a press conference on Thursday, according to Reuters.

Later in the session, the Bank of England also left its rates unchanged at 5.25%.
It comes after the U.S. Federal Reserve on Wednesday held rates steady following its March meeting and reiterated its expectations for three rate cuts in 2024. The European Central Bank has also been keeping policy unchanged, with officials signaling policymakers will consider a rate cut in June — but flagging that the decision remains highly data-reliant. More

“By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” the European Central Bank’s chief Christine Lagarde said in a speech in Frankfurt.
The euro zone’s central bank has held rates since bringing them to a record high in September.
June has been flagged as a key month by numerous members of the ECB’s Governing Council, which votes on the path of rates.

Christine Lagarde, president of the European Central Bank, at the ECB And Its Watchers conference in Frankfurt, Germany, on March 20, 2024. 
Bloomberg | Bloomberg | Getty Images

European Central Bank chief Christine Lagarde on Wednesday reiterated that policymakers will consider bringing interest rates down in June, but sketched an uncertain path beyond that.
“By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” Lagarde said in a speech in Frankfurt.

The June meeting has been flagged as a potential turning point by many members of the ECB’s Governing Council — which votes on rate moves — as it will be the first gathering for which data from spring wage negotiations will be available. The ECB is on alert for potential knock-on inflationary effects from rising salaries.
Data available by June will also provide more insight into the path of underlying inflation and the direction of the labor market, according to Lagarde.
“If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, and assuming transmission remains strong, we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive,” she said.
“But thereafter, domestic price pressures will still be visible. We expect services inflation, for example, to remain elevated for most of this year. So, there will be a period ahead where we need to confirm on an ongoing basis that the incoming data supports our inflation outlook.”

Lagarde’s message overall was highly positive on the path on inflation, despite flagging geopolitical uncertainty and ongoing domestic price pressures. Euro zone inflation cooled to 2.6% in February, though the print for services remained stickier at 3.9%.

“Unlike in the earlier phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue,” Lagarde said, stressing confidence in the latest set of staff macroeconomic projections, which see inflation averaging 2.3% in 2024, 2% in 2025, and 1.9% in 2026.
The euro zone’s central bank has held rates steady since bringing them to a record high in September. Until its March meeting, the bank’s messaging was that it was too early to discuss when to start rate cuts. It next meets in April, then June.
Market attention is now moving to how many rate cuts the ECB is likely to carry out over the course of this year. Money markets indicate three cuts taking place by December, along with a potential fourth, according to Reuters data. More