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TOKYO (Reuters) – Japan’s new economy minister, Ryosei Akazawa, said on Tuesday the government has trust in the central bank’s decision on how soon to raise interest rates again, amid uncertainty over the new political leadership’s preference for loose monetary policy.BOJ Governor Kazuo Ueda has said the central bank will adjust the degree of monetary support if the economy and prices move in line with its forecast, Akazawa said.The governor also said the BOJ can afford to spend time scrutinising market developments, and that real interest rates remain deeply in negative territory, Akazawa said.”Specific decisions on monetary policy fall under the jurisdiction of the BOJ,” he told a group interview.”We trust the BOJ’s decision on how to adjust the degree of monetary support, in accordance with economic and price developments,” Akazawa told a group interview, brushing aside the view the new administration would push back against the BOJ’s efforts to normalise monetary policy.New Japanese premier Shigeru Ishiba stunned markets last week when he said the economy was not ready for further rate hikes, an apparent about-face from his previous support for the BOJ unwinding decades of extreme monetary stimulus.The surprisingly blunt remarks pushed the yen lower against the dollar and cast fresh doubts over how aggressive the BOJ would be in raising rates.Akazawa said the government’s top priority would be to strengthen the economy, enough so that it does not revert to deflation.”Japan is on the cusp of experiencing a rise in inflation accompanied by solid wage gains, though we’re not there yet” with inflation-adjusted real wage growth still flat, he said.When asked whether the BOJ should not raise rates until the government declares a full end to deflation, or whether it can hike rates moderately as long as the economy keeps recovering, Akazawa said: “It’s the latter.”Akazawa and Finance Minister Katsunobu Kato met with Ueda last week, where they reaffirmed an agreement made in 2013 that commits the government and BOJ to focus on reflating growth and achieving the central bank’s 2% inflation target.The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July on the view Japan was on track to durably meet the bank’s 2% inflation target. More
John Williams, president of the New York Fed, remarked that the “very good” September jobs report signaled the continued strength of the U.S. economy, even as inflation eased after over a year of elevated rates.“The current stance of monetary policy is really well positioned to both hopefully keep maintaining the strength that we have in the economy and the labor market, but also continuing to see that inflation comes back to 2%,” Williams told the Financial Times on Monday.The latest jobs data has alleviated concerns of a recession, which had loomed large over the economy as the Fed raised borrowing costs to combat the worst inflation in decades. The data has also tempered expectations of another half-point cut in November, following September’s initial reduction to 4.75-5%.Williams, a voting member of the Federal Open Market Committee (FOMC) and a close ally of Fed chair Jerome Powell, defended the decision to cut rates in September, saying it was “right in September” and “right today,” as inflation continues to ease and the labor market shows some cooling.“It made sense, as the chair said, to recalibrate policy to a place that is still restrictive and is still putting downward pressure on inflation, but significantly less so,” he noted. “I don’t want to see the economy weaken. I want to maintain the strength that we see in the economy and in the labour market.”When asked about future rate cuts, Williams referred to the Fed’s “dot plot,” which suggests two quarter-point cuts in the remaining meetings of the year, calling it a “very good base case.”Williams emphasized that decisions would be data-dependent, rather than following a predetermined path. He also highlighted that the half-point September cut was not “the rule of how we act in the future.”He reiterated that the goal is to bring rates to a “neutral” setting, where they no longer restrain demand. However, he acknowledged that precise predictions about the final destination of interest rates are challenging.Should inflation decline more rapidly, Williams said it would warrant quicker policy normalization. On the other hand, if inflation were to stall, rate cuts would slow accordingly. More
(Reuters) – The U.S. Federal Reserve is encouraging banks to count on its long-shunned cash backstops in a bid to support its monetary policy and financial stability goals. Its latest efforts may not move the dial much. The Fed’s discount window and the Standing Repo Facility (SRF) are credit backstops where lenders can get cash against collateral such as Treasury bonds. They can also double as monetary policy tools, helping to keep interest rates close to the Fed’s policy rate. But banks have been reluctant to use them, as it can signal they are under stress. In its latest effort to get past these issues, the Fed in August told banks it was OK to count on its backstops as sources of cash in internal liquidity stress tests, exercises that large banks have to do regularly to prove to their examiners that they can quickly get cash when needed. Last month, Michael Barr, the Fed’s regulatory chief, underscored that message, saying liquidity regulations are “supportive of market functioning and the smooth implementation of monetary policy.”Over the past few weeks, I have been asking banking industry experts how effective the Fed’s move might be in achieving those goals. Their overall take: While getting more banks ready to use the Fed facilities would bolster financial stability, it will be hard to get rid of the stigma and may not do much for monetary policy.”Stigma has been around since the 20s. It’s a complicated and significant problem that will require a lot of effort to address,” said Bill Nelson, chief economist at the think-tank Bank Policy Institute. A senior executive at a large bank who requested anonymity to speak candidly said there’s still a difference between what a policy maker wants and what a supervisor will want. “If you were to ever, for whatever reason, access the discount window,” the executive said, “the first call is going to be from your supervisor asking, ‘What’s going on?’”POLICY IMPACTThe other intended impact of the Fed’s moves – helping with its monetary policy objectives — may also be frustrated. One hope behind the move is that allowing banks to rely to some extent on the backstops for liquidity would reduce their demand for reserves, or cash that they park at the central bank.Currently, banks rely heavily on reserves to meet contingent funding requirements in the internal liquidity stress tests. With the Fed’s August clarification, other easily tradable assets such as Treasury securities could become substitutes. If it works as theorized, it could give the Fed more room for quantitative tightening. That’s because the financial system needs a certain level of reserves to function smoothly, and as the Fed shrinks its balance sheet, it takes out reserves. This would be a good time for the plan to work. SRF, which has largely been lying dormant, saw a surge in usage at the of the third quarter, the highest since it was set up in 2021. SRF usage has been one of the indicators the Fed has been watching as it looks for signs that liquidity is getting tighter in the financial system.The bank executive said the Fed’s clarification is unlikely to make a perceptible difference, however. That’s because the largest banks also have other liquidity tests, where they cannot count on the Fed backstops. The banker pointed to the liquidity coverage ratio, which requires that large banks have enough high-quality liquid assets — or assets such as Treasuries that can be easily traded — to meet their cash needs in times of stress. Barr also said in his speech he wants to propose additional changes to liquidity regulations, some of which could lead banks to lower their holdings of Treasuries, the bank executive said. BIG PUSH Where bank regulators have made a bigger dent so far is in addressing financial stability issues. They have been making a concerted push since the bank collapses of March 2023 to get more banks at least ready to use the backstops should they ever need it. Silicon Valley Bank failed in part because it hadn’t done the groundwork needed to borrow from the discount window, leading to delays that proved to be fatal. Barr noted in his speech that since that time, more than $1 trillion in additional collateral had been pledged to the discount window and more banks had signed up for the SRF.BPI’s Nelson said liquidity risk is the result of a market failure. “That’s something that happens when an institution is solvent and has assets that are worth more than its liabilities, but it’s just not able to convert them into liquidity fast enough at low enough cost,” Nelson said. “And in that sense, borrowing from the discount window solves the market failure.”But another bank regulation expert said the central bank’s focus on normalizing discount window access after the March 2023 failures is misplaced, calling instead for greater focus on addressing interest rate risk.”I don’t believe that discount window stigma is what caused those institutions to fail,” said Jill Cetina, a former Dallas Fed official who is now a finance professor at Texas A&M University. “What caused them to fail was the fact that they had excessive levels of interest rate risk and were illiquid.” More
Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More
Struggling landlords and developers are seeking leeway on coverage from their lenders — mostly in vain.Postpandemic vacancies and surging debt payments have eaten away at commercial real estate for more than two years. Even as those threats start to fade, owners of strip malls, apartment buildings and office towers face a problem that could last much longer: soaring insurance costs.The problem is familiar to homeowners across the country. The rise in climate-related natural disasters has insurance companies pushing rates substantially higher, or pulling out of markets. The rate increases have been fastest in coastal cities and towns vulnerable to damage from big storms or coastal floods, but insurers and banks are coming to terms with the notion that no area is truly safe from increasingly extreme and unpredictable weather events.Hurricane Helene, which hit Florida’s gulf coast before leaving a trail of deadly floods and landslides through Georgia and the western parts of the Carolinas, most likely caused at least $35 billion in economic losses along the way, according to an estimate by the reinsurance broker Gallagher Re.Building owners are also trapped between their insurers and lenders, who are afraid of being on the hook for catastrophic damage and won’t allow the smallest changes to policies — even those that might give a struggling borrower some breathing room.It isn’t possible to know comprehensively how many properties have gone into foreclosure solely because of insurance costs, but people in the industry say they know of deals that have fallen apart over the matter. Developers and investors say that in an industry grappling with higher interest rates and materials and labor expenses, insurance costs can tip the scales.“This current interest-rate environment has exposed the people that know what they’re doing and those that don’t,” said Mario Kilifarski, the head of asset management at Fundamental Advisors, a New York-based investor with $3.5 billion in assets.The insurance brokerage Marsh McLennan estimated that premiums on commercial properties rose an average of 11 percent across the country last year but as much as 50 percent in storm-vulnerable places like the Gulf Coast and California. This year, premiums may have doubled in some of those places, the brokerage said.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? Log in.Want all of The Times? Subscribe. More
The Fed cut interest rates by a half a percentage point last month and investors see another smaller move in November as the labour market is cooling and inflation pressures continue to ease.”While I believe the focus should remain on continuing to bring inflation to 2%, I support shifting attention to the maximum-employment side of the FOMC’s dual mandate as well,” Kugler said, referring to the U.S. rate-setting Federal Open Market Committee, of which she is a member.She argued that the labour market was already starting show signs of cooling and the Fed was keen to avoid sharper weakness.”We don’t want a drastic slowdown in the labour market,” Kugler told a European Central Bank conference. “We don’t want the labour market to weaken so much that it’s going to cause undue pain, when at the same time we have been seeing a serious reduction in terms of inflation and inflation is moving back to target.”But Kugler also noted that last week’s job report, which showed a bigger than expected jump in job creation and a fall in the unemployment rate was a welcome development, since it showed resilience in the labour market. She also argued that the Fed will not base its decisions on a single indicator and would instead look at trends, which are clearly showing that cooling has started to take hold in the labour market. “The labour market remains resilient, but I support a balanced approach to the FOMC’s dual mandate so we can continue making progress on inflation while avoiding an undesirable slowdown in employment growth and economic expansion.”A stronger U.S. economy allowed the FOMC to be “patient about the timing” in reducing its policy rate and focus on bringing inflation down, Kugler said. “If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate to move toward a more neutral policy stance over time,” Kugler said. Kugler said she is closely monitoring the economic effects of Hurricane Helene and geopolitical events in the Middle East.”If downside risks to employment escalate, it may be appropriate to move policy more quickly to a neutral stance,” Kugler said.”Alternatively, if incoming data do not provide confidence that inflation is moving sustainably toward 2%, it may be appropriate to slow normalization in the policy rate.” More
