Economy

The Federal Reserve chair said officials could still raise rates “if” that becomes necessary, and that it’s too soon to guess when they will ease.Jerome H. Powell, the chair of the Federal Reserve, suggested on Friday that the central bank may be done raising interest rates if inflation and the economy continue to cool as expected, saying that central bankers could raise interest rates further if that became necessary.“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Mr. Powell said in a speech at Spelman College. “We are prepared to tighten policy further if it becomes appropriate to do so.”Mr. Powell’s comments are likely to cement an already-widespread expectation that the Fed will leave interest rates unchanged at its meeting on Dec. 12 and 13. The Fed has already raised interest rates to a range between 5.25 and 5.5 percent, up sharply from near-zero as recently as March 2022. Those higher borrowing costs are weighing on demand for mortgages, car loans and business debt, cooling the economy in a bid to lower inflation.Given how high interest rates are now, the Federal Open Market Committee has paused its rate increases for several months. Investors have increasingly come to expect that its next move would be to cut rates — though Fed officials have been hesitant to declare victory, or to confidently predict exactly when lower borrowing costs could arrive.The Fed can “let the data reveal the appropriate path,” Mr. Powell said. “We’re getting what we wanted to get, we now have the ability to move carefully.”The Fed will release fresh economic projections after the December meeting. Those will show where policymakers expect rates to be at the end of 2024. That will give investors a hint at how much officials expect to lower interest rates next year, but little insight into when the cuts might commence.Policymakers want to avoid setting interest rates in a way that crushes the economy, risking much-higher unemployment and a recession. But they also want to be sure to fully stamp out rapid inflation, because if price increases are allowed to run too hot for too long, they could become entrenched in the way that consumers and companies behave. That would make rapid inflation even more difficult to get rid of in the longer run.After months of choppy progress, the Fed has recently received a spate of data suggesting that it is making meaningful progress toward achieving its goals.Inflation has been moderating noticeably, and the slowdown is coming across a range of products and services. The job market has cooled from white-hot levels last year, although companies are still hiring. Consumer spending is showing some signs of deceleration, though it has not fallen off a cliff.All of those signals are combining to give central bankers more confidence that interest rates may be high enough to bring inflation back toward their 2 percent goal within a couple of years. In fact, the data are shoring up optimism that they might be able to pull off a historically rare “soft landing”: Cooling inflation gently and without inflicting serious economic pain.“There’s a path to getting inflation back down to 2 percent without that kind of large job loss,” Mr. Powell said, explaining that he believes a gentle cooling is possible. “We’re on that path.”Still, inflation has cooled before, only to pick back up, and the staying power of consumer spending has surprised many economists. Given that, officials do not want to celebrate prematurely.“As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated,” Mr. Powell said Friday.The Fed, he said, “is strongly committed to bringing inflation down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Do you remember when the FT was reporting constantly on inflation being higher than expected? Now it’s the opposite.The majority of inflation data for October came in lower than expected, marking a big drop from peak levels in 2022. Flash eurozone inflation figures for November — which dropped more sharply than the consensus expected, to 2.4 per cent from a peak of 10.6 per cent in October 2022 — suggest the pattern is likely to be repeated for the most recent month.Analysing worldwide price growth data for October against economists’ forecasts polled by Reuters, we found that 53 per cent of the readings were lower than expected and another 25 per cent was in line with consensus. These included a steeper fall than anticipated in the annual price growth for the UK, the eurozone, the US, Mexico, Australia, the Philippines and China. In many countries, inflation is being driven down by the year-on-year change in energy prices. In the eurozone, energy inflation contracted by more than 11 per cent for two consecutive months and it dropped to minus 15.7 per cent in the UK in October. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.However, core annual inflation, which excludes food and energy, was also lower than forecast in many countries including the US, the UK, Indonesia and Japan. The same story is true for import prices or producer prices. The annual change in the US producer prices for final demand, for example, dropped from 2.2 per cent to 1.3 per cent in October, lower than the 1.9 forecasts by analysts. The trend for the first November data is even more stark, with 78 per cent of the data coming in lower than forecast. In November, Italy’s inflation dropped more than expected to only 0.7 per cent, joining other four countries with a rate below the ECB’s 2 per cent target. On the harmonised inflation measure, Belgium was in deflation for the second consecutive month.Kamil Kovar, a senior economist at Moody’s Analytics said that in the eurozone: “it is starting to look that, before long, we will be talking about inflation being too low, rather than too high.”  Inflation overshoots for most of the last year had encouraged policymakers to constantly revise up their forecasts. The Bank of England, for example, increased its average inflation expectations for the final quarter of 2024 in most of its monetary policy reports of the last two years, jumping from just 1.4 per cent in August 2022, to 2.1 per cent in February, to 3.4 per cent in its latest November’s publication.Markets have been quick to price in earlier interest rate cuts from the major central banks. Instead, policymakers will stick for some time to their narrative that interest rates will have to stay high for longer, some economists say. This is because they are still concerned about strong wage pressures, but also because they want financing conditions to ease too early.But eventually, they will adapt to market expectations if the undershooting continues, warned Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “Central banks have been caught out on their expectation of inflationary pressures before, and despite initial resistance have slowly turned policy around to market expectations,” she said. More

Sri Lanka and a group of its creditor nations, including Japan, France and India, on Wednesday reached an agreement in principle on a debt rework of $5.9 billion of outstanding public debt. That followed a deal between the country and the Export-Import Bank of China in October on about $4.2 billion of loans. But the bondholder group, which represents creditors holding some of the country’s $12 billion of outstanding bonds, said a lack of transparency between public and private creditors was making it more difficult for them to strike a deal with Sri Lanka that is compliant with IMF rules and that provides “fair and equitable” debt treatment.”The Group finds it regrettable that there remains such a significant lack of transparency on the part of official sector creditors despite the Group’s efforts so far to act as a constructive counterparty,” the Ad Hoc Group of Bondholders said in an emailed statement. The visibility of terms and conditions attached to deals struck between indebted countries and their official and private creditors have recently moved centre stage.Last week, objections from official creditors derailed an agreement in principle between Zambia and its bondholders to restructure the African nation’s international debt. The group of Zambia’s bilateral creditors, including France, China and India, said the terms of that proposed deal were not comparable to the relief official creditors offered. The Sri Lanka Ad Hoc Group of bondholders said it remained committed to reaching an agreement with the Sri Lankan authorities as quickly as possible to find a sustainable solution to the country’s international bond debt challenges. The Ad Hoc Group is advised by Rothschild & Co on the financial side and by White & Case LLP on legal matters. More

1. Futures dip early gains; Powell appearances aheadU.S. stock futures slipped on Friday, reversing earlier gains, after equities on Wall Street finished off their best month since 2022 in the previous session (more below).By 08:08 ET (13:08 GMT), the Dow futures contract was mostly unchanged, S&P 500 futures had dipped by 11 points or 0.2%, and Nasdaq 100 futures had fallen by 62 points or 0.4%.In the last day of trading of November, the 30-stock Dow Jones Industrial Average jumped by 1.5% to its highest close since January of last year and the benchmark S&P 500 advanced by 0.4%, while the tech-heavy Nasdaq Composite dipped by 0.2%. Both the Dow and S&P are on track to post a winning week, although the Nasdaq is on pace to snap four consecutive positive weeks.Investors were pouring through data on Thursday that showed the Federal Reserve’s preferred inflation gauge cooled in October. The figures helped to bolster bets that the U.S. central bank may have completed its long-standing campaign of interest rate hikes.Heading into the start of a new month of trading, markets will be keeping an eye on statements from Fed Chair Jerome Powell, who is slated to participate in two separate discussions on Friday. 2. U.S. stocks rally in NovemberThroughout November, hopes that the Fed’s tightening cycle could be over boosted U.S. equities and relieved some of the upward pressure on Treasury yields seen earlier in the year.Keen to corral red-hot inflation back down to its 2% target, the Fed has elevated interest rates to more than two-decade highs, a move that has threatened to weigh on risk assets.Investors subsequently welcomed the prospect of loosening financial conditions last month, with markets even pricing in a possible rate cut by the Fed as soon as May next year.The S&P and Nasdaq registered their biggest monthly percentage increase since July 2022, while the Dow soared to its best month since October 2022.Support for stocks came from U.S. Treasury yields, which saw their best month since 2011, Reuters reported. The benchmark 10-year note in particular fell by 52.2 basis points in November, recovering from a spike in October that pushed yields to a 16-year peak of 5.02%. Yields typically move inversely to prices.3. Tesla unveils Cybertruck pricing as deliveries beginTesla has revealed a starting price of nearly $61,000 for its highly-anticipated Cybertruck, as the electric carmaker started deliveries of the science-fiction-inspired pickup.The rear-wheel drive base model of the shiny stainless steel Cybertruck will cost $60,990, more than 50% over what Tesla Chief Executive Elon Musk had first touted in 2019. Speaking at a launch event in Texas, Musk claimed the Cybertruck is “a better truck than a truck while also being a better sports car than a sports car.”Meanwhile, two other versions of the vehicle — the all-wheel drive and Cyberbeast — will come with price tags of $79,990 and $99,990, respectively.Shares in Tesla were slightly lower in premarket U.S. trading on Friday.4. Chinese manufacturing activity unexpectedly expands in November – Caixin dataChinese factory activity unexpectedly moved back into expansion territory in November, a private survey showed on Friday, as a mild increase in domestic demand helped offset a persistent decline in overseas orders.The Caixin manufacturing purchasing managers’ index (PMI) rose to 50.7 in November, topping expectations for a reading of 49.3, and improving sharply from 49.5 in the prior month.A reading above 50 indicates expansion, with the Caixin survey now coming back into growth after a surprise contraction in October.The figure stood in contrast to government PMI data released on Thursday, which showed a bigger-than-anticipated decline in manufacturing activity.But the Caixin survey differs from the government data in its scope, focusing more on smaller, private enterprises as opposed to the bigger, state-run firms covered by the official survey. Investors usually use both surveys to get a broader picture of the Chinese economy.5. Oil slips amid skepticism over OPEC+ output reductionsOil prices retreated Friday, adding to the previous session’s losses, in a sign that markets were skeptical of the efficacy of fresh voluntary crude output cuts agreed by OPEC+ producers.By 04:57 ET, the U.S. crude futures traded 0.2% lower at $75.83 a barrel, while the Brent contract dropped 0.2% to $80.68 per barrel. Both contracts shed over 6% each in November.The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, agreed on Thursday to a voluntary output reduction of 900,000 barrels per day in addition to extending 1.3 million barrels per day in production slashes already in place.Unusually, however, OPEC officials said that the cuts will be announced by individual members and not by the secretariat as a whole, an announcement that reportedly fed concerns over fraught relations within the coalition. The OPEC+ meeting was initially slated to occur in person last Sunday, but was postponed and shifted online following internal disagreements over production targets, reports said. More

The INSPIRE project, backed by credit enhancement from the Japan-supported ADVANCE Ukraine Trust Fund, is designed to address the urgent needs of nearly 10 million Ukrainians who require heating and financial assistance to overcome winter hardships. This commitment is a continuation of global efforts to provide emergency funding to Ukraine, which now exceeds $38 billion with international support.The European Union has also reached a historic high in military aid, contributing €27 billion. Ukrainian President Zelensky has acknowledged the significant international support while assuring the commitment to repayment.This financial support comes at a crucial time for Ukraine as the country projects an economic growth of 3.5% following a contraction of 29.1% in the previous year.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

LONDON (Reuters) -Global stocks steadied on Friday, having closed out their best month in three years the day before, as investor confidence that interest rates will fall next year has lured cash into equities, cryptocurrencies and gold at the expense of the dollar. The MSCI All-World index traded flat on the day, as gains in Europe were offset by overnight losses in Asia.Shares in Europe rose 0.5%, having posted their biggest monthly gain since January, up 6.5% in November, thanks to an acceleration in expectations for the European Central Bank to start cutting rates as early as April.”Our sense is that quite a lot of the good news is already in the price. A little bit of profit-taking and rebalancing have probably played in the month-end, obscuring the messaging we typically get from the price action,” said Rodrigo Catril, a senior FX strategist at the National Australia Bank (OTC:NABZY). The MSCI index posted its strongest monthly gain since November 2020 last month, while gold topped $2,000 an ounce for the first time since May and bitcoin is now nudging at 18-month highs. Adding to a sense of relief that inflation is finally subsiding, oil prices fell over 2% overnight, after coordinated output cuts by the world’s largest exporters fell short of market expectations. Crude oil prices showed no reaction to Israel’s military saying it has resumed combat against Hamas in the Gaza Strip, after a seven-day truce, raising the prospect of renewed violence in the Middle East.Brent crude futures eased 0.1% to $80.76 a barrel while U.S. futures were little changed at $75.92. Economic data from Asia played into the theme of slowing growth, as regional surveys of factory activity showed weakness in Japan and South Korea and mixed figures from China.S&P 500 futures eased 0.2% and Nasdaq futures fell 0.3%, pointing to a subdued open on Wall Street later.COOL ITData on Thursday showed both U.S. and European inflation is cooling. Benign figures on U.S. inflation reinforced market expectations for about 115 basis points in rate cuts from the Federal Reserve next year, with a first move fully priced in for May.Euro zone inflation came in far below expectations, triggering a slide in the euro and prompting markets to price in rate cuts of nearly 120 basis points next year from the European Central Bank, possibly as early as April.Goldman Sachs now expects the ECB to deliver its first interest rate cut in the second quarter of 2024, compared to an earlier forecast of a cut in the third quarter. Jerome Powell takes part in a discussion later in the day and traders will be eager to get a sense of how the Fed Chair sees the recent shift in rate expectations towards a series of sustained cuts.”I think he’s going to be cautious about ramping those expectations up further, particularly as inflation is still on track, it’s cooling, but it’s still above their target. It would be unlikely that we hear a dovish tone from Powell,” City Index strategist Fiona Cincotta said.Fed Governor Christopher Waller, widely seen as a more hawkish policymaker, this week hinted at lower interest rates in the months ahead if inflation continued to ease.The dollar index was flat, unwinding some of the previous day’s 0.6% gain. The dollar fell 3% in November, its biggest monthly drop in a year. The euro fell 0.2%, while the pound rose 0.2% at $1.2662, supported by expectations that the Bank of England will take longer than either the Fed or the ECB in cutting rates.U.S. Treasuries gained in price, following their strongest monthly performance since 2011. The yield on 10-year Treasury notes dropped 1 bp to 4.34%, while two-year yields fell 2 bps to 4.695%.Gold was up 0.4% at $2,045 an ounce. The price has vaulted above $2,000 as investors have ditched their holdings of dollars and U.S. bond yields have fallen – two factors that make it more attractive to own gold. More

Economists polled by Reuters expected a 0.4% increase.According to the central bank, the result was explained by a slight increase in “the manufacturing and service sector, but partly offset by the decline in mining”.The annual reading marks the fourth uptick for the index this year, with previous positive measurements in January, July and September. The economy of the Andean nation has lost steam after a swift recovery from the COVID-19 pandemic, which triggered a rise in inflation and subsequent vigorous monetary restrictions.IMACEC, a close proxy of gross domestic product, was down 0.1% when compared with the previous month, the central bank said.Pantheon Macroeconomics economist Andres Abadia said the main drag “by far” was the mining sector, plunging 3.5% m/m, more than offsetting the 2.9% gain in September.”Manufacturing also added to the bad news, retreating by 1.4%, partially eclipsing a 2% gain in September”, Abadia adds. The non-mining IMACEC grew by 1.0% in twelve months.The economist also said this confirms that domestic demand is finally gathering momentum, thanks to lower inflation, and the boost of modest interest rate cuts. But Abadia contrasted it by saying “the weakness in business sentiment, increasing unemployment, and still-elevated borrowing costs, suggests the upturn will be modest and bumpy, in the very near term”.The mining industry of the world’s largest copper producer has had a weak performance in recent months, largely due to the operational problems of state-owned giant Codelco. More

U.S. equity funds suffered about $3.31 billion worth of outflows during the week, the first weekly net selling since Nov. 1, LSEG data showed.During the week, market participants were closely monitoring upcoming releases, including the Federal Reserve’s “Beige Book” and October’s personal consumption expenditure index data, seeking insights into the U.S. central bank’s upcoming rate decisions.U.S. consumer spending rose moderately in October, while the annual increase in inflation was the smallest in more than 2-1/2 years, signs of cooling demand that bolstered expectations the Fed’s interest rate hiking campaign was over.Analysts said investors booked profits during the week as benchmark equity indices — the Dow, S&P 500 and Nasdaq — all posted more than 8% gains in November, their best monthly performance since at least October 2022.Investors withdrew $3.32 billion, $2.97 billion and $500 million, respectively, from multi-, small-, and mid-cap equity funds.U.S. large-cap equity funds still received about $6.81 billion, their sixth straight weekly inflow.The technology sector faced $2.19 billion worth of net selling after three consecutive weeks of purchases. Investors also pulled $526 million out of healthcare funds but poured $390 million into financials.U.S. bond funds lost $1.77 billion during the week after about $262 million worth of net selling in the prior week.U.S. short/intermediate government and treasury funds recorded a fourth successive weekly outflow, worth about $2.01 billion.Investors also shed $660 million of general domestic taxable fixed income funds but poured $381 million and $273 million, respectively, into mortgage and high yield funds.U.S. money market funds received $68.28 billion in inflows, the biggest amount since March 22. More