Economy

Inflation’s sharp slowdown across advanced economies has created a stand-off between markets and central banks over when borrowing costs will edge lower.To one side are central bankers warning it is too early to do a victory dance in their fight for stable prices, while on the other investors are already celebrating by betting on how soon interest rates will be cut.The course of inflation will be crucial in determining which side is proved right. Several factors, such as flattening energy prices and strong wage growth, threaten to delay policymakers’ mission to complete the “last mile” of bringing inflation down to their 2 per cent target.Germany’s central bank president Joachim Nagel this week warned of “a bumpy road ahead, with ups and downs in inflation over the near future”.Investors are pricing in the first quarter-point rate cuts by both the US Federal Reserve and the European Central Bank by June, followed by a further two or three cuts over the remainder of 2024. The Bank of England is expected to move later, lowering rates for the first time by August, with one or two further cuts to follow before year-end.Those expectations, measured by pricing trends in swaps markets, have emerged despite rate-setters’ repeated warnings that rates will remain high throughout next year.On Thursday eurozone data is expected to show inflation slowed from 2.9 per cent in October. Economists at UBS and Barclays forecast it will ease to 2.6 per cent this month, down more than three-quarters from its peak just over a year ago and tantalisingly close to policymakers’ goal. 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, ECB president Christine Lagarde said last week it was premature to “start declaring victory” against inflation, warning it was set to reaccelerate “in the coming months” as recent disinflationary forces fade. Isabel Schnabel, her colleague on the ECB board, has compared the next part of disinflation to the final stage of a long distance race. Nagel forecast eurozone inflation would return above 3 per cent as energy subsidies that have kept a lid on prices are withdrawn.Most economists agree. They expect eurozone inflation to surge back up to 3.5 per cent in December and still be above 2 per cent until at least the start of 2025, according to the average of forecasts compiled by Consensus Economics.Other central bankers have also deployed sporting metaphors to damp enthusiasm over slowing inflation and rebuff questions about when they will start cutting rates. Using the term for a deceptive basketball move, US Federal Reserve chair Jay Powell said this month it would not be “misled” by a few months of encouraging price data, pointing out that “inflation has given us a few head fakes” in the past. On Tuesday, Christopher Waller, one of the Fed’s most hawkish policymakers, signalled that rates were unlikely to rise further and could be cut if inflation continued to slow, but his views on possible rate cuts remain fairly isolated among policymakers.Headline US annual inflation eased to 3.2 per cent in October, after accelerating since June. But it is expected to remain above 3 per cent until January 2024 and slow to only 2.4 per cent by the end of that year, according to Consensus Economics. Jonathan Haskel, an external member of the BoE’s Monetary Policy Committee, warned this week that labour market pressures and low productivity growth left little scope to cut UK interest rates “any time soon”. UK inflation reached 4.6 per cent in October, down from a peak of 11.1 per cent a year ago, but the BoE expected it would only ease to 3 per cent by the end of 2024, taking a further year to reach 2 per cent. “We’re more worried [than independent forecasters] about persistence,” said BoE deputy governor Dave Ramsden last week.Food price inflation has been slowing for several months More

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Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index (CPI) rose at an annual pace of 4.9% in October, down from 5.6% in September and below market forecasts of 5.2%.For the month, CPI fell by 0.3% in October, driven by declines in petrol, rent and holiday travel. A closely watched measure of core inflation, the trimmed mean, rose an annual 5.3% in October. The CPI excluding volatile items and holiday travel slowed to 5.1%, the lowest since April 2022.The benign result saw the bond market extend its rally with the three-year bond futures up 12 ticks to 95.95, while the Australian dollar intially dipped to $0.6637 before stabilising at $0.6655. Analysts have cautioned that the monthly inflation data are heavily skewed towards goods in the first month of the quarter and do not capture price changes for a range of services, from hairdressers and dentists to dining out. Prices for tradable goods fell 1.6% in October from a month earlier. “We don’t see the October Monthly CPI Indicator in isolation as being particularly influential for the near-term path of policy,” said Taylor Nugent, a senior economist at at National Australian Bank. “Inflation has moderated in Australia, but the question for the RBA is whether domestic pressures are easing enough to be comfortable on the path back to at-target inflation.”The persistance in services inflation is one reason that the Reserve Bank of Australia ended four months of steady policy and raised interest rates to a 12-year high of 4.35% this month. It also left the door to further tightening if necessary to meet its target of annual consumer price inflation of 2-3%, on average, over time. Financial markets still see the RBA to hold policy steady in December but imply an about 50% chance of one further hike to 4.60% in the first half of next year. More

WASHINGTON (Reuters) -Argentina’s president-elect Javier Milei met on Tuesday with top U.S. officials in Washington and his economic team huddled with IMF officers as he seeks to formulate a plan to reshape the country’s foreign policy and lead its economy out of crisis.Milei told reporters as he left the White House that his meeting had been “excellent.” Among those in attendance were national security adviser Jake Sullivan and Juan Gonzalez, the National Security Council’s senior director for the Western Hemisphere.”We talked about the economic and social conditions in Argentina at the moment,” Milei said in brief comments before he was whisked off in his official car. Milei aligned himself with Western values, his office later said.Milei, a far-right libertarian who takes office on Dec. 10, won election this month pledging radical reforms such as dollarization and “shock” austerity to fix Argentina’s economy. Inflation is near 150%, foreign currency reserves are in the red and a recession is looming.His foreign policy, meanwhile, is unabashedly pro-United States and pro-Israel, with a cooler stance on top trade partners Brazil and China.”Milei is a unicorn, the leader of a major Latin American economy who is ostentatiously pro-American,” said Benjamin Gedan, director of the Latin America program at Washington-based think-tank the Wilson Center.While Milei’s incoming team has looked to moderate earlier criticism of China and Brazil’s leftist government, the U.S. trip ahead of his inauguration underscores his priorities.He has also pledged not to join the China-led BRICS trade group. That’s a sharp change in approach from outgoing center-left President Alberto Fernandez, who visited Moscow as Vladimir Putin was readying his invasion of Ukraine in February last year and recently returned from a visit to Beijing. THE $44 BILLION QUESTIONMilei also needs to get the country’s $44 billion deal with the International Monetary Fund back on track, with support from the U.S. – the IMF’s largest shareholder – key to any revamp. IMF Managing Director Kristalina Georgieva said earlier on Tuesday that she would meet Milei at the lender’s headquarters, but the meeting did not happen. The IMF did not respond to a request for comment on the missed meeting.Economic advisors to Milei, Nicolás Posse and Luis Caputo, met with the IMF’s No. 2 Gita Gopinath and other fund officials, the fund said separately.”They discussed the country’s complex challenges and plans for urgently strengthening stability and setting the basis for more sustainable growth,” the IMF said in a statement.A U.S. Treasury official confirmed that Milei’s advisors met with Treasury officials to discuss the president-elect’s economic agenda, but declined to provide details. The Treasury manages the dominant U.S. shareholding in the IMF. Argentina is by far the largest global debtor to the Washington-based lender but its program has ran off the tracks, and the IMF has been losing patience. The program is used mostly to pay the Fund back for a failed $57 billion program from 2018.During his campaign Milei vowed to dollarize South America’s second-largest economy, though he seems to have put that on the back burner while he looks to overturn a deep fiscal deficit and tamp down inflation. He has stuck, however, to pledges that he will radically change the mandate of the central bank.The IMF has said in the past that dollarization is not a substitute for sound macroeconomic policy. Lack of an orthodox policy framework under the current administration and a sharp increase in central bank-financed spending in the run-up to the presidential election further hurt the Argentine economy.Milei and IMF officials had a first virtual meeting on Friday, which Georgieva called a “very constructive engagement”.Milei’s office said the meeting with the IMF was part of protocol to explain the incoming team’s economic plan and not in search for more financing.Georgieva, however, told Reuters in an interview that the IMF was “very keen” to support Argentina and the country could be a candidate to receive a relatively small amount of extra financing through a trust for middle-income countries. More

SINGAPORE (Reuters) – The dollar fell broadly on Wednesday to hit its lowest against the yen in more than two months and languished near a three-month trough against its major peers, as expectations mount the Federal Reserve could begin lowering rates by early next year.The Australian dollar held near a four-month peak while the New Zealand dollar scaled a roughly four-month top of $0.61495 in early Asia trade. Australian inflation data is due later in the day, followed by a rate decision from the Reserve Bank of New Zealand (RBNZ).The greenback tumbled to 147.02 yen and pushed the euro back above $1.10 to last trade at $1.10025, after Fed Governor Christopher Waller – a known hawkish and influential voice at the central bank – on Tuesday flagged a possible rate cut in the months ahead.”He’s relatively hawkish, historically speaking, so if his attitude is turning a little bit more dovish, it sort of says that perhaps a general consensus of the board members is that rates have peaked and maybe could even be cut next year,” said Kyle Rodda, senior financial market analyst at Capital.com.Market pricing currently shows a 40% chance the Fed could begin easing monetary policy as early as next March, as compared to a roughly 22% chance a day ago, according to the CME FedWatch tool.Against a basket of currencies, the greenback slid to a more than three-month low of 102.60. The dollar index was eyeing a nearly 4% loss for November, its worst monthly performance in a year.”We have become less constructive on the prospects for the U.S. dollar, as progress in reducing U.S. inflation suggests the risks are tilted toward earlier rather than later Fed easing,” said economists at Wells Fargo in a note. “Despite U.S. economic resilience, this should lessen the greenback’s near-term gains.”Sterling last bought $1.27105, hovering near the previous session’s roughly three-month high of $1.2715.The Aussie gained 0.1% to $0.6656, not far from Tuesday’s four-month top of $0.6666, as traders turned their attention to an inflation reading due later on Wednesday for clues on whether more rate hikes from the Reserve Bank of Australia are in the offing.”In principle, if that inflation number comes in a little bit hot again, probably doesn’t say that we’ll get a hike in December, but it certainly puts greater focus on the next inflation print at the start of next year to gauge whether the RBA would need to go again in perhaps February,” said Capital.com’s Rodda. More

(Reuters) -ChatGPT owner OpenAI is not expected to offer Microsoft (NASDAQ:MSFT) and other investors including Khosla Ventures and Thrive Capital seats on its new board, a person familiar with the matter told Reuters on Tuesday.In a few tumultuous days last week, OpenAI ousted its CEO and founder Sam Altman without any detailed cause, setting off alarm bells among investors and employees. He was reinstated with the promise of a new board. Altman’s exit sparked confusion about the future of the startup at the center of an artificial intelligence boom.”I do not know that it’s going to be the choice of OpenAI to leave Microsoft off the board,” said Thomas Hayes chairman of hedge fund Great Hill Capital. “Microsoft will have something to say about it, given the amount of money that they have put behind them,” he said, adding that it would not be in the interest of Microsoft “to sit passively”. The Information first reported the news and said OpenAI will have a nine-person board. The three initial directors of the new board – Chair Bret Taylor, former Treasury Secretary Larry Summers, and Quora CEO Adam D’Angelo – are expected to be confirmed as soon as this week, the report said.D’Angelo would be the only remaining director from the old six-person board that fired Altman.Microsoft, which has invested more than $10 billion in OpenAI, is one of the biggest backers of OpenAI that operates ChatGPT, its viral generative AI chatbot.Its CEO Satya Nadella had earlier told CNBC the governance at the ChatGPT maker needed to change no matter where Altman ended up.In response to a question on the OpenAI board, a Microsoft spokesperson said, “We will wait until the board officially says something.”OpenAI and Thrive did not immediately respond to requests for comment, while Khosla declined to comment. More

WASHINGTON (Reuters) -Federal Reserve policymakers look increasingly comfortable closing out the year with U.S. interest rates on hold and the clock ticking on how soon to deliver a first rate cut as they try to engineer a “soft landing” for the economy.”Inflation rates are moving along pretty much like I thought,” Fed Governor Christopher Waller, a hawkish and influential voice at the central bank, told the American Enterprise Institute think tank on Tuesday. “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%,” he said, and also “reasonably confident” of doing so without a sharp rise in the unemployment rate, now at 3.9%. If the decline in inflation continues “for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower,” he said. “It has nothing to do with trying to save the economy. It is consistent with every policy rule. There is no reason to say we will keep it really high.”Additional Fed rate increases remain a possibility if upcoming data includes an unexpected resurgence of price pressures, he said. And an unforeseen shock could “blow up” the soft-landing scenario, he said. But overall it was a shift in tone that appeared to start a countdown on a long-expected pivot. “The reaction function to lower rates in response to lower inflation is not surprising,” wrote Karim Basta of III Capital Management. “Putting a clear time frame on it is.” Bond yields fell after the remarks, and traders moved to price rate cuts starting in May and dropping more than a full percentage point in 2024.The Fed held its benchmark overnight interest rate steady in the 5.25%-5.50% range at the end of its Oct. 31-Nov. 1 policy meeting, and analysts overwhelmingly expect the same outcome at the Dec. 12-13 meeting.Waller’s comments included the caveats that are now standard in public appearances by Fed officials.”Inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained,” he said. “There is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the (Federal Open Market Committee) has done enough to achieve price stability.”This week marks the final chance for Fed policymakers to set out their views publicly before their usual pre-meeting communications blackout goes into effect. Fed Chair Jerome Powell will likely have the last word with remarks on Friday at Spelman College in Atlanta.DON NOT OVERCOOK THE TURKEYBy the Fed’s preferred measure, the personal consumption expenditures price index, inflation has dropped from a high of 7.1% last summer to a recent reading of 3.4%.The Fed targets 2% inflation, and policymakers chalk up the progress so far to a combination of improvements in the supply of both goods and labor after pandemic-era distortions, as well as to the restrictive effect of sharply higher borrowing costs after the Fed drove its policy rate up 5.25 percentage points over 18 months.To Chicago Fed President Austan Goolsbee, there is definitely some concern of overdoing it.”Once you believe that you are on the path to get inflation to target, then the amount of restrictiveness that you need to apply needs to be less,” he said in an interview Tuesday with Marketplace. “Anybody who cooks a turkey knows that you’ve got to pull it out of the oven before it’s to the point where you want it to be, because it’s going to have residual heat.” Speaking at a Utah Bankers Association meeting in Salt Lake City, Fed Governor Michelle Bowman sought to keep alive the possibility of another rate hike, raising a series of questions about the durability of progress on inflation.”My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way,” Bowman said. But even Bowman stopped short of outright calling for a further increase in the policy rate. She said, like Waller and Goolsbee, that further Fed action will depend on economic data. New inflation data will be released on Thursday, and policymakers will also have a fresh monthly jobs report and other data in hand before they gather next month.Waller pointed to healthy recent data that have already moved in the Fed’s direction, with consumer prices coming in flat in October, retail spending weakening, and a slow easing in wage growth. The job market remains “fairly tight” and bears watching, he said, while a recent drop in long-term market interest rates has tempered some of the credit tightening the Fed relies on to slow the economy.But long-term interest rates “are still higher than they were before the middle of the year, and overall financial conditions are tighter, which should be putting downward pressure on household and business spending,” Waller said. More

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