Economy

The half point increase approved by the Fed last week “is already a pretty aggressive move. I don’t think we need to be moving even more aggressively,” Raphael Bostic said in comments to Bloomberg on Monday that appear to rule out a larger three-quarter point hike.”I think we can stay at this pace and this cadence and really see how the markets evolve … We are going to move a couple times, maybe two, maybe three times, see how the economy responds, see if inflation continues to move closer to our 2% target, then we can take a pause and see how things are going.”The rate policy path outlined by Bostic is in line with that outlined by Fed Chair Jerome Powell at his press conference last week when he said there was support for half-point hikes at the next couple of Fed meetings, but that the larger increases were not being actively considered.Investors and many economists feel the Fed will be forced into an even more aggressive series of rate increases to tame inflation that is running at multi-decade highs.But Bostic said he held out hope that some of the supply chain and other factors that have been adding to the pace of price increases will turn in the Fed’s favor – a nod to the Fed’s earlier language that high inflation would prove transitory. “My hope is that a lot of the things that are out of our control, things like supply chain disruptions and the like are going to get to a better place,” Bostic said. “If we start to see movement on the supply side that means we have to push less on demand” through rate increases. More

“I’m confident we are going to get inflation back down to our 2% target, but I am not yet confident on how much of that burden we’re gonna have to carry versus getting help from the supply side,” Kashkari said in an interview with CNBC.”Virtually all of that news is in the wrong direction,” he said, citing the war in Ukraine and COVID lockdowns in China as putting upward pressure on prices.While there is some signs that inflation may have softened “just a hair,” Kashkari added, other indicators point to consumers remaining in robust health.There is a still an estimated more than $2 trillion in excess savings on American balance sheets accumulated during the pandemic.”I would have expected by now more evidence that these household balance sheets were being spent down… there’s a possibility that the economy has now been pushed to a higher pressure equilibrium than it was before. And if that’s the case, then we’re going to have even more work to do,” to bring inflation back down, Kashkari said. More

LONDON (Reuters) – Emerging market sovereign debt is at the “mercy” of the Federal Reserve’s interest rate decisions, JPMorgan (NYSE:JPM) analysts said in a note on Monday, as the U.S. central bank’s rate raises drain capital from developing markets. JPMorgan removed Nigeria from its list of emerging market sovereign recommendations that investors should be ‘overweight’ in, saying the country had not taken advantage of high oil prices, while adding Serbia and Uzbekistan. Last week, the Fed raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, as it seeks to tame high inflation while its rate increases also buffet higher-yielding emerging markets.JPMorgan’s Emerging Markets Bond Index Global Diversified (EMBIGD) index has fallen 16% this year, the analysts said, “with most of the losses having come from rates” and $4 billion in net outflows from emerging markets since mid-April.”The external and fundamental backdrop has become increasingly difficult for EM sovereigns,” the analysts said. “The COVID lockdown in China poses further downside risks.”They noted that riskier sovereign yields were now 10.6%, the highest level since the first wave of the coronavirus pandemic in April 2020, reducing market access and increasing the risk of debt defaults.However, the analysts said the “front-loaded pain” for emerging market bonds, which they said had begun underperforming in September 2021, was a positive.Russia’s invasion of Ukraine in February caused commodity prices to spike, benefiting exporters. The over-performance of bonds issued by oil exporters now “looks to have played out”, JPMorgan said.The analysts said Nigeria’s national oil company did not transfer any revenue to the government from January to March this year, due to petrol subsidies and low oil production, as it moved Nigeria’s debt out of the bank’s ‘overweight’ category.”Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment,” they said.It moved Serbia to ‘overweight’ as risks had been priced in and the country had high reserves and a fiscally cautious government, the note said, while relatively low debt despite Russian exposure led them to put Uzbekistan in the same category. More

JERUSALEM (Reuters) – Israel’s central bank said on Monday it had received public support for its plans to possibly issue a digital shekel on grounds it would help the economy by supporting innovation in the payments system, reducing the amount of cash and bolstering the fintech sector.The Bank of Israel last November stepped up its research and preparation for the possible issuance of a digital shekel to create a more efficient payments system after first considering issuing a central bank digital currency in late 2017.In March, it said a digital shekel was unlikely to significantly erode the banking system’s business results.It has called on the public to weigh in, and on Monday it said it had received 33 responses from various sectors, half of them from abroad. Some 17 replies came from the fintech sector.”The Bank of Israel has still not made a final decision on whether it will issue a digital shekel,” the central bank said.”But all of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more,” it said in a report. Some other central banks are also considering the possibility of issuing digital currencies.Respondents believe a digital shekel should encourage competition in the payments market, while there was a split on privacy issues, the central bank said. Some want full anonymity like cash, while others believe a digital shekel should be subject to money laundering rules and helping the war on the “black economy.”A digital shekel should also come at a zero or low costs to business owners and consumers and be easy to use for all, including the elderly.”The Bank is committed to openness and transparency in its continued research regarding the digital shekel, and expects to continue fruitful dialogue with all interested parties at all stages of research and development in the digital shekel project,” the central bank said. More

Data from the Organisation for Economic Co-operation and Development shows companies in Britain invest the equivalent of 10% of gross domestic product a year, compared with 14% in similar countries, the ministry said.Prime Minister Boris Johnson has promised to deliver a high-wage economy but to do that his government must improve Britain’s productivity record which lags behind that of many of its peers.During the coronavirus pandemic, Sunak introduced a temporary “super-deduction” incentive, allowing companies to cut their tax bill by up to 25 pence for every pound they invest, but it is due to expire in April next year.The two-year tax break is expected to cost 21.3 billion pounds ($26.2 billion), Britain’s budget watchdog forecast in October.The ministry said options for future incentives included increasing the permanent level of an annual investment allowance or the rates for writing down allowances, introducing general first-year allowances for qualifying expenditure on plant and machinery and possibly additional such allowances.A permanent full expensing of investment costs was also on the list but the ministry said it would cost more than 11 billion pounds a year.”The government is keen to hear views as to whether that would be well targeted if funding is available, and if it isn’t available, how to best target our approach,” it said.The ministry said businesses should submit their views by July 1.($1 = 0.8129 pounds) More

BEIRUT (Reuters) -The World Bank on Monday approved a $150 million loan to help Lebanon fund wheat imports and keep bread prices stable for nine months, the country’s economy minister told Reuters.The program, known as the Lebanon Wheat Supply Emergency Response Project, still needs approval by the country’s cabinet and parliament, said Amin Salam.A World Bank spokesperson said the loan aimed to “finance immediate wheat imports to avoid the disruption in supply over the short term and help secure affordable bread for poor and vulnerable households including… refugees in Lebanon.”Lebanon is heavily reliant on food imports and pays for them in dollars, which have become increasingly difficult to obtain since its economy crashed in 2019.Since then, the Lebanese pound has lost more than 90% of its value while food prices have gone up more than 11-fold, according to the World Food Programme.The bread shortage has been exacerbated by the war in Ukraine, which supplies most of Lebanon’s wheat, and by Beirut’s inability to store wheat reserves since its largest silos were destroyed in the 2020 Beirut port explosion. More

Yields on U.S. Treasury debt have doubled in two months as the Federal Reserve struck a hawkish stance on inflation after raising interest rates by 50 basis points last week. And the yield curve has steepened further as news on Friday that U.S. jobs growth increased more than expected in April supported the view that the Fed has more tightening to do. Money markets expect as much as 200 bps in hikes for the remainder of the year.On Monday, benchmark 10-year U.S. Treasury yields climbed to their highest levels since November 2018 at 3.2%. They were last up 6 basis points on the day.The spike in longer-dated bond yields outpaced the short-end of the curve, pulling the spread differential between two and 10-year debt to its widest levels in nearly three months at almost 50 bps.Yields on inflation-linked debt on U.S. bonds hit fresh multi-year highs, with yields on five-year maturities rising to their highest levels since March 2020.The yield on 10-year U.S. Treasury Inflation-Protected Securities was last up 6 bps at 0.35%, also the highest in two years. More

The Chinese economy has taken a hit as authorities raced to stop the spread of record COVID-19 cases, which have led to a full or partial lockdown in dozens of Chinese cities, including a city-wide shutdown in the commercial hub of Shanghai in April.Chinese banks are estimated to have issued 1.52 trillion yuan ($226.32 billion) in net new yuan loans last month, half of the 3.13 trillion yuan in March, according to the median estimate in the survey of 18 economists. But the expected new loans would be higher than 1.47 trillion yuan issued in the same month a year earlier.Analysts believe the expected fall in new loans in April was due to weaker demand for credit from businesses and seasonable factors as Chinese banks rushed to extend more loans towards the end of the first quarter.”Despite policy-easing efforts, credit demand likely deteriorated further in the month as production was suspended in a large part of the economy,” analysts at Goldman Sachs (NYSE:GS) said in a note.To cushion a sharp slowdown in economic growth, the central bank cut the amount of cash that banks must hold as reserves from April 25, and more modest easing steps are expected. China will take steps to support its economy, including embattled internet platforms, as risks grow from its COVID-19 outbreaks and conflict in Ukraine, a top decision-making body of the ruling Communist Party said last month.China has pledged to keep money supply and total social financing growth basically in line with nominal economic growth this year. Outstanding yuan loans were expected to grow by 11.4% in April from a year earlier, the same as in March, the poll showed. Broad M2 money supply growth in April was seen at 9.9%, up from 9.7% in March.China has set the 2022 quota for local government special bond issuance at 3.65 trillion yuan, unchanged from last year. Any acceleration in government bond issuance could help boost total social financing (TSF), a broad measure of credit and liquidity. Goldman Sachs expects year-on-year growth of outstanding TSF to quicken to 10.8% in April form 10.6% in March.In April, TSF is expected to fall to 2.15 trillion yuan from 4.65 trillion yuan in March.($1 = 6.7163 Chinese yuan renminbi) More