Economy

NEW YORK (Reuters) – Federal Reserve Bank of New York President John Williams said Friday that a better balanced economy has opened the door to cutting rates, with the full course of action to be determined by how the economy performs. “With the economy now in equipoise and inflation on a path to 2 percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said in the text of a speech prepared for delivery before a gathering held at the Council on Foreign Relations in New York.“The stance of monetary policy can be moved to a more neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives,” he said. The central banker spoke immediately after the release of August jobs data. The movement of the jobless rate had been closely watched given its recent gradual drift upwards and unexpected July increase, which had raised fears that what had been a strong rate of hiring in the U.S. economy was running out of gas. In his speech, Williams said the rise in the jobless rate largely represents a retreat from overheated conditions, and that it remains historically low. He said the jobless rate will likely end the year around 4.25% and then move back down to its longer run level of around 3.75%. The state of the job market has loomed into greater prominence for the Fed in a climate where inflation pressures have been easing enough to open the door to rate cuts starting in September. At the end of August, Fed Chairman Jerome Powell said “the time has come for policy to adjust,” adding “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”Over recent weeks, Fed officials have refrained from providing firm guidance over the size of the almost certain cut to come at the Federal Open Market Committee meeting scheduled for Sept. 17-18. Financial markets broadly expect around a quarter percentage point cut in what is now a 5.25% to 5.5% federal funds rate target, with more cuts coming after that. A number of Fed officials have said they see a gradual path of easing but have been mum on what might happen at any given meeting. “I think a slow, methodical approach down is the right way to go,” Philadelphia Fed leader Patrick Harker told Reuters on Aug. 22. Williams also said in his speech that falling inflation pressures are likely to see inflation ease to a 2.25% rise this year and to just above 2% next year. More

According to LSEG data, investors disposed of a net $11.73 billion worth of U.S. equity funds during the week, registering a fourth weekly outflow in five weeks.A lackluster U.S. manufacturing reporton Tuesday reignited investor concerns about economic growth, ahead of the crucial non-farm payrolls report due at 8:30 a.m. ET (1230 GMT). This upcoming report could provide further insights into the economic situation and influence the potential magnitude of an interest rate cut this month.By segment, U.S. large cap funds observed a weekly net sale of $4.28 billion, the biggest in three weeks. Small-cap, mid-cap and multi-cap funds also posted outflows, valued at $1.77 billion, $1.34 billion and $667 million, respectively.The technology sector faced about $879 million worth of net sales, the biggest weekly outflow in six weeks. Investors, meanwhile, bought financial sector funds for the fourth successive week, worth about $418 million. Investors, meanwhile, funneled a net $45.81 billion worth of investments into the safety of U.S. money market funds, extending their purchases into a fifth consecutive week.U.S. bond funds, meanwhile, attracted inflows for the 14th week in a row, recorded at $2.23 billion on a net basis.US short-to-intermediate investment-grade, general domestic taxable fixed income and municipal debt funds saw significant purchases, worth about $3.28 billion, $2.03 billion and $963 million, respectively.Short-to-intermediate government & treasury funds, meanwhile, witnessed about $5.53 billion worth of net selling, reversing a net $4.84 billion worth of inflow in the prior week. More

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WHY IT’S IMPORTANTRepublicans in Congress have long vowed to rescind the 10-year IRS funding passed in 2022, arguing that it would unfairly harass Americans on their taxes. Republican presidential candidate Donald Trump vowed on Thursday to rescind all unspent funds from the Inflation Reduction Act, which include billions of dollars earmarked for the IRS.The IRS has planned to spend about $10.6 billion of those funds through end of the 2024 fiscal year, which concludes on Sept. 30, leaving nearly $50 billion that could be recouped. But budget forecasters say that doing so would increase the federal budget deficit by more than $100 billion over a decade because the agency would forego stepped-up enforcement.BY THE NUMBERS:The Treasury said that in the first six months of a new initiative to target 125,000 wealthy individuals who have not filed tax returns since 2017, it has collected $172 million from 21,000 non-filing taxpayers.Another initiative to target wealthy individuals with more than $1 million in income and $250,000 in unpaid, recognized tax debts has brought in $1.1 billion to Treasury coffers.KEY QUOTESU.S. Treasury Secretary Janet Yellen said the audit rate for millionaires fell by 80% due to budget cuts at the IRS.”During the previous (Trump) administration, as audit rates on high-income taxpayers fell, the share of audits on taxpayers with incomes under $200,000 increased,” Yellen said in remarks to be delivered at an IRS service center in Austin, Texas. “In 2019, the top one percent of Americans was estimated to owe over one-fifth of unpaid taxes, leaving ordinary Americans to shoulder the burden.” More

According to LSEG data, investors sold a net $4.93 billion worth of global equity funds during the week, marking their largest weekly net sales since June 12.Investors were concerned about the U.S. economy after a report from the Institute for Supply Management (ISM) on Tuesday revealed that U.S. manufacturing had contracted for the fifth consecutive month in August. Additionally, anticipation was building for the non-farm payrolls report, where a weak outcome could heighten fears of a sharp economic downturn.Investors offloaded a net $11.73 billion worth of U.S. equity funds, marking a fourth weekly outflow in five weeks. On the contrary, European and Asian equity funds still gained about $5.25 billion and $1.88 billion worth of inflows.The technology sector witnessed a significant $995 million worth of outflow following three weekly inflows in a row. Investors also ditched real estate and consumer discretionary funds of $388 million and $304 million, respectively.Global investors sought the safety of money market funds as they pumped in a massive $67.92 billion into these funds in a fifth successive week of net purchases.Simultaneously, investors snapped up global bond funds of a net $10.85 billion, extending net purchases into the 37th consecutive week.They racked up a robust $3.26 billion worth of corporate bond funds, logging the largest inflow since July 17. Dollar denominated medium-term bond funds and government bond funds also observed $2.8 billion and $1.46 billion worth of net investments.Concurrently, gold and other precious metal funds garnered a net $792 million worth of inflows, staying popular for the fourth week in a row. Investors also scooped up a net $189 million worth of energy funds.Data covering 29,588 emerging market funds showed equity funds witnessed a 13th weekly outflow that amounted to a net $419 million. Conversely, bond funds attracted $1.45 billion, the biggest weekly inflow since July 10. More

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$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More