Economy

Federal Reserve officials are set to raise interest rates next month and would be willing to tighten monetary policy more quickly than they currently anticipate if US inflation does not come under control, according to the minutes of their latest meeting. The account of the January gathering of the Federal Open Market Committee said officials were on board for the first interest rate increase since 2018 to be implemented “soon” in the face of soaring inflation. Economists interpreted that to be a confirmation of a “lift-off” in March.Most Fed officials acknowledged that a faster pace of rate rises was “likely warranted” compared to the last tightening cycle, when the Fed increased its main policy rate by a quarter-point in December 2015 and then held off on another adjustment until the end of 2016. A majority of officials noted that if inflation does not abate sufficiently, there is scope to tighten monetary policy “at a faster pace than they currently anticipate”. That could mean either raising rates more quickly or shrinking the size of the Fed’s balance sheet, which swelled to almost $9tn during the pandemic as it hoovered up bonds to prop up the economy. Markets appeared to view the minutes as less hawkish than expected, given the lack of detail surrounding the balance sheet reduction and path forward for monetary policy from March.Short-dated Treasuries, which are most sensitive to shifts in Fed policy, rallied after the minutes were released, with traders slightly dialling back their expectations for how aggressively the central bank would tighten this year.The yield on the two-year Treasury fell 0.04 percentage points to 1.53 per cent. The yield on the benchmark 10-year note ticked higher, up less than 0.01 percentage points to 2.04 per cent. Yields fall when a bond’s price rises.Overnight funding markets showed traders were pricing in just over six quarter-point interest rate increases this year, down from six-and-a-half earlier in the day.US stocks pared losses from earlier in the day to briefly trade in positive territory. The S&P 500, which had been under pressure as investors weighed developments between Russia and Ukraine, was 0.4 per cent lower after the minutes were released.At his post-meeting press conference last month, Jay Powell, the Fed chair, refused to rule out an aggressive cycle of rate rises, including a jumbo half-point increase at some point if inflation does not ease sufficiently. When asked whether the Fed would consider raising rates at each subsequent policy meeting this year, which would result in seven increases in 2022, he said no decision had been made.The minutes of the meeting did not mention any discussion about a half-point move.

The latest inflation report showed US consumer prices surging at an annual pace of 7.5 per cent last month, the fastest increase in four decades. James Bullard, president of the St Louis Fed and a voting member of the FOMC this year, appeared to suggest in an interview with Bloomberg last week that he would support a half-point rise in March or even an increase before next month’s scheduled meeting. He clarified his stance on Monday by saying he would defer to Powell on how quickly to tighten monetary policy. “The minutes show that the committee is preparing for both balance sheet and interest rate normalisation, but they fail to ratify the hawkishness of Bullard’s most recent comments on his views,” said Thomas Simons, money market economist at Jefferies.Fed officials had another in-depth discussion about the balance sheet, according to January’s minutes, and established several principles for scaling it back. According to the minutes, Fed officials agreed a “significant reduction” in the size of the balance sheet would “likely be appropriate”, but no details about the timing or the monthly pace were disclosed.Additional reporting by Eric Platt and Kate Duguid More

The plan targets water management, helping farmers and agricultural insurance as well as ensuring wheat and animal feed supply, the palace said in a statement.Morocco is experiencing the worst drought in 30 years as the country has registered a rainfall deficit of 64% so far this year. More

Investing.com — Federal Reserve officials were in favor of reining in accommodative monetary policy measures with a faster pace of rate increases and a “significant” reduction in the size of balance sheet that could begin later this year, the Fed’s January meeting minutes showed Wednesday. “With inflation well above 2 percent and a strong labor market, members expected that it would soon be appropriate to raise the target range for the federal funds rate,” according to the minutes.  The faster pace of rate hikes, however, is conditional on whether the pace of inflation continues to trend above target or eventually dissipates.       “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes showed. The odds of a 50 basis point rate hike at the Fed’s meeting has eased slightly to about 50%, 25% last week, according to Investing.com’s the Fed rate monitor tool.On the balance sheet, fed members noted that “a significant reduction” in the size of the balance sheet would likely be appropriate, which could get underway “sometime later this year.” Following its previous Jan. 25-26 meeting, the Federal Open Market Committee kept its benchmark rate in a range of 0% to 0.25%, but teed up the prospect of increasing interest rates at its next meeting in March.In his press conference following the monetary policy statement, Federal Reserve Chairman Jerome Powell stoked fears of aggressive Fed rate hikes, saying there was “quite a bit of room to raise rates without hurting jobs.”Since the meeting in January, inflation has continued to trend well above the Fed’s 2% target, the labor market is inching closer to maximum employment, and the once low prospect of a 50 basis point rate hike is being priced in.The odds of a 50 basis point rate hike jumped to about 60% this week, from about 30% last week, according to Investing.com’s the Fed rate monitor tool.The St. Louis Fed president, who tends to lean more hawkish on monetary policy, has been one of the more audible members among his peers calling for aggressive Fed rate hikes.“I’d like to see 100 basis points in the bag by July 1,” James Bullard said in an interview with Bloomberg. “I was already more hawkish but I have pulled up dramatically what I think the committee should do.”An increasing number of market participants, however, are bemused as to why the Fed, despite acknowledging concerns about elevated inflation, has continued to persist with its monthly bond purchases, albeit at a reduced pace of $30 billion a month.Most fed members, however, preferred to continue to “reduce the committee’s net asset purchases according to the schedule announced in December, bringing them to an end in early March,” according to the minutes. The U.S. central banks’ balance sheet has swelled to nearly $9 trillion. Previous attempts, however, to cut the size of its balance sheet, or engage in quantitative tightening, haven’t been well received in markets.In 2018, the Fed allowed certain bonds to mature each month without reinvesting the principal of the bonds in new securities.But the central bank was soon forced to halt the process in the latter part of 2019 after a key short-term overnight lending rate, which supports the plumbing of the financial system, surged and threatened the stability of funding markets.Powell, however, believes today’s economy is on more of a solid footing, and likely able to cope better with quantitative tightening. More

BRASILIA (Reuters) -Brazil’s government is considering an income tax exemption for foreigners investing in domestic corporate bonds, hoping to lower financing costs for local firms at a time of rising interest rates, the Economy Ministry said on Wednesday.In a statement to Reuters, it said officials are drafting regulations aimed at “expanding the access of Brazilian companies to foreign capital” by aligning the tax treatment given to corporate bonds with the one already applied to equity investments by non-residents. Foreigners currently pay a 15% tax on capital gains from local private-sector bonds, but are exempt from the tax when they invest in Brazil’s stock market and public debt. Brazilians pay a 15-22.5% income tax rate on returns from corporate bonds, depending how long they are held.Two Economy Ministry officials said an executive order is being drafted with the change as part of a minor capital markets reform, which was confirmed by two other ministry sources.By opening the door for more foreign investment in Brazil’s capital markets, the country hopes to attract dollars and strengthen the local currency, which would help to ease double-digit inflation, one of the sources said. The Brazilian real has strengthened more than 7% against the U.S. dollar this year, boosted by net financial inflows of just over $10 billion.In 2006, Brazil exempted foreigners from income taxes on their investments in public bonds, helping the government to extend its debt maturities while boosting financial inflows.An executive order providing a similar exemption for private bonds should be ready soon, one source said, following studies by Brazil’s Treasury and tax service. The move would require approval from Congress to become permanent.An initial review has shown little revenue impact from the proposed exemption, the source added, given relatively small foreign holdings of corporate debt in the country. A second source said the tax change would apply to local debt issued by non-financial companies, a market currently worth about 1 trillion reais ($194 billion) according to central bank data, with foreign investors now holding just 2.7% of the total.($1 = 5.158 reais) More

Moynihan told CNBC’s Jim Cramer on Wednesday that spending on Bank of America cards has jumped up to 20% from last year.
“When you look at the core spending levels of consumers, they continue to be very strong,” Moynihan said. “January’s up nearly 15 to 20% [from a year earlier]; we’re seeing that continue into February.”
While there was concern that consumer bank account balances would plunge after government stimulus programs ended, that hasn’t been the case yet, Moynihan said. Instead, balances have risen for the “last six or seven months,” according to the CEO.

Bank Of America CEO Brian Moynihan is interviewed by Jack Otter during “Barron’s Roundtable” at Fox Business Network Studios on January 09, 2020 in New York City.
John Lamparski | Getty Images

U.S. consumers are spending more money while also growing savings in a positive sign for the economy, according to Bank of America CEO Brian Moynihan.
Moynihan told CNBC’s Jim Cramer on Wednesday that spending on Bank of America cards has jumped by as much as 20% from last year.

“When you look at the core spending levels of consumers, they continue to be very strong,” Moynihan said. “January’s up nearly 15 to 20% [from a year earlier]; we’re seeing that continue into February.”
Bank of America is the second-biggest U.S. bank by assets, after only JPMorgan Chase. Its relationships with U.S. households, small businesses and corporations give Moynihan a unique view into the health of the economy.
While there was concern that consumer bank account balances would plunge after government stimulus programs ended, that hasn’t been the case yet, Moynihan said. Instead, balances have risen for the “last six or seven months,” according to the CEO.
“The second thing is that consumers have more money in their account,” Moynihan said. “So in the month of January their accounts grew again, especially for consumers that carry lower balances.”
Moynihan said that his bank was poised to generate more earnings in a rising rate environment. The Federal Reserve is expected to start hiking its benchmark rate next month.

The wide-ranging interview covered the bank’s technology investments. As of last month, Bank of America had 16 million active Zelle users, and last year Zelle transactions exceeded paper checks for the first time.
This story is developing. Please check back for updates.

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OTTAWA (Reuters) -The Bank of Canada will be nimble and potentially “forceful” in tackling uncomfortably high inflation, a senior official said on Wednesday, setting the stage for an aggressive campaign of interest rate increases.Deputy governor Timothy Lane, speaking to a university audience, said there was a risk inflation could continue to be more persistent than forecast, and the central bank was increasingly focused on countering the upside risks. “We will be nimble — and if necessary, forceful — in using our monetary policy tools to address whatever situation arises, as we have done throughout these turbulent times,” Lane said.Canada’s annual inflation rate hit a fresh 30-year high at 5.1% in January, official data showed on Wednesday. It was the 10th consecutive month the rate had been above the Bank of Canada’s 1-3% control range.”Currently, with inflation well above our target, we are increasingly focused on countering the upside risks,” Lane said.The economic rebound was faster and inflation persistently higher than forecast because demand was more robust and supply more constrained than expected, said Lane.Still, the central bank expects supply disruption to ease and inflation to come down quickly in the second half of 2022, though it is “alert to the risk that inflation may again prove more persistent”, Lane said.The central bank in January said the slack in Canada’s economy had been absorbed and interest rates would need to rise from their current record low of 0.25%. Governor Tiff Macklem has said Canadians should expect multiple increases.Money markets are betting on a first hike on March 2, likely to 0.50%, with about a 30% chance of a larger 50-basis-point increase. The Canadian dollar was up 0.3% at 1.2680 to the greenback, or 78.86 U.S. cents, after Lane’s comments. More

Good eveningThis morning’s news that UK inflation had hit its highest rate in 30 years is the latest setback for “team transitory” — those who argue that the current spike in prices is a one-off caused by the post-pandemic bounceback in demand and short-term disruptions to the supply chain. The higher-than-expected rise in January CPI to 5.5 per cent compared with the previous year is well above the Bank of England’s 2 per cent target and could fuel, in the words of one economist, “the deepest squeeze on living standards in six decades”. The BoE expects inflation to peak above 7 per cent in April when the country faces a spike in energy bills. Economists believe that today’s data, together with yesterday’s strong labour market report, makes it likely the Bank will continue on its path of raising interest rates at its next monetary policy meeting.Meanwhile signs of the cost-of-living crisis are cropping up everywhere, from increases in fares for commuters to the price of a pint. Heineken chief Dolf van den Brink told the Financial Times that usual methods for predicting consumer behaviour were breaking down as companies grappled with how to pass on “crazy” increases in costs: “There’s no model that can handle this kind of inflation. It’s kind of off the charts. So it’s anybody’s guess . . . what the impact is going to be on volumes due to all these price increases.” And good luck if you’re a first-time buyer trying to get on the property ladder: new data this morning showed house prices rose almost 11 per cent in 2021 to hit record highs, with the average price now £42,00 above pre-pandemic levels. The surge in house prices is also worrying policymakers in the EU.The picture is similar across the Atlantic. The US yesterday reported that producer prices more than doubled in January from the previous month, putting more pressure on the Federal Reserve to speed up the withdrawal of its stimulus programme. Last year was the largest calendar year increase in wholesale inflation since the data were first compiled in 2010. The White House, with an eye on this year’s midterm elections, is considering suspending federal gasoline taxes as pump prices soar to their highest levels in seven years, even at the expense of promises to lead the transition to clean energy.The main exception to the drumbeat of negative news on inflation comes from China. New data from earlier today showed increases in factory gate prices slowing after government intervention in commodity markets and demand taking a hit from renewed lockdowns.Browse our global inflation tracker to see how rising prices are affecting economies across the world. Latest newsSingapore will open quarantine-free travel to Hong Kong residents, further widening the gap between the Asian financial centres in their approach to Covid-19 restrictionsThe IMF published policy proposals for a ‘robust recovery’ US retail sales rose at the highest rate for 10 months to hit 3.8 per cent in January as consumers splashed out on cars and furniture.For up-to-the-minute news updates, visit our live blogNeed to know: the economyOur Big Read examines the diminishing prospects for investment in emerging markets, where the pandemic continues to rage and economies are burdened with emergency debt, spiralling inflation and slowing growth rates. Chief economics commentator Martin Wolf examines the looming threat of “long financial Covid”. The FT says better ways are needed to help indebted nations such as Sri Lanka, Zambia and others. Latest for the UK and EuropeFalling birth rates and life expectancy coupled with rising immigration are likely to give the UK’s public finances an unexpected boost, according to FT analysis. It means the government will have to find just £13bn in extra taxation to fund public services each year by the end of the decade instead of the £69bn implied by previous estimates. However, as the FT Editorial Board points out, Britain’s young face a poorer future.

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In the event of conflict with Russia, Europe cannot expect much help with gas supplies from Australia’s biggest liquefied natural gas producer. The head of Santos told the FT most of his company’s output was earmarked for long-term contracts in Asia. In the UK, the phasing out of some nuclear stations and coal-fired plants has helped fuel a record high price for standby electricity generation.Eurozone industrial output has returned to pre-Covid levels thanks to a recovery in carmaking and an easing of supply chain pressure. However, the bloc’s trade deficit hit a 13-year high in December because of surging energy costs. Post-Brexit trade disruption between the EU and the UK also continues as tariffs are applied to many goods for the first time after the end of the transition period.Global latestChinese president Xi Jinping threatened to make tough Hong Kong restrictions “more draconian” to contain the surge in Omicron infections. Pernod Ricard became the latest international company to temporarily relocate staff from the city.South Korea too is fighting an Omicron surge with a record number of new cases reported today, although in better news it has been successful in adding new jobs.Japan recorded annualised growth of 5.4 per cent in the fourth quarter as Covid restrictions were eased and consumer spending rose. On a quarter-on-quarter basis, its economy rebounded 1.3 per cent after a fall of 0.7 per cent in the third quarter, but economists warn that rising Omicron cases and high oil prices will drag down the speed of recovery.Need to know: businessBlackstone intensified its bet that the pandemic-fuelled boom in ecommerce would continue with a €21bn recapitalisation of its European logistics business in one of the largest-ever private real estate deals. Rents and valuations for warehouses have soared over the past year.Food company Kraft Heinz reported better than expected net sales of $6.67bn in the fourth quarter as it successfully offset rising costs by increasing prices by 3.8 percentage points from a year earlier.One company that sees an opportunity in rising inflation is lodgings platform Airbnb, which said the deterioration in household finances could drive more families to become hosts. Investors have voiced concerns over limited supplies of accommodation as international travel returns.US banking regulators warned of the risks involved in the leveraged loan market, an activity that swelled during the pandemic as companies rushed to borrow emergency cash and investors clamoured for higher-yielding assets.The World of WorkAlthough UK job vacancies have reached a record high and workers theoretically have more negotiating muscle, wages are failing to keep pace with inflation. “The reality for most people is a nasty squeeze on purchasing power,” says the FT’s Lex column.New employees over the past two years have faced steeper-than-usual learning curves as they were forced to log on from home, rather than at the office. But companies are learning lessons from running remote programmes to develop new types of post-pandemic training.The pandemic has ushered in a new wave of demand for MBA courses. Browse the world’s top courses and business schools in the annual FT rankings, get tips on crafting your application — and on funding your studies once you get accepted. Get the latest worldwide picture with our vaccine trackerAnd finally.“Mastery might be a long way off, but the flow state induced by floristry is profoundly rewarding, albeit with a few decapitations en route.” From meditative art to the joys of woodworking and the art of floristry, browse our new collection of hands-on hobbies to boost your mental health. Florist Wagner Kreusch: ‘Whereas Ikebana is about creating space, English floristry is about filling space’ © Alexander Coggin More

BOGOTA (Reuters) – Inflation estimates for Colombia this year rose and predictions of interest rate rises quickened among analysts polled in a central bank survey.The 40 analysts surveyed by the bank expect inflation to end the year at a median of 5.44%, above the 4.48% recorded in January’s poll, and well away from the bank’s long-term target of 3%.Prices will rise 1.27% in February, analysts said in the poll published late on Tuesday, taking 12-month inflation to 7.62%. The 12-month figure was 6.94% in January.Consumer price rises will decrease to 3.69% at the close of 2023, those polled said.Analysts expect the bank’s seven-member board to raise borrowing costs by a median of 100 basis points to 5% at its meeting at the end of March, though some predicted a rate rise of 150 basis points.Though policymakers will meet this month, they will not vote on the interest rate.The survey was conducted between Feb. 7 and 11, before the government published growth figures of 10.6% for 2021, which may push policymakers to raise rates more quickly in a bid to curb inflation.Further rises of 100 basis points and 50 basis points will come in April and June, those polled said, taking the interest rate to 6.50%, where it will remain through April next year before gradually being lowered. More