Economy

NEW YORK (Reuters) – The Federal Reserve’s aggressive start of the easing cycle has rekindled inflation worries in the U.S. bond market, as some investors fear looser financial conditions could re-ignite price pressures.Yields on longer-dated Treasuries that are most sensitive to the inflation outlook have risen to the highest since early September, with some investors worried that the Fed’s shift in focus from beating back inflation to protecting the job market could allow for a rebound in price pressures. “I think there are questions around how quickly inflation will be able to get to the Fed’s target if we’re in a cutting environment, and if we’re in an environment where the Fed is saying we want to support the labor market before the labor market gets weak,” said Cayla Seder, macro multi-asset strategist at State Street (NYSE:STT) Global Markets. She expects long-term yields, which rise when prices fall, to climb further as the market bets on stronger growth and inflation.Fed Chair Jerome Powell said last week the 50 basis point interest rate cut that kick-started the U.S. central bank’s descent was a “recalibration” of rates aimed at maintaining strength in the labor market while inflation moves sustainably to the Fed’s 2% goal.The Fed’s emphasis on economic resilience fueled concerns that the path to lower rates could be slow and bumpy. Fed officials’ forecasts on interest rates also suggested a more gradual pace in cuts than what the market anticipated.Expectations for inflation over the next decade as measured by Treasury Inflation-Protected Securities (TIPS) increased after the Fed’s announcement on Wednesday, with the 10-year breakeven inflation rate rising to 2.16% on Thursday, its highest since early August. It hit a new high of 2.167% on Monday. An auction of 10-year TIPS on Thursday, after the Fed’s rate-setting meeting, was lapped up by investors, with non-dealers absorbing 93.4% of the $17 billion Treasury debt sale, the highest share since January. Flows into U.S. dollar inflation-linked bonds, however, were negative in the week ending on Monday, according to LSEG data.”Investors are once again concerned with the specter of reflation,” BMO Capital Markets rates strategists said in a note last week. Matt Smith, fund manager at Ruffer, said he has been adding inflation protection to his portfolio over the last few days and weeks.Many in the market have fresh memories of the selloff that happened when a dovish pivot by the Fed in December was followed by months of upside surprises on inflation and employment.The Goldman Sachs U.S. financial conditions index, a measure of the availability of credit in the economy, eased over the course of this year despite interest rates remaining at their highest in over two decades. The day after the Fed’s decision, it decreased to its lowest since May 2022.”We think inflation is going to remain relatively benign … but the more aggressive the Fed cuts, the more you have to question that,” said Brendan Murphy, head of fixed income, North America, at Insight Investment. FED PUTInflation, as measured by the U.S. Consumer Price Index, has dropped sharply over the past two years. It stood at 2.5% in August, down from an over 40-year peak of 9.1% in June 2022.Fed Governor Christopher Waller said last week recent data convinced him the Fed needed to cut rates faster because it risked undershooting its 2% inflation target.With the same information at hand, however, Fed Governor Michelle Bowman said she worried the larger move could be interpreted as “a premature declaration of victory” against inflation. She dissented over the U.S. central bank’s half-percentage-point interest rate cut last week and favored a quarter-percentage-point reduction instead. Should inflation continue to subside the outlook for bonds would likely remain positive, despite the volatility that comes with a repricing of the pace of interest rate cuts.But some wonder whether the central bank’s aggressive cut was premature, as inflation remains above target and recent monthly data indicated some stickiness in price pressures.Referring to the so-called “Fed put” – a perceived tendency of the central bank to run to the aid of financial markets – economists at BofA Securities said in a note last week the “Powell put” came too early, given economic resilience and the stock market at record highs.”A more aggressive easing cycle could make reaching the 2% target harder,” they said. More

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The former president’s efforts to compel companies to remain in the United States had limited success while he was in the White House.As former President Donald J. Trump makes his closing economic argument ahead of the election, he is outlining a vision for a manufacturing renaissance that reprises a familiar pitch: Make goods in America and enjoy low taxes, or face punishing tariffs.Mr. Trump’s pitch combines the type of carrots-and-sharp-sticks approach that he called “America First” during his first term, when he imposed stiff tariffs on allies and competitors while lowering taxes on American firms.During a speech in Savannah, Ga., on Tuesday, Mr. Trump suggested he would go far beyond that initial approach and adopt what he rebranded a “new American industrialism.”The former president proposed creating “special” economic zones on federal land, areas that he said would enjoy low taxes and relaxed regulations. He called for companies that produce their products in the United States — regardless of where their headquarters are — to pay a corporate tax rate of 15 percent, down from the current rate of 21 percent. Businesses that try to route cars and other products into the United States from countries like Mexico would face tariffs as high as 200 percent.But Mr. Trump’s vision of a “manufacturing renaissance” comes when Americans are increasingly wary of foreign investment, particularly from Asia. And while he imposed steep tariffs during his presidency, his efforts to keep American companies from shifting production overseas ran into the harsh realities of lower-wage labor and technological advancements in other countries.While Mr. Trump was in office, manufacturing employment was essentially flat before the pandemic and had declined by the time he left office. In January 2021, the Alliance for American Manufacturing described his promises of an industrial resurgence as “mostly rhetoric.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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The People’s Bank of China (PBOC) said it cut the rate on 300 billion yuan ($42.66 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions to 2.00% from 2.30%.The bid rates in Wednesday’s operation ranged from 1.90% to 2.30%, and the total balance of MLF loans now stands at 6.878 trillion yuan, the central bank said in an online statement.A batch of 591 billion yuan worth of MLF loans expired this month.On Tuesday, Beijing unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government’s growth target.($1 = 7.0318 Chinese yuan) More

SINGAPORE (Reuters) – The Australian and New Zealand dollars scaled multi-month peaks on Wednesday while sterling hit its highest in more than two years against a weaker dollar, as China’s aggressive stimulus package provided the latest shot in the arm for risk appetite.The Aussie peaked at $0.6907 in the early Asian session, its highest since February 2023, while the kiwi rose to a nine-month top of $0.6353, extending their strong gains from the previous session.Markets globally were basking in the afterglow of China’s latest slew of support measures announced on Tuesday ranging from outsized rate cuts to aid for its stock market, in a move that encouraged investors.The buoyant risk sentiment in turn kept the dollar broadly on the back foot.Sterling similarly advanced 0.1% to trade at $1.3429, a level not seen since March 2022. It drew additional support from less aggressive expectations of rate cuts from the Bank of England this year as compared to the Federal Reserve.”Judging by the financial market reaction, those announcements were actually bigger than market expectations,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), noting they particularly benefited currencies with strong links to the Chinese economy like the Australian and New Zealand dollars.”The kiwi dollar was actually the outperformer amongst its G10 peers, and I think it’s because market participants think that the measures announced yesterday are supportive of consumer demand and therefore it’s usually a good sign for demand for New Zealand’s dairy exports,” she said.The dollar – a traditional safe-haven currency – meanwhile came under pressure, with growing bets of another outsized U.S. rate cut in November adding to headwinds for the greenback.Markets are now pricing in a 58% chance of a 50-basis-point rate cut at the Fed’s next policy meeting, up from just 29% a week ago, according to the CME FedWatch tool.Data on Tuesday showed U.S. consumer confidence unexpectedly fell in September, amid mounting worries over the health of the labour market.”Consumers remain downbeat on the economy,” economists at Wells Fargo said in a note.”While we expect there are a number of reasons households are growing more pessimistic, the moderating labor market remains top of mind.”Against a basket of currencies, the dollar last stood at 100.28, languishing near a more than one-year low of 100.21.The dollar index had fallen more than 0.5% in the previous session, its largest one-day percentage fall in a month.Elsewhere, the yen was steady at 143.19 per dollar, while the euro gained 0.08% to $1.1188, hovering near a 13-month high hit last month. More

(Reuters) – Argentina’s government may condense negotiations with the International Monetary Fund (IMF) staff on its $44 billion program before opening talks on a new agreement that could include new money, Bloomberg News reported on Tuesday, citing people with direct knowledge.Economy Minister Luis Caputo told investors in New York that the South American country could combine the final two staff-level reviews of the current program into one, then proceed with negotiations for a new program that would take about three to six months, Bloomberg News reported. More

In an update to its Asian Development Outlook report, the ADB left most growth projections for economies in the region unchanged from its July report, maintaining its growth outlook for developing Asia at 5.0% this year and 4.9% next year. It revised down its inflation forecasts for developing Asia, which groups 46 countries in the Asia-Pacific, to 2.8% for this year and 2.9% for next year from previous forecasts of 2.9% and 3.0%, respectively. The Manila-based lender highlighted some downside risks to its outlook, including rising protectionism, escalating geopolitical tensions, adverse weather conditions, and a deterioration in China’s property market.China, the world’s second-largest economy, is battling deflationary pressures, and struggling to lift growth despite a series of policy measures aimed at spurring domestic spending.On Tuesday, China’s central bank announced broad monetary stimulus and property market support measures as authorities look to restore confidence in the economy.”Whether that will work remains to be seen because a lot of the structural problems in the property sector remain persistent,” ADB Chief Economist Albert Park said at a briefing.”It may take more effort and work by their government” to alleviate concerns of consumers and investors, Park said, adding “more proactive government policy would be helpful.” Park also said the ADB was not so concerned about deflation in China as it sees prices recovering. Last week, the U.S. Federal Reserve kicked off its own easing cycle with a hefty half-percentage-point rate cut.”With the Fed’s 50 basis point rate cut, central banks have more space to ease, and we expect more of them to do so,” Park said.The ADB kept its 2024 growth forecast for China at 4.8%, below the government’s official target of about 5%. Growth for 2025 is still forecast at 4.5%.”The PRC (People’s Republic of China) growth forecast is retained despite the prolonged downturn in the property sector, on the assumption that further fiscal and monetary easing will help sustain the economy,” Park said.GDP GROWTH 2023 2024 2024 2024 2025 2025 2025     APR JULY SEPT APR JULY SEPT Caucasus and 5.3 4.3 4.5 4.7 5.0 5.1 5.2 Central Asia   East Asia 4.7 4.5 4.6 4.6 4.2 4.2 4.2 China 5.2 4.8 4.8 4.8 4.5 4.5 4.5   South Asia 6.3 6.3 6.3 6.6 6.5 6.5 6.9 India 8.2 7.0 7.0 7.0 7.2 7.2 7.2   Southeast 4.1 4.6 4.6 4.5 4.7 4.7 4.7 Asia Indonesia 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Malaysia 3.7 4.5 4.5 4.5 4.6 4.6 4.6 Myanmar 0.8 1.2 n/a 0.8 2.2 n/a 1.7 Philippines 6.0 6.0 6.0 6.2 6.2 6.2 5.5 Singapore 1.1 2.4 2.4 2.6 2.6 2.6 2.6 Thailand 1.9 2.6 2.6 2.3 3.0 3.0 2.7 Vietnam 6.0 6.0 6.0 6.2 6.2 6.2 5.1   The Pacific 3.5 3.3 3.3 3.4 4.0 4.0 4.1   Developing 4.9 5.0 5.0 4.9 4.9 4.9 Asia 5.1   INFLATION      Caucasus and 7.9 7.6 6.9 7.0 6.8 6.2 Central Asia 10.2   East Asia 0.6 1.3 0.8 0.8 1.6 1.6 1.3 China 0.2 1.1 0.5 0.5 1.5 1.5 1.2   South Asia 8.4 7.0 7.1 7.0 5.8 5.8 6.1 India 4.6 4.6 4.7 4.5 4.5 4.5 5.4   Southeast 4.1 3.2 3.2 3.3 3.0 3.0 3.2 Asia Indonesia 3.7 2.8 2.8 2.8 2.8 2.8 2.8 Malaysia 2.5 2.6 2.6 2.4 2.6 2.6 2.7 Myanmar 22.0 15.5 n/a 20.7 10.2 n/a` 15.0 Philippines 6.0 3.8 3.8 3.6 3.4 3.4 3.2 Singapore 4.8 3.0 3.0 2.6 2.2 2.2 2.2 Thailand 1.2 1.0 0.7 0.7 1.5 1.3 1.3 Vietnam 3.3 4.0 4.0 4.0 4.0 4.0 4.0 The Pacific 3.0 4.3 4.3 3.6 4.1 4.1 4.1 Developing 3.3 3.2 2.9 2.8 3.0 3.0 2.9 Asia More