Economy

The central bank is set to meet next week, with markets split between a 25 or 50 basis point cut. Some sticky inflation data released this week favored the prospect of a smaller, 25 bps cut, CME Fedwatch shows.But Timiraos said recent data provided mixed signals on the U.S. economy, and that the Fed’s outlook on the economy, provided at its meeting next week, could further complicate matters.Timiraos earned the moniker of “the Fed whisperer” from some publications and market participants after accurately predicting each of the Fed’s interest rate decisions since 2022, where the central bank raised rates to a two-decade high and kept them there for 14 months.Media reports suggested that the Fed had even leaked its planned decisions to Timiraos, who is the WSJ’s chief economics correspondent and leads the publication’s coverage of the Fed and U.S. economic policy. Timiraos said the Fed was “nervous” about keeping interest rates high for too long, amid mounting evidence that higher rates were cooling the economy as intended. The central bank was still vying for a soft landing, where inflation falls while the labor market remains resilient. He said that the quarterly economic projections released next week were likely to provide more cues on how many rate cuts officials expect this year, with two more meetings left after September. Markets expect the Fed to cut rates by over 100 bps this year, with any indications of a smaller reduction likely to increase the risk of a “market pullback,” Timiraos said.He noted that the central bank preferred to usually move rates by a margin of 25 bps. Despite uncertainty over the breadth of the cut, the Fed is still widely expected to begin cutting interest rates when it meets next week, following signals indicating as much from Chair Jerome Powell and several other officials.  More

(Reuters) – An interest rate cut from the Bank of England next week looks unlikely but investors will be watching its September meeting for clues about future moves, as well as a decision over the pace of its bond sales – a hot political topic.All 65 economists in a Reuters poll said the BoE will likely hold rates at 5.0% on Sept. 19, after cutting from a 16-year high of 5.25% in August.News on price pressures has been mixed. Wage growth cooled as members of the Monetary Policy Committee expected last month and the economy failed to grow in July.But the Decision Maker Panel – a business survey favoured by the MPC – showed wage growth expectations stopped falling, and data on Wednesday will likely show inflation above the central bank’s 2% target.Markets on Thursday priced in a roughly one-in-five chance of an interest rate cut next week, with a 0.25 percentage point reduction fully priced for November.With British wage growth and services inflation riding high, investors think the BoE will loosen policy by less than the U.S. Federal Reserve over the next year and similarly to the European Central Bank – although the ECB has already cut rates twice this year, including a day ago.Economists at Nomura said the BoE’s close 5-4 vote in August and healthy business surveys pointed to a hold next Thursday.”We see the MPC skipping this month’s meeting and cutting interest rates again only in November,” they said, adding that the MPC’s Swati Dhingra was likely to be the sole voice for a cut this time.QT TO THE CHASEBond investors are hotly anticipating Thursday’s annual decision on the pace of the BoE’s quantitative tightening (QT) programme – the reversal of hundreds of billions of pounds of British government bond purchases from past attempts to stimulate the economy.Last year the MPC voted to run down its stock of gilts by 100 billion pounds ($131 billion) through a combination of active sales and allowing bonds to mature.Lawmakers have criticised the QT programme because it brings forward losses sustained by the BoE, which purchased gilts in past years at much higher prices than their current sale value. Those losses are paid for by already-stretched taxpayers.Nonethelesss, the BoE could on Thursday announce an acceleration of its QT programme, reflecting the fact that it holds 87 billion pounds of gilts that are due to mature naturally over the next year, leaving little room for active gilt sales at the current pace.”The vote on the pace of QT could be the more important one,” Andrew Goodwin, chief UK economist at Oxford Economics consultancy, said.BoE Governor Andrew Bailey has said QT is needed to restore the central bank’s firepower if it has to stimulate the economy with bond purchases again.Goodwin and most other forecasters think the BoE is likely to keep QT running at 100 billion pounds per year, but he said an increase to 115-120 billion pounds was a plausible scenario.Given its impact on the state’s budget, finance minister Rachel Reeves will take a keen interest in Thursday’s QT decision. Last week she said QT was an operational matter for the BoE when pressed by lawmakers about the scale of taxpayer losses.Reeves will likely change Britain’s fiscal rules to exclude the impact of the BoE’s QT programme in her inaugural budget, due on Oct. 30, Goodwin said.”This change would increase her fiscal headroom considerably,” he said.($1 = 0.7648 pounds) More

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(Reuters) – A look at the day ahead in Asian markets.Asian stocks are poised to end the week on a strong footing on Friday, spurred on by another solid rise on Wall Street the day before that puts some key benchmark indexes across the continent on track to register modest weekly gains. The European Central Bank cut interest rates on Thursday and the Fed is set to begin a pretty substantial easing cycle next week. Although the former was no surprise and traders have been expecting the latter for a while, they are conducive to a ‘risk on’ environment that should boost sentiment in Asia on Friday.The S&P 500 and Nasdaq both rose for a fourth consecutive day on Thursday. The S&P 500 came within 1% of its record high struck on July 15 and the Nasdaq, up 5.3% so far this week, is on track for its biggest weekly rise this year. In other good news, Japan’s Nikkei on Thursday snapped a seven-day losing streak in style, jumping 3.4%. Notably, it did so without the help of a weaker yen – the yen made a new high for the year against the dollar and although it recoiled, it still ended Thursday slightly stronger.But if yen strength is to persist, the outlook for Japanese stocks is murky. Indeed, the outlook for global asset prices may also be murky if the yen carry trade unwind has further to run, as SocGen strategists expect. This creates “clear market risks as market leverage in this cycle comes mainly from the Japanese currency,” they said on Thursday, adding that they are increasing their yen exposure and reducing their Japanese equities exposure.If markets across Asia are set to end the week on a high, the exception once again could be China. Shanghai stocks on Thursday posted their lowest close since January 2019.Shanghai’s blue chip index will likely end the week in the red, its fourth weekly fall in a row and the 14th decline out of the last 17 weeks. It’s been a miserable run that has seen the index lose 15%, but surely it has to turn at some point. Right?A batch of top-tier economic data from China over the weekend could be the trigger although that may require some rare upside surprises.Beijing releases house price, investment, industrial production and retail sales figures for August on Saturday, and economists polled by Reuters generally expect the numbers to come in weaker than July’s readings.The calendar in Asia on Friday, meanwhile, sees the release of Indian wholesale price inflation, a speech by Bank of Thailand governor Sethaput Suthiwartnarueput and Bank of Japan board member Naoki Tamura.Here are key developments that could provide more direction to Asian markets on Friday:- India WPI inflation (August)- South Korea import & export prices (August)- New Zealand manufacturing PMI (August) More

(Reuters) – The International Monetary Fund’s director of the Western Hemisphere Rodrigo Valdes has fully delegated all negotiations with Argentina to other officials, the fund said on Thursday.”To best support the ongoing constructive engagement with the Argentine authorities, Western Hemisphere director Rodrigo Valdes has fully delegated program negotiations,” IMF spokesperson Julie Kozack said at a scheduled press conference.She said Deputy Director of the Western Hemisphere Department Luis Cubeddu and mission chief for Argentina Ashvin Ahuja, “whose work is directly overseen by fund management,” are in charge of talks with Argentine authorities.Argentine president Javier Milei had earlier this year criticized Valdes, and in July Kozack said Valdes had the full support of the fund’s management.In a reflection of the tensions that had built between Valdes and the right-wing administration led by Milei, an Argentine government source welcomed the move in a briefing on Thursday and reiterated criticism of the IMF official.”He is a leftist who does not understand our economic program,” the person said, a reference to Valdes’ time as finance minister under leftist Chilean president Michelle Bachelet from 2015-17.The IMF did not immediately respond to a request for comment on the statement.Valdes, who earned a Ph.D. in economics from the Massachusetts Institute of Technology, has held his position at the IMF since May 2023. He previously worked in the private sector, including at Barclays Capital and BTG Pactual. More

(Reuters) – Boeing (NYSE:BA) faces a likely strike on Friday by more than 30,000 workers that could shutter its Seattle-area plane factories over demands for a bigger pay increase than the 25% over four years that union leaders agreed to.If there is no strike, the unionized workers could have to swallow a contract that most of them have said they oppose. That is because they need a supermajority to strike under rules from the International Association of Machinists and Aerospace Workers (IAM), the largest aerospace union in North America which represents Boeing’s U.S. West coast workers.Here’s how the voting works:Q. What’s on the ballot?A. Boeing workers have a two-part ballot. They are first asked to accept or reject the contract offer. The second question is whether they want to support a strike. If a majority of workers vote to accept the proposed contract, the agreement goes into effect.Q. What needs to happen for the workers to go on strike? A. A majority of Boeing workers must reject the proposed contract and two-thirds of those voting must support a strike. Q. What happens if a majority of workers reject the tentative agreement but less than two-thirds of those voting support a strike? A. The contract offer is accepted by default. Q. In general, how often are contracts ratified despite support from just a minority of workers? A. Harry Katz, a professor of collective bargaining at Cornell University’s School of Industrial and Labor Relations, said such a scenario is uncommon. In one rare case from 2002, IAM workers at a Boeing plant in Wichita, Kansas were forced to accept a contract with less than 40% support. That’s because only 61% voted to authorize a strike, falling short of the two-thirds majority required under the IAM’s constitution. Q: Why does the IAM have such a high bar to call a strike?A: The IAM says that if a simple majority was enough to call a strike, the chances of winning a good contract through a strike “decreases dramatically.” “Anytime you go into a possible strike situation, you want to be sure that a 2/3 majority of your membership support calling a strike. Going on strike with less than 2/3 results in a possible weak picket line,” according to an IAM information package for workers about the Boeing talks.”Calling a strike is serious business. The leadership needs to be sure that 2/3 of the membership support withholding their labor to walk the line.”Q. Do workers get strike pay?A. Members will be paid $250 a week from the strike fund starting in the third week, a union spokesperson said. Q. When does the voting start and end, and when will we know the result?A. Polling started on Thursday at 5 a.m. PT and will close at 6 p.m. PT. The result will be announced on Thursday evening, the IAM said. If a strike is sanctioned, it could start early Friday. More

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With the Federal Reserve holding benchmark rates at their highest in 23 years, the government has laid out $1.049 trillion on debt service, up 30% from the same period a year ago.
The jump in debt service costs came as the U.S. budget deficit surged in August, edging closer to $2 trillion for the full year.

A view shows a bronze seal beside a door at the U.S. Treasury building in Washington, U.S., January 20, 2023. 
Kevin Lamarque | Reuters

The U.S. government for the first time has spent more than $1 trillion this year on interest payments for its $35.3 trillion national debt, the Treasury Department reported Thursday.
With the Federal Reserve holding benchmark rates at their highest in 23 years, the government has laid out $1.049 trillion on debt service, up 30% from the same period a year ago and part of a projected $1.158 trillion in payments for the full year.

Subtracting the interest the government earns on its investments, net interest payments have totaled $843 billion, higher than any other category except Social Security and Medicare.
The jump in debt service costs came as the U.S. budget deficit surged in August, edging closer to $2 trillion for the full year.
With one month left in the federal government’s fiscal year, the August shortfall popped by $380 billion, a dramatic reversal from the $89 billion surplus for the same month a year prior that was due largely to accounting maneuvers involving student debt forgiveness.
That took the 2024 deficit to just shy of $1.9 trillion, or a 24% increase from the same point a year ago.
The Fed is widely expected to lower rates next week, but just by a quarter percentage point. However, in anticipation of additional moves in future months, Treasury yields have tumbled in recent weeks.
The benchmark 10-year note last yielded about 3.7%, down more than three-quarters of a percentage point since early July.

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