Capital Calls: Small Fed windows 12 Mar 2024 Concise views on global finance: US consumer prices rose 3.2% year-on-year in February, above the Federal Reserve’s 2% target, prompting traders to rein in hopes for rate cuts. The agency’s Chair Jerome Powell could have avoided that by guiding markets towards a higher number.
Slow growth puts ECB before Fed in rate-cut line 7 Mar 2024 The European Central Bank held borrowing costs but President Christine Lagarde suggested it might lower them in June. That could make her the first major central banker to ease policy, ahead of US Federal Reserve boss Jay Powell. Sadly, that’s only due to dire euro zone growth.
Basel climbdown would make the shadows less scary 6 Mar 2024 Tough new rules on bank capital are likely to be watered down. That would be a victory for lenders like JPMorgan that complain they’re already smothered by safeguards. It’s less good for so-called shadow banks like Blackstone and Apollo that stand to grow fat on their castoffs.
Why central banks risk making more mistakes 27 Feb 2024 Western rate-setters were late in fighting inflation. In this Exchange podcast, TS Lombard economists Dario Perkins and Davide Oneglia argue that, as price growth abates, the US Federal Reserve and European Central Bank may be too slow in easing monetary policy.
Higher rates insidiously creep into the boardroom 22 Feb 2024 Stock prices have been on a tear, in anticipation of the Fed reversing its policy. The exuberance ignores longer-term consequences of growing interest expenses. To pay them, many companies will have to cut back elsewhere. Share buybacks, capex and M&A look especially vulnerable.
Central banks’ waiting game plays with fire 21 Feb 2024 Western policymakers fret that if they cut rates too soon inflation may rebound. But keeping monetary policy tight has costs. Staying put as price growth abates means rate-setters squeeze consumers and companies, raising the odds of blowups in areas like commercial real estate.
US markets grapple with mysterious contradictions 13 Feb 2024 The S&P 500 Index hit new heights, led by tech stocks. At the same time, derivatives traders expect the Federal Reserve to slash rates. The latter will not happen without a recession. One of the camps is destined to be wrong. Equity investors should root for slower rate cuts.
Maxed-out shoppers put fire under Fed’s status quo 31 Jan 2024 American consumers are powering the economy. But their spendthrift ways are a big concern for central bank Chair Jay Powell. Credit card balances have just recorded the biggest jump on record and now top $1 trln. Rates are steady for now. The next move will be much riskier.
Close the Volcker playbook and open Greenspan’s 30 Jan 2024 Fed Chair Jay Powell wisely embraced Paul Volcker’s inflation-fighting approach from the early 1980s and quickly raised borrowing costs. With price pressures abating, it’s time to change tactics. Leaning into Alan Greenspan’s tactical 1995 interest rate cuts makes more sense now.
Fixed income investors have reasons to be fearful 23 Jan 2024 Uncertainty over the direction of inflation and monetary policy is buffeting markets. In this Exchange podcast Jim Grant, founder of ‘Grant’s Interest Rate Observer’, discusses his gloomy outlook for US bonds and sounds a warning about the risks of shadow banking.
BoE can win inflation race but lag on rate cuts 17 Jan 2024 UK price growth could drop in the spring due to lower energy bills, enabling the Bank of England to hit its 2% target before the US and Europe. But wage and services inflation will stop Governor Andrew Bailey from reducing borrowing costs. So will a likely UK fiscal splurge.
Jay Powell could land on the ballot in 2024 2 Jan 2024 Central banks’ fight against inflation may produce slower growth, joblessness and recession in the US, Europe and the UK, just as elections loom. The Fed chief and peers argue their mandate is to slay high prices, not to appease voters. They shouldn’t assume it will always be so.
Policymakers take divergent paths toward rate exit 14 Dec 2023 Central banks in Europe and the US left borrowing costs untouched this week. But the latter went a step further and unexpectedly promised cuts. In this Viewsroom podcast, Breakingviews columnists explain how ratesetters, who were slow to tackle inflation, could be laggards again.
Powell was pragmatic; Lagarde will have to be 14 Dec 2023 The European Central Bank, like the US Federal Reserve, left its rates unchanged. But unlike Fed Chair Jay Powell, ECB boss Christine Lagarde didn’t imply that lower inflation meant looser monetary policy. A slowing economy and abating price pressures will push her there in 2024.
Last word of 2023 goes to Jay Powell 12 Dec 2023 Investors are pricing in 1 percentage point of US rate cuts next year. The Federal Reserve doesn’t want that, so its chair needs to talk up inflation on Wednesday. If markets keep ignoring him, rallies in stocks and bonds will continue, but the central bank’s job will get harder.
The future of interest rates is more surprises 24 Nov 2023 The return of inflation surprised central banks which until recently predicted rates would remain “lower for longer.” Economists and investors struggle to agree on what has changed or what will happen next. Those who assume current interest rates are normal may be in for a shock.
Japan’s rates tweak is careful and crafty 2 Nov 2023 The central bank changed its policy to allow higher 10-year bond yields. Unlike the US, it can afford to raise borrowing costs slowly as inflation is low. In this Viewsroom podcast, Breakingviews columnists explain why monetary tightening as others loosen may give Tokyo an edge.
Treasury’s borrowing boom is gust before the storm 1 Nov 2023 Between the Federal Reserve’s interest-rate pause and the US government’s $112 bln borrowing splurge, there’s plenty to drive yields higher. But the reason Treasury markets are so susceptible to turbulence is the bigger problem: too much debt, and no plan to get it down.
Fed clarity effectively sends a strong buy signal 20 Sep 2023 Benchmark US interest rates probably will hover around 5.5% for a while. A stable cost of capital gives companies, consumers and investors good reason to stop putting off decisions any longer. It should help resolve valuation ambiguities and restart M&A, IPO and housing activity.
Bond rout will amplify Powell’s Jackson Hole words 23 Aug 2023 Yields on 10-year US debt are near a 16-year-high. That’s lifting borrowing costs even though the Federal Reserve is likely done with raising rates. More expensive loans may cause a recession. When he speaks on Friday, the Fed chair needs to calm markets without caving into them.