Federal Reserve

Jay Powell might wish for the sound of silence

30 Apr 2024

With inflation at 3.7%, the Federal Reserve chair is stuck. Signal lower rates are coming, and he may have to backtrack. Talk about increasing them, and bonds may go haywire. With a potential change in the White House, Powell’s intentions carry even greater weight, too.

Yen intervention is a lost cause worth pursuing

29 Apr 2024

Tokyo may have acted to prop up the currency after it dropped below 160 to the dollar. It’s a losing bet until the US Federal Reserve cuts rates or the Bank of Japan tightens monetary policy further. But there is value in signalling to the world that this is not a one-way street.

US economy is a victim of its own success

25 Apr 2024

The United States emerged as the world’s growth engine at the IMF summit last week. In this Viewsroom podcast, Breakingviews columnists debate whether this debt-fuelled strength means that interest rates will stay high for longer and how that could raise the risk of a recession.

Look out for a return of the US bond rollercoaster

16 Apr 2024

As short-term interest rates spiked, longer-term borrowing costs have lagged. The yield on three-month US Treasury bonds has exceeded the return on 10-year securities for 76 weeks, a near record. If this anomaly unwinds, falling bond prices could hurt fund managers and Uncle Sam.

Big banks turn inflationary lemons into lemonade

11 Apr 2024

Stubbornly high consumer prices may delay US monetary easing, a boost to lenders like JPMorgan or Citi that thrive amid high rates. Further relief could come from the dilution of tough new capital rules. For smaller banks, exposed to stressed borrowers, life tastes more sour.

Central banks’ noise helps dollar – and Joe Biden

28 Mar 2024

In February, traders’ hopes of rate cuts by the Federal Reserve sent the currency lower. But it has risen 1.8% in March, partly due to policymakers’ mixed messages. Until the fog clears, the greenback will rule forex markets. That curbs US inflation and may benefit the president.

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.