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Pivotal Fed hopes fade in the face of worrying inflation numbers

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For a central bank looking for signs that the worst inflation problem in decades is slowly receding, on Thursday Report The US consumer price growth has been as bad as it gets.

While the annual pace changed slightly at 8.2 percent, the index showed another worrying jump on a monthly basis, indicating that core inflationary pressures are still accelerating. Excluding volatile items such as food and energy, the “core” CPI measure rose 6.6 percent compared to the same period last year.

The larger-than-expected increase leaves the Federal Reserve with little choice but to move forward with its fourth consecutive increase of 0.75 percentage points at its next policy meeting in early November.

Economists say it is also likely to push the US central bank to continue its massive interest rate hikes beyond that point and at least until there is more clear evidence that price pressures are easing.

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“There is a determination in inflation, if you are a Fed member, it should be very concerning,” said Ajay Rajadiaksha, global head of research at Barclays. “Most people felt we were about to shift, whether it’s because of jobs or inflation, and it’s not happening, it’s not happening, it’s not happening.”

Rajadhyaksha expects the Fed to extend its winning streak by 0.75 percentage points through the end of the year and then slow to a half point increase at the first meeting of 2023 in early February. This indicates that the federal funds rate will peak between 5 per cent to 5.25 per cent, well above the 4.6 per cent level that most officials expected in September.

The latest inflation figures come as a slap to the Biden administration that is going after it Republican attacks About the soaring prices in the run-up to the November midterm elections.

They have also reached a fragile moment for the global economy and financial markets, with the International Monetary Fund warning this week at its annual meetings with the World Bank that “worst case“We are waiting.

Among their concerns are the repercussions of one of the world’s fastest-growing monetary tightening campaigns, which threatens to trigger a US dollar funding shock and push weak emerging and developing economies into further distress.

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The Near the implosion Parts of the UK pension industry in the wake of the government’s announcement of debt-funded tax cuts – which have forced the Bank of England to intervene repeatedly – also raised concerns that instability could engulf advanced economies.

In the face of these threats, some economists and investors have been hoping the Fed will water down its plans to aggressively raise interest rates, as it faces not only global vulnerabilities but also growing concern that its efforts to root out inflation will do big business. losses.

“Any hope of a pivot has been largely eliminated,” said Anita Markowska, chief financial economist at Jefferies, adding that she also expects the Fed to introduce two more increases of 0.75 percentage points this year before implementing a half-point increase in February. . . “It turns out that fixing inflation is harder than they thought, which is why they are more concerned about getting it wrong.”

This was the message that was delivered in Minutes From the last policy meeting in September, when the central bank raised its benchmark policy rate to a target range of 3 per cent to 3.25 per cent.

Many officials stressed that the costs of doing too little to rein in inflation are “likely to outweigh” the cost of overdoing it, the record showed, a point President Jay Powell emphasized when he recently He confessed A painful US recession cannot be ruled out.

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Even the International Monetary Fund took that view, with the head of the multilateral bank on Thursday calling on central banks worldwide to take “decisive action” to contain price pressures.

“The reason we support a strong focus on inflation is that inflation has been very challenging and the risks of lower inflation expectations have become more apparent,” Kristalina Georgieva told reporters at a news briefing. “We cannot allow inflation to become a runaway train.”

Federal Reserve officials appear United Intent on maintaining an aggressive stance for as long as necessary to calm the economy, they set an extremely high standard for the economic data needed to change course. Rather than creating a policy based solely on future inflation and labor market expectations, they said they would wait for realized inflation to start to slow before reversing.

For some economists, this ensures that the Fed is overdoing it, since these metrics are lagging indicators and the effects of monetary policy take time to spread through the economy. But for others, it’s a risk worth taking at this point.

“This is not only the credibility of the Fed, but it is [Powell’s] “A legacy as Chairman of the Federal Reserve,” said Diane Sonk, chief economist at KPMG. “It would be better to leave the one who restored price stability and full employment than [leaving with] A more corrosive bout of inflation and high unemployment.”

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New York Federal Reserve Securities Link Reverse Repo to Bank Regulatory Change by Reuters

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© Reuters. FILE PHOTO: The Federal Reserve building is seen in front of the Federal Reserve Board and is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, US, January 26, 2022. REUTERS/Joshua Roberts

Written by Michael S Derby

(Reuters) – Continued massive cash flows at a key Fed facility are largely driven by a change in bank liquidity regulations from last year, a New York Federal Reserve report said on Friday.

The Fed offers what’s called a reverse repo, which allows eligible businesses to store cash at the central bank for a risk-free return. The rule that plays into the inflows is a regulation called the supplementary leverage ratio, which determines how much liquidity banks need on hand.

The SLR standard was relaxed during the most severe phase of the coronavirus pandemic in 2020, when concerns about market performance prevailed, and it was restored at the end of March 2021, to return to a more stringent level.

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Banking economists Jara Afonso, Marco Cipriani, and Gabriel La Spada write: “After the end of the SLR exemption period, banks had less flexibility to expand their balance sheets by increasing their holdings of reserves and Treasuries.” This had a knock-on effect on money market funds, the main users of reverse repo, which drove liquidity into the reverse repo facility.

After the regulations changed, the newspaper said, banks were less inclined to take deposits, and instead the money flowed into financial funds, which had to invest that money somewhere. Meanwhile, banks have cut back on short-term debt offerings, restricting where money can be invested. Moreover, the federal interest rate increases pushed cash into money market funds as financial markets experienced a shift in the cost of short-term borrowing, according to the authors.

The Federal Reserve’s esteemed buyback facility is an essential part of the toolkit it uses to manage its federal funds rate target setting, which it uses to influence the economy’s trajectory to achieve its inflation and employment targets. A reverse repo tool provides money market funds and other companies a place to deposit cash into the Federal Reserve overnight and earn a return. It is currently at 3.8% and is an investment with a better return than many private securities that come with greater risks.

The Fed’s reverse repo facility was largely unused in the spring of 2021, and then flows increased steadily. Inflows peaked at $2.426 trillion at the end of September before easing slightly to Friday’s inflow of $2.05 trillion.

Fed officials were optimistic about the huge levels of inflows. Some have argued that as the Fed raises interest rates and reduces the size of its balance sheet to combat high inflation, inflows into the reverse repo facility should decrease over time. But so far it hasn’t really happened.

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Meanwhile, issues related to the correct setup of the SLR are under consideration by the financial authorities, who are treading cautiously on the issue. “History shows the massive costs incurred by society when bank capital is inadequate, and therefore the urgency that the Fed properly adjusts capital regulation,” Michael Barr, the Fed’s official on bank supervision, said in comments Thursday.

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US Federal Reserve proposes plan for banks to manage climate-related financial risks By Reuters

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© Reuters. FILE PHOTO: An eagle graces the facade of the US Federal Reserve Building in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Written by Chris Prentice

WASHINGTON (Reuters) – The U.S. Federal Reserve on Friday joined other major bank regulators in proposing a plan for how big banks can manage climate-related financial risks, drawing immediate opposition from one member and reservations from another.

The proposed principles detail the expectations for banks with more than $100 billion in assets to incorporate climate-related financial risks into their strategic planning. The proposal was approved for public comment in a 6-1 vote of the Fed’s Board of Governors.

The proposal marks the latest effort by US policymakers to prepare for potential financial risks from climate change, bringing the Fed into line with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which have separately proposed their own plans.

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The potential impacts of climate change — rising sea levels, worsening floods and fires, and government policies moving away from carbon-heavy industries — could destroy trillions of dollars in assets worldwide.

The Fed said these financial implications “constitute an emerging risk to the integrity and integrity of financial institutions and to the financial stability of the United States.”

The Fed’s plan requires banks to consider climate-related financial risks in their audits, manage other risks, and add climate-related scenario analysis to the traditional stress test. The report suggested that banks should also assess and consider whether they should include climate-related risks in their liquidity reserves.

The debate over the extent of financial system risks posed by climate change has been politically charged. Federal Reserve Governor Christopher Waller opposed Friday’s proposal, raising the question of whether it represented a serious risk to the safety of large banks or financial stability in the United States.

“Climate change is real, but I do not agree with the premise that it poses a serious risk to the safety and integrity of major banks and the financial stability of the United States,” Waller said in a statement released alongside the proposal. “The Fed conducts regular stress tests on large banks that deliver very severe macroeconomic shocks and show that banks are resilient.”

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Gov. Michele Bowman endorsed the plan for public input with reservations, noting that the board should consider the “costs and benefits of any new projections.”

The proposal will be open to public comment for 60 days.

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More than 1,000 New York Times union employees plan to quit over payroll, reports Reuters

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© Reuters. FILE PHOTO: The New York Times Building in Manhattan, New York, US, August 3, 2020. REUTERS/Shannon Stapleton/File Photo

(Reuters) – More than 1,000 unionized employees of The New York Times Company have pledged to quit if the news publisher does not agree to a “full and fair contract” by Dec. 8, according to a union tweet on Friday.

The New York Times NewsGuild sought “inflationary” wages as well as preserving and enhancing health insurance and retirement benefits promised during employment, according to a letter signed by 1,036 members.

“We will be out and about for 24 hours, Thursday, December 8th, if we do not have a full and fair contract agreement in place by then,” the letter said.

Union members are also asking for flexibility to work remotely, among other demands.

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A spokesperson for The New York Times said “While we are disappointed that NewsGuild is threatening to strike, we stand ready to ensure The Times continues to serve our readers without interruption,” adding that the company’s current pay offer offered “significant increases.”

Earlier in March, a group of nearly 600 tech employees at The New York Times voted to unionize as the company faced allegations that it illegally interfered with organizing work.

In August, approximately 300 Thomson Reuters (NYSE: Corp) journalists in the US, represented by the same NewsGuild, also staged a 24-hour strike while the union negotiated a new three-year contract with the company.

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