Economy
Fed to keep policy easy, stay patient as U.S. economy revives – Reuters
WASHINGTON (Reuters) – Amid market expectations the Fed may be forced to tighten monetary policy sooner than expected, top U.S. central bankers delivered a simple message to investors fixated on rising U.S. bond yields and price risks: Do not expect any changes until the economy is clearly improving.
Testifying on Wednesday before the House of Representatives Financial Services Committee, Fed Chair Jerome Powell emphasized the U.S. central bank’s promise to get the economy back to full employment, with little worry about inflation unless prices begin rising in a persistent and troubling way.
“We are just being honest about the challenge,” Powell told lawmakers when asked about Fed projections that inflation will remain at or below the central bank’s 2% target through 2023.
The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” Powell said. The current inflation rate by the Fed’s preferred measure is about 1.3%.
An expected jump in prices this spring, he said, may reflect post-pandemic supply bottlenecks, or a jump in demand as the economy reopens, but nothing to warrant a policy response.
Powell’s remarks led a broad central bank effort to convince the public and particularly bond market investors that it is not going to tighten monetary policy until it is clear people are getting back to work.
Yields on U.S. Treasury bonds have risen recently, with the risk of a potential spike in inflation in focus as the United States expands its coronavirus vaccination program, plans further fiscal spending and moves toward a post-pandemic reopening of the economy.
Financial markets are pricing in a better outlook for the U.S. economy, and “that’s appropriate,” Fed Vice Chair Richard Clarida told the American Chamber of Commerce in Australia, adding he had become more bullish himself in recent months.
What that does not mean, he said, is any imminent change to the Fed’s near-zero setting for short-term interest rates, or its bond-buying program.
“We to a person are going to be patient, we are going to be very careful, and we are going to be very, very transparent of our intentions well in advance of any decision we might make in the future,” Clarida said.
Clarida said he sees inflation rising above 2% in the spring but coming back down to about that level by year’s end.
Talk about a possible market “taper tantrum” in response to a change in the Fed’s bond-buying program is “premature,” Clarida said. A taper tantrum refers to a rapid run-up in bond yields based on changes in market expectations for Fed policy.
“We have a deep hole, there’s still a ways to go, and I think that settings of monetary policy are entirely appropriate not only now but, given my outlook for the economy, for the rest of the year,” he said.
‘FRONT-RUNNING THE FED’
While some observers believe the Fed may need to remove crisis-era policies sooner than expected, that argument ignores the Fed’s new jobs-first framework, said Tim Duy, chief U.S. economist with SGH Macro Advisors.
“If we try to force the Fed into the old framework, we will be front-running the Fed. The Fed will not validate such front-running,” Duy wrote of Powell’s appearances this week before House and Senate committees. “The Fed intends to maintain easy policy until the data pushes it in another direction and the Fed does not expect that to happen for a long, long time.”
The Fed has said it plans to keep buying $120 billion a month in U.S. government and government-backed securities “until substantial further progress has been made” toward the Fed’s maximum employment and inflation goals.
With the inflation target a long way off, Fed officials have focused on what they see as a major gap in the labor market as well – a scar that goes well beyond the 6.3% headline unemployment rate to include concerns about disproportionate joblessness among minorities and the exodus of women from the labor force.
In recent weeks, Powell, Clarida and others have used an alternate measure of around 10% that includes, for example, those who have left the labor force in recent months, and even that may fall short of the damage to workers the Fed hopes to repair.
Powell, who testified in Congress as part of his mandated twice-a-year appearances on Capitol Hill to provide updates on the economy, said the Fed needed to see tangible progress before shifting gears, not just anticipated improvement, and not premature bets from the bond market.
“We are not acting on forecasts,” Powell said. The policy “is what it sounds like – incoming actual data that sees us moving closer to our goals.”
Reporting by Howard Schneider and Ann Saphir; Editing by Peter Cooney
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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.
That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.
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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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