The new top cop at the U.S. Federal Reserve hardly fits the presidential mold. Michelle Bowman, Donald Trump’s pick to be the central bank’s vice chair of supervision, has indicated that she believes in aligning federal rules with Europe and the rest of the world. If so, it would mean largely conforming to Basel 3, the sort of international accord the White House is trashing most everywhere else. Bowman should be a welcome choice to the eight systemically important U.S. banks, which include Bank of America and Goldman Sachs. JPMorgan boss Jamie Dimon led the charge against her predecessor, Michael Barr, who initially proposed

U.S. Federal Reserve Chairman Jerome Powell faces a central banker’s most difficult task: cooling out-of-control price rises without choking the labor market. Conventional wisdom holds that these goals are in irrevocable tension. But now, labor is doing its part to reconcile the two. A steady flow of new workers and an uptick in productivity mean still-high wage and job growth isn’t stoking inflation, as evident in figures released Thursday. With the Fed eyeing further rate cuts, the risk now is that an immigration-hostile administration or fading output gains topple the balance. The September consumer-price index report shows inflation falling to

Last week the US Federal Reserve surprised economists by cutting interest rates by 50 basis points, instead of the widely expected 25. The Fed, with this move, has initiated its first rate-cutting cycle in four years, last observed when the central bank was forced to cut rates to zero amidst the onset of the COVID-19 pandemic. As detailed by Fed Chair, Jerome Powell, the reason behind this surprising move was a need to compensate for the Fed’s decision to keep rates on hold at their previous meeting, when weak labour market data was yet to be released and the indication

Jerome Powell has given the next occupant of the White House an early boost. The Federal Reserve chair’s double-sized rate cut on Wednesday shows the central bank has shifted from battling rising prices to the second part of its dual mandate: the pursuit of full employment. The Fed’s actions come with a lag, meaning the expected increase in home sales, stock purchases, and capital investment will probably only kick in following November’s U.S. presidential election. But whoever wins has a better chance of inheriting a soft landing. The Fed’s long-term projections are the closest the central bank is likely to come to formally declaring victory.

Since the federal funds rate hit 5% in March 2023, the bond market has been battling it out with the central bank. The market assumed that the U.S. economy was heading for recession and required more accommodative monetary conditions. This negative outlook has been influenced by the pervasive loose monetary policy that was put in place in 2009, with investors believing that the economy needs lower interest rates in order to function. However, not only have investors forgotten what “normal” bond market conditions are like, they have also forgotten the adage “don’t fight the Fed!” Since the economy emerged from

Big banks benefit from higher interest rates. So the market’s assumption that stubbornly high consumer prices will delay rate cuts from the Federal Reserve is no bad thing for investors in JPMorgan, Wells Fargo and Citigroup. All three report first-quarter earnings on Friday, and are likely to say that shifting monetary policy is working in their favor. Smaller rivals, though, will struggle to turn inflationary lemons into lemonade. The bulk of mega-banks’ business is simple. They make money from interest on loans and securities, and they lose money on interest paid to depositors and other funding providers. The pocketed difference, dubbed net

Back in March 2022 when the Fed embarked on its second most aggressive hiking cycle ever, we warned that it would not be the first hike that created risk, but that the risks would probably surface after the Fed had delivered its final hike. That last hike appears to have happened: so where are we now? With inflation down and economic activity re-accelerating, the Fed seems set on maintaining rates at current cyclical highs for longer than the market had expected and hoped just a few weeks ago. Despite the abrupt departure from years of zero rate policy, the economy

The current market debate on interest rates has tended to focus only on the money rate of interest, and hence on when the Federal Reserve might start to cut short term rates. The idea is that a cut in rates will make money cheaper and therefore boost equities. Over the last three months, although the five year government benchmark has remained pretty stable, shifting from 4.4% to 4.3%, the five year BBB rate has fallen from 6.2% to 5.7%. This is part of the reason why US equities have outperformed, with the Nasdaq composite index returning 12% in the last

After heaving a sigh of relief for the end of interest-rate hikes, chief executives and investors should be taking a deep breath. Even if the U.S. Federal Reserve starts reversing its policy later this year as expected and makes money available a little more cheaply, corporate borrowing expenses will nevertheless keep rising. To cover them, companies could be forced to seek cutbacks elsewhere. Stock buybacks, new projects and cash-funded takeovers look especially vulnerable. The most immediate and dire consequences of 11 rapid-fire increases in the benchmark U.S. federal funds rate have mostly flowed through the financial system. A series of

The Federal Reserve left interest rates unchanged on 31 January, and the Fed chairman crushed hopes of rate cuts at its next meeting in March. Jerome Powell could not have provided clearer guidance to that end, stating: “[A cut] is not the most likely case or the base case.” His comments triggered a large risk-off move, with equity investors selling off to rectify their previously bullish allocations based on a strong belief in March rate cuts. US equity indices promptly took the kind of beating they have not seen in a long while, with the S&P 500 closing 1.52% lower

Having the last word doesn’t always ensure winning the fight. But on Wednesday, U.S. Federal Reserve Chair Jerome Powell will try to have the final say of the year in his ongoing tussle with the markets. The central bank is set to keep interest rates steady and Powell will attempt to persuade investors that aggressive rate cuts aren’t imminent despite falling inflation. If he is successful, stocks and bonds will have a tough holiday period. If he fails, the Fed’s plans for next year could be derailed. The market thinks the Fed will cut rates from the current 5.25% to

The FOMC increased its benchmark interest rate by 25 basis points after its July meeting, as had been widely anticipated. There was no surprise, either, in the accompanying statement, which differed little from June’s. However, there was a change of tone in the press conference that followed. In response to a question, Jay Powell said that the Fed staff are no longer forecasting a recession. Market participants have increasingly priced in this type of ‘soft landing’ scenario. Despite still-high inflation, risk assets have done very well this year alongside expectations for relatively steep interest rate cuts next year. Such an