Powell Says Solid Economy Allows Fed to Consider Rate Cuts ‘Carefully’
(…) “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said at a talk in Dallas on Thursday. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” (…)
The Fed’s next meeting is Dec. 17-18. Investors in interest-rate futures markets expect the central bank to lower rates by a quarter point at that meeting and then to slow down the pace of cuts after that. Prices in futures markets imply a roughly 60% chance of a cut next month with two additional quarter-point cuts in 2025, according to CME Group. Powell didn’t directly address the prospects for a cut at that meeting. (…)
Powell characterized the labor market as one that is still cooling under the weight of restrictive monetary policy. For now, “it seems like we’re right where we need to be,” Powell added. (…)
Powell said it was difficult to model the effects of any new tariffs, though he allowed that the current situation differed from an episode in 2018-19, when Trump launched a trade war with China.
Back then, inflation was low, and consumers and businesses didn’t have any recent memory of being asked to accept notable price hikes. “We’re in a different situation,” Powell said.
Bloomberg has more:
Powell said the labor market is in “solid condition,” and said by many metrics it’s back to “more normal” levels consistent with the maximum employment mandate.
“Improving supply conditions have supported this strong performance of the economy,” Powell said. “The labor force has expanded rapidly, and productivity has grown faster over the past five years than its pace in the two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating.” (…)
In a moderated discussion that followed his speech, Powell added that uncertainty over the neutral level of rates — where policy is neither stimulating nor dampening growth — provides yet another reason to move cautiously. Several Fed officials have said they believe the fed funds rate remains in restrictive territory and favor moving gradually down toward it.
“In this situation, what it calls for is us to be careful,” he said. As the central bank approaches “the plausible range of neutral levels,” he added, “it may be the case that we slow the pace of what we’re doing just to increase the chances that we get this right.” (…)
Between Powell’s August 24 “the cooling in labor market conditions is unmistakable” after the unemployment rate hit 4.3% and the current “solid condition”, we had 6 weeks of declining unemployment claims mirroring the mild seasonality observed since 2022.
That was when the FOMC shifted its focus away from inflation to the labor market…
Another rate cut in December is “certainly on the table, but it’s not a done deal,” said Boston Fed President Susan Collins in an interview Thursday. “There’s more data that we will see between now and December, and we’ll have to continue to weigh what makes sense.” (…)
Then she went on to justify another rate cut:
Collins said she didn’t see any evidence that inflation was picking up due to new sources of strength in the economy, aligning herself with a view Powell expressed last week. Both of them suggested recent inflation stickiness has instead been an echo or “catch-up” effect of large price increases from the past few years, such as car insurance costs rising to reflect past increases in car prices that have since subsided.
“As far as I can tell, I do not see evidence of new price pressures,” said Collins. Firmer inflation in recent months instead reflects “the effects of the longer-term dynamics of past shocks,” she said. (…)
“I don’t see an argument for maintaining restrictive policy when there is not evidence of new price pressures, and the old dynamics are perhaps unevenly and gradually resolving over time,” she said.
Rising US producer prices add to signs of fading disinflation
U.S. producer prices picked up in October, lifted by higher costs for services like portfolio management and airline fares, another sign that progress towards lower inflation was stalling. (…)
The producer price index for final demand rose 0.2% last month after an upwardly revised 0.1% gain in September, the Labor Department’s Bureau of Labor Statistics said. The increase in the PPI was in line with economists’ expectations. The PPI was previously reported to have been unchanged in September.
In the 12 months through October, the PPI increased 2.4% after advancing 1.9% in September.
Services prices rose 0.3% after gaining 0.2% in September. A 3.6% surge in portfolio management fees amid a stock market rally accounted for more than a third of the rise in services costs. Airline fares jumped 3.2% after rising 1.1% in the prior month. Hotel and motel room prices fell 0.5%. (…)
Overall healthcare costs increased 0.5%, the most since January.
There were also gains in the prices of vehicle wholesaling, computer hardware, software and supplies retailing as well as cable and satellite subscriber services.
The government introduced prices for new-model-year passenger cars and light motor trucks with the October PPI report. Passenger car prices rose 0.3% while light motor vehicle prices were unchanged. (…)
Should we worry about the recent acceleration in PPI inflation? Yes:
A $7 Trillion and Growing Cash Pile Defies Wall Street Skeptics US money-fund assets reach $7 trillion for first time
It was supposed to be the year of the great money-market exodus.
Between Federal Reserve interest-rate cuts and the rally in stocks and bonds that would naturally follow, all the elements were there, Wall Street prognosticators said, to prompt investors to yank cash out of money-market funds en masse.
They were wildly off. For while the rate cuts came and stocks soared, companies and households have kept shoving cash into money funds, pushing the total assets held in those accounts above $7 trillion this week for the first time ever. The relentless rush into those funds — which buy Treasury bills and other short-dated instruments — underscores just how attractive benchmark rates above 5% have been for an investor base that had grown accustomed to them being closer to 0% this century.
Even as those rates now slide to 4.5%, money-market funds are still throwing off a steady stream of nearly risk-free revenue that is bolstering the finances of many households and offsetting to some extent the damage that rate hikes have caused in other parts of the economy. And with signs mounting that the Fed may not cut benchmark rates much more, many on Wall Street are now predicting that Americans aren’t going to fall out of love with cash any time soon. (…)
It’s not just that money-market rates are still near their peak, but also the fact that they’re in-line and often still above what most alternatives are paying that’s continuing to attract investors.
Three-month Treasury bills currently yield around 4.52%, about 0.07 percentage point more than the rate on the 10-year Treasury note. The Fed’s overnight reverse repurchase agreement facility, a place money funds often park their cash, currently pays 4.55%. (…)
Institutional investors have accounted for roughly half of the $700 billion of money-fund inflows this year, according to Crane data, which tracks the entire money-market industry. Data from the Investment Company Institute, which is released on a weekly basis and excludes firms’ own internal money funds, puts year-to-date inflows at $702 billion, and total assets at a record $6.67 trillion in the week through Nov. 13. (…)
China Stimulus Boosts Domestic Consumption as Trump Tariffs Loom Retail sales beat forecasts with fastest growth since February
- (…) Retail sales jumped 4.8% on year, beating a projected 3.8% growth and the strongest rate since February
- Industrial output rose 5.3%, versus a 5.4% gain in the previous month and lower than economists’ forecast of a 5.6% increase
- Fixed-asset investment expanded 3.4% in the first 10 months, unchanged from the reading for January-September. Property investment tumbled 10.3% in the period
- The urban jobless rate dropped to 5% from 5.1% in September
(…) Beijing has also sought to spur consumer spending by subsidizing purchases of equipment, appliances and cars in a program announced earlier this year and ramped up in the last few months.
The sales of home appliances rose 39% compared to the same period last year, the fastest growth since 2010 excluding January and February numbers that are combined due to a distortion from Lunar New Year holidays. (…)
The decline in new housing prices softened to the slowest since March while the drop in the cost of used homes narrowed to the smallest in more than a year, NBS figures showed. The slump in property sales also eased. (…)
Also on Bloomberg:
New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.51% from September, the slowest pace since March, National Bureau of Statistics figures showed Friday. Values of used homes fell 0.48%, the least in more than a year.
Price movements compared with a year earlier showed a more mixed picture. New-home prices fell 6.2%, slightly more than September’s 6.1% drop, the statistics bureau said. Existing-home prices dropped 8.9%, compared with 9% in September. (…)
AI CORNER
The Power Play is happening in Japan too:
Hokkaido Electric Sees Power Demand Surge With Data Center Boom
Hokkaido has emerged as an attractive destination for Japanese companies looking to build data centers due to its cold climate, which reduces cooling costs, and potential for renewable energy, particularly offshore wind. That has raised the question of whether the prefecture, which until recently was expecting demand to decline due to its aging population, would have enough generation capacity to cope.
Hokkaido Electric Power Co. will be able to meet the rising demand expected from 2027 through 2030, Susumu Saito, the company’s president, said at a press conference in Tokyo on Friday. However, that relies on restarting its Tomari No. 3 nuclear reactor that was taken offline in the wake of the Fukushima disaster in 2011, he said.
State-backed Rapidus Corp. will start producing chips in Hokkaido in 2027, and the Nikkei newspaper has reported SoftBank Corp. is building a large-scale data center there.