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LIVE COVERAGE
View highlights only
LATEST DEVELOPMENTS
Watch Live: Federal Reserve News Conference
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Watch Live: Federal Reserve News ConferencePlay video: Watch Live: Federal
Reserve News Conference
The Federal Reserve approved a rare half-percentage-point interest rate increase
and announced plans to shrink its $9 trillion asset portfolio starting next
month in a double-barreled effort to reduce inflation that is running at a
four-decade high.
The moves, announced after a two-day policy meeting Wednesday, will raise the
central bank’s benchmark federal-funds rate to a target range between 0.75% and
1%.
Together, the steps mark the most aggressive Fed tightening of monetary policy
at one meeting in decades, aimed at rapidly reducing the economic stimulus that
has contributed to rising price pressures. The Fed, which usually lifts interest
rates in quarter-percentage-point increments, last raised rates by a half point
in 2000.
Created with Highcharts 9.0.1Federal-funds target rateSource: Federal
ReserveNote: Chart shows midpoint of range since 2008.
Created with Highcharts 9.0.1RECESSION'05'10'15'20200001234567%
Share
1 min ago
TREASURY YIELDS HOLD STEADY
By Karen Langley
U.S. stocks wobbled and Treasury yields held steady after the Federal Reserve
said it will raise its benchmark interest rate by half a percentage point.
Investors have been closely watching as the central bank lifts interest rates in
an effort to tamp down skyhigh inflation. Wednesday’s announcement follows the
Fed’s move in March to lift the federal-funds rate to a range between 0.25% and
0.50%, from near zero.
The S&P 500 was recently up 0.1% for the day, from a gain of 0.4% shortly before
the announcement. Stocks had briefly extended their gains before slipping.
Created with Highcharts 9.0.1S&P 500 performance Source: FactSetAs of May 4,
2:30 p.m. ET
Created with Highcharts 9.0.1May 42 p.m.-0.8-0.6-0.4-0.200.20.40.60.8%
The yield on the benchmark 10-year U.S. Treasury note, meanwhile, edged down to
2.972%, from 2.982% beforehand, according to Tullett Prebon.
Created with Highcharts 9.0.1Yield on U.S. 10-Year Treasury noteSource: Tullett
PrebonAs of May 4, 2:30 p.m. ET
Created with Highcharts 9.0.1May 42
p.m.2.9502.9552.9602.9652.9702.9752.9802.9852.9902.9953.0003.0053.010%
Oil prices were little changed. Brent crude, the international benchmark, traded
at about $110 per barrel, similar to before the announcement.
Created with Highcharts 9.0.1Brent crude oil continuous contractSource:
FactSetAs of May 4, 2:20 p.m. ET
Created with Highcharts 9.0.1May 3May
4105.0105.5106.0106.5107.0107.5108.0108.5109.0109.5110.0110.5$111.0
The U.S. dollar slipped. The WSJ Dollar index, which measures the greenback
against a basket of 16 currencies, edged down to 95.54. It was 95.61 earlier.
Created with Highcharts 9.0.1WSJ Dollar IndexSource: Dow Jones Market DataAs of
May 4, 2:30 p.m. ET
Created with Highcharts 9.0.1May 3May
495.4095.4595.5095.5595.6095.6595.7095.7595.8095.85
Share
1 min ago
TREASURY YIELDS HOLD GAINS AFTER FED INTEREST-RATE DECISION
The Treasury’s announcement hewed to recommendations made by a private-sector
committee.Tom Brenner/Bloomberg News
U.S. Treasury yields largely held gains from earlier Wednesday after the Federal
Reserve said it would raise short-term interest rates by a half a percentage
point, confirming investors’ expectations that the central bank would embark on
a more aggressive pace of tightening monetary policy.
As officials had telegraphed, the Fed on Wednesday raised the target for its
benchmark federal funds rate to 0.75%-1.0% from 0.25%-0.5%. It also announced
plans to shrink its $9 trillion asset portfolio, including Treasurys, starting
next month.
Rising rate-expectations have led to a brutal few months for bond investors,
dragging down the prices of Treasurys, corporate bonds and municipal debt while
lifting the 10-year Treasury yield from 1.496% at the end of last year. The
Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated
corporate bonds and mortgage-backed securities—has returned minus 9.9% this year
as of May 3.
Read the full article
Share
Updated 5 min ago
FED APPROVES HALF-POINT INTEREST RATE RISE, RATCHETING UP ITS INFLATION FIGHT
Jerome Powell, chairman of the U.S. Federal ReserveValerie Plesch/Bloomberg News
The Federal Reserve approved a rare half-percentage-point interest rate increase
and announced plans to shrink its $9 trillion asset portfolio starting next
month in a double-barreled effort to reduce inflation that is running at a
four-decade high.
The moves, announced after a two-day policy meeting Wednesday, will raise the
central bank’s benchmark federal-funds rate to a target range between 0.75% and
1%.
Together, the steps mark the most aggressive Fed tightening of monetary policy
at one meeting in decades, aimed at rapidly reducing the economic stimulus that
has contributed to rising price pressures. The Fed, which usually lifts interest
rates in quarter-percentage-point increments, last raised rates by a half point
in 2000.
The rate-setting Federal Open Market Committee approved the decision
unanimously. In a statement, the committee said it “anticipates that ongoing
increases in the target range will be appropriate,” setting the stage for
another large rate rise at the Fed’s meeting next month.
The statement cited the potential for Covid-related disruptions in China to sow
further chaos to global supply chains that could keep inflation elevated. “The
Committee is highly attentive to inflation risks,” it said.
Fed officials also finalized plans to start shrinking their mammoth holdings of
Treasury and mortgage securities passively–that is, by allowing bonds to mature
without reinvesting the proceeds into new securities rather than by selling them
in the open market.
Officials will allow up to $30 billion in Treasurys and $17.5 billion in
mortgage bonds to roll off every month in June, July and August. After that,
they will allow $60 billion in Treasurys and $35 billion in mortgage securities
to run off every month.
Read the full article
Share
15 min ago
FED IS NOW 'HIGHLY ATTENTIVE' TO INFLATION RISKS
By Michael S. Derby
The Federal Reserve's policy statement didn't give a huge amount of guidance
about what lies next for monetary policy—Chairman Jerome Powell will likely fill
in that gap in his press conference—but it did have some new language on
inflation that adds a hawkish aspect to the outlook.
The key new addition to the statement relative to the March meeting was the
sentence "the Committee is highly attentive to inflation risks."
It also flagged the latest in lockdown developments in China and said they'll
likely weigh on supply chains.
It appears the Fed is fixed for more inflation troubles and will react with
monetary policy. The new look on inflation also squares with officials who said
the issue is their number one focus now.
Share
20 min ago
WHAT THE FED’S INTEREST-RATE INCREASE MEANS FOR YOU
Federal Reserve Chairman Jerome Powell testified during a Senate Banking
Committee hearing on Capitol Hill in March.Tom Williams/Press Pool
The Federal Reserve raised its short-term benchmark rate by a half-percentage
point on Wednesday, the sharpest increase since 2000. Though widely expected,
the move will ripple through the economy and Americans’ financial lives.
Intended to combat the highest inflation in four decades, the higher rates will
make it more expensive to buy a home or a car, or carry a credit-card balance.
The Fed began increasing rates in March by one quarter of a percentage point
after lowering them to near-zero levels during the pandemic. Wednesday’s
increase will accelerate the impact on American wallets from gradual to more
sudden.
Over the past decade, rate increases and rate cuts were smaller and happened
more slowly, said Yiming Ma, assistant professor in the finance division at
Columbia Business School. This faster pace makes it more important for consumers
to pay closer attention.
Read the full article
Share
23 min ago
FED MEETS EXPECTATIONS WITH HALF PERCENTAGE POINT INCREASE
By Michael S. Derby
The Fed has met expectations and raised its target rate by half a percentage
point to between 0.75% and 1%. The central bank also announced its balance sheet
run off will start on June 1 and be phased in over three months, with Treasury
run off caps ending up at $60 billion per month and mortgage monthly run offs
capped at $35 billion.
"Job gains have been robust in recent months, and the unemployment rate has
declined substantially," the Fed said, adding "inflation remains elevated,
reflecting supply and demand imbalances related to the pandemic, higher energy
prices, and broader price pressures."
The Fed also said it "is highly attentive to inflation risks."
The vote was unanimous.
Share
51 min ago
JANET YELLEN ON THE FUTURE OF THE U.S. ECONOMY
Treasury Secretary Janet Yellen joins WSJ Editor in Chief Matt Murray at the CEO
Council Summit to discuss inflation, rising interest rates and the economic
challenges resulting from Russia's war on Ukraine and global sanctions against
Moscow.
Janet Yellen on the Future of the U.S. Economy
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Janet Yellen on the Future of the U.S. EconomyPlay video: Janet Yellen on the
Future of the U.S. Economy
Share
Updated 1 hour ago
STOCKS WOBBLE AHEAD OF FED DECISION
By Caitlin Ostroff and Akane Otani
Created with Highcharts 9.0.1Index performanceSource: FactSetAs of May 4, 2:30
p.m. ET
Created with Highcharts 9.0.1May
4-1.75-1.50-1.25-1.00-0.75-0.50-0.2500.250.500.751.00%Dow industrialsS&P
500Nasdaq Composite
U.S. stocks were volatile ahead of the Federal Reserve’s interest-rate decision,
swinging from losses to slight gains around midday.
The S&P 500 was recently up 0.3%, while the Dow Jones Industrial Average was up
0.4%. The tech-focused Nasdaq Composite Index was down 0.2%, paring earlier
losses.
Fed officials are expected to announce Wednesday afternoon that they are raising
interest rates by a half percentage point and approving plans to start shrinking
the central bank’s $9 trillion asset portfolio next month.
The moves are part of a double-barreled effort to slow the economy and ease
inflation, which is running at a four-decade high. With stocks and bonds on
shaky footing as of late, many investors are questioning whether the Fed will be
able to carry through its planned course of interest-rate increases without
further unsettling markets. They are also grappling with fears that the Fed may
inadvertently tip the economy into recession.
Investors will get a chance to hear from Fed Chairman Jerome Powell Wednesday
afternoon when he addresses reporters after the conclusion of the central bank’s
policy meeting.
“This is the question markets are dealing with: Where is the Fed going? Is it
really this series of rate hikes going to 5% or 6% that will end in the cooling
of the economy?” said Carsten Brzeski, ING Groep’s global head of macro
research.
The U.S. economy remains strong despite the fact that it shrank in the first
quarter of this year, Treasury Secretary Janet Yellen said Wednesday at The Wall
Street Journal’s CEO Council Summit in London.
Technology stocks led declines in the broader market Wednesday. The group has
taken a hit this year as investors facing higher interest rates have shied away
from companies with higher valuations. Amazon.com and Netflix each lost more
than 1%.
Meanwhile, government bond prices fell, with the yield on the benchmark 10-year
Treasury note at 2.985%, compared with 2.957% Tuesday. Bond yields and prices
move in opposite directions.
The bond market has been hit by its worst rout in decades as investors have
grappled with accelerating inflation and the prospect of rapid interest-rate
increases by the Fed. That has added to the turmoil across the stock market this
year.
Share
1 hour ago
ODDS FAVOR UNANIMOUS FOMC VOTE AMID SPECULATION OF A THREE-QUARTER PERCENTAGE
POINT INCREASE
By Michael S. Derby
The Fed's first shot in what's likely to be an extended, aggressive campaign of
rate rise drew a single dissenting vote. That's unlikely to be repeated at the
Federal Open Market Committee meeting Wednesday.
At the March meeting, St. Louis Fed leader James Bullard, who has been ahead of
the curve in calling for central bank action on inflation, dissented. He wanted
a half percentage point increase, while his colleagues preferred a quarter
percentage point. Meeting minutes for that gathering showed many officials
wanted the same action as Mr. Bullard but opted for something smaller due to
uncertainty tied to Russia's war on Ukraine.
In April, Mr. Bullard broached the possibility of a 0.75-percentage-point
increase and noted the last time it happened, as part of a 1994 campaign, a
"stellar" economic performance followed.
But he also said a 0.75-percentage-point increase was not his base case, which
suggests he probably won't dissent Wednesday in favor of such a move. Other Fed
officials, even those with hawkish dispositions, have also cautioned against
expectations of a super sized move, so it's quite possible Fed Chairman Powell
will get a unanimous vote as he accelerates his effort to lower very high
inflation.
Share
1 hour ago
RISING ENERGY PRICES SIGNAL FED PRESSURES
By Matt Grossman
Gas prices at a Mobil station in Los Angeles, Calif., in March.Frederic J.
Brown/Agence France-Presse/Getty Images
Energy prices climbed on Wednesday after the European Union proposed a ban on
oil imports from Russia, a sign of how geopolitical tumult is keeping inflation
front and center as the Federal Reserve meets to consider its policy stance.
Brent crude futures, the international price benchmark, were up 3.5% in
Wednesday trading to $108.57. West Texas Intermediate, the most-quoted U.S.
price, was up 3.6% at $106.11. Natural-gas prices climbed as well, rising 4% to
$8.35 per million British thermal units.
At those levels, oil prices are up about 57% from a year ago, while natural-gas
prices have nearly tripled over 12 months.
The EU's proposal would ban crude imports from Russia in six months, and imports
of refined products by the end of the year. Western governments have been
escalating the pressure on Moscow as Russia's war in Ukraine drags into its
third month.
Higher oil and gas prices this year have been a key contributor to decades-high
inflation that the Fed intends to confront by ratcheting up interest rates and
reducing its bond holdings. Energy prices have been one of the fastest-growing
components of the consumer-price index this year, an inflation measure that, at
8.5%, registered its highest reading since the 1980s in March.
Rising commodity prices are likely near the top of the Fed's agenda as it
discusses how the inflation picture has changed since its last meeting earlier
this year, said Andrew Hollenhorst, chief U.S. economist for Citigroup. "You
have to say there's more inflationary risk now, and that's partly geopolitical
tensions and rising commodity prices," he said.
Share
2 hours ago
FORMER FED OFFICIALS DON’T THINK INFLATION CAN BE TAMED WITHOUT A RECESSION
By Michael S. Derby
Randal QuarlesKyle Grillot/Bloomberg News
Two top former Federal Reserve officials don’t think the central bank will be
able to get inflation under control without sending the economy into recession.
Given how low interest rates have been for a long time, increases in rates now
are likely to have a “fairly strong” impact on the economy and will be
challenging for those carrying a lot of debt to deal with, said Randal Quarles,
who was the Fed’s point man on bank regulation from 2017 to 2018. He was
speaking as part of an interview on the Banking With Interest podcast, released
on Tuesday.
The effect of Fed rate rises “is likely to be a recession, just given the
intensity of inflation and the degree to which unemployment has been driven
down. To bring that back in to an equilibrium, it's unlikely that the Fed’s
going to be able to manage that to a soft landing,” Mr. Quarles said. But when
it comes to getting inflation pressures back down, “I'm absolutely certain
they'll be able to get on top of it.”
On Friday, William Dudley, a former chief economist at Goldman Sachs who led the
New York Fed from 2009 to 2018, joined with two other former regional Fed
leaders and agreed with Mr. Quarles’ view that tough times lie ahead.
“The chances of [Fed officials] achieving a soft landing in this cycle is almost
zero, because every time they’ve had to push up the unemployment rate in the
past, they’ve also ended up in recession,” Mr. Dudley said at a virtual meeting
of the Shadow Open Market Committee, a group that’s often critical of Fed
policy.
The former leaders of the Richmond and Philadelphia Fed also believe the actions
the Fed needs to take to bring inflation down from 40-year highs will cause a
recession. Current Fed officials have been more upbeat. They expect the central
bank's rate rise campaign will lower excess demand levels and not cause a
downturn.
Share
2 hours ago
HANGING OVER FED MEETING, THE PROSPECT OF NEW, HIGHER INFLATION ENVIRONMENT
By Michael S. Derby
One specter haunting the Federal Reserve meeting Wednesday is the prospect that
the low inflation environment of recent decades is now giving way toward
persistently higher inflation pressures.
That could have a seismic impact on how monetary policy is conducted in future
years.
Last month, the leader of the Bank for International Settlements warned of just
such a risk. “We may be on the cusp of a new inflationary era,” Agustin Carstens
said in a speech on April 5.
“The forces behind high inflation could persist for some time. New pressures are
emerging, not least from labor markets, as workers look to make up for
inflation-induced reductions in real income.” He added, “Some of the structural
disinflationary winds that have blown so intensely in recent decades may also be
waning," noting "there are signs that globalization may be retreating" on
pandemic aftershocks and geopolitical risks.
Fed officials remain confident they'll get inflation under control and when
asked, they've largely brushed off questions about whether a new inflation
regime has arrived. But some are thinking about it.
Minneapolis Fed leader Neel Kashkari told Axios in late April that "there are
signs that maybe the economy has moved to a new high-pressure equilibrium … If
that's in fact the case, then we're going to have to act pretty aggressively at
the Fed to bring it back down into a regime that's consistent with our 2%
target." He added, however, that "I still think that those fundamental forces
that led to a low-inflation, low-growth environment are still there."
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2 hours ago
TREASURY SECRETARY JANET YELLEN SAYS U.S. ECONOMY REMAINS STRONG
Janet Yellen in conversation with WSJ Editor in Chief Matt Murray.Simon Williams
for The Wall Street Journal
Treasury Secretary Janet Yellen said the U.S. economy remains strong despite the
fact that it shrank in the first quarter of this year, adding that inflation is
too high and needs to be reduced.
She said the war in Ukraine could do economic damage in Europe that spills over
into the U.S.
Ms. Yellen said the European Union's planned embargo on imports of Russian oil
could drive global energy prices even higher.
Ms. Yellen also said financial regulators are closely watching nonbank sectors,
including money markets and hedge funds, after they saw stresses develop early
in the pandemic. She said she doesn’t see the same dangers as in the run up to
the 2008 financial crisis, but she noted the outlook is uncertain.
She added that she believes that Congress could still approve elements of the
global minimum tax deal secured last year and expects the EU will approve the
minimum tax plan this spring.
Ms. Yellen spoke Wednesday The Wall Street Journal's CEO Council Summit in
London.
Read the full article
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2 hours ago
WHAT TO WATCH: THE INFLATION OUTLOOK
By Nick Timiraos
A shopper inside a grocery store in San Francisco, Calif., on Monday.David Paul
Morris/Bloomberg News
Strong demand coupled with shortages for select goods and services one year ago
led to a surge in inflation. Fed officials expected it would eventually subside
as supply chains healed.
But over the last six months, officials have grown more anxious about inflation
running above the central bank's 2% target for much longer than they previously
expected—even after any reversal of last year's extreme price increases for
items such as used cars—because of signs that labor markets are extremely tight
and that price pressures are broadening to include more labor-intensive
services.
Consumer prices rose 6.6% in March from a year before, as measured by the Fed's
preferred inflation gauge, the Commerce Department's personal-consumption
expenditures price index, to a new four-decade high. Core consumer prices, which
exclude volatile food and energy items, rose 5.2%, down from a gain of 5.3% in
February.
Among the questions facing Fed officials: Where do they think inflation is
likely to settle if the rate of growth slows later this year, as many economists
and Fed officials have anticipated? And second, what level of inflation would be
so unacceptably above their 2% target that it would justify pushing rates beyond
a neutral rate that is estimated to be between 2% and 3% when underlying
inflation is around 2%?
Federal Reserve Bank of Chicago President Charles Evans said last month that
even after accounting for expected declines in the prices of certain consumer
goods that increased sharply last year, he thought inflation would be running
around 3% or 3.5% by year's end.
"That's not what we want," he said, indicating he would support raising rates
higher if that is the case. On the other hand, if inflation were to fall to
2.5%, "we have more things to ponder," including whether to pause rate
increases.
Peter Hooper, global head of economic research at Deutsche Bank, sees the Fed
raising its benchmark rate above 5% over the coming years because he doesn't
expect inflation to fall below 4%. He expects that will cause a recession.
THE FED WANTS TO RAISE RATES QUICKLY, BUT MAY NOT KNOW WHERE TO STOP
Federal Reserve Chairman Jerome Powell is shifting monetary tightening into a
higher gear. His goal sounds straightforward—lift interest rates to “neutral,” a
setting that neither spurs nor slows growth. But there’s a catch.
Read the full article
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2 hours ago
WHAT TO WATCH: THE POLICY STATEMENT
By Nick Timiraos
The Federal Reserve in Washington, D.C.Saul Loeb/Agence France-Presse/Getty
Images
The Federal Reserve’s policy statement continues to serve as the main vehicle
for expressing the consensus view of the central bank’s rate-setting committee,
though it has received somewhat less attention in recent months because,
compared to Chairman Jerome Powell’s press conference, it has provided less
information about the central bank’s policy intentions.
One question is whether the Fed will at some point reintroduce more forward
guidance, or the words they use to describe their intentions for interest rates
over the coming months. Forward guidance has been an important part of the Fed's
monetary-policy arsenal for most of the past two decades, a period in which
inflation and interest rates have generally been low.
The Fed first relied on such conditional promises—often cloaked in adjectives
that became fraught with significance—in the early 2000s. Officials initially
employed the tactic in 2003 when they wanted to signal plans to keep rates low
and later to signal coming rate increases in a manner that wouldn't bulldoze
markets, as had occurred in 1994, when the Fed raised rates sharply.
Before commencing rate rises in 2004, the Fed said such increases were likely to
proceed at a "measured" pace. They subsequently raised rates by a
quarter-percentage point at 17 consecutive policy meetings. In 2015, the Fed
prepared markets for an even milder path of rate rises by telegraphing such
increases would be "only gradual."
But the economic environment today—one with much greater uncertainty about how
labor markets, wages, and inflation will unfold—has made Mr. Powell and his
colleagues more reticent to provide such clues or assurances. Some analysts
believe the Fed got into trouble last year by providing strong guidance about
its policy intentions that made it more difficult to shift course as inflation
continued to defy expectations by broadening out to more goods and services.
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2 hours ago
TREASURY YIELDS TICK UP AS INVESTORS WEIGH FED MEETING, AUCTION CUTS
The Treasury’s announcement hewed to recommendations made by a private-sector
committee.Tom Brenner/Bloomberg News
U.S. Treasury yields edged higher Wednesday after the Treasury Department
announced changes to debt auctions, with investors awaiting the outcome of the
Federal Reserve’s latest policy meeting.
Yields, which rise when bond prices fall, held fairly steady in the overnight
session, with the 10-year yield briefly topping 3% before sliding back down
again. They then held their range after the Treasury’s announcement, which
revealed that it plans to make smaller reductions to the size of its fixed-rate
note and bond auctions between May and July, after implementing larger cuts in
recent months.
The Treasury’s announcement was broadly in line with investors’ expectations,
hewing to recommendations made by a private-sector advisory committee.
Read the full article
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3 hours ago
WHAT TO WATCH: PORTFOLIO SHRINKAGE
The Federal Reserve Board building in Washington, D.C.Joshua Roberts/Reuters
To support financial markets and the economy during the pandemic, the Federal
Reserve more than doubled its asset portfolio of mostly Treasury and mortgage
securities to a mammoth $9 trillion.
Officials are set to announce plans on how they will shrink those holdings.
While the design of their scheme is similar to an earlier experiment running
down the asset portfolio in 2017, the process will be faster and potentially
more disruptive to financial markets than last time.
The Fed first undertook large-scale bond buying, dubbed "quantitative easing,"
during and after the 2007-09 financial crisis. At a time when the Fed's
short-term interest rate was near zero, the purchases were designed to stimulate
economic growth by lowering long-term interest rates and pushing investors into
riskier assets, buoying stocks, corporate bonds and real estate. It stopped
expanding its portfolio in 2014, reinvesting the proceeds of maturing securities
into new ones, dollar for dollar.
In 2017, when the Fed concluded the stimulus was no longer needed, it began to
shrink its portfolio passively—that is, by allowing bonds to mature without
reinvesting the proceeds, rather than actively selling them in the open market.
This time, officials have opted again for primarily a passive approach so that
investors don't have to guess from one meeting to the next how the Fed might
recalibrate its bond redemptions.
But passive redemptions will be bigger and faster than five years ago. Then,
nervous about how runoff would work, officials imposed a low, $10 billion cap on
monthly runoff and slowly increased that cap to $50 billion over the course of a
year.
Officials have recently indicated that in this go-round, they would allow $95
billion in securities to mature every month—$60 billion in Treasurys and $35
billion in mortgage-backed securities—nearly double the caps from last time.
Runoff is likely to start in June and reach the new caps in just a couple months
instead of a year.
Unlike last time, the Fed also owns more than $300 billion in short-term
Treasury bills. The central bank has to decide how to let those bills mature. At
their meeting in March, officials discussed a plan in which they would allow
bills to runoff the portfolio in months when the redemption caps on Treasury
securities didn’t bind. In other words, if in one month only $45 billion in
securities are set to run off, the Fed would allow $15 billion in bills to
mature to maintain $60 billion in total runoff every month.
FED PREPARES DOUBLE-BARRELED TIGHTENING WITH BOND RUNOFF
Officials’ plans for their $9 trillion asset portfolio reflect many
similarities—and some differences—from an earlier experiment to shrink holdings.
Read the full article
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3 hours ago
WHAT TO WATCH: THE PRESS CONFERENCE
By Nick Timiraos
Federal Reserve Chairman Jerome Powell.Valerie Plesch/Bloomberg News
Because the Federal Reserve has clearly telegraphed its plans, the main news of
the day is likely to come during the Fed Chairman Jerome Powell’s press
conference, which will begin at 2:30 p.m. Eastern time.
Fed communication with the public is especially important now because the
central bank is relying on market expectations about its future policy
intentions to play a major role in removing stimulus.
If investors and Fed officials are generally on the same wavelength about how
monetary policy will evolve, that can foster smoother and faster transmission of
the central bank's moves to the economy via financial markets. If investors'
expectations become out of sync with Fed policy intentions, however, confusion
can drive undesirable volatility.
So far this year, Fed officials "have been very successful in jawboning the
market's expectations," said Brad Conger, deputy chief investment officer at
Hirtle, Callaghan & Co.
Yields on some of the most economically sensitive borrowing rates—such as the
30-year mortgage rate and the 5-year and 10-year Treasury notes—have risen
substantially in a short period of time, even though the Fed has raised the
fed-funds rate by just a quarter point, because they anticipate more rate
increases.
The questions of greatest interest to investors right now concern the near term
and the longer run. First, investors are trying to figure out how quickly the
Fed might raise rates to a neutral level designed to slow growth, including what
it would take for officials to accelerate rate rises to an even-larger
0.75-percentage-point increment.
Second, investors are trying to understand how the Fed judges the risk of a
higher final destination or “terminal rate” for the current interval of tighter
policy. For now, investors expect the Fed to raise rates by the end of next year
to around 3.25%. In 2006, the Fed raised its benchmark rate to a peak of 5.25%.
In 2018, Fed officials raised rates to a range between 2.25% and 2.5% before Mr.
Powell signaled an abrupt pause a few months later.
FED’S MESSAGE ON INTEREST-RATE PATH, DESTINATION WILL BE SCRUTINIZED
Investors are watching Federal Reserve Chairman Jerome Powell for clues on how
high the central bank will raise rates beyond this year.
Read the full article
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3 hours ago
TREASURY PLANS SMALLER REDUCTIONS TO SIZE OF DEBT AUCTIONS
By Amara Omeokwe
The Department of Treasury in Washington, D.C.Ting Shen for The Wall Street
Journal
The Treasury Department said Wednesday it plans to make smaller reductions to
the size of its nominal coupon auctions between May and July, after implementing
larger cuts in recent months as the government’s borrowing needs declined.
Treasury began reducing the size of its nominal coupon and two-year
floating-rate note auction sizes late last year, citing excess borrowing
capacity. The decision announced Wednesday to cut coupon auction sizes by
smaller increments comes as the Federal Reserve concludes its policy meeting
later in the day and is expected to formally announce plans to begin shrinking
the central bank’s $9 trillion asset portfolio, including substantial holdings
of Treasury securities.
The Fed’s plan to reduce the size of its balance sheet is part of a broader
strategy at the central bank to more urgently combat elevated inflation. Fed
officials have discussed allowing up to $60 billion in Treasurys to mature each
month as part of the reduction. Treasury, in turn, will have additional
borrowing needs as it seeks to replenish its cash balances due to the Fed’s
redemptions.
Despite the potential for Fed redemptions, lower borrowing needs driven by
strong tax receipts allowed for the additional decreases in coupon auction sizes
announced Wednesday, according to a Treasury official. Treasury said its
issuance plans leave it well positioned to finance borrowing needs that may
arise from Fed redemptions and that additional cuts may be necessary in future
quarters.
Stephen Stanley, chief economist at Amherst Pierpont, said in a note to clients
that he expects no further issuance cuts, given the Fed’s anticipated balance
sheet reduction.
“Tax receipts have been extraordinary over the past few quarters, so I do not
rule out Treasury’s scenario, but I suspect that the impact of Fed redemptions
will outweigh any fiscal improvement that we see going forward,” he said.
Mr. Stanley said auction sizes could potentially increase in early 2023.
Treasury announced the cuts as part of its quarterly refunding process and said
the changes will result in a $69 billion reduction of issuance to private
investors between May and July compared with February through April. During the
past two quarterly refunding processes, Treasury announced cuts it said would
result in reductions of issuance to private investors of $111 billion and $84
billion, respectively, compared with the prior three months.
The cuts announced Wednesday will be across Treasury notes of durations between
two and 30 years and, unlike the last two reductions in auction sizes, won’t
include floating-rate notes.
Treasury also said Wednesday that it would offer $103 billion of debt next week
through auctions of three, 10- and 30-year securities.
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4 hours ago
HOW HIGH IS INFLATION AND WHAT CAUSES IT? WHAT TO KNOW
sed-car prices have jumped over much of the past year because new autos were in
short supply.chandan khanna/Agence France-Presse/Getty Images
U.S. inflation is at its highest rate in four decades, reaching 8.5% in March
from a year ago. Consumers are seeing prices rise sharply for a variety of goods
and services because strong demand is colliding with persistent supply
shortages.
Inflation is one of the most vexing problems facing economists and government
policy makers, and is a factor raising the risk of U.S. recession. The causes
are myriad, and the tools usually deployed to tame price pressures can, in some
scenarios, push the economy into a recession.
Here’s what to know:
Read the full article
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4 hours ago
WHAT ECONOMISTS ARE SAYING ABOUT THE FED'S NEXT MOVES
Here’s a look at what economists are saying ahead of the conclusion of the Fed
meeting:
Ian Shepherdson, Chief Economist, Pantheon Macroeconomics: “Our take on all this
is that the Fed’s leadership should have pushed back against the idea that a
string of 50bp hikes is coming. They know very well that inflation is going to
fall sharply over the next few months, so an alternative approach would have
been to face down the hawks and tighten by only 25bp per meeting, thereby
running less risk of scaring markets. It’s hard to fathom just why the March
projections were effectively cast aside so quickly; the inflation big picture
has not changed meaningfully since that meeting.”
Stephen Stanley, Chief Economist, Amherst Pierpont Securities: “The Fed has
entirely lost control of the narrative this year and is quite obviously
scrambling to correct a gross mistake that it made in 2021. With the FOMC
statement and Powell’s press conference on Wednesday, the Fed has an opportunity
to take control of the discussion again by laying out a game plan that it can
sell to financial market participants and the public as plausible and likely to
be successful.”
Gus Faucher, Chief Economist, PNC Financial: The FOMC has a difficult task
ahead. Their hope is to raise interest rates by enough to slow economic growth
and reduce inflationary pressures, but not by so much as to cause a recession—an
outright contraction in the U.S. economy. That task has only gotten more
difficult with the Russian invasion of Ukraine, which has added to U.S.
inflation, but is also likely to weigh on U.S. growth, through higher energy
prices and a weaker European economy. The most likely outcome over the next
couple of years is still expansion, albeit weaker in 2023 and then again in
2024. But the risks of a Fed misstep have increased, and it may even be that the
only way the central bank can slow inflation is to engineer a (hopefully) mild
recession. With current solid fundamentals, in particular a very strong labor
market, if a recession does come it would likely not be until 2023 or even
2024."
Joseph Lavorgna, Chief Economist for the Americas, Natixis: “Investors are
assuming the Fed hikes a full 300 bps in this cycle and then some. This is in
addition to balance sheet runoff which could begin as soon as this month and
total upwards of $900 billion by next March. Quantitative tightening, as it is
known, could be the equivalent of nearly 100 bps of additional interest rate
hikes. It is no wonder that many investors are fretting recession. They should.”
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5 hours ago
U.S. TRADE DEFICIT WIDENS TO RECORD
By Harriet Torry
Strong U.S. demand for computers, vehicles and oil helped drive the U.S. trade
deficit to a new record of $109.8 billion in March.
The Commerce Department on Wednesday said the trade deficit widened by 22.3%
from the prior month. Imports rose by 10.3% to $351.5 billion as the U.S. took
in far more goods than it exported. Exports, however, also rose
strongly—increasing 5.6%—but didn’t keep pace with imports amid global
uncertainty stemming from the conflict in Ukraine.
A sharp increase in U.S. imports in the first quarter was a big factor behind a
1.4% drop in U.S. gross domestic product.
Created with Highcharts 9.0.1Deficit RecordA surge in imports widened the U.S.
trade deficit in goods and services in March to a record $109.8 billion.Source:
Census BureauNote: Seasonally adjusted, goods and services
Created with Highcharts 9.0.1March 2022 $109.8 billion2019'20020406080100$120
billion
Economists surveyed by The Wall Street Journal had expected a trade deficit of
$106.7 billion for March.
“It’s consumer demand, it’s trying to get inventories back with supply chains
having been so disrupted,” said Joshua Shapiro, chief U.S. economist at Maria
Fiorini Ramirez Inc. on the deficit trend. Even though exports have been pretty
solid, “they’ve been swamped by the import rise,” he said.
Created with Highcharts 9.0.1Wide GapU.S. imports increased 10.3% in March,
outpacing growth in exports and leading to a record $109.8 billion trade
deficit.U.S. monthly trade in goods and servicesSource: Census BureauNote:
Seasonally adjusted
Created with Highcharts 9.0.12017'20125150175200225250275300325350$375
billionExportsImports
—Anthony DeBarros contributed to this article.
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5 hours ago
INDIA’S CENTRAL BANK RAISES INTEREST RATES IN SURPRISE MOVE
Consumer prices in India hit 7% in March, up from 6.1% in February, driven by
the costs of food, fuel and household items.Rajendra Jadhav/REUTERS
NEW DELHI—In a surprise move, India’s central bank raised its key interest rate
for the first time in two years, as the country tries to rein in inflation that
is threatening its economic recovery from the pandemic.
On Wednesday, the Reserve Bank of India raised its overnight lending rate to
4.40% from 4%, marking the first increase since the bank lowered the rate at the
start of the pandemic to boost the economy.
RBI Gov. Shaktikanta Das said the bank’s monetary policy committee decided to
hold an unscheduled meeting to reassess the rapidly evolving inflationary
pressure on the Indian economy. “Globally, inflation is rising alarmingly and
spreading fast. Geopolitical tensions are ratcheting up inflation to their
highest levels in the last three to four decades in major economies while
moderating external demand,” Mr. Das said.
Read the full article
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5 hours ago
ANALYSIS: FED MAY SEEK TO TAMP DOWN TALK OF VERY AGGRESSIVE RATE RISES
Federal Reserve Bank of St. Louis President James Bullard put the idea of a 75
basis point rate increase into play.Steve Helber/Associated Press
While the Federal Reserve will certainly step up its rate rise campaign
Wednesday, analysts don’t expect the central bank to really swing hard at
surging inflation with a three quarter percentage point interest rate increase,
and anticipate the Fed will try to tamp down on speculation of such a move at
future policy meetings.
For now, there is a broad consensus among forecasters that this week’s Federal
Open Market Committee meeting will conclude with a half percentage point
increase to the federal-funds target rate range to between 0.75% and 1%. The Fed
is also nearly certain to announce a plan to shrink its $9 trillion balance
sheet, as part of a two-pronged effort to lower levels of inflation that all of
the central bank’s officials consider unacceptably high.
The Fed is so behind the curve in trying to keep inflation in check that there
has been rampant speculation the central bank would need to raise rates this
week by more than 50 basis points. Even an increase of that size will be a
fairly radical action for a central bank that has long preferred quarter
percentage point increases. The last time the Fed approved a 50 basis point
increase was in May 2000.
Read the full article
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6 hours ago
FED PREPARES TO SHIFT POLICY TIGHTENING INTO HIGHER GEAR
By Nick Timiraos
The Federal Reserve Board building in Washington, D.C.Leah Millis/REUTERS
The Federal Reserve is set to ratchet up on Wednesday its efforts to withdraw
the unprecedented stimulus it showered on the U.S. economy after the coronavirus
pandemic upended global economies two years ago.
Officials are set to announce two main policy decisions: First, following an
initial quarter-percentage-point increase in the Fed’s benchmark short-term rate
in March, they are likely to approve an unusual half-percentage-point rate rise
on Wednesday. Officials have signaled it is possible they could deliver a series
of half-point rate increases this year as they rapidly try to raise borrowing
costs to an estimated “neutral” zone that stops providing stimulus.
Second, officials have signaled they will announce plans to shrink their $9
trillion asset portfolio beginning next month and that, within months, they
could allow up to $95 billion in securities to mature every month without
reinvesting the proceeds into new holdings.
Together, those steps could amount to the most aggressive pace of policy
tightening since the late 1980s.
Among the many challenges facing officials: No one really knows where the
“neutral” interest rate lies, without the benefit of hindsight. In projections
released in March, most Fed officials mapped out a cheery scenario in which they
raised rates to a roughly neutral rate of around 2.75% by next year. They
projected growth over the next three years remains above its 1.8% long-run rate
while unemployment holds below the 4% rate officials estimate is consistent with
stable prices.
But those projections assume inflation, now above 5% based on the Fed's
preferred index, will revert to a long-run underlying trend rate of 2% without
higher unemployment, which has historically been rare.
"The odds of doing what they projected in March are small—maybe 25%," said
Donald Kohn, a former Fed vice chairman.
FED’S POWELL SEALS EXPECTATIONS OF HALF-POINT RATE RISE IN MAY
Jerome Powell also indicated similar rate rises could follow, saying the central
bank could move more quickly to raise interest rates than it has in the recent
past as part of efforts to curb price pressures.
Read the full article
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FED MEETING LATEST NEWS: POWELL RAISES INTEREST RATES A HALF PERCENTAGE POINT
Last Updated: May 4, 2022 at 2:29 pm ET
FULL COVERAGE OF THE FEDERAL RESERVE'S MAY MEETING
--------------------------------------------------------------------------------
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