Fed’s Rosengren Digs In Over Warning U.S. Economy May Overheat
Federal Reserve Bank of Boston President Eric Rosengren doesn’t buy the argument that the U.S. economy’s benign mix of low unemployment and low inflation will continue, and worries the central bank may be too slow in raising interest rates. “We have to be vigilant to make sure we’re not overstimulating the economy and generating either wage and price increases that are faster than what we’re going to want in the long run, or financial stability concerns,” Rosengren said in an interview on Friday in Boston. Rosengren, a veteran policy maker who advocated for ultra-easy monetary policy during the financial crisis before switching to a more hawkish tack in 2016, hopes forecasts laid out by his colleagues in March come true. They see economic growth in 2018 of 2.7 percent, joblessness ending the year at 3.8 percent and inflation at 1.9 percent. But he’s not betting on it. “If you end up with an unemployment rate that’s really low and ebullient markets that have to be offset at some point, and cause a recession, then I’ll feel vindicated,” said Rosengren, who will vote on policy in 2019. Currently the longest-serving member of the policy-making Federal Open Market Committee, Rosengren, 60, is slowly adding urgency to his argument for a slightly quicker path of rate hikes than projected by the panel as a whole. The median projection of officials called for two additional increases this year on top of the rate hike announced at their March meeting. “The one thing I want to make sure we don’t do is cause a recession that causes the unemployment rate to go way up,” he said. The lack of a sharper move upward in wages — the Fed’s favored gauge of inflation has remained below its 2 percent target — has caused other policy makers to lower their view on how far unemployment could fall without provoking higher inflation. Rosengren, by contrast, has left his estimate steady at around 4.7 percent, he said, warning that economists have a track record of getting it wrong when they shift their call.
U.S. Futures Advance as Focus Shifts to Earnings: Markets Wrap
U.S. equity futures advanced alongside stocks in Europe as investors switched their focus to earnings season following the market turmoil of recent weeks. The euro and pound both reversed gains on soft data. Contracts for the S&P 500, Nasdaq, and Dow all shrugged off weakness in Asia to point to a higher U.S. open as traders await results from companies including Goldman Sachs Group Inc. The Stoxx Europe 600 Index rebounded from Monday’s drop. The dollar flirted with the lowest level in two months in the wake of President Donald Trump’s latest verbal foray into exchange rates, before U.K. wage growth including bonuses missed estimates and a survey showed German investor confidence tumbling. The pound and euro edged lower. Treasury yields rose and West Texas crude fluctuated. Corporate earnings should offer some distraction for investors after a torrid period for stocks, but there remain no shortage of other catalysts waiting in the wings to roil markets. Trump’s latest intervention in currencies comes at a time of already elevated geopolitical tension, and ongoing fears of a lurch toward global protectionism. Meanwhile a slew of Federal Reserve officials is also due to speak this week. Earlier, technology shares paced declines on the MSCI Asia Pacific Index after China’s ZTE Corp. was blocked from buying crucial American technology and its suppliers fell. Data showed China’s economy expanded in line with estimates in the first quarter, but industrial production missed estimates in March even as retail sales came in stronger than expected.
U.K. Wages Rise Most Since 2015 as End to Squeeze Nears
U.K. wages are rising at their fastest pace in almost three years, raising the prospect of an end to the squeeze on living standards. Annual pay growth excluding bonuses accelerated to 2.8 percent in the three months through February, the Office for National Statistics said Tuesday. Inflation averaged 2.9 percent in the same period and is forecast to fall toward 2 percent this year. The return of real-income growth will be good news for hard-pressed households after more than a year of wages lagging behind prices. That suppressed consumer spending in 2017, holding back overall economic growth. The wage figures may reinforce speculation that the Bank of England will raise interest rates again next month, despite the economy being disrupted by bad weather in the first quarter. Officials fear home-grown inflationary pressures are building as labor shortages leave firms struggling to fill vacancies. While a hike next month is almost certain, “what happens thereafter is less clear,” said James Smith, an economist at ING in London. “Brexit talks still have the potential to get noisy in the autumn. Coupled with ongoing economic fragility, this could complicate efforts to hike again later in 2018.” Employment rose to a record high between December and February after the economy added 55,000 jobs, the ONS figures showed. The jobless rate fell to 4.2 percent, the lowest since 1975 and below the BOE’s estimate of the equilibrium rate.
China Boosts Its U.S. Treasuries Holdings by Most in Six Months
China’s holdings of Treasuries rose by the most in six months, underscoring the attractiveness of U.S. assets even amid trade tensions between the world’s two largest economies. China’s ownership of U.S. bonds, bills and notes increased by $8.5 billion to $1.18 trillion in February, according to data released by the U.S. Treasury department on Monday. China remained the largest foreign creditor to the U.S., followed by Japan whose holdings dropped to $1.06 trillion, from $1.07 trillion in January. Speculation is growing about whether China could use its vast Treasury holdings as a bargaining chip in a trade dispute with the U.S. While Chinese ambassador to the U.S. Cui Tiankai didn’t rule out the possibility of the Asian nation scaling back Treasury purchases in response to tariffs proposed by the Trump administration in March, some observers have said a wide-scale sell-off is unlikely given that China has few alternatives to invest in. Still, China is evaluating the impact of a gradual yuan depreciation as the country’s leaders mull their options in the trade spat with the U.S., according to people familiar with the matter. The world’s two largest economies are threatening to impose tariffs on tens of billions of dollars of goods, fueling worries of a trade war that could roil financial markets. President Donald Trump weighed into the currency-market debate on Monday, accusing China and Russia of devaluing their currencies. His comments on Twitter contradicted the findings of his Treasury Department, which said in its semi-annual foreign-currency report on Friday that no major trading partners are currency manipulators.