Date: September 11, 2018
Fed’s Rosengren Wants Two More Hikes in 2018 as Economy Grows
One more interest rate hike in 2018 won’t satisfy Eric Rosengren’s definition of gradual. In an interview, the president of the Federal Reserve Bank of Boston made clear that, barring an unexpected turn for the U.S. economy, he’ll push for two more increases before year’s end. With unemployment low and likely to keep falling, and with inflation at the central bank’s 2 percent target and likely to rise, Rosengren said Saturday “I don’t see any reason why we wouldn’t continue to gradually increase rates.” Rosengren said he forecasts the U.S. economy to expand at a 3 percent clip in the second half of the year. Fed officials are widely expected to lift rates when they meet later this month. While the prospects of another increase in December have also been rising in the eyes of investors, it remains unclear whether policy makers will follow through on what would be a fourth move in 2018. Rosengren had no hesitation in favoring a fourth increase and went further, saying he wants to keep rates moving higher next year as well. “Going beyond just the next two hikes, I see no reason why we wouldn’t want to be at a more normalized rate, given the economic conditions we currently have, unless something changes dramatically that we’re not anticipating,” he said. Rosengren, who’ll vote in 2019 on the policy making Federal Open Market Committee, said his estimate of “normal” for the Fed’s benchmark interest rate is, roughly, just below 3 percent, or a full percentage point above current rate. Once among the Fed’s dovish voices, Rosengren pivoted to a more hawkish stance in 2016 as unemployment fell into territory that he believed might eventually fuel excess inflation. He also began worrying about a potential bubble in commercial real estate. On Friday and Saturday, he hosted a conference at the Boston Fed dedicated to studying the impact of long-term low interest rates on the economy, investing behavior and financial markets. Rosengren, who’s led the Boston Fed since July 2007, declined to say whether the Fed should stop raising rates once it reaches a spot judged to be neither adding fuel to the economy nor hitting the brakes, a level known as the neutral rate.
Russia Skips Bond Sale for Second Week as Sanctions Noise Grows
Russia’s Finance Ministry said it will cancel this week’s regular sale of ruble bonds after an emerging-market rout and expectations for deeper U.S. sanctions drove borrowing costs to the highest level in more than two years. The cancellation means Russia will fail to sell ruble sovereign bonds, known as OFZs, for two weeks in a row for the first time since the 2015 oil-price crash. Last week, the Finance Ministry went ahead with its Wednesday bond auction, but decided not to sell at the prices on offer. Investors have been cutting exposure to Russian debt in recent months as a precaution against U.S. sanctions aimed at punishing the Kremlin for election interference. While some of the harshest measures under discussion are likely to be toned down before a bill is finalized later this year, the threat of curbs on sovereign debt sales and tougher limits on some of Russia’s biggest banks is enough to keep traders away. The Finance Ministry cited market volatility in its decision not to hold the auction, according to a statement posted on its website. Alexander Losev, chief executive officer of Sputnik Asset Management, cited an unstable currency market, local-bond sales by foreigners and generally negative sentiment toward emerging markets. “OFZ yields aren’t high enough to match the growing risks, but they’ve climbed too far to suit the Finance Ministry as issuer,” Losev said. Yields on OFZs maturing in 10 years jumped above 9 percent for the first time since early 2016 this month. The bonds recouped some of their recent losses on Tuesday, with the yield dropping for the first time in six days. Russia will avoid pressuring the yield curve as it plots its fundraising strategy through the rest of the year, Konstantin Vyshkovsky, head of the Finance Ministry’s debt department, said last week. A “miserly” 1 billion rubles ($14 million) of bonds remains to be redeemed by the end of the year, he said, meaning there’s little pressure on the ministry to push ahead with sales during times of turbulence.
China’s Stocks Near 2016 Low Have Asia Markets on Knife Edge
China’s sinking stocks are on the verge of an unwelcome milestone. The Shanghai Composite Index closed 0.2 percent lower on Tuesday to within 10 points of where it bottomed out in 2016, having briefly breached that level in the afternoon before paring the decline. If the measure drops further, it’ll be trading at the lowest since November 2014, before the nation’s stock boom and subsequent $5 trillion bust. “It is testing a very important support level on a technical basis,” Matt Maley, equity strategist at Miller Tabak + Co., wrote in a note. “Any further decline in that stock market gives it an important ‘lower-low’ and would be quite negative.” Chinese equities are among the world’s worst performers this year, pressured by the trade spat with the U.S., signs of a slowing economy, a weaker yuan and the government’s attempts to rein in debt. Across the border in Hong Kong, the Hang Seng Index is on the brink of a bear market.