WORLDWIDE: HEADLINES
Analysis: Hot Inflation Fuels Case For ‘Big-bang’ Fed Rate Hike In March
Pressure increased on the Federal Reserve on Thursday to take a stronger stand against inflation after an unexpectedly large jump in U.S. consumer prices defied hopes that the pocketbook squeeze would ease and bolstered the view that the U.S. central bank is behind the curve.
In the hours after a government report showed consumer prices rose at their fastest pace since the early 1980s, traders piled into previously improbable bets that the Fed will start its coming round of rate hikes with a “big bang” 50 basis-point rate hike. One Fed policymaker who just last week said such a move was unnecessary said he had changed his mind. The yield on two-year Treasuries rose the most since June 5, 2009.
The massive market shift and St. Louis Fed President James Bullard’s embrace of a full percentage point’s worth of rate hikes over the next four months suggests an internal Fed debate over how fast and high to raise interest rates will only intensify ahead of the next rate-decision meeting on March 15-16.
Until this moment, Fed policymakers had largely resisted the idea of a half-point hike, which they have not used since May 2000 and not at the outset of a rate-hike cycle since probably the 1980s, before the Fed’s rate hike decisions were published.
“I don’t think there’s any compelling case to start with a 50 basis-point” rate increase, Cleveland Fed President Loretta Mester, often among the Fed’s more hawkish voices, said on Wednesday. Interest-rate futures were pricing in about a one-in-four chance of that happening.
Fast forward a day, and the latest U.S. inflation reading tipped that on its head. Household prices were up 7.5% in the 12 months through January, the Labor Department reported.
Full coverage: REUTERS
Biden Sees Inflation Easing This Year, Touts His Drug Price Plan
U.S. President Joe Biden on Thursday said he expected inflation to start to ease this year as supply chain logjams clear up, while saying that his administration was already helping ease shortages, as new data showed the biggest jump in consumer prices in 40 years.
Biden told NBC News that efforts by his administration to address the shortage of semiconductors that sent car prices soaring last year were starting to pay off.
Rising consumer prices “ought to be able to start to taper off as we go through this year,” Biden said. “In the meantime, I’m going to do everything in my power to deal with the big points that are impacting most people in their homes.”
Biden earlier in the day told an event in Virginia that proposals included in his signature Build Back Better legislation would help bring down prices for families. The roughly $1.7 trillion bill, which includes social spending and climate change provisions, is stalled and Biden has said previously that chunks, rather than the full package, could pass.
U.S. stock indexes ended sharply lower on Thursday after the consumer price data raised fears of a hefty interest rate hike by the Federal Reserve. read more Consumer prices in the 12 months through January rose 7.5%, the biggest jump since February 1982, according to the Labor Department.
Part of Biden’s Build Back Better plan would give the federal government’s Medicare program for seniors authorization to negotiate drug prices for the first time.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asian Shares Fall, U.S. Treasury Yields Hold Firm After U.S. Inflation Data
Asian share markets fell on Friday, after red-hot U.S. inflation data and hawkish comments from a Federal Reserve official fuelled bets on U.S. interest rates being hiked more aggressively, and sent U.S. Treasury yields jumping.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 0.76%, with most markets in the red, though a resurgence in property stocks helped greater China markets. Japanese markets were closed for a holiday.
An index tracking Hong Kong listed mainland property firms (.HSMPI) rose 2% and one tracking onshore Chinese real estate (.CSI000952) gained 1% after a media report that China will allow real estate firms easier access to presale proceeds from residential projects, loosening a liquidity squeeze on the sector.
Broader moves across Asian stocks followed U.S. data on Thursday which showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists’ estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.
Sentiment further soured after St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish. Bullard, a voting member of the Fed’s rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.
Though Bullard is one of the more hawkish Fed policymakers, contracts traded at CME Group priced in an 88% chance of a 50 basis point hike in March and a nearly 95% chance of at least 100 basis points by June, up sharply from before the data.
Full coverage: REUTERS
Rate Hike Bets Keep U.S. Dollar Bid
The dollar was firm in Asia on Friday after hotter-than-expected U.S. inflation and hawkish comments from a Federal Reserve official unleashed a wave of bets on aggressive rate hikes, though similar pressures worldwide kept a lid on gains.
Thursday data showed U.S. consumer prices up 7.5% year-on-year in January, a fourth straight month above 6% and slightly higher than economists’ forecasts for a 7.3% rise.
After that, St. Louis Fed President James Bullard told Bloomberg he’d like to see 100 basis points of hikes by July.
Treasury yields leapt and the dollar jumped to a five-week high of 116.34 yen during volatile overnight trade.
The greenback oscillated against other currencies before turning broadly firmer early in the Asia session. The euro was last down 0.2% at $1.1400 and the Australian and New Zealand dollars each dropped about 0.3% in morning trade.
Rates futures have shifted to price a better-than-even chance of a 50 bp hike next month and more than 160 bps of tightening by the end of the year.
“There is definitely a feeling of urgency at least for some (Fed) members,” said Commonwealth Bank of Australia strategist Kim Mundy in Sydney.
“But the Fed isn’t the only central bank facing this inflation conundrum,” she said, and a hawkish pivot at the European Central Bank last week in particular can cap dollar gains by removing a headwind for the euro.
Full coverage: REUTERS
Oil Prices Slip On Hot U.S. Inflation Concerns
Oil prices eased early on Friday as hot U.S. inflation fanned worries about aggressive interest rate hikes and as investors await the outcome of U.S.-Iran talks that could lead to increased global crude supply.
Brent crude futures fell 40 cents, or 0.4%, to $91.01 a barrel at 0140 GMT, while U.S. West Texas Intermediate crude declined 25 cents, or 0.3%, to $89.63 a barrel.
The benchmark oil prices are also in line for their first weekly decline after seven consecutive weekly gains, though both contracts had earlier climbed to a seven-year high.
“The crude price rally has finally run out of steam as optimism grows that Iran nuclear deal talks are headed in the right direction and as the dollar rallies as money markets start to price in a supersized Fed hike,” said Edward Moya, senior market analyst at brokerage OANDA.
“The oil market is still very tight, but exhaustion in the crude price rally has settled in. If the dollar continues to rally, oil prices could continue to decline further.”
St. Louis Federal Reserve Bank President James Bullard had said he wanted a full percentage point of interest rate hikes by July 1, following the release of U.S. inflation data that saw its biggest annual increase in 40 years.
Investors have also been eyeing the indirect talks between the U.S. and Iran to revive a nuclear deal, which resumed this week after a 10-day break. A deal could see the lifting of sanctions on Iranian oil and ease global supply tightness.
Full coverage: REUTERS
