Tag: Breaking News: Economy

‘Iran is in for the long haul’ with oil tanker hijacks, expert says, as U.S. considers more sanctions

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Iranian soldiers take part in an annual military drill in the coast of the Gulf of Oman and near the strategic Strait of Hormuz.

Anadolu | Anadolu | Getty Images

The containership MSC Aries seized by Iran over the weekend marked at least the sixth vessel hijacked by Iran and its proxies in response to the Israel-Gaza war, and it’s adding to the challenges to longstanding freedom of navigation principles that maritime shipping relies on.

Before this weekend’s tanker seizure, the last vessel Iran hijacked was the St. Nikolas on January 1. According to U.S. Naval Forces Central Command, that brought the total number of vessels being held to five, and over 90 crew members hostage. Previous to that, the Iranian-backed Houthis hijacked The Galaxy Leader on November 19.

The latest development has shipping and energy experts bracing for a long-term timeline of uncertainty.

“Iran is in this for the long haul,” said Samir Madani, co-founder of Tankertrackers.com, an independent online service that tracks and reports crude oil shipments in several geographical and geopolitical points of interest.

The MSC Aries was identified by Iran as having a link to Israel. The containership has a carrying capacity of 15,000-TEUs (twenty-foot equivalent containers). MSC leases the Aries from Gortal Shipping, an affiliate of Zodiac Maritime, which is partly owned by Israeli businessman Eyal Ofer.

MSC declined to comment directly to CNBC.

In a statement released by MSC on Wednesday, it said the crew members were safe and discussions with Iranian authorities were underway to secure their earliest release and to have the cargo discharged.

Madani said he does not expect a quick release. “They will hold the MSC Aries for a long period. Iran has been holding some tankers for about a year, if not longer now,” he said.

According to Tankertracker information, Madani said the vessel is being held in the Khuran Straits, not too far from three other tankers Iran hijacked: the Advantage Sweet, Niovi, and St. Nikolas.

A Planet Labs satellite image of the location of the MSC Aries and other tankers recently hijacked by Iran.

Planet Labs PBC

As the U.S. considers more sanctions against Iran in response to its recent attack on Israel, Iran has been using the hijacked ships as a means of sanctions retaliation.

“Iran has already seized the Kuwaiti oil that was onboard the Advantage Sweet and has been loaded onto their VLCC supertanker the Navarz. Iran chose to do this as a way to compensate for sanctions,” Madani said.

While the Niovi was empty at the time of the seizure, the St. Nikolas is filled with a million barrels of Iraqi oil.

Treasury Secretary Janet Yellen said on Tuesday that the government may do more to prevent Iran’s ability to export oil despite U.S. sanctions. China’s purchases of Iranian oil in recent years have allowed Iran to keep a positive trade balance.

According to the U.S. Energy Information Agency, China, the world’s largest importer of crude oil, imported 11.3 million barrels per day of crude oil in 2023, 10% more than in 2022. Iran ranked second in oil exports to China behind Russia. Customs data indicates that China imported 54% more crude oil (1.1 million b/d) from Malaysia in 2023 than in 2022, with industry analysts speculating that much of the oil shipped from Iran to China was relabeled as originating from countries such as Malaysia, the United Arab Emirates, and Oman to avoid U.S. sanctions.

The markets continues to assess the risk of further escalation in the military tensions between Israel and Iran, which could lead to a disruption in the Strait of Hormuz, through which about 30% of the world’s seaborne oil passes, according to JPMorgan. On Tuesday, oil edged higher amid talk of sanctions.

An Iranian blockade would supercharge oil prices, but the risk is low given that the strait has never been closed off despite many threats by Tehran to do so over the past four decades, according to JPMorgan.

“They can’t close the Strait of Hormuz, but they can do significant damage to energy infrastructure, to vessels in the region,” RBC’s head of global commodity strategy and Middle East and North Africa research, Helima Croft, told CNBC on Monday, referring to Iran’s capabilities.

“While I can’t imagine Iran would want to fill up their anchorage with vessels, they want to keep the waters in a constant state of chaos,” Madani said. But with a closure, he said, “They would shoot themselves in the foot since their biggest client is China.”

Andy Lipow, president of Lipow Oil Associates, says the closure of the Strait of Hormuz would result in a spike of Brent crude oil prices to the $120 to $130 range. “This would strain ties with China and India who purchase a significant amount of Persian Gulf oil to meet much of their energy demand.”

Lipow also said Iran might be reluctant to shut the waterway for fear of antagonizing Saudi Arabia, Kuwait and Iraq, who depend on the strait being open for most of their oil exports. The bigger immediate fear in the oil market, he said, is that the attack by Iran on Israeli territory leading to a counterattack by Israel on Iran damaging oil-producing and exporting facilities.

Kevin Book, managing director of ClearView Energy Partners, says the markets need to keep an eye on sanctions from both the US and UN potentially.

In a note to clients, ClearView highlighted that the House of Representatives added several Iran sanctions bills to its calendar for consideration this week, under suspension rules, including new sanctions on Iranian oil exports to China. Book said the House was considering 11 bills in all in response to Iran’s attack on Israel.

“We think most if not all bills could garner (notionally) veto-proof bipartisan support,” the note said. “Passage requires a two-thirds majority of all members present and voting.”

Israel has also asked the U.N. to reinstate multilateral sanctions lifted by the Iran nuclear deal, but for this to happen, France, Germany and the U.K., parties to the nuclear deal, would have to agree. “There are many risks unfolding. The forest is on fire,” Book said.

Sen. Dean Sullivan talks impact of Iran's strikes on Israel and what it means for crude oil prices

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‘Too few college-educated men’: A look at why many women undergo egg freezing, and the costs associated with it

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Lynn Curry, nurse practitioner for Huntsville Reproductive Medicine, P.C., lifts frozen embryos out of IVF cryopreservation dewar, in Madison, Alabama, U.S., March 4, 2024. 

Roselle Chen | Reuters

As legal battles over reproductive rights increase across the U.S., one area that could be impacted is egg freezing.

In February, the Alabama state Supreme Court ruled that all embryos created through in vitro fertilization are considered children. This ruling could have far-reaching ramifications of civil and criminal liabilities for fertility clinics and their patients. Over 1 million frozen eggs and embryos are stored in the United States alone, according to biotech fertility company TMRW Life Sciences.

Women who choose to undergo reproductive technology procedures such as egg freezing face a long road riddled with obstacles. Here’s a look into the driving forces behind egg freezing and the financial, social and emotional costs that come with it — based on personal experiences from women across the country.

The ‘mating gap’: What’s driving egg freezing

There’s a notion that most women delaying motherhood are doing so to focus on other aspects of their lives, such as their careers. That’s not so much the case anymore, according to Marcia Inhorn, a professor specializing in medical anthropology at Yale University.

“The majority of women who freeze their eggs are doing it because they have not found a partner. I call that the mating gap — the lack of eligible, educated, equal partners,” Inhorn, who last year authored the book “Motherhood on Ice: The Mating Gap and Why Women Freeze Their Eggs,” told CNBC.

This problem stems from the fact that today, women are receiving higher education at greater rates than men. Inhorn noted that women are outperforming men in higher education in 60% of countries, and that in the United States alone there are 27% more women than men in higher education.

“The result is that, for women who are highly educated in America and of reproductive age — between 20 and 39 — there literally are millions too few college-educated men,” Inhorn added.

Another reason women freeze their eggs is the sense of empowerment the procedure brings them. Fundamentally, Inhorn believes that this freedom that egg freezing allows is what ultimately draws increasingly younger women to the procedure.

“It gives you a little reprieve, a little extra time,” she said.

This statement is one that reproductive endocrinologists and fertility specialists Drs. Nicole Noyes and Aimee Eyvazzadeh agree with.

Noyes, who has worked in the fertility industry since 2004 and is based in New York, has seen a noticeable shift in her patients’ ages and attitudes in the last two decades. In the beginning, her patients tended to be older, in their early 40s and viewed egg freezing as a last-ditch procedure as they hedged the end of their reproductive lives. Now, women as young as their late 20s come in to see Noyes.

Eyvazzadeh, who has also worked in the field for 20 years and lives in California, has noticed a trend towards younger patients who are choosing to freeze their eggs while they’re at their most viable.

This is the case for social media influencer Serena Kerrigan, who just recently turned 30. Despite being in a relationship, egg freezing was a procedure she willingly undertook while focusing on growing her business, she told CNBC.

Kerrigan, who has more than 800,000 followers between her Instagram and TikTok and is based in New York, began sharing her egg freezing journey last year. She wanted to remove some of the stigma around egg freezing and give her followers an inside look at the arduous process.

Kerrigan has paid for all her procedures on her own, she told CNBC, and recently partnered with her clinic, Spring Fertility, to donate a round of egg freezing to one of her followers. Eventually, she hopes egg freezing can be less stigmatized.

“There’s a layer of shame or taboo that I actually don’t understand. To me, this is science, and this is incredible, and this is a huge advancement,” she said. “This is a way of putting the power back into women and having control of their lives.”

The benefits are high, but so are the costs

While the benefits of egg freezing are certainly enormous, so too are the associated costs.

The average price for a single egg freezing cycle in the U.S. clocks in at $11,000. Many women need multiple egg freezing cycles, especially as they grow older and egg number and quality begin to deteriorate. That’s not to mention additional charges like hormone medication and yearly storage fees, which could respectively clock in at around $5,000 and $2,000.

Nutrition health coach Jenny Hayes Edwards froze her eggs in 2010 at 34 years old and was one of the first women in the U.S. to undergo the procedure. Despite it still being labeled an “experimental” procedure in the U.S., Hayes Edwards was certain she wanted to try. She wasn’t dating anybody at the time and was “working like crazy” while running her restaurant businesses in Colorado.

But high costs were her number one obstacle. Her restaurants had taken a hit after the 2008 financial collapse, when many consumers began foregoing their expensive ski vacations in Colorado.

Hayes Edwards remembers it being a tough decision to make. But her mother eventually helped sway her in favor of the procedure.

“It’s just money, and the opportunity that you might be missing is so much bigger,” Hayes Edwards recalled her mother saying. “I was so grateful that she pushed me over the edge.”

She was able to scrape together the $15,000 needed through maxing out a credit card, selling some jewelry and liquidating a bond in her inheritance.

Hayes Edwards now has a healthy three-year-old daughter, conceived nearly a decade after she froze her eggs, and is still appreciative for the extra time egg freezing bought her to meet her now-husband.

Employer benefits

In recent years, egg freezing, fertility and family planning services have increasingly popped up as employer benefits, especially among technology companies. A 2021 study from Mercer showed 42% of large companies — those with at least 20,000 employees — covered in vitro fertilization services in 2020, up from 36% in 2015. Nineteen-percent of these companies had egg freezing benefits, more than triple the 6% offering these benefits in 2015.

Michelle Parsons decided to freeze her eggs since the procedure was offered through her job. The various tech companies Parsons has worked for have offered anywhere between $10,000 to $75,000 in fertility benefits.

Parsons, who is a lesbian, had always known that she wanted to freeze her eggs — and undertook the procedure while working at Match Group as chief product officer of dating app Hinge. At the time, neither she nor her ex-partner were ready to have children, but it was one financial incentive Parsons didn’t want to miss out on.

Besides eggs, Parsons also chose to freeze her successfully fertilized embryos as another backup. Frozen embryos have a much higher likelihood of viable thawing. In fact, Parsons’ search for a sperm donor sparked one of the most-used features on the Hinge app — voice prompts.

“When we started to listen to all of these voice recordings of potential sperm donors, the lightbulb went off in my head and I was like, wow, this is what’s missing from dating right now,” Parsons told CNBC. “Because voice gives you so much nuance into personality, humor, vibe … we ended up building that feature called voice prompts on Hinge and it was a huge, wild success that led to rapid growth for Hinge and it became viral on TikTok.”

Still, Parsons noticed egg freezing taking a toll on her professional and personal life in other ways.

“You have to inject yourself with hormones for two weeks. You have to eat differently. You don’t really want to be in social settings. You can’t drink. There are all these other ramifications around just going through that process, even though we know it’ll be for this one month and then it’ll be over,” she said.

The process also doesn’t guarantee success.

Evelyn Gosnell underwent her first egg retrieval when she was 32, following by two additional cycles at 36 and 38 years old. By the time she was ready to have children with her now-partner, the New York-based behavioral scientist had many frozen eggs ready. But, she received no viable and normal embryos after her eggs had been thawed and fertilized.

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Powell reinforces position that the Fed is not ready to start cutting interest rates

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Federal Reserve Chair Jerome Powell on Wednesday reiterated that he expects interest rates to start coming down this year, but is not ready yet to say when.

In prepared remarks for congressionally mandated appearances on Capitol Hill Wednesday and Thursday, Powell said policymakers remain attentive to the risks that inflation poses and don’t want to ease up too quickly.

“In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks,” he said. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Those remarks were taken verbatim from the Federal Open Market Committee’s statement following its most recent meeting, which concluded Jan. 31.

During the question-and-answer session with House Financial Services Committee members, Powell said he needs “see a little bit more data” before moving on rates.

“We think because of the strength in the economy and the strength in the labor market and the progress we’ve made, we can approach that step carefully and thoughtfully and with greater confidence,” he said. “When we reach that confidence, the expectation is we will do so sometime this year. We can then begin dialing back that restriction on our policy.”

Stocks posted gains as Powell spoke, with the Dow Jones Industrial Average up more than 250 points heading into midday. Treasurys yields mostly moved lower as the benchmark 10-year note was off about 0.3 percentage point to 4.11%.

Rates likely at peak

In total, the speech broke no new ground on monetary policy or the Fed’s economic outlook. However, the comments indicated that officials remain concerned about not losing the progress made against inflation and will make decisions based on incoming data rather than a preset course.

“We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in the comments. “But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured.”

He noted again that lowering rates too quickly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.

Markets had been widely expecting the Fed to ease up aggressively following 11 interest rate hikes totaling 5.25 percentage points that spanned March 2022 to July 2023.

In recent weeks, though, those expectations have changed following multiple cautionary statements from Fed officials. The January meeting helped cement the Fed’s cautious approach, with the statement explicitly saying rate cuts aren’t coming yet despite the market’s outlook.

As things stand, futures market pricing points to the first cut coming in June, part of four reductions this year totaling a full percentage point. That’s slightly more aggressive than the Fed’s outlook in December for three cuts.

Inflation easing

Despite the resistance to move forward on cuts, Powell noted the movement the Fed has made toward its goal of 2% inflation without tipping over the labor market and broader economy.

“The economy has made considerable progress toward these objectives over the past year,” Powell said. He noted that inflation has “eased substantially” as “the risks to achieving our employment and inflation goals have been moving into better balance.”

Inflation as judged by the Fed’s preferred gauge is currently running at a 2.4% annual rate — 2.8% when stripping out food and energy in the core reading that the Fed prefers to focus on. The numbers reflect “a notable slowing from 2022 that was widespread across both goods and services prices.”

“Longer-term inflation expectations appear to have remained well anchored, as reflected by a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets,” he added.

Powell is likely to face a variety of questions during his two-day visit to Capitol Hill, which started with an appearance Wednesday before the House Financial Services Committee and concludes Thursday before the Senate Banking Committee.

Questioning largely centered around Powell’s views on inflation and rates.

Republicans on the committee also grilled Powell on the so-called Basel III Endgame revisions to bank capital requirements. Powell said he is part of a group on the Board of Governors that has “real concerns, very specific concerns” about the proposals and said the withdrawal of the plan “is a live option.” Some of the earlier market gains Wednesday faded following reports that New York Community Bank is looking to raise equity capital, raising fresh concerns about the state of midsize U.S. banks.

Though the Fed tries to stay out of politics, the presidential election year poses particular challenges.

Former President Donald Trump, the likely Republican nominee, was a fierce critic of Powell and his colleagues while in office. Some congressional Democrats, led by Sen. Elizabeth Warren of Massachusetts, have called on the Fed to reduce rates as pressure builds on lower-income families to make ends meet.

Rep. Ayanna Pressley, D-Mass., joined the Democrats in calling for lower rates. During his term, Democrats frequently criticized Trump for trying to cajole the Fed into cutting.

“Housing inflation and housing affordability [is] the No. 1 issue I’m hearing about from my constituents,” Pressley said. “Families in my district and throughout this country need relief now. I truly hope the Fed will listen to them and cut interest rates.”

Correction: Ayanna Pressley is a Democratic representative from Massachusetts. An earlier version misidentified the state.

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For Black workers, progress in the workplace but still a high hill to climb

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Ali and Jamila Wright, co-owners of Brooklyn Tea.

Courtesy: Brooklyn Tea

Looking at the state of Black employment in America tells a mixed story: Much progress has been made in the age of the Covid-19 pandemic and beyond, but much is left to be done.

In the nearly four years that have passed since the pandemic upended the U.S. economy, the advancement for Black people has been unmistakable: a surge in earnings that outdid the gains for both white and Hispanic people, an unemployment rate that has fallen more than a percentage point from where it stood in January 2020 and a general sense that the collective consciousness has been raised regarding inequality in the workplace.

Yet, there are still racial discrepancies in terms of earnings. Black workers are still notably underrepresented in some professions, particularly high-end tech, and efforts to address some of these issues have fallen out of favor amid criticism that they have gone too far and are inefficient.

On balance, though, there’s a feeling of optimism that real progress has been made.

“This recovery really stretched the limits of what policymakers thought was possible for Black workers,” said Jessica Fulton, interim president at the Joint Center for Political and Economic Studies, a Washington, D.C.-based think tank that focuses on issues for people and communities of color. “We were in a situation where folks accepted that Black unemployment was going to always be high and there was nothing that they could do about it. So I think this is an opportunity to continue to push the limits of what’s possible.”

When looking at the data, the numbers are encouraging.

The Black unemployment rate in January was 5.3%, up a touch from December but still near the all-time low of 4.8% hit in April 2023. Black employment in the month totaled nearly 20.9 million people, up 6.3% from February 2020, the month before the pandemic hit, according to the U.S. Bureau of Labor Statistics.

From a pay standpoint, the numbers are even more encouraging. For Black workers, weekly before-tax earnings as of the end of 2023 have risen 24.8% since the first quarter of 2020. That’s more than the 18.1% increase for white people and the 22.6% rise for Hispanics during the period. Of the groups the BLS measures, only Asians, at 25.1% had seen bigger pay gains.

Still, the unemployment rate is lower for white people, by a wide margin at 3.4% in January.

“High unemployment for Black workers is a solvable problem,” Fulton said. “There are challenges we need to address. We need to figure out how to address discrimination, we need to figure out how do we address unequal access to high-quality workforce development. We need to figure out how to address labor loopholes.”

Focus on tech

One of the areas where the greatest discrepancies exist for underrepresented groups is technology, where Black people and others hold few positions and even fewer are in management roles.

The situation is well-documented. While Black people make up about 12% of the U.S. labor force, they hold just 8% of all tech jobs and a mere 3% of executive positions, according to a McKinsey & Company study released in 2023.

There are several groups working to address the disparity, with varying levels of success.

Those involved tell similar stories. Black workers are interested in tech and believe there are opportunities. Companies don’t understand the real-world benefits of a diverse workplace. Opportunities are limited amid a backlash against the diversity, equity and inclusion push.

“Diversity is not just a warm and fuzzy feeling. You are proven by numbers to get a better return on investment,” said Autumn Nash, a software engineer at a major tech company in the Northwest that she asked not to be named because the company hadn’t given permission for this article.

Nash, who is Black, holds a prominent position in tech, where she has worked for well over a decade while both climbing the corporate ladder and trying to assist those in her cohort achieve success as well.

Autumn Nash

Courtesy: Autumn Nash

Along with her work responsibilities, she’s involved with several organizations looking to help others achieve in tech. They include Rewriting the Code, a global network founded in 2017 that focuses on women, and MilSpouse Coders, which assists military spouses and where Nash serves as education board chair.

Companies that build diversity the right way prosper, she said. Those that don’t have suffered on a tangible level in the form of products that are inadequate and data bases that don’t reflect real-world dynamics.

“The lack of diversity has left very big, wonderful tech companies with egg on their face, because they’ve had premature products,” Nash said. “One of the best ways to fight data bias is with diversity, and it’s diversity in all different backgrounds. If you look at the boards of most big AI companies, do you see diversity there?”

Indeed, instances of bias along racial lines is still seen as a significant problem, particularly in tech.

Some 24% of tech workers said they experienced racial discrimination at work in 2022, up from 18% the prior year, according to a survey by tech career marketplace Dice. While some companies have changed their corporate culture, many others remain behind.

“There are some good stories out there,” said Sue Harnett, founder of Rewriting the Code. “Goldman Sachs and Bank of America do an outstanding job, not only trying to recruit, but actually bringing them on board and converting them from being interns to full-time employees.”

Rewriting the Code collaborates with workers and companies to address diversity issues. Specifically, the organization focuses on college women and follows them through the first six years or so on their career path.

On the downside, Harnett still sees too many token measures that don’t go far enough.

For instance, she said some companies focus on Historically Black Colleges and Universities, which only goes so far in being able to find a capable and diverse workforce.

“I cringe when I talk with a company and ask them about their diversity recruiting strategy and their answer is they work with HBCUs,” she said. “That can be part of the strategy, but it shouldn’t be the only strategy.”

Harnett is sympathetic, though, with how tough the job can be.

“The amount of money that you have to put in to try and find this talent can be overwhelming, but I think there are solutions out there, so I’m personally optimistic,” she said. “I wish we made more progress by now. But the companies are ones that will drive this.”

The small business view

Sometimes the answers are found closer to home.

Ali and Jamila Wright are co-owners of Brooklyn Tea, a small business based in the New York City borough that has expanded to Atlanta and is looking for more growth opportunities.

From a hiring strategy, they focus almost solely on underrepresented groups who have a variety of employment needs. For instance, they hire actors in between shows or other workers in other professions who have been laid off and need a bridge until they find other employment.

Ali and Jamila Wright, co-owners of Brooklyn Tea.

Courtesy: Brooklyn Tea

“All of our employees are people of color,” Ali Wright said. “We have people of color, we have people that are binary or nonbinary. So being that we are diverse ourselves, it just makes it easier to hire people that we know are systematically disadvantaged.”

Brooklyn Tea has been a beneficiary of a relatively booming small business environment, particularly for Black and Latino entrepreneurs.

Black-owned businesses as a share of Black households surged from 5% to 11% from 2019 to 2022, the fastest pace in 30 years, according to the Small Business Administration. The surge has come as the number and dollar value of loans to Black-owned businesses has more than doubled and as the share of the SBA’s loan portfolio to minority-owned businesses has jumped to more than 32% from 23% since 2020.

However, race remains a tenuous dynamic in the U.S., and there’s always the possibility that progress can be rolled back, particularly considering a growingly hostile attitude toward DEI initiatives. Critics say the approach has resulted in a misallocation of resources, particularly following controversies at Ivy League schools.

“From 2020 until 2022, that’s when we all felt the most potential and the most hope, even in the midst of a pandemic,” Jamila Wright said. “We were receiving so much funding and just collaboration from corporate entities, and that attack on DEI has impacted some of the businesses, including ours.”

But the controversies have mainly triggered a reexamination of how to achieve diversity, not a backdown on initiatives in general.

For instance, a Conference Board survey in December found no human resources executives were planning to scale back diversity efforts. Still, Jamila Wright said she is cautious about the future.

“I think history has taught us that nothing, when it comes to race in America, blows over quickly,” she said. “So it’s just us trying to figure out how to be savvy in situations where we shouldn’t have to be savvy. That has been something that we have to become equipped to do.”

CORRECTION: Autumn Nash is a software engineer at a major tech company in the Northwest. A representative for her firm misstated her name.

Bonawyn Eison: Removing barriers will lead to reform

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Fed officials expressed caution about lowering rates too quickly at last meeting, minutes show

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WASHINGTON – Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation, according to minutes from the session released Wednesday.

The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.

“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent,” the minutes stated.

The meeting summary did indicate a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.

However, officials noted that they wanted to see more before starting to ease policy, while saying that rate hikes are likely over.

“In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes stated. But, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”

Before the meeting, a string of reports showed that inflation, while still elevated, was moving back toward the Fed’s 2% target. While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” and possibly due to factors that won’t last.

Consequently, members said they will “carefully assess” incoming data to judge where inflation is heading over the longer term. Officials noted both upside and downside risks and worried about lowering rates too quickly.

Questions over how quickly to move

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the summary said.

Officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices,” the minutes said. “While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.”

The minutes reflected an internal debate over how quickly the Fed will want to move considering the uncertainty about the outlook.

Since the Jan. 30-31 meeting, the cautionary approach has borne out as separate readings on consumer and producer prices showed inflation running hotter than expected and still well ahead of the Fed’s 2% 12-month target.

Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy. A stable economy, which grew at a 2.5% annualized pace in 2023, has encouraged FOMC members that the succession of 11 interest rate hikes implemented in 2022 and 2023 have not substantially hampered growth.

To the contrary, the U.S. labor market has continued to expand at a brisk pace, adding 353,000 nonfarm payroll positions in January. First-quarter economic data thus far is pointing to GDP growth of 2.9%, according to the Atlanta Fed.

Along with the discussion on rates, members also brought up the bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasurys and mortgage-backed securities to roll off rather than reinvesting proceeds as usual.

‘Ample level of reserves’

The minutes indicated that a more in-depth discussion will take place at the March meeting. Policymakers also indicated at the January meeting that they are likely to take a go-slow approach on a process nicknamed “quantitative tightening.” The pertinent question is how high reserve holdings will need to be to satisfy banks’ needs. The Fed characterizes the current level as “ample.”

“Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer,” the minutes said. “In addition, a few participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate.”

Fed officials consider current policy to be restrictive, so the big question going forward will be how much it will need to be relaxed both to support growth and control inflation.

There is some concern that growth continues to be too fast.

The consumer price index rose 3.1% on a 12-month basis in January – 3.9% when excluding food and energy, the latter of which posted a big decline during the month. So-called sticky CPI, which weighs toward housing and other prices that don’t fluctuate as much, rose 4.6%, according to the Atlanta Fed. Producer prices increased 0.3% on a monthly basis, well above Wall Street expectations.

In an interview on CBS’ “60 Minutes” that aired just a few days after the FOMC meeting, Chair Jerome Powell said, “With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.” He added that he is looking for “more evidence that inflation is moving sustainably down to 2%.”

Markets have since had to recalibrate their expectations for rate cuts.

Where traders in the fed funds futures market had been pricing in a near lock for a March cut, that has been pushed out to June. The expected level of cuts for the full year had been reduced to four from six. FOMC officials in December projected three.

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Fed holds rates steady, indicates it is not ready to start cutting

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WASHINGTON — The Federal Reserve on Wednesday sent a tepid signal that it is done raising interest rates but made it clear that it is not ready to start cutting, with a March move lower increasingly unlikely.

In a substantially changed statement that concluded the central bank’s two-day meeting this week, the Federal Open Market Committee removed language that had indicated a willingness to keep raising interest rates until inflation had been brought under control and was on its way toward the Fed’s 2% inflation goal. 

However, it also said there are no plans yet to cut rates with inflation still running above the central bank’s target. The statement further provided limited guidance that it was done hiking, only outlining factors that will go into “adjustments” to policy.

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” the statement said.

During Fed Chair Jerome Powell‘s news conference, he said policymakers are waiting to see additional data to verify that the trends are continuing. He also noted that a March rate cut is unlikely.

“I don’t think it’s likely that the committee will reach a level of confidence by the” March meeting, Powell said.

“We want to see more good data. It’s not that we’re looking for better data, we’re looking for a continuation of the good data we’ve been seeing,” he added.

Markets initially took the news in stride but slid following Powell’s comments casting doubt on a March cut. The Dow Jones Industrial Average surrendered more than 300 points in the session while Treasury yields plunged. Futures pricing also swung, with the market assigning about a 64% chance the Fed would stay put at its March 19-20 meeting, according to CME Group calculations.

While the committee’s statement did condense the factors that policymakers would consider when assessing policy, it did not explicitly rule out more increases. One notable change was removing as a consideration the lagged effects of monetary policy. Officials largely believe it takes at least 12 to 18 months for adjustments to take effect; the Fed last hiked in July 2023 after starting the tightening cycle in March 2022.

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said. That language replaced a bevy of factors including “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

‘Moving into better balance’

Those changes were part of an overhaul in which the Fed seeks to chart a course ahead, with inflation moving lower and economic growth proving resilient. The statement indicated that economic growth has been “solid” and noted the progress made on inflation.

“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the FOMC missive said. “The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

Gone from the statement was a key clause that had referenced “the extent of any additional policy firming” that might come. Some Fed watchers had been looking for language to emphasize that additional rate hikes were unlikely, but the statement left the question at least somewhat open.

Going into the meeting, markets had expected the Fed could begin reducing its benchmark overnight borrowing rate as soon as March, with May also a possible launching point. Immediately after the decision, stocks fell to session lows.

Policymakers, though, have been more circumspect about their intentions, cautioning that they see no need to move quickly as they watch the data unfold. Committee members in December indicated a likelihood of three quarter-percentage point rate cuts this year, less ambitious than the six that futures markets are pricing, according to the CME Group.

More immediately, the committee, for the fourth consecutive time, unanimously voted not to raise the fed funds rate. The key rate is targeted in a range between 5.25%-5.5%, the highest in nearly 23 years.

The Fed has been riding a wave of decelerating inflation, a strong labor market and solid economic growth, giving it both leeway to start easing up on monetary policy and caution about growth that could reaccelerate and drive prices higher again. Along with 11 rate hikes, the Fed also has been allowing its bond holdings to roll off, a process that has shaved more than $1.2 trillion off the central bank balance sheet. The statement indicated that the balance sheet runoff will continue apace.

The ‘soft-landing’ narrative

Many economists now are adopting a soft-landing narrative where the Fed can bring inflation down without torpedoing economic growth.

Separate reports Wednesday indicated that the labor market is softening, but so are wages. Payrolls processing firm ADP reported that private companies added just 107,000 new workers in January, a number that was below market expectations but still indicative of an expanding labor market. Also, the Labor Department reported that the employment cost index, a gauge the Fed watches closely for signals of inflation coming through wages, increased just 0.9% in the fourth quarter, the smallest rise since the second quarter of 2021.

More broadly, inflation as measured through core personal consumption expenditures prices rose 2.9% in December from the prior year, the lowest since March 2021. On a six- and three-month basis, core PCE prices both ran at or below the Fed’s target.

In a separate matter, the Fed also announced it was altering its investment policy both for high-ranking officials and staff. The changes expand the scope of those covered to include anyone with access to “confidential FOMC information” and said some staff might be required to submit brokerage statements or other documents to verify the accuracy of disclosures.

The changes follow controversy over multiple Fed officials trading from private accounts at a time when the central bank was making major changes to policy in the early days of the Covid pandemic.

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As inflation falls, corporate America won’t rush to pay the price

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U.S. President Joe Biden delivers remarks during an event to celebrate the anniversary of his signing of the 2022 Inflation Reduction Act legislation, in the East Room of the White House in Washington, U.S., August 16, 2023. 

Kevin Lamarque | Reuters

In recent weeks, President Joe Biden has been doing everything he can to point the finger at big corporations for high prices.

“Too many things are unaffordable,” the president said.

“Stop the price gouging,” Biden said on another recent occasion.

The blame game may be good retail politics, and the president has announced some real actions to alleviate consumer financial stress, forgiving as much student debt on the margins as he can under the law, unveiling various plans to eliminate “junk fees,” and using new powers under the Inflation Reduction Act to bring down key drug prices.

Some recent research supports the case that corporations have taken more advantage of the current inflationary era than they really need to do. But amid the political pressure, don’t expect corporate America to be swayed.

As the Federal Reserve signals for the first time that it’s getting comfortable with the decline in inflation, and even short of declaring “mission accomplished” seemed to say this week it doesn’t wholly disagree with the market view that rates cuts are the next phase in its monetary policy, the one major force in the economy not talking about cuts in a major way is corporations.

That’s been on the mind of Fed presidents as the central bank contemplates a big shift. Richmond Fed President Tom Barkin, a former corporate sector CFO, recently told CNBC that one area he monitors and speaks to companies about is price setting. Companies won’t be giving up their power to raise prices “until they have to,” Barkin, who will be a voting member of the FOMC next year, said.

It’s been a hard-won advantage. Over the past two decades, price setters “have been beaten up,” Barkin said, by the combination of ecommerce, globalization, access to new supply and the power of big box retailers. “If you go back to 2018-2019, you had people who really weren’t into raising prices [as they] didn’t think they had the power to do it. I’m out there talking to price setters now and there are some who have taken a step back and said, ‘Okay, we’re on the backside of this,’ but I still talk [to others] who are looking to get more price.”

During an interview later in November with Barkin at CNBC’s CFO Council Summit in Washington, D.C., the subject came up again, and an informal poll of CFO Council members in the room on the subject of pricing plans for 2024 was taken. A majority said their companies would be raising prices next year; a minority said they would keep pricing the same; none said they would be lowering prices. 

“I’m looking for the point where they’re no longer taking outsized price increases because they’re worried the volume and the market won’t sustain it,” Barkin said.

That is happening in certain goods markets where the Covid outsized demand has waned, and as the pressures in the real estate market with high mortgage rates have cut down on purchases for the home. It’s also a function of a massive freight market recession, which has sharply lowered transportation costs for shippers after a period of huge contract rate increases during the pandemic boom. A recent decline in energy prices has also lessened input cost pressures.

Costco CFO Richard Galanti said after its earnings this week that inflation for the quarter just ended was in the 0% to 1% range. But the big moves were in the “big and bulky items,” like furniture sets due to lower freight costs year-over-year, as well as on “things like domestics,” he said. And what he called the “deflationary items” were steeply down in price, as much as 20% to 30%.

Toys are another example.

No one wants to be the first to cut prices

Overall, though, the economy is not headed for deflation, and the Fed’s stance this week may have given companies more room to keep prices where they want if real wage growth proves sustainable. “Inflation is falling faster than wages,” said KMPG chief economist Diane Swonk. “That does not equate to deflation. The goal is to keep that trend going, so that consumers regain the purchasing power lost to inflation.”

But with any easing of rates, the central bank is “willing to throw the dice, and enable the economy to grow more rapidly rather than risk recession,” Swonk said. “That is a major shift from where we were a year ago. They knew that the decision to call an end to rate hikes would trigger financial markets to ease. That was like a stealth cut in rates. It will stimulate the economy. Improvements in inflation are expected to continue, but the pace at which price increases decelerate could slow.”

The recent tailwinds from a softer freight market may be near their end, too. A logistics CFO speaking on a CNBC CFO Council member call on Tuesday about the market outlook said that after one of the longest stretches in recent history for a freight recession, the trough may have been reached. “Truck rates may start bouncing off of a bottom here,” said the logistics CFO on the call, where chief financial officers are granted anonymity to speak freely.

While the Fed may get its wish of a “soft landing” for the economy, that doesn’t mean prices will land as softly for consumers, according to Marco Bertini, a professor of marketing at business school Esade who studies pricing strategy and pricing psychology. “Companies will do what they want and will never react at the speed you want them to, especially after they have been increasing prices,” Bertini said. “Why would I be the first to cut my margins when we just went through a period where we had the world’s best excuse [inflation] to recover margins?” he said.

At some point, companies will need to reassess pricing strategy, especially with margins more than recovered for many, and this period of rapid inflation in the U.S. doesn’t have a precedent for companies to use as a barometer of how to shift. “It’s uncharted territory for the U.S. market,” Bertini said.

That’s part of the reason why not one CFO raised their hand at the CNBC CFO Council Summit when asked if any were considering a price decrease for 2024.

“Imagine I am the first to say I am holding on prices, and make that known to customers? That’s how a price war starts and the competitive advantage from being the ‘good guy’ lasts two seconds,” Bertini said. “No one wants a race to the bottom. The gains over the past few years evaporate in a few months.”

Deflation versus slowing of price increases

There are some signs that the pricing conversation is starting to become more prevalent inside companies beyond the goods areas where demand has been hit hard. But recent declines in pricing don’t indicate that companies will continue in that direction across a broader array of products and services.

“The Fed doesn’t want to see deflation,” said one retail sector CFO on the recent CNBC CFO Council call. “They just want to see inflation cool. And they want to see us get to the point where we can’t raise prices anymore.”

While the CFO said there has been a “settling in the market in the last couple of months, I wouldn’t call it deflation.”

But he pointed to transportation costs as a deflationary force that is having an influence on importers, “a one-time kind of release of supply and demand imbalances … but it’s a price correction to me that is different than deflation. … I think we’ve kind of been through an interesting phase of price correction. But I’d say things are pretty stable from our perspective.”

Consumers have been 'as resilient as they could be,' says former Walmart U.S. CEO Bill Simon

In food distribution, costs for key commodities continue to experience deflation on a sequential basis. But consumers going out to eat won’t see that in the prices they pay.

“We’re in a period where restauranteurs have taken many prices up,” said another retail CFO on the call. “They’re seeing that deflation in their underlying ingredients, so they’re actually going to start seeing a little bit better performance in terms of their bottom line. Now that they’ve taken the prices up, we just don’t think they’re gonna take it down very quickly.”

The science of pricing, according to Bertini, dictates that as long as a company can point to an externality — in this case, higher input costs — the buyer ultimately accepts the situation, and price stickiness is the result.

But the current environment is edging into more of an “unstable equilibrium.”

“When inflation is in the public domain, it’s perfect to collaborate in a perfectly legal way to increase prices. Now the shocks are gone and costs slowly coming down, and the appetite to be the one to decrease prices and get market share gain is increasingly getting bigger,” he said. “But being the first will take some time, because they’re still enjoying it. … What it will take in most markets is a competitor who sees a clear path to getting lots of market share.”

When the party will end for corporations

This difficult balance is also coming during a period of time when the consumer has defied expectations of a slowdown in spending, making it harder for companies to pinpoint just how big the market opportunity really is. Retail sales, as an example, just came in much stronger than expected.

“We’re still trying to understand how strong November retail sales should have been relative to normal, and relative to what’s happened the last three years. It makes it hard,” the logistics CFO said on the recent CNBC CFO Council call.

The view from Costco CFO Galanti after its earnings this week is instructive. Speaking about food, he said it’s been a different story than with goods: “There hasn’t been significant price cuts passed on to the consumer yet.”

“There are a few things that are up and a few things are down, but no giant trend either way. Look, as you’ve known us for a long time, we want to be the first to lower prices. We’re out there pressing our vendors as we see different commodity components come down and certainly on the non-food side as we saw shipping costs come down, things like that. And so, probably a little more than less, but we’ll have to wait and see.”

If the period of price increases is to end, expect there to be a lag between that and other forces in the economy, such as the Fed, said Bertini. “Who wants to end the party early? They will want to see some really strong evidence that the party has ended.”

Another analogy from a CFO on the recent CNBC Council call may have put it best:

“We’re all a bunch of cars on a highway. You’ve got the customer, a retailer, you’ve got the manufacturer. Maybe you’ve got capital providers. And who hits the brakes first? Who wants to hit the brakes before the person in front of them hits the brakes?” 

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UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession

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U.S. Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023.

Evelyn Hockstein | Reuters

UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world’s largest economy tips into recession.

In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank’s economists suggested that “fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024.”

UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates “first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening.”

Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%.

The central bank has since held at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.

However, Fed Chairman Jerome Powell said last week that he was “not confident” the FOMC had yet done enough to return inflation sustainably to its 2% target.

UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is “not out of the woods yet.”

“The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time,” UBS highlighted.

“According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings.”

The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are “thinning out” and balance sheets look less robust.

“Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated,” UBS said.

U.S. Treasury yield curve will likely continue to steepen, analyst says

“In our view, the private sector looks less insulated from the FOMC’s rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%.”

UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.

“With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation,” the bank’s economists said.

Worst credit impulse since the financial crisis

Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are “much worse now than 12 months ago,” particularly in the form of the “historically large” amount of credit that is being withdrawn from the U.S. economy.

“The credit impulse is now at its worst level since the global financial crisis — we think we’re seeing that in the data. You’ve got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising,” he told CNBC’s Joumanna Bercetche on the sidelines of the UBS European Conference.

Signs of a recession may be on the horizon, says fmr. Fed economist Claudia Sahm

Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the “massive gap” between real incomes and spending that means there is “much more scope for that spending to fall down towards those income levels.”

“The counter that people then have is they say ‘well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?’ But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year,” Kapteyn argued.

A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production, and incomes.

Goldman ‘pretty confident’ in the U.S. growth outlook

The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.

Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was “pretty confident” in the U.S. growth outlook.

“Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that,” he told CNBC’s “Squawk Box Europe.”

Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.

“I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau,” he concluded.

Correction: Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%. An earlier version misstated the range.

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Central banks look to have hit peak rates. Here’s how markets think they’ll come down

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A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, July 26, 2023.

Brendan McDermid | Reuters

The world’s major central banks paused their interest rate hiking cycles in recent weeks and with data suggesting economies are softening, markets are turning their attention to the first round of cuts.

The U.S. Federal Reserve, European Central Bank and the Bank of England dramatically hiked rates over the last 18 months in a bid to tame runaway inflation.

The Fed on Wednesday held benchmark interest rates steady at a target range of 5.25%-5.5% for the second consecutive meeting after ending a string of 11 hikes in September.

Though Chairman Jerome Powell has been keen to reiterate that the Fed’s work on inflation is not yet done, the annual rise in the consumer price index came in at 3.7% in September, down from a pandemic-era peak of 9.1% in June 2022.

Yet despite Powell’s refusal to close the door on further increases in order to finish the job on inflation, markets interpreted the central bank’s tone as a slightly dovish pivot and rallied on the back of the decision.

The market is now narrowly pricing a first 25 basis point cut from the Fed on May 1, 2024, according to CME Group’s FedWatch tool, with 100 basis points of cuts now expected by the end of next year.

Since last week’s decision, U.S. nonfarm payrolls came in softer than expected for October, with job creation below trend, unemployment rising slightly and a further deceleration in wages. Although headline inflation remained unchanged at 3.7% annually from August to September, the core figure came down to 4.1%, having roughly halved over the last 12 months.

“Core PCE, which is the Fed’s preferred inflation metric, is even lower at 2.5% (3-month, annualized),” noted analysts at DBRS Morningstar.

“The lagged effects of a cooler housing market should reinforce the disinflationary trend over the next few months.”

But despite the dovish data points, short-term U.S. Treasurys reversed course to sell off on Monday, which Deutsche Bank’s Jim Reid chalked up to investors beginning to “wonder if last week’s narrative about rate cuts was overdone.”

“The U.S. economy is also proving more resilient than the U.K. and euro zone,” he said.

“For instance, market pricing for the Fed now implies a 16% chance of another rate hike, up from 11% on Friday,” Reid said in an email Tuesday.

“Moreover, the rate priced in by the December 2024 meeting was up +12.4bps to 4.47%. So there was a clear, albeit partial unwinding of last week’s moves.”

Reid also highlighted that this is the seventh time this cycle that markets have notably reacted on dovish speculation.

“Clearly rates aren’t going to keep going up forever, but on the previous 6 occasions we saw hopes for near-term rate cuts dashed every time. Note that we’ve still got above-target inflation in every G7 country,” he added.

The ECB

The European Central Bank late last month ended its run of 10 consecutive hikes to keep its benchmark interest rate at a record high of 4%, with euro zone inflation falling to a two-year low of 2.9% in October and the core figure also continuing to decline.

The market is also pricing almost 100 basis point of cuts for the ECB by December 2024, but the first 25 basis point reduction is mostly priced in for April, with economic weakness across the 20-member common currency bloc fueling bets that the central bank will be the first to start unwinding its tight policy position.

Gilles Moëc, group chief economist at AXA, said October’s inflation print confirmed and amplified the message that “disinflation has come in earnest to Europe,” vindicating the ECB’s “new-found prudence.”

ECB done with hikes barring unforeseen shocks, Bank of Portugal's Centeno says

“Of course, the current disinflation does not preclude the possibility that a ‘line of resistance’ would be found well above the ECB’s target. Yet, the confirmation that the euro area was flirting with recession last summer reduces this probability,” Moëc said in a research note Monday.

After the October meeting, ECB President Christine Lagarde batted away the suggestion of rate cuts, but National Bank of Greece Governor Yannis Stournaras has since openly discussed the possibility of a reduction in the middle of 2024 provided inflation stabilizes below 3%.

“This implicitly advocates a forward-looking version of monetary policy which takes lags into consideration to calibrate its stance. In clear, waiting for inflation to reach 2% before cutting rates would be ‘overkill,'” Moëc said.

“There is no doubt in our mind that the current dataflow is clearly favouring the doves, but the hawks are far from having given up the fight.”

The Bank of England

The Bank of England on Thursday kept its main policy rate unchanged at 5.25% for a second consecutive meeting after ending a run of 14 straight hikes in September.

However, minutes from last week’s meeting reiterated the Monetary Policy Committee’s expectations that rates will need to stay higher for longer, with the U.K. CPI holding steady at 6.7% in September. Despite this, the market on Monday was pricing around 60 basis points of cuts by December 2024, albeit starting in the second half of the year.

BNP Paribas economists on Thursday noted an “eye-catching” addition to the MPC’s guidance, which said its latest projections indicated that “monetary policy was likely to need to be restrictive for an extended period of time.”

Watch CNBC's full interview with Bank of England Governor Andrew Bailey

“Governor Andrew Bailey’s comments at the press conference indicated that this guidance was not intended as push-back on the market-implied policy rate path that underpins its latest forecasts, where a 25bp cut is not fully priced in until the second half of 2024,” they said.

“Instead, the intention was to indicate that cuts are not likely to feature as part of the conversation any time soon.”

At Thursday’s news conference, Bailey emphasized the upside risks to the bank’s inflation projections, rather than entertaining any suggestion of cuts on the horizon.

“While we don’t think it is necessarily indicative of a high risk of further hikes in the near term, we read it as a further sign that the MPC is not considering rate cuts and will not do so for a while,” BNP Paribas added.

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Fed holds rates steady, upgrades assessment of economic growth

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The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

Powell added that the FOMC is not considering or even discussing rate reductions at this time.

He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.

“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Economy has ‘moderated’

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

Gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

Surging bond yields

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the fourth quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”

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