Tag Archives: U.S. Central Bank

Fed’s Powell orders sweeping ethics review after officials’ trading prompts outcry

By Howard Schneider

WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell has ordered a sweeping review of the ethics rules governing financial holdings and dealings by senior officials at the U.S. central bank, a Fed spokesperson said on Thursday.

Powell ordered the review late last week, the spokesperson said in an emailed statement, following recent reports that two of the Fed system’s 12 regional reserve bank presidents had been active investors during 2020, a notably volatile year for asset prices as the country battled the COVID-19 pandemic. Those revelations, originally reported by the Wall Street Journal, prompted senior U.S. lawmakers – including Senator Elizabeth Warren of Massachusetts – to demand more stringent restrictions on such activities.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” the statement said.

The rules that guide personal financial practices for Fed officials are the same as those for other government agencies, the spokesperson said. Moreover, the Fed has supplemental rules that are stricter than those for Congress and other agencies that are specific to its work.

“This review will assist in identifying ways to further tighten those rules and standards. The Board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct,” the statement said.

Warren, in a Tweet, called the review “long overdue” but encouraged the Fed’s regional bank presidents to impose strict rules on their own.

Following news reports on their trading last week, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren both said they would divest any holdings of individual stocks by Sept. 30 and put the proceeds into index funds or cash.

Their investments were judged by in-house ethics officers to have complied with Fed ethics rules. Kaplan, a former vice-chair of Goldman Sachs, has been an active trader since taking over the Dallas Fed in 2015, with multiple, million-dollar transactions in individual stocks each year, according to financial disclosures dating to 2016.

Still, their activity drew a sharp reaction given the context of a pandemic year in which tens of millions faced joblessness and the economy was on the precipice of a threatened depression.

The Fed, beginning in March of 2020, rolled out a response that was record-breaking for its speed and scope, with interest rates slashed to zero and open-ended promises to use bond buying and other tools to keep the economy afloat.

The effort stabilized financial markets, underwrote credit to small businesses and helped set the stage for a fast rebound of jobs and economic growth.

It also triggered a record surge of asset prices following a crash early in the pandemic. Between the Fed’s efforts and trillions of dollars in government spending approved by Congress, the S&P 500 Index has more than doubled from its pandemic low on March 23, 2020 and is about 30% above the high hit in the previous month.

It is not unusual for Fed officials to hold extensive portfolios. Powell, a private equity lawyer with a stint at the Washington-based Carlyle Group, has net worth in excess of $17 million and perhaps much higher, according to his latest ethics filings.

But they are not as a rule active traders, and many join the Fed from academic backgrounds or government posts. St. Louis Fed President James Bullard’s holdings are modest enough that he hand writes his ethics form. Former Fed Chair Janet Yellen’s disclosure was notable largely for its stamp collection.

Fed rules explicitly prohibit trading around the time of Fed policy meetings – when market-sensitive information is distributed – requires securities to be held for at least 30 days and forbids officials from holding bank stocks or funds with holdings concentrated in the financial sector that the Fed oversees.

But broader language in the Fed’s internal rules requires officials to avoid even the appearance of conflict or of using their position for personal gain.

For Powell, promoted to Fed chair in 2018 by former President Donald Trump and subsequently a target of Trump’s ire for his management of Fed interest rate policy, the revelations come at a particularly awkward time.

His current term as chair ends in February, and President Joe Biden is in the midst of deciding whether to appoint him to a second four-year term.

Among those advocating for a change in Fed leadership, one of the chief arguments has been that Powell, a private equity lawyer, has not been strict enough in his approach to Wall Street.

He has also worked to build strong relationships among U.S. lawmakers and has preached the need for the unelected central bankers to be transparent in their actions and accept oversight by the country’s elected officials.

(Reporting by Howard Schneider; Additional reporting by Ann Saphir; Writing by Dan Burns; Editing by Chizu Nomiyama and Dan Grebler)

Explainer: What to look for in the Fed’s U.S. economic outlook

By Ann Saphir

SAN FRANCISCO (Reuters) – U.S. Federal Reserve policymakers on Wednesday will publish their first economic projections since the coronavirus pandemic set off a recession in February, estimates expected to signal a collapse in output this year and near-zero interest rates for the next few years.

They’ll also give shape to the range of views at the U.S. central bank about the expected speed of the recovery and any longer-term damage to the world’s biggest economy from a pandemic that has so far killed nearly 111,000 Americans and prompted unprecedented restrictions on commerce and movement to slow its spread.

Here is a guide to what the projections may show and what questions they may raise about the future of the U.S. economy as authorities lift those restrictions.

WHAT ARE THEY?

Every three months, each of the Fed’s 17 policymakers develops a set of multi-year forecasts for U.S. unemployment, inflation, economic growth and interest rates. The projections are published in summary form at the end of the policy-setting meeting. The Fed did not release a quarterly summary of economic projections in March, however, because of massive uncertainty about the spread of the novel coronavirus, the resulting lockdowns, and the economic fallout. Though plenty is still uncertain, one thing is clear: the projections on Wednesday will be starkly worse than the Fed’s largely favorable outlook in December. (Please see graphic )

DOES THIS HAVE ALL THOSE DOTS?

Yes. The projections’ centerpiece is the so-called dot plot, a graphic representation of where each unnamed policymaker sees interest rates in coming years. This collection of rate-setters’ individual views has also occasionally functioned as a loose policy promise about the path of rates. This is one of those times. The Fed has signaled it will keep its key overnight lending rate near zero until the recovery is well underway. The dots, which will likely show most Fed policymakers expect no change in rates through 2022, “could be seen as a soft way of reinforcing that guidance,” said Michael Feroli, chief U.S. economist at JP Morgan.

HOW DEEP, HOW LONG?

With states in various stages of reopening after weeks or more of stay-at-home orders that precipitated the recession, the Fed policymakers’ forecasts will map their sense of how quick the recovery will be.

“The Fed likely forecasts a strong rebound in growth in H2, but the level of GDP will remain well below the pre-coronavirus level until late 2021” Oxford Economics’ Kathy Bostjancic wrote. Her view was widely echoed by other economists.

The U.S. unemployment rate, which fell unexpectedly to 13.3% in May, may be projected to end this year in double digits and remaining well above healthy long-run levels next year. The Fed will likely project inflation to undershoot its 2% target for the foreseeable future, Bostjancic and others say.

Importantly, the Fed’s summary of projections reflects what policymakers see as the most likely path for the economy, which for many does not factor in a second wave of infections – a key unknown for now.

But deaths from COVID-19, the respiratory illness caused by the novel coronavirus, continue to increase in many U.S. states, and public health officials have flagged the possibility of further spread after crowded Memorial Day celebrations in parts of the country in late May and ongoing mass protests against racial inequalities since the May 25 death of George Floyd, a black man, in police custody in Minneapolis.

“The risk to our forecast, and likely the Fed’s, is skewed to the downside,” Bostjancic said.

LONG-TERM DAMAGE?

The economic projections being released on Wednesday will also offer insight into whether Fed officials see the pandemic as inflicting permanent damage on the economy. Nomura economist Lewis Alexander projects little change to the Fed’s earlier estimate that the economy can sustain about 1.9% yearly growth in the long run, along with 4.1% unemployment, though both could erode. More broadly, he said, “it is important to emphasize the significant amount of uncertainty” around the forecasts.

(Reporting by Ann Saphir; Editing by Dan Burns and Paul Simao)

Muted U.S. inflation strengthens case for Fed rate cut

People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in May, pointing to moderate inflation that together with a slowing economy increased pressure on the Federal Reserve to cut interest rates this year.

But the report from the Labor Department on Wednesday will likely not shift Fed officials’ views that temporary factors are behind the weak inflation readings. Airline fares, among the transitory factors identified by Fed Chairman Jerome Powell, rebounded and apparel prices stabilized after two straight monthly decreases.

U.S. central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May that has led financial markets to price in at least two rate cuts by the end of 2019. A rate cut is not expected next Wednesday.

“This soft inflation backdrop reinforces our call for two (rate) cuts later this year,” said Michael Feroli, an economist at JPMorgan in New York. “We think next week is probably too soon to expect that action, given that growth is still holding in and trade-related risks remain two-sided.”

The consumer price index edged up 0.1% last month as a rebound in the cost of food was offset by cheaper gasoline, the government said. The CPI gained 0.3% in April.

In the 12 months through May, the CPI increased 1.8%, slowing from April’s 1.9% gain. May’s rise in the CPI was broadly in line with economists’ expectations.

Excluding the volatile food and energy components, the CPI nudged up 0.1% for the fourth straight month, the longest such stretch since April 2017. The so-called core CPI was held down by a sharp decline in the prices of used cars and trucks as well as motor vehicle insurance.

In the 12 months through May, the so-called core CPI rose 2.0% after advancing 2.1% in April.

U.S. Treasury prices were trading mostly higher, while the dollar was little changed against a basket of currencies. Stocks on Wall Street slipped as the rate-cut hopes were overshadowed by investor anxiety over the U.S.-China trade war.

GROWTH SLOWING

U.S. President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened further duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit at the end of this month in Japan.

Economists have warned that the tariffs will undercut the economy, which will celebrate 10 years of expansion in July, the longest in history. Powell said last week the Fed was closely monitoring the implications of the trade war on the economy and would “act as appropriate to sustain the expansion.”

Data so far have suggested a sharp slowdown in U.S. economic growth in the second quarter after a temporary boost from exports and an accumulation of inventory early in the year. Job growth slowed sharply in May. Manufacturing production, exports and home sales dropped in April, while consumer spending cooled.

The Atlanta Fed is forecasting gross domestic product to increase at a 1.4% annualized rate in the April-June quarter. The economy grew at a 3.1% pace in the first quarter.

A survey of chief executive officers published on Wednesday showed unease about trade policy negatively impacting sales expectations as well as capital spending and hiring plans over the next six months.

The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, increased 1.6 percent in the year to April after gaining 1.5% in March. Data for May will be released later this month. The core PCE price index has been running below the Fed’s 2% target this year.

Gasoline prices fell 0.5% in May after rising 5.7% in April. Food prices rebounded 0.3% in May after dipping 0.1% in the prior month. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3% in May after rising 0.3% in April.

Healthcare costs increased 0.3%, matching April’s rise. That mirrored an increase in healthcare costs at the producer level, suggesting a pickup in the core PCE price index in May. There were gains in hospital and doctor fees. But prices for prescription medication fell 0.2%.

Apparel prices were unchanged in May after tumbling 0.8% in the prior month. They had declined for two months in a row after the government introduced a new method and data to calculate apparel prices. Economists expect the duties on Chinese goods to lift apparel prices in the coming months.

“That’s going to change with new tariffs on the way unless apparel companies can teach other nations to knit sweaters as well as Chinese workers can do,” said Chris Rupkey, chief economist at MUFG in New York.

Prices for used motor vehicles and trucks tumbled 1.4%. That was the largest drop since last September and marked the fourth straight monthly decrease. The cost of motor vehicle insurance fell 0.4%, the most since May 2007. The cost of recreation also decreased.

But prices for airline tickets rebounded 2.0% after falling for two straight months. Prices for household furnishings and new vehicles rose in May. Household furnishings prices are likely to trend higher in the coming months because of the duties on Chinese imports.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Fed says U.S. economy ended 2018 with solid but weakening growth

FILE PHOTO: Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo/File Photo

By Howard Schneider and Pete Schroeder

WASHINGTON, Feb 22 (Reuters) – The U.S. economy maintained “solid” growth through the second half of 2018, likely expanding “just under” 3 percent for the year, though consumer and business spending had begun to weaken, the Federal Reserve said on Friday in its semi-annual monetary policy report to Congress.

In a document that balanced its mostly positive outlook for a still growing economy against an array of emerging domestic and global risks, the U.S. central bank laid out why it had put further interest rate hikes on hold last month.

From a “deteriorated” appetite for risk among investors to a slowdown in China, the outlook for policy is “more uncertain than earlier,” the Fed said, noting “softer global and economic conditions.”

That may spill into the start of 2019, the Fed said, noting that the recent 35-day partial shutdown of the U.S. government “likely held down GDP growth in the first quarter of this year.”

For 2018, the Fed said: “Consumer spending expanded at a strong rate for most of the second half … though spending appears to have weakened toward year-end.”

“Business investment grew as well, though growth seems to have slowed somewhat,” it added.

Consumer and business confidence remains “favorable,” but “some measures have softened since the fall,” the Fed reported. “Domestic financial conditions for businesses and households have become less supportive of economic growth.”

The Fed noted to Congress that it would continue to reduce the size of its balance sheet, which had declined by about $260 billion since its last report to lawmakers, ending the year at close to $4 trillion. But the central bank also repeated its new openness to adjusting “any of the details” of its balance sheet plan if economic and financial conditions warrant.

POWELL HEADS TO CONGRESS

Fed Chairman Jerome Powell will testify before lawmakers in the U.S. Senate and House of Representatives on Tuesday and Wednesday to elaborate on the report in what could prove to be an important week for economic data and the central bank’s sense of where the economy is heading.

The report indicated some underlying economic strength, with “ongoing improvements in the labor market,” and solid growth in disposable income, fueled by the Trump administration’s tax cuts, boosting household consumption.

Inflation last year remained close to the Fed’s 2 percent target.

But the Fed noted headwinds, including those tied to the ongoing debate over global trade policy. Overall, net exports “likely subtracted a little from real GDP growth” over 2018, despite the administration’s efforts to improve the U.S. trade position.

At a policy meeting late last month, Fed officials put their three-year push for higher interest rates on hold amid a broad recognition that inflation and global growth had weakened, and that the U.S. outlook was less certain than just a few weeks earlier.

Since then, economic data has been mixed, with weaker retail sales and manufacturing reports balanced by continued strong job growth.

But some important pieces of the puzzle have been missing altogether. Most notably, the report on gross domestic product for the last quarter of 2018 was delayed by the recent government shutdown.

That report is due to be released on Thursday, and will be followed on Friday by the jobs report for February.

(Reporting by Howard Schneider and Pete Schroeder Editing by Paul Simao) ((howard.schneider@thomsonreuters.com; +1 202 789 8010;))

Fed leaves rates unchanged, says will be ‘patient’ on future hikes

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

By Howard Schneider and Jason Lange

WASHINGTON (Reuters) – The Federal Reserve held interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the U.S. economic outlook.

While the Fed said continued U.S. economic and job growth were still “the most likely outcomes,” it removed language from its December policy statement that risks to the outlook were “roughly balanced” and struck language that projected “some further” rate hikes would be appropriate in 2019.

In a separate release from its policy statement, the U.S. central bank also said while it was continuing its monthly balance sheet reduction, it was prepared to alter the pace “in light of economic and financial developments” in the future.

The Fed said in that same document that it had decided to continue managing policy with a system of “ample” reserves, a signal that its balance sheet rundown may end sooner than expected.

Taken together, the two documents were meant to convey maximum flexibility from a central bank buffeted in recent weeks by financial market volatility and signs of a global economic slowdown.

U.S. stock markets extended their gains following the Fed’s statement, and bond yields dropped as investors gauged the language adjustment as signaling a low probability of additional rate hikes any time soon. The dollar weakened against a basket of major trading partners’ currencies.

“In light of global economic and financial developments and muted inflation pressures, the committee will be patient” in determining future rate hikes, the Fed’s rate-setting committee said in its policy statement after a two-day meeting.

The Fed made no change to the $50 billion monthly runoff of Treasury bonds and mortgage-backed securities from its balance sheet. Some traders have urged it to slow or halt its pullback from the bond markets, at least for now.

“Overall this signals the Fed will not be on autopilot going forward,” said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. (1930 GMT).

The Fed raised rates four times last year and signaled in December that it would do so twice this year.

The economic outlook, however, has become more clouded as a result of recent volatility in financial markets and signs that growth is slowing overseas, including in China and the euro zone. There are also fears the 35-day partial shutdown of the U.S. government may crimp consumer spending.

The Fed on Wednesday left its overnight benchmark lending rate in a target range of 2.25 percent to 2.50 percent.

The slight downgrade in the Fed’s language around rate increases included a change in its description of economic growth from “strong” to “solid,” and it noted that market-based measures of inflation compensation have “moved lower in recent months.”

The Fed’s policy decision was unanimous.

(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao)

Fed raises interest rates, signals more hikes ahead

A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

U.S. stocks and bond yields fell hard. With the Fed signaling “some further gradual” rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

“Maybe they have already committed their policy error,” said Fritz Folts, chief investment strategist at 3Edge Asset Management. “We would be in the camp that they have already raised rates too much.”

Interest rate futures show traders are currently betting the Fed won’t raise rates at all next year.

Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25 percent to 2.50 percent.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Powell did bow to what he called recent “softening” in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed’s 2 percent target next year, policymakers can be “patient.”

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed’s last policy meeting of the year as well as in Powell’s comments: The U.S. economy continues to perform well and no longer needs the Fed’s support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

“Policy does not need to be accommodative,” he said.

In its statement, the Fed said risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed also made a widely expected technical adjustment, raising the rate it pays on banks’ excess reserves by just 20 basis points to give it better control over the policy rate and keep it within the targeted range.

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

CHOPPY WATERS

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank’s tightening this year as damaging to the economy.

The Fed has been raising rates to reduce the boost that monetary policy gives to the economy, which is growing faster than what central bank policymakers view as a sustainable rate.

There are worries, however, that the economy could enter choppy waters next year as the fiscal boost from the Trump administration’s spending and $1.5 trillion tax cut package fades and the global economy slows.

“I think that markets were looking for more in terms of the pause,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

“It’s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year.”

The benchmark S&P 500 index <.SPX> tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September. The index is down nearly 15 percent from its record high.

Benchmark 10-year Treasury yields fell as low as 2.75 percent, the lowest since April 4.

ECONOMIC PROJECTIONS

Fed policymakers’ median forecast puts the federal funds rate at 3.1 percent at the end of 2020 and 2021, according to the projections.

That would leave borrowing costs just above policymakers’ newly downgraded median view of a 2.8 percent neutral rate that neither brakes nor boosts a healthy economy, but still within the 2.5 percent to 3.5 percent range of Fed estimates for that rate.

Powell parried three questions about whether the Fed intended to restrict the economy with its rate policy, but gave little away.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so.”

Gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated. The unemployment rate, currently at a 49-year low of 3.7 percent, is expected to fall to 3.5 percent next year and rise slightly in 2020 and 2021.

Inflation, which hit the central bank’s 2 percent target this year, is expected to be 1.9 percent next year, a bit lower than the 2.0 percent forecast three months ago.

There were no dissents in the Fed’s policy decision.

(Reporting by Ann Saphir and Howard Schneider; Additional reporting by Lewis Krauskopf in New York; Editing by Paul Simao and Dan Burns)

U.S. job growth cools; unemployment rate falls to 3.7 percent

People wait in line at a stand during the Executive Branch Job Fair hosted by the Conservative Partnership Institute at the Dirksen Senate Office Building in Washington, U.S., June 15, 2018. REUTERS/Toya Sarno Jordan

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth slowed sharply in September likely as Hurricane Florence depressed restaurant and retail payrolls, but the unemployment rate fell to near a 49-year low of 3.7 percent, pointing to a further tightening in labor market conditions.

The Labor Department’s closely watched monthly employment report on Friday also showed a steady rise in wages, suggesting moderate inflation pressures, which could ease concerns about the economy overheating and keep the Federal Reserve on a path of gradual interest rate increases.

Nonfarm payrolls increased by 134,000 jobs last month, the fewest in a year, as the retail and leisure and hospitality sectors shed employment. Data for July and August were revised to show 87,000 more jobs added than previously reported.

The economy needs to create roughly 120,000 jobs per month to keep up with growth in the working-age population.

“The weaker gain in payrolls in September may partly reflect some hit from Hurricane Florence,” said Michael Pearce, senior U.S. economist at Capital Economics in New York. “There is little in this report to stop the Fed continuing to raise interest rates gradually.”

Economists polled by Reuters had forecast payrolls increasing by 185,000 jobs in September and the unemployment rate falling one-tenth of a percentage point to 3.8 percent.

Fed Chairman Jerome Powell said on Tuesday that the economy’s outlook was “remarkably positive” and he believed it was on the cusp of a “historically rare” era of ultra-low unemployment and tame inflation.

The U.S. central bank raised rates last week for the third time this year and removed the reference in its post-meeting statement to monetary policy remaining “accommodative.”

The Labor Department said it was possible that Hurricane Florence, which lashed South and North Carolina in mid-September, could have affected employment in some industries. It said it was impossible to quantify the net effect on employment.

Payrolls are calculated from a survey of employers, which treats any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed. The average workweek was unchanged at 34.5 hours in September.

The smaller survey of households from which the jobless rate is derived regards persons as employed regardless of whether they missed work during the reference week and were unpaid as result. It showed 299,000 people reported staying at home in September because of bad weather. About 1.5 million employees worked part-time because of the weather last month.

U.S. stock index futures briefly turned positive after the data before reversing course. The dollar <.DXY> was trading lower against a basket of currencies while U.S. Treasury yields were higher.

DIMINISHING SLACK

The drop of two-tenths of a percentage point in the unemployment rate from 3.9 percent in August pushed it to levels last seen in December 1969 and matched the Fed’s forecast of 3.7 percent by the end of this year.

Average hourly earnings increased 0.3 percent in September after a similar rise in August.

With September’s increase below the 0.5 percent gain notched during the same period last year, the annual rise in wages fell to 2.8 percent from 2.9 percent in August, which was the biggest advance in more than nine years.

Wage growth remains sufficient to keep inflation around the Fed’s 2 percent target. As more slack is squeezed out of the labor market, economists expect annual wage growth to hit 3 percent.

Last month, employment in the leisure and hospitality sector fell by 17,000 jobs, the first drop since September 2017. Retail payrolls dropped by 20,000 jobs in September.

Manufacturing payrolls increased by 18,000 in September after rising by 5,000 in August.

Construction companies hired 23,000 more workers last month after increasing payrolls by 26,000 jobs in August. Professional and business services employment increased by 54,000 jobs last month and government payrolls rose 13,000.

While surveys have shown manufacturers growing more concerned about an escalating trade war between the United States and China, it does not appear to have affected hiring. In fact, the Fed’s latest survey of national business conditions reflected concerns about labor shortages that are extending into non-skilled occupations as much as about tariffs.

Washington last month slapped tariffs on $200 billion worth of Chinese goods, with Beijing retaliating with duties on $60 billion worth of U.S. products. The United States and China had already imposed tariffs on $50 billion worth of each other’s goods. The trilateral trade agreement between the United States, Canada and Mexico was salvaged in an 11th-hour deal on Sunday.

Despite the Trump administration’s protectionist trade policy, the trade deficit continues to deteriorate. The trade gap increased 6.4 percent to a six-month high of $53.2 billion in August, the Commerce Department reported on Friday.

The politically sensitive goods trade deficit with China surged 4.7 percent to a record high of $38.6 billion.

(Reporting by Lucia Mutikani; Editing by Leslie Adler and Paul Simao)

Fed set to hold rates steady, remain on track for more hikes

FILE PHOTO: The Federal Reserve Building stands in Washington, DC, U.S., April 3, 2012. REUTERS/Joshua Roberts/File Photo

By Lindsay Dunsmuir

WASHINGTON (Reuters) – The Federal Reserve is expected to keep interest rates unchanged on Wednesday, but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision at 2 p.m. EDT (1800 GMT) on Wednesday. No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation, but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation – the personal consumption expenditures (PCE) price index excluding food and energy components- increased at a 2.0 percent pace in the second quarter, the data also showed. The latest monthly figures released on Tuesday showed prices in June were 1.9 percent higher than a year earlier.

The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

U.S. labor costs, a key measure of how much slack is left in the market, posted their largest annual gain since 2008 in the second quarter, the Labor Department said on Tuesday.

TRUMP CRITICISM

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” – the sweet spot in which monetary policy is neither expansive nor restrictive – will be hit.

Rate-setters are closely watching for signs that inflation is accelerating and they are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chief, Janet Yellen, for keeping rates too low.

Trump appointed Powell and Fed Governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting U.S. Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, an economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci and Paul Simao)

Americans report stronger finances in Trump’s first year: Federal Reserve

FILE PHOTO: The Federal Reserve headquarters in Washington, U.S., September 16, 2015. REUTERS/Kevin Lamarque/File Photo

WASHINGTON (Reuters) – The share of Americans who report they are doing “at least okay” financially rose in President Donald Trump’s first year in office, according to Federal Reserve data published on Tuesday.

The data was in line with other readings detailing America’s long recovery from the 2007-09 recession, including years of mostly steady job growth and a more recent uptick in wages.

The U.S. central bank said 74 percent of U.S. adults said their finances were at least okay in 2017, four percentage points higher than in 2016. Improvement was strongest in lower income households.

Still, about two in five adults faced a high likelihood of material hardship, such as an inability to afford sufficient food, medical treatment, housing or utilities, according to the Fed’s report, which was based on a survey of 12,246 people last year.

Also, about one in five people reported they personally knew someone who had been addicted to opioids. White adults were about twice as likely to be personally exposed to opioid addiction than blacks or Hispanics, regardless of education levels, the Fed said.

People exposed to opioid addiction also gave more dismal assessments of the local and national economies, although jobless rates in their areas were not higher than in areas where people were less exposed to opioids, the Fed said in the report.

“This analysis suggests the need to look beyond economic conditions to understand the roots of the current opioid epidemic,” according to the report.

The Fed has conducted the survey since 2013, although last year was the first time people were asked about opioid addiction.

Trump took office in January 2017 after a presidential election campaign that included promises to boost the economy and fight opioid addiction.

While the U.S. unemployment rate had been falling for several years before Trump assumed office, it has continued to fall and is currently at a 17-year low at 3.9 percent.

(Reporting by Jason Lange; Editing by Susan Thomas)

U.S. inflation expectations edge up: NY Fed

A shopper walks by the sodas aisle at a grocery store in Los Angeles

NEW YORK (Reuters) – Measures of U.S. inflation rebounded slightly last month, according to a Federal Reserve Bank of New York survey released on Monday that also showed a sharp drop in Americans’ spending expectations.

The survey of consumer expectations, one of several gauges of prices for the U.S. central bank, showed median inflation expectations for one year ahead edged up to 2.8 percent in April, from 2.7 percent in March. The three-year measure was 2.9 percent, compared to 2.7 percent a month earlier.

The bump, which the New York Fed said was driven by those with lower income and education, keeps the price measures roughly in a range since late last year.

The central bank has raised interest rates twice since December in large part on expectations that inflation will keep edging higher.

The survey also showed median household spending growth expectations dropped to 2.6 percent last month, from 3.3 percent in March. It was the lowest level since the New York Fed began measuring in mid-2013.

The internet-based survey is done by a third party and taps a rotating panel of 1,200 household heads.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)