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Something strange has been happening with jobless claims numbers lately

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A “Now Hiring” sign is displayed on a shopfront on October 21, 2022 in New York City.

Leonardo Munoz | View Press | Corbis News | Getty Images

Calling the state of the U.S. jobs market these days stable seems like an understatement considering the latest data coming out of the Labor Department.

That’s because most of the past several weeks have shown that first-time claims for unemployment benefits haven’t fluctuated at all — as in zero.

For five of the past six weeks, the level of initial jobless filings totaled exactly 212,000. Given a labor force that is 168 million strong, achieving such stasis seems at least unusual if not uncanny, yet that is what the figures released each Thursday morning since mid-March have shown.

The consistency has raised a few eyebrows on Wall Street. The only week that varied was March 30, with 222,000.

“How is this statistically possible? Five of the last six weeks, the exact same number,” market veteran Jim Bianco, head of Bianco Research, posted Thursday on X.

“Initial claims for unemployment insurance are state programs, with 50 state rules, hundreds of offices, and 50 websites to file. Weather, seasonality, holidays, and economic vibrations drive the number of people filing claims from week to week,” he added. “Yet this measure is so stable that it does not vary by even 1,000 applications a week.”

Others chimed in as well.

“Numbers made up,” one participant on the thread opined, while another said, “Someone’s cooking the books.”

However, others offered more analytical thoughts, attributing the uniformity in data to seasonal adjustments. Tracey Ryniec, a strategist at Zacks Investment Research, suggested: “You can go look at each state Jim. Those vary greatly.”

Indeed, a Labor Department spokesperson noted that while the string of 212,000 prints on the jobless claims data is “uncommon,” it would not be considered anomalous.

The streak “can be reasonably interpreted as an indication that there has been very little volatility in initial claims over this period relative to historical patterns, and that the seasonal adjustment factors are effectively removing seasonality from the aggregate figures reported by states,” the official said.

Moreover, claims not adjusted seasonally have shown substantial fluctuation during the five-week period, registering readings of 202,722; 191,772; 193,921; 197,349; 215,265 and 208,509.

Federal Reserve officials watch the weekly claims numbers as part of their broader assessment of the labor market, which has shown surprising resilience as the central bank has tightened monetary policy.

The Labor Department official also pointed out that new seasonal factors to the claims data were announced a month ago.

“Using the new seasonal adjustment factors, initial claims have been at a fairly consistent level since around mid-September 2023 and even more so since the start of February 2024,” the spokesperson said.

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Risk of a global recession is minimal, IMF economist says — would take 'a lot to derail'

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One of the International Monetary Fund’s top economists signals little risk of a global recession, despite the ongoing rumblings of geopolitical uncertainty.

The Washington DC-based institute this week nudged its global growth outlook slightly higher to 3.2% in 2024 and projects the same rate in 2025.

“When we do the risk assessment around that baseline, the chances that we would have something like a global recession is fairly minimal. At this point, it will take a lot to derail this economy. So there has been tremendous resilience in terms of growth prospects,” Pierre-Olivier Gourinchas, economic counsellor and director of the research department at the IMF, told CNBC’s Karen Tso on Tuesday at the group’s meeting in New York.

The “set of good news” includes strong economic performance by the U.S. and several emerging market economies, along with inflation falling faster than expected until recently despite weaker growth in Europe, Gourinchas said.

A spillover of Middle East tensions is a big geopolitical risk, says IMF's Gita Gopinath

There is divergence within Europe, he added, with the IMF downgrading its growth forecasts for Germany, France and Italy, but taking them higher for Spain, Portugal, Belgium and the U.K.

Growth forecasts since fall last year have had to factor in increased geopolitical instability, with tensions in the Middle East looming over the oil market, while Israel’s war with Palestinian militant group Hamas in the Gaza Strip led to disruptions in shipping routes in the Red Sea, by way of maritime attacks from Yemeni Houthis. That has all combined with the ongoing Russia-Ukraine war, which had its biggest wider impact on energy prices in Europe in 2022.

Oil prices increasing significantly and persistently throughout 2024 and further disruption to shipments between Asia and Europe would fuel inflation in 2024, Gourinchas noted, which would then cause central banks to hold rates higher for longer and weigh on global growth.

By the IMF’s estimate, a consistent rise in oil prices of around 15% in 2024 would push up global inflation by around 0.7%, though the value of the commodity has so far proved relatively stable even through the recent spike in Israel-Iran tensions.

Despite the positivity of the latest forecast, Gita Gopinath, the IMF’s deputy managing director, told CNBC on Tuesday she assessed geopolitical risks as a “big concern.”

“We have somehow managed the situation so far, and we’re not seeing big spillovers from the Middle East. But that is not a given. And that’s one of the big risks that we do see, the implications that could have for oil prices could be substantial. If the conflict were to escalate, become much bigger conflict,” she said.

High company valuations a 'worry,' IMF's capital markets chief says

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Financial Counsellor and Director of the Monetary and Capital Markets Department Tobias Adrian hold the press briefing of the Global Financial Stability Report at the International Monetary Fund during the 2024 Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group in Washington DC, United States on April 16, 2024.

Anadolu | Anadolu | Getty Images

High corporate valuations could pose a significant risk to financial stability as market optimism becomes untethered from fundamentals, the IMF’s director of the Monetary and Capital Markets Department said Tuesday.

Financial markets have been on a tear for much of this year, buoyed by falling inflation and hopes of forthcoming interest rate cuts. But that “optimism” has stretched company valuations to a point where that could become vulnerable to an economic shock, Tobias Adrian said.

“We do worry in some segments where valuations have become quite stretched,” Adrian told CNBC’s Karen Tso Tuesday.

“It was led by tech last year, but at this point, it’s really across the board that we have seen a run up in valuations. There’s always this question, if a negative shock were to hit to what extent do we see a readjustment of pricing,” he said.

Adrian, who was speaking on the side lines of the IMF’s Spring Meeting in Washington, said that credit markets were a particular area of concern.

“I would point to credit markets, where spreads are very tight even though borrower fundamentals are deteriorating, at least in some segments,” he said.

“Even riskier borrowers are able to issue new debt, and that’s at very favourable prices,” he added.

Real estate risks

The IMF’s financing concerns also extend to the property market, and chiefly commercial real estate, which Adrian said had grown “somewhat worrisome.”

Medium and small-sized lenders in particular could be vulnerable to commercial real estate shocks as the sector has come under pressure from a shift to remote work and online shopping, he said.

“There’s really a nexus between exposure of some banks, particularly middle sized and smaller banks, to commercial real estate that also tend to have [a] fragile funding base. Sort of the combination of having a risk exposure to commercial real estate, and this fragile funding that could in some scenarios, reignite some instability,” Adrian said.

IMF's Gourinchas: See Fed cutting three times in 2024

The IMF on Tuesday released its World Economic Outlook, in which it upgraded its global growth forecast slightly, saying the economy had proven “surprisingly resilient.”

It now sees global growth at 3.2% in 2024, however it noted that downside risks remain, including regarding inflation and the increasingly uncertain path forward for interest rates.

Federal Reserve Chair Jerome Powell said Tuesday that the U.S. economy has not seen inflation come back to target, adding to the unlikelihood that it will cut rates in the near-term.

“We do see risks in terms of inflation persistence. Some of that has realized already, but of course we could see further surprises,” Adrian said.

“We’ve [cited] risks as broadly balanced around the globe. But in some countries, there’s a little bit more upside and others a little bit more downside. So certainly, interest rate risk is a key factor we’re looking at,” he added.

UK inflation eases less than expected to 3.2% in March

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Inflation in the U.K. eased to 3.2% in March, the Office for National Statistics said on Wednesday.

That was slightly higher than the forecast from economists polled by Reuters of 3.1%, but was down from 3.4% in February.

Food prices provided the biggest downward drag on the headline rate, the ONS said, while motor fuels pushed it higher.

The core figure, excluding energy, food, alcohol and tobacco, came in at 4.2%, compared with a projection of 4.1%. Services inflation, a key watcher for U.K. monetary policymakers, declined from 6.1% to 6%.

This week, investors have been monitoring signs of a cooling U.K. labor market, with unemployment unexpectedly rising to 4.2% in the period between December and February. Wage growth excluding bonuses meanwhile dipped from 6.1% in January to 6% in February.

Bank of England Governor Andrew Bailey on Tuesday said he saw “strong evidence” that higher interest rates were working to tame the rate of price rises, which has cooled from a peak of 11.1% in October 2022. The central bank’s own forecast is for inflation to “briefly drop” to its 2% target in the spring before increasing slightly.

But a higher-than-expected March core print firmly above 4% is likely to increase speculation that inflation is proving stickier than recent forecasts have suggested, and the timing of the first interest rate cuts may be moving further down the line.

Market pricing currently suggests the BOE will implement two interest rate cuts in 2024 from its current rate of 5.25%, starting in August or September. Uncertainty over this timeline has now increased, given signs of continued inflationary pressures in the U.S.

‘The U.S. direction’

Camille de Courcel, head of European rates strategy at BNP Paribas, on Wednesday told CNBC’s “Squawk Box Europe” that the latest data showed that the U.K. was “going in the U.S. direction” and provided a risk to her call for a June rate cut from the BOE.

While labor data surprised to the downside, the ONS has cautioned its month-on-month figures may be skewed by methodological issues. That means the BOE’s Monetary Policy Committee will be far more focused on upside surprises on wage growth and services, de Courcel said.

The British pound moved higher against both the U.S. dollar and euro following the announcement, trading up 0.1% against the greenback at $1.243 and 0.15% stronger against the euro at 1.1718.

U.K. Finance Minister Jeremy Hunt, who is gearing up for a national election this year, said on social media platform X that the inflation data was “welcome news.”

IMF upgrades global growth forecast as economy proves 'surprisingly resilient' despite downside risks

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Crowds walk below neon signs on Nanjing Road. The street is the main shopping district of the city and one of the world’s busiest shopping districts.

Nikada | E+ | Getty Images

The International Monetary Fund on Tuesday slightly raised its global growth forecast, saying the economy had proven “surprisingly resilient” despite inflationary pressures and monetary policy shifts.

The IMF now expects global growth of 3.2% in 2024, up by a modest 0.1 percentage point from its earlier January forecast, and in line with the growth projection for 2023. Growth is then expected to expand at the same pace of 3.2% in 2025.

The IMF’s chief economist, Pierre-Olivier Gourinchas, said the findings suggest that the global economy is heading for a “soft landing,” following a string of economic crises, and that the risks to the outlook were now broadly balanced.

“Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose,” he said in a blog post.

Growth is set to be led by advanced economies, with the U.S. already exceeding its pre-Covid-19 pandemic trend and with the euro zone showing strong signs of recovery. But dimmer prospects in China and other large emerging market economies could weigh on global trade partners, the report said.

China among key downside risks

China, whose economy remains weakened by a downturn in its property market, was cited among a series of potential downside risks facing the global economy. Also included were price spikes prompted by geopolitical concerns, trade tensions, a divergence in disinflation paths among major economies and prolonged high interest rates.

To the upside, looser fiscal policy, falling inflation and advancements in artificial intelligence were cited as potential growth drivers.

Central banks are now being closely watched for a signal on the future path of inflation, with opinion diverging on either side of the Atlantic as to when the Federal Reserve and the European Central Bank will cut rates. Some analysts have recently forecast a possible Fed rate hike as stubborn inflation and rising Middle East tensions weigh on economic sentiment.

The IMF said it sees global headline inflation falling from an annual average of 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

“As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long and causing target undershoots,” Gourinchas said.

IMF's Gourinchas: See Fed cutting three times in 2024

“At the same time, as central banks take a less restrictive stance, a renewed focus on implementing medium-term fiscal consolidation to rebuild room for budgetary maneuver and priority investments, and to ensure debt sustainability, is in order,” he added.

Despite the rosier outlook of Tuesday, global growth remains low by historic standards, owing in part to weak productivity growth and increasing geopolitical fragmentation. The IMF’s five-year forecast sees global growth at 3.1%, its lowest level in decades.

U.S. economy will see 'more things break' in 2025 if rates stay high, strategist says

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U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024.

Elizabeth Frantz | Reuters

The U.S. economy could be headed for stormy waters in 2025 if the Federal Reserve does not take action soon on interest rates, State Street’s head of investment strategy in EMEA said Tuesday.

Altaf Kassam told CNBC that classic monetary policy mechanisms had “broken,” meaning that any changes made by the Fed will now take longer to trickle down into the real economy — potentially delaying any major shocks.

“The traditional transmission policy mechanism has broken, or doesn’t work as well,” Kassam told “Squawk Box Europe.”

The research chief attributed that shift to two things. Firstly, U.S. consumers, whose largest liability is typically their mortgage, which were mostly secured on a longer-term, fixed rate basis during the Covid-19 low-interest rate era. Similarly, U.S. companies largely refinanced their debts at lower rates at the same time.

As such, the impact of, for example, sustained higher interest rates may not be felt until further down the line when they come to refinance.

“The problem is, if rates stay at this level until say 2025, when a big wall of refinancing is due, then I think we will start to see more things break,” Kassam said.

“For now, consumers and corporates aren’t feeling the pinch of higher interest rates,” he added.

Expectations of a near-term Fed rate cuts have faded lately amid persistent inflation data and hawkish commentary from policymakers.

San Francisco Fed President Mary Daly said Monday there was “no urgency” to cut U.S. interest rates, with the economy and labor market continuing to show signs of strength, and inflation still above the Fed’s target of 2%.

Until as recently as last month, markets had been anticipating up to three rate cuts this year, with the first in June. However, a string of banks have since pushed back their timelines, with Bank of America and Deutsche Bank both saying last week that they now expect just one rate cut in December.

That marks a deviation from the European Central Bank, which is still broadly expected to lower rates in June after holding steady at its meeting last week. However, Morgan Stanley on Monday trimmed its 2024 rate cut expectations for the ECB from 100 basis points to 75 basis points, which it said was due to “the change in the forecast of the Fed cutting cycle.”

Kassam said Tuesday that State Street’s expectations of a June Fed rate cut had not changed.

Retail sales jumped 0.7% in March, much higher than expected

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Rising inflation in March didn’t deter consumers, who continued shopping at a more rapid pace than anticipated, the Commerce Department reported Monday.

Retail sales increased 0.7% for the month, considerably faster than the Dow Jones consensus forecast for a 0.3% rise though below the upwardly revised 0.9% in February, according to Census Bureau data that is adjusted for seasonality but not for inflation.

The consumer price index increased 0.4% in March, the Labor Department reported last week in data that also was higher than the Wall Street outlook. That means consumers more than kept up with the pace of inflation, which ran at a 3.5% annual rate for the month, below the 4% retail sales increase.

Excluding auto-related receipts, retail sales jumped 1.1%, also well ahead of the estimate for a 0.5% advance. The core control group, which strips out several volatile measures and is in the formula to determine gross domestic product, also increased 1.1%

A rise in gas prices helped push the headline retail sales number higher, with sales up 2.1% on the month at service stations. However, the biggest growth area for the month was online sales, up 2.7%, while miscellaneous retailers saw an increase of 2.1%.

Multiple categories did report declines in sales for the month: Sporting goods, hobbies, musical instruments and books posted a 1.8% decrease, while clothing stores were off 1.6%, and electronics and appliances saw a 1.2% drop.

Stock market futures added to gains following the report, while Treasury yields also pushed sharply higher. The upbeat outlook for the Wall Street open came despite an escalation over the weekend in Middle East tensions as Iran launched aerial strikes on Israel.

“Strong sales growth in March salvaged an otherwise mediocre quarter for retailers,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Q1 growth isn’t going to generate a round of high fives, but closing out the quarter on a strong note should allow them to breathe a sigh of relief and a glimmer of hope that momentum could carry through into the coming months.”

Resilient consumer spending has helped keep the economy afloat despite higher interest rates and concerns over stubborn inflation. Consumer spending accounts for nearly 70% of U.S. economic output so it is critical to continued growth in gross domestic product.

Monday’s data comes with market concerns elevated over the path of monetary policy. Federal Reserve officials have expressed caution about cutting interest rates while inflation pressures continue, and investors have been forced to reduce their expectation for easing in policy this year.

Stronger consumer spending could cause the Fed to hold off longer on cuts, said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

“Alongside the recent resurgence in employment growth, the continued resilience of consumption is another reason to suspect the Fed will wait longer before starting to cut interest rates, which now we think won’t happen until September,” Hunter said in a note after the retail sales release.

Market pricing, which has been highly volatile over the past several weeks, also is pointing to the first cut coming in September, according to the CME Group’s FedWatch gauge of futures prices.

In other economic news Monday, the Empire State Manufacturing index, which gauges activity in the New York region, increased in April from a month ago but remained in contraction territory. The index hit -14.3, better than the -20.9 reading for March but below the Dow Jones estimate for -10.

The index measures the percentage of firms reporting expansion against contraction, so anything below zero represents contraction. Shipments and delivery time readings saw a decline, while prices paid increased.

Surging inflation fears sent markets tumbling and Fed officials scrambling

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A sign advertising units for rent is displayed outside of a Manhattan building on April 11, 2024 in New York City.

Spencer Platt | Getty Images

The early data is in for the path of inflation during the first three months of 2024, and the news so far is, well, not good.

Pick your poison. Whether it’s prices at the register or wholesale input costs, while inflation is off the blistering pace of 2022, it doesn’t appear to be going away anytime soon. Future expectations also have been drifting higher.

Investors, consumers and policymakers — even economists — have been caught off guard with just how stubborn price pressures have been to start 2024. Stocks slumped Friday as the Dow Jones Industrial Average coughed up nearly 500 points, dropping 2.4% on the week and surrendering nearly all its gains for the year.

“Fool me once, shame on you. Fool me twice, shame on me,” Harvard economist Jason Furman told CNBC this week. “We’ve now had three months in a row of prints coming in above just about what everyone expected. It’s time to change the way we think about things going forward.”

No doubt, the market has been forced to change its thinking dramatically.

Even import prices, an otherwise minor data point, contributed to the narrative. In March, it posted its biggest increase for a three-month period in about two years. All of it has amounted to a big headache for markets, which sold off through most of the week before really hitting the skids Friday.

As if all the bad inflation news wasn’t enough, a Wall Street Journal report Friday indicated that Iran plans to attack Israel in the next two days, adding to the cacophony. Energy prices, which have been a major factor in the past two months’ inflation readings, pushed higher on signs of further geopolitical turmoil.

“You can take your pick. There’s a lot of catalysts” for Friday’s sell-off, said market veteran Jim Paulsen, a former strategist and economist with Wells Fargo and other firms who now writes a blog for Substack titled Paulsen Perspectives. “More than anything, this is really down to one thing now, and it’s the Israel-Iran war if that’s going to happen. … It just gives you a great sense of instability.”

High hopes dashed

In contrast, heading into the year markets saw an accommodative Fed poised to cut interest rates early and often — six or seven times, with the kickoff happening in March. But with each months’ stubborn data, investors have had to recalibrate, now anticipating just two cuts, according to futures market pricing that sees a non-zero probability (about 9%) of no reductions this year.

“I’d love the Fed to be in a position to cut rates later this year,” said Furman, who served as chair of the Council of Economic Advisers under former President Barack Obama. “But the data is just not close to being there, at least yet.”

This week was filled with bad economic news, with each day literally bringing another dose of reality about inflation.

It started Monday with a New York Fed consumer survey showing expectations for rent increases over the next year rising dramatically, to 8.7%, or 2.6 percentage points higher than the February survey. The outlook for food, gas, medical care and education costs all rose as well.

On Tuesday, the National Federation of Independent Business showed that optimism among its members hit an 11-year low, with members citing inflation as their primary concern.

Wednesday brought a higher-than-expected consumer price reading that showed the 12-month inflation rate at 3.5%, while the Labor Department on Thursday reported that wholesale prices showed their biggest one-year gain since April 2023.

Finally, a report Friday indicated that import prices rose more than expected in March and notched the biggest three-month advance since May 2022. On top of that, JPMorgan Chase CEO Jamie Dimon warned that “persistent inflationary pressures” posed a threat to the economy and business. And the University of Michigan’s closely watched consumer sentiment survey came in lower than expected, with respondents pushing up their inflation outlook as well.

Still ready to cut, sometime

Fed officials took notice of the higher readings but did not sound panic alarms, as most said they still expect to cut later this year.

“The economy has come a long way toward achieving better balance and reaching our 2 percent inflation goal,” New York Fed President John Williams said. “But we have not seen the total alignment of our dual mandate quite yet.”

Boston Fed President Susan Collins said she sees inflation “durably, if unevenly” drifting back to 2% as well, but noted that “it may take more time than I had previously thought” for that to happen. Minutes released Wednesday from the March Fed meeting showed officials were concerned about higher inflation and looking for more convincing evidence it is on a steady path lower.

Fed remains in focus for venture capital investors after strong CPI report

While consumer and producer price indexes captured the market’s attention this week, it’s worth remembering that the Fed’s attention is elsewhere when it comes to inflation. Policymakers instead follow the personal consumption expenditures price index, which has not been released yet for March.

There are two key differences between the CPI and the PCE indexes. Primarily, the Commerce Department’s PCE adjusts for changes in consumer behavior, so if people are substituting, say, chicken for beef because of price changes, that would be reflected more in PCE than CPI. Also, PCE places less weighting on housing costs, an important consideration with rental and other shelter prices holding higher.

In February, the PCE readings were 2.5% for all items and 2.8% ex-food and energy, or the “core” reading that Fed officials watch more closely. The next release won’t come until April 26; Citigroup economists said that current tracking data points to core edging lower to 2.7%, better but still a distance from the Fed’s goal.

Adding up the signals

Moreover, there are multiple other signals showing that the Fed has a long way to go.

So-called sticky price CPI, as calculated by the Atlanta Fed, edged up to 4.5% on a 12-month basis in March, while flexible CPI surged a full percentage point, albeit to only 0.8%. Sticky price CPI entails items such as housing, motor vehicle insurance and medical care services, while flexible price is concentrated in food, energy and vehicle prices.

Finally, the Dallas Fed trimmed mean PCE, which throws out extreme readings on either side, to 3.1% in February — again a ways from the central bank’s goal.

A bright spot for the Fed is that the economy has been able to tolerate high rates, with little impact to the employment picture or growth at the macro level. However, there’s worry that such conditions won’t last forever, and there have been signs of cracks in the labor market.

“I have long worried that the last mile of inflation would be the hardest. There’s a lot of evidence for a non-linearity in the disinflation process,” said Furman, the Harvard economist. “If that’s the case, you would require a decent amount of unemployment to get inflation all the way to 2.0%.”

That’s why Furman and others have pushed for the Fed to rethink it’s determined commitment to 2% inflation. BlackRock CEO Larry Fink, for instance, told CNBC on Friday that if the Fed could get inflation to around 2.8%-3%, it should “call it a day and a win.”

“At a minimum, I think getting to something that rounds to 2% inflation would be just fine — 2.49 rounds to two. If it stabilized there, I don’t think anyone would notice it,” Furman said. “I don’t think they can tolerate a risk of inflation above 3 though, and that’s the risk that we’re facing right now.”

Economic crosscurrents creating questions around earnings season, says Crossmark's Bob Doll

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Jamie Dimon warns that inflation, wars and Fed policy pose major threats ahead

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JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, U.S., December 6, 2023. 

Evelyn Hockstein | Reuters

JPMorgan Chase CEO Jamie Dimon warned Friday that multiple challenges, primarily inflation and war, threaten an otherwise positive economic backdrop.

“Many economic indicators continue to be favorable,” the head of the largest U.S. bank by assets said in announcing first-quarter earnings results. “However, looking ahead, we remain alert to a number of significant uncertain forces.”

An “unsettling” global landscape, including “terrible wars and violence,” is one such factor introducing uncertainty into both JPMorgan’s business and the broader economy, Dimon said.

Additionally, he noted “persistent inflationary pressures, which may likely continue.”

Dimon also noted the Federal Reserve’s efforts to draw down the assets it is holding on its $7.5 trillion balance sheet.

“We have never truly experienced the full effect of quantitative tightening on this scale,” Dimon said.

The latter comment references the nickname given to a process the Fed is employing to reduce the level of Treasurys and mortgage-backed securities it is holding.

The central bank is allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them, resulting in a $1.5 trillion contraction in holdings since June 2022. The program is part of the Fed’s efforts to tighten financial conditions in hopes of alleviating inflationary pressures.

Though the Fed is expected to slow down the pace of quantitative tightening in the next few months, the balance sheet will continue to contract.

Taken together, Dimon said the three issues pose substantial unknowns ahead.

“We do not know how these factors will play out, but we must prepare the Firm for a wide range of potential environments to ensure that we can consistently be there for clients,” he said.

Dimon’s comments come amid renewed worries over inflation. Though the pace of price increases has come well off the boil from its June 2022 peak, data so far in 2024 has shown inflation consistently higher than expectations and well above the Fed’s 2% annual goal.

As a result, markets have had to dramatically shift their expectations for interest rate reductions. Whereas markets at the beginning of the year had been looking for up to seven cuts, or 1.75 percentage points, the expectation now is for only one or two that would total at most half a percentage point.

Higher rates are generally considered positive for banks as long as they don’t lead to a recession. JPMorgan on Friday reported an 8% boost in revenue in the first quarter, attributable to stronger interest income and higher loan balances. However, the bank warned net interest income for this year could be slightly below what Wall Street is expecting and shares were off nearly 2% in premarket trading.

BlackRock's Larry Fink sees Fed cutting rates twice this year but missing 2% inflation goal

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DUBAI, UNITED ARAB EMIRATES – DECEMBER 04: Larry Fink, CEO of Blackrock, speaks at a roundtable discussion titled: “Financing the New Climate Economy,” during which he described the urgent need for a “new financial landscape” for funding investments into the global energy transition on day five of the UNFCCC COP28 Climate Conference at Expo City Dubai on December 04, 2023 in Dubai, United Arab Emirates. The COP28, which is running from November 30 through December 12, is bringing together stakeholders, including international heads of state and other leaders, scientists, environmentalists, indigenous peoples representatives, activists and others to discuss and agree on the implementation of global measures towards mitigating the effects of climate change. (Photo by Sean Gallup/Getty Images)

Sean Gallup | Getty Images News | Getty Images

BlackRock CEO Larry Fink predicted Friday that the Federal Reserve likely will still cut interest rates this year but won’t meet its inflation target.

With markets on edge over the direction of monetary policy, the head of the world’s largest money manager said it’s unlikely the central bank will hit its 2% goal anytime soon. A report earlier this week showed inflation running at a 3.5% annual rate.

Still, Fink expects the Fed to do some reductions this year while it may have to concede that inflation will remain elevated.

“When everybody said we’re going to have six cuts earlier this year, from noted economists, I said maybe two,” Fink said during an interview on CNBC’s “Squawk on the Street.” “I’m still saying maybe two.”

Though that forecast was out of consensus in January and February, it’s consistent with the recalibrated market expectations since hot inflation readings became prevalent this year. Fed officials have expressed reluctance to start cutting until they see more convincing evidence that the pace of price increases is heading back to target.

But Fink said the central bank may have its sights set too high, or too low as the case might be for inflation.

“Inflation has moderated and we’ve always said inflation is going to moderate. But is it going to moderate to that terminal rate the Federal Reserve is looking for? I feel doubtful,” he said. “Do I believe that we could get a stable inflation between 2.8% and 3%? I’d call it a day and a win.”

Fink spoke the same day BlackRock reported quarterly earnings that topped Wall Street expectations both for profit and revenue. The company also said its assets under management hit a record of $10.5 trillion.

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Beyoncé bounce: Western boot sales jump more than 20% week over week since 'Cowboy Carter' launch

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Beyoncé leaves the Luar fashion show at 154 Scott in Brooklyn during New York Fashion Week on Feb. 13, 2024.

James Devaney | GC Images | Getty Images

Western boots have a new protector in Beyoncé.

The country fashion staple’s sales surged more than 20% in the week after the music superstar released her “Cowboy Carter” album, according to consumer behavior firm Circana. That can spell good news for companies making the iconic shoe, as well as other items that fit the same Wild West aesthetic.

“Cowboy Carter,” which came out late last month, marked the “Halo” singer’s foray into the country genre. Even before the full album dropped, Circana reported notable boosts to unit sales for this style of boot following the release of singles “Texas Hold ‘Em” and “16 Carriages.”

The 32-time Grammy winner’s latest project adds to a groundswell of cultural support for stagecoach-inspired styles. Louis Vuitton unveiled an American Western line during Paris Fashion Week earlier this year, featuring models in everything from cowboy hats to bolo ties. This look has also caught a bid through the ongoing Eras Tour, as some attendees opt to channel Taylor Swift’s pre-pop days as a country singer.

Retailers and industry followers have already taken note of the trend.

Beyoncé’s chart-topping album can provide a same-store sales boost and help lasso in women shoppers at Boot Barn, said Williams Trading analyst Sam Poser. He upgraded his rating on the California-based retailer to buy on Thursday and raised his price target by $33 to $113, which now implies an upside of about 12%.

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Boot Barn, Year to Date

Adding to the momentum is the beginning of busy seasons for rodeos and music festivals, Poser said. With these positive trends, he said guidance for the current quarter and full fiscal year should exceed Wall Street consensus estimates.

“We have little doubt that there is a correlation” between the increased attention on Western clothing and the release of Beyoncé’s eighth studio album, Poser said.

Boot Barn shares have climbed more than 4% since the start of April, defying the broader market’s pullback. That adds to the stock’s rally over the course of 2024, with shares jumping about 30% compared with the start of the year.

‘Really trending’

Though cowboy boots may typify the Western look, other pieces can also ride the wave.

Levi Strauss CEO Michelle Gass told analysts earlier this month that the denim maker works to ensure the “brand remains in the center of culture.” That mission was aided by “Levii’s Jeans,” a song on the “Cowboy Carter” album featuring Post Malone.

Justin Sullivan | Getty Images

“I don’t think there’s any better evidence or proof point than having someone like Beyoncé, who is a culture shaper, to actually name a song after us,” Gass said on the company’s earnings call last week.

Gass said denim is “having a moment” and the Western style is “really trending,” including in fashion and music.

But denim suppliers have not been able to sidestep the recent market slide. Levi Strauss shares have dropped more than 3% in April. Kontoor Brands, whose styles under the Wrangler brand include a “cowboy cut” jean, has tumbled around 11% in the month.

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UK economy posts 0.1% growth in February in further sign of recession rebound

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People shelters from the rain beneath a Union flag-themed umbrella as they walk past spring flowers in blossom, in St James’s Park in central London on April 10, 2024.

Justin Tallis | Afp | Getty Images

LONDON — U.K. gross domestic product rose 0.1% in February, the Office for National Statistics said on Friday, providing another sign of a return to sluggish economic growth this year.

The month-on-month figure was in line with a projection in a Reuters poll. On an annual basis, GDP was 0.2% lower.

The economy contracted in the third and fourth quarters of 2023, putting the U.K. in a technical recession.

January recorded light growth, which was revised upward to 0.3% on Friday.

Construction output, which boosted growth at the start of the year, fell 1.9% in February. Instead, production output was the biggest contributor to the GDP, rising by 1.1% in February, while growth in the U.K.’s dominant services sector slowed to 0.1% from 0.3%.

The reading “all-but confirms the recession ended” last year, Paul Dales, chief U.K. economist at Capital Economics, said in a note.

“But while we expect a better economic recovery than most, we doubt it will be strong enough to prevent inflation (and interest rates) from falling much further as appears to be happening in the U.S.,” Dales added.

British inflation fell more than expected in March, to a nearly two-and-a-half year low of 3.4%.

In the U.S., however, price rises came in higher than forecast at 3.5% this week, pushing back market bets for the start of interest rate cuts from the summer to September.

This has raised questions about whether central banks elsewhere will be influenced by a later start from the Federal Reserve than previously expected, particularly if the U.S. dollar strengthens.

Goldman Sachs on Friday revised its forecast for Bank of England rate cuts this year from five to four, projecting the trims will start in June, before slowing to a quarterly pace.

Simon French, chief economist at Panmure Gordon, told CNBC’s “Squawk Box Europe” on Friday that while the BOE is independent, policymakers will nevertheless be conscious of an upcoming U.K. national election, which politicians have suggested will be held in the second half of the year.

“Do you get [cuts] out of the way ahead of that general election? There is quite a lot of pressure from the governing party, not necessarily the prime minister but the chancellor has talked about expecting rate cuts.”

Overall, French said the figures strongly indicated the end of the recession but were “not a reason to hang out the bunting.”

Growth is below its pre-pandemic trend and lagging the U.S. but is on a par with much of Europe and showed signs of a pick-up in areas such as manufacturing and car production, French added.

European Central Bank gives strong signal that cuts are on the way despite Fed uncertainty

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Christine Lagarde, president of the European Central Bank (ECB), at a rates decision news conference in Frankfurt, Germany, on Thursday, March 7, 2024. 

Bloomberg | Bloomberg | Getty Images

The European Central Bank on Thursday held interest rates steady for a fifth straight meeting and gave its clearest signal yet of an upcoming rate cut, despite uncertainty over the U.S. Federal Reserve’s next moves.

“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” it said in a statement.

In a news conference after the announcement, ECB President Christine Lagarde said this “important” new sentence was a “loud and clear indication” of the bank’s current sentiment.

The ECB made no direct reference to loosening monetary policy in its previous communiques.

The central bank for the 20 countries that share the euro currency hiked its key rate to a record 4% in September. It has left this rate unchanged at every gathering since.

Policymakers and economists have zeroed in on June as the month when rates could start to be reduced, after the ECB trimmed its medium-term inflation forecast. Price rises in the euro zone have since cooled more than expected in March.

June will also be the first month when policymakers will have a full set of data on first-quarter wage negotiations — an area of concern for potential inflationary effects.

The ECB on Thursday said incoming information had “broadly confirmed” its medium-term outlook, with falling inflation led by lower food and goods.

Market pricing suggests a 25 basis point cut in June, according to LSEG data.

“For a while now, the ECB has essentially pre-committed to a June cut. There is a high bar for this not to be delivered. But there is a wide range of possible outcomes in the subsequent months, depending on further progress with disinflation. So far, the data is moving in the doves’ favour,” said Hussain Mehdi, director of investment strategy at HSBC Asset Management, in a note.

Next Fed steps

In the U.S., expectations for a summer rate cut from the Federal Reserve were significantly curtailed by inflation data coming in higher than forecast on Wednesday.

This has raised questions over how European central banks will respond to developments in the world’s largest economy.

Asked Thursday about whether the U.S. consumer price index figures could impact the ECB’s rate-cut trajectory, Lagarde said: “Obviously, anything that happens matters to us and will in due course be embedded in the projection that will be prepared and released in June. The United States is a very large market, a very sizeable economy, a major financial sector as well.”

“We are not assuming that what happens in the euro area will be the mirror of what happens in the United States,” Lagarde said, stressing that the economies, political regimes and fiscal policies were all different.

She declined to specify whether the euro’s exchange rate against the U.S. dollar would factor into policymaking.

But in comments reported by Reuters that preceded the ECB’s decision, Per Jansson, deputy governor at Sweden’s central bank, on Thursday said that if the Fed rules out rate cuts in 2024, it could present a “problem” for both the Riksbank and the ECB.

In the case of the Riksbank, this would be due to the weakening of the Swedish krona fueling inflation, Jansson said in a speech.

European data continues to move toward the 2% inflation target, keeping the ECB on track for a June cut – but the pace and extent of further reductions this year “could be more sensitive to U.S. data and Fed policy,” Andrew Benito, chief European economist at Eisler Capital, told CNBC’s Silvia Amaro ahead of the rate announcement.

Wholesale prices rose 0.2% in March, less than expected

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A measure of wholesale prices increased less than expected in March, providing some potential relief from worries that inflation will hold higher for longer than many economists had expected.

The producer price index rose 0.2% for the month, less than the 0.3% estimate from the Dow Jones consensus and not as much as the 0.6% increase in February, according to a release Thursday from the Labor Department’s Bureau of Labor Statistics.

However, on a 12-month basis, the PPI climbed 2.1%, the biggest gain since April 2023, indicating pipeline pressures that could keep inflation elevated.

Excluding food and energy, the core PPI also rose 0.2%, meeting expectations. Excluding trade services from the core level, the increase was 0.2% monthly but 2.8% from a year ago.

The release comes a day after the BLS reported that consumer prices again rose more than expected in March, raising concerns that the Federal Reserve will be unable to lower interest rates anytime soon.

On the producer price side, March’s gain was pushed by services, which saw a 0.3% increase on the month. Within that category, the index for securities brokerage and other investment-related fees jumped 3.1%.

Conversely, goods prices decreased 0.1%, flipping a 1.2% increase in February. Final demand costs for energy, which have been on the rise lately, actually fell 1.6% on the month. However, wholesale prices for final demand food and goods less food and energy climbed 0.8% and 0.1%, respectively.

Though prices have been rising at the pump, the final demand index for gasoline fell 3.6%. That contrasted with the consumer price index, which showed gasoline up 1.7% on the month.

Markets showed little reaction to the data, with futures tied to major stock indexes slightly higher though Treasury yields declined.

In other economic news Thursday, initial filings for jobless benefits fell to 211,000, a decline of 11,000 from the previous week’s upwardly revised level and below the 217,000 estimate from Dow Jones.

Continuing claims, which run a week behind, increased to 1.82 million, up 28,000 for the period, according to the Labor Department release.

The economic data points are being watched closely as the Federal Reserve contemplates its next moves on monetary policy.

Wednesday’s CPI release jolted markets, which had been anticipating an aggressive series of interest rate cuts this year. The report showed annual inflation running at 3.5%, well above the Fed’s 2% target.

The market now is pricing in the possibility of just two cuts this year, likely not starting until September, according to CME Group data.

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WTO forecasts rebound in global trade but keeps geopolitical risks in focus

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Container ships from international trunk lines, including those from Europe, Africa, India, Pakistan, and Southeast Asia, are loading and unloading containers at the container terminal of the Qianwan Port Area of Qingdao Port in Qingdao, China, on April 4, 2024. 

Nurphoto | Getty Images

The World Trade Organization on Wednesday said that it expects global trade to rebound gradually this year, before rising further in 2025, as the impacts of higher inflation fall into the rearview mirror.

In its latest “Global Trade Outlook and Statistics” report, the WTO forecast that total global trade volumes will increase by 2.6% in 2024, and by a further 3.3% in 2025. It follows a larger-than-expected 1.2% decline in 2023, as inflationary pressures and higher interest rates weighed on international trade.

“The reason for this pickup is basically the normalization of inflation and also the normalization of monetary policy, which has been a drag on trade in 2023,” the WTO’s chief economist Ralph Ossa told CNBC’s Silvia Amaro.

The trade rebound is expected to be “broad-based,” including across Europe, which experienced some of the deepest falls in trade volumes last year as a result of geopolitical tensions and the energy crisis caused by Russia’s full-scale invasion of Ukraine.

“Europe was really weighing on international trade in 2023, and we don’t see that being the case anymore,” Ossa said.

Geopolitical risks remain

Overall, world trade has been “remarkably resilient” over recent years, rising above its pre-Covid-19 pandemic peak in late 2023, the WTO report concluded. However, the organization warned that geopolitical tensions could still pose a risk to its outlook.

In particular, the ongoing war between Israel and Palestinian militant group Hamas could cause major trade disruptions, should it spill over into energy markets, Ossa said.

The economist also pointed to signs of global trade “fragmentation” along geopolitical lines.

The WTO report divided the global economy into two “hypothetical geopolitical blocks” based on U.N. voting patterns and found that trade growth between the blocks was slower than within them. The U.S. and U.K. for instance, have typically taken similar positions in recent U.N. votes on the Russia-Ukraine conflict, while China and South Africa, on the other hand, have taken opposite views.

That fragmentation was especially notable between the world’s two largest economies, the U.S. and China.

“We’ve seen that trade growth between the United States and China was 30% slower than trade growth between these countries and other countries,” Ossa said, referring to the period since 2018, when trade tensions initially arose.

“That doesn’t mean that they are not still trading a lot, but their trade shares are increasingly moving away from these relationships.”

Trade tensions between the U.S. and China resurfaced this week, when U.S. Treasury Secretary Janet Yellen said she would not rule out possible tariffs on Beijing, if it is found to be engaging in unfair trade practices. The calls for a tougher stance on China were echoed on Tuesday by European Commission chief Ursula von der Leyen.

The spat centers on claims that China is “dumping” subsidized green technology goods into international markets, effectively undercutting domestic producers. Beijing denies the claims.

The WTO report does not detail China-specific trade forecasts, however it expects a 3.4% aggregate increase in Asia exports in both 2024 and 2025.

“That doesn’t mean that, in particular sectors, we couldn’t see or we don’t expect to see any surges,” Ossa said.

Hot inflation data pushes market’s rate cut expectations to September

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Traders work on the floor of the New York Stock Exchange during afternoon trading on April 09, 2024 in New York City.

Michael M. Santiago | Getty Images

As recently as January, investors had high hopes that the Federal Reserve was about to embark on a rate-cutting campaign that would reverse some of the most aggressive policy tightening in decades.

Three months of inflation data have brought those expectations back down to earth.

March’s consumer price index report Wednesday helped verify worries that inflation is proving stickier than thought, giving credence to caution from Fed policymakers and finally dashing the market’s hopes that the central bank would be approving as many as seven rate cuts this year.

“The math suggests it’s going to be hard near term to get inflation down to the Fed’s target,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Not that you’ve put a pin in inflation getting to the Fed’s target, but it’s not happening imminently.”

There was little good news to come out of the Labor Department’s CPI report.

Both the all-items and ex-food and energy readings were higher than the market consensus on both a monthly and annual basis, putting the rate of inflation well above the Fed’s target. Headline CPI rose 0.4% on the month and 3.5% from a year ago, ahead of the central bank’s 2% goal.

Danger beneath the surface

But other danger signs beyond the headline numbers emerged.

Services prices, excluding energy, jumped 0.5% and were up 5.4% from a year ago. A relatively new computation the markets are following which takes core services and subtracts out housing — it has come to be known as “supercore” and is watched closely by the Fed — surged at an annualized pace of 7.2% and rose 8.2% on a three-month annualized basis.

There’s also another risk in that “base effects,” or comparisons to previous periods, will make inflation look even worse as energy prices in particular are rising after falling around the same time last year.

All of that leaves the Fed in a holding position and the markets worried about the possibility of no cuts this year.

The CME Group’s FedWatch tool, which computes rate-cut probabilities as indicated by futures market pricing, moved dramatically following the CPI release. Traders now see just a slim chance of a cut at the June meeting, which previously had been favored. They have also pushed out the first reduction to September, and now expect only two cuts by the end of the year. Traders even priced in a 2% probability of no cuts in 2024.

“Today’s disappointing CPI report makes the Fed’s job more difficult,” said Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth. “The data does not completely remove the possibility of Fed action this year, but it certainly lessens the chances the Fed is cutting the overnight rate in the next couple months.”

Market reaction

Markets, of course, didn’t like the CPI news and sold off aggressively Wednesday morning. The Dow Jones Industrial Average dropped by more than 1%, and Treasury yields burst higher. The 2-year Treasury note, which is especially sensitive to Fed rate moves, jumped to 4.93%, an increase of nearly 0.2 percentage point.

There could yet be good news ahead for inflation. Factors such as rising productivity and industrial capacity, along with slower money creation and easing wages, could take the pressure off somewhat, according to Joseph LaVorgna, chief economist at SMBC Nikko Securities.

However, “inflation will remain higher than what is necessary to warrant Fed easing,” he added. “In this regard, Fed cuts will be pushed out to into the second half of the year and are likely to fall only 50 basis points [0.5 percentage point] with risks being tilted in the direction of even less easing.”

In some respects, the market has only itself to blame.

The pricing in of seven rate cuts earlier this year was completely at odds with indications from Fed officials. However, when policymakers in December raised their “dot plot” indicator to three rate cuts from two projected in September, it set off a Wall Street frenzy.

“The market was just way over its skis in that assumption. That made no sense based on the data,” Schwab’s Sonders said.

Still, she thinks if the economy stays strong — GDP is projected to grow at a 2.5% rate in the first quarter, according to the Atlanta Fed — the knee-jerk reaction to Wednesday’s data could pass.

“If the economy hangs in there, I think the market is, for the most part, OK,” Sonders said.

Correction: The markets are worried about the possibility of no cuts this year. An earlier version misstated the worries.

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Consumer prices rose 3.5% from a year ago in March, more than expected

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The consumer price index accelerated at a faster-than-expected pace in March, pushing inflation higher and likely dashing hopes that the Federal Reserve will be able to cut interest rates anytime soon.

The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage point higher than in February, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.

Excluding volatile food and energy components, core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared with respective estimates for 0.3% and 3.7%.

Stocks slumped after the report while Treasury yields spiked higher.

Shelter and energy costs drove the increase on the all-items index.

Energy rose 1.1% after climbing 2.3% in February, while shelter costs, which make up about one-third of the weighting in the CPI, were higher by 0.4% on the month and up 5.7% from a year ago. Expectations for shelter-related costs to decelerate through the year have been central to the Fed’s thesis that inflation will cool enough to allow for interest rate cuts.

Food prices increased just 0.1% on the month and were up 2.2% on a year-over-year basis. There were some big gains within the food category, however.

The measure for meat, fish, poultry and eggs climbed 0.9%, pushed by a 4.6% jump in egg prices. Butter fell 5% and cereal and bakery products declined by 0.9%. Food away from home increased 0.3%.

Elsewhere, used vehicle prices fell 1.1% and medical care services prices rose 0.6%.

Increasing inflation was also bad news for workers, as real average hourly earnings were flat on the month and increased just 0.6% over the past year, according to a separate BLS release.

The report comes with markets on edge and Fed officials expressing caution about the near-term direction for monetary policy. Central bank policymakers have repeatedly called for patience on cutting rates, saying they have not seen enough evidence that inflation is on a solid path back to their 2% annual goal. The March report likely confirmed worries that inflation is stickier than expected.

Markets had expected the Fed to start cutting interest rates in June with three reductions in total expected this year, but that shifted dramatically following the release. Traders in the fed funds futures market pushed expectations for the first cut out to September, according to CME Group calculations.

“There’s not much you can point to that this is going to result in a shift away from the hawkish bent” from Fed officials, said Liz Ann Sonders, chief investment strategist at Charles Schwab. “June to me is definitely off the table.”

The Fed also expects services inflation to ease through the year, but that has shown to be stubborn as well. Excluding energy, the services index increased 0.5% in March and was at a 5.4% annual rate, inconsistent with the Fed’s target.

This marks the third consecutive strong reading and means that the stalled disinflationary narrative can no longer be called a blip,” said Seema Shah, chief global strategist at Principal Asset Management. “In fact, even if inflation were to cool next month to a more comfortable reading, there is likely sufficient caution within the Fed now to mean that a July cut may also be a stretch, by which point the US election will begin to intrude with Fed decision making.”

Later Wednesday, the Fed will release minutes from its March meeting, providing more insight into where officials stand on monetary policy.

Multiple Fed officials in recent days have expressed skepticism about lowering rates. Atlanta Fed President Raphael Bostic told CNBC that he expects just one cut this year, likely not coming until the fourth quarter. Governor Michelle Bowman said an increase may even be necessary if the data does not cooperate.

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A crucial report Wednesday is expected to show little progress against inflation

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Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 

Scott Olson | Getty Images

A closely watched Labor Department report due Wednesday is expected to show that not much progress is being made in the battle to bring down inflation.

If so, that would be bad news for consumers, market participants and Federal Reserve officials, who are hoping price increases slow enough so that they can start gradually cutting interest rates later this year.

The consumer price index, which measures costs for a wide-ranging basket of goods and services across the $27.4 trillion U.S. economy, is expected to register increases of 0.3% both for the all-items measure as well as the core yardstick that excludes volatile food and energy.

On a 12-month basis that would put the inflation rates at 3.4% and 3.7%, respectively, a 0.2 percentage point increase in the headline rate from February, just a 0.1 percentage point decrease for the core rate, and both still a far cry from the central bank’s 2% target.

“We’re not headed there fast enough or convincing enough, and I think that’s what this report is going to show,” said Dan North, senior economist at Allianz Trade North America.

The report will be released at 8:30 a.m. ET.

Progress, but not enough

North said he expects Fed officials to view the report pretty much the same way, backing up comments they’ve been making for weeks that they need more evidence that inflation is convincingly on its way back to 2% before rate cuts can happen.

“Moving convincingly toward 2% doesn’t just mean hitting 2% for one month. It means hitting 2% or less for months and months in a row,” North said. “We’re a long way from that, and that’s probably what’s going to show tomorrow as well.”

To be sure, inflation has come down dramatically from its peak above 9% in June 2022. The Fed enacted 11 interest rate hikes form March 2022 to July 2023 totaling 5.25 percentage points for its benchmark overnight borrowing rate known as the federal funds rate.

But progress has been slow in the past several months. In fact, headline CPI has barely budged since the central bank stopped hiking, though core, which policymakers consider a better barometer of longer-term trends, has fallen about a percentage point.

While the Fed watches the CPI and other indicators, it focuses most on the Commerce Department’s personal consumption expenditures index, sometimes referred to as the PCE deflator. That showed headline inflation running at 2.5% and the core rate at 2.8% in February.

For their part, markets have grown nervous about the state of inflation and how it will affect rate policy. After scoring big gains to start the year, stocks have backed off over the past week or so, which have seen sharp swings as investors tried to make sense of the conflicting signals.

Earlier this year, traders in the fed funds futures market were pricing in the likelihood that the central bank would start reducing rates in March and continue for as many as seven cuts before the end of 2024. The latest pricing indicates that the cuts won’t start until at least June and not total more than three, assuming quarter-percentage point increments, according to the CME Group’s FedWatch calculations.

“I don’t see a whole lot here that is going to move things magically the way they want to go,” North said.

What to watch

There will be a few key areas to watch in Wednesday’s report.

Beyond the headline numbers, trends in items such as shelter, airfares and vehicle prices will be important. Those areas have been bellwethers during the current economic cycle, and moves either way could suggest longer-term trends.

Economists at Goldman Sachs expect outright declines across air travel-related items as well as vehicle sticker prices, and see smaller shelter cost increases, which make up about one-third of the CPI weighting. A New York Fed survey released Monday, however, showed a sharp uptick in expectations for rental costs over the next year, which is bad news for policymakers who frequently have cited decelerating housing costs as the cornerstone to their easing inflation thesis.

Similarly, the National Federation of Independent Business survey for March, released Tuesday, showed confidence among small businesses at its lowest level in more than 11 years, with owners citing inflation as their top concern.

“Inflation is cumulative, and that’s why prices still feel high,” North said. “People still can’t believe how high prices are.”

Gas prices also could play an important role in the CPI release after rising 3.8% in February. Though the gasoline index is relatively unchanged over the past two years, it’s still up more than 70% from April 2020 when the brief Covid-driven recession ended. Food is up about 23% during the same period.

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Small business optimism hits 11-year low as inflation fears won't go away

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A man checks the label of a vitamins jar at a Costco Wholesale store on April 3, 2024 in Colchester, Vermont. 

Robert Nickelsberg | Getty Images

Small business confidence hit its lowest level in more than 11 years for March as proprietors worried that inflation is still very much a problem.

At a time when other data points show inflation receding, the National Federation of Independent Business reported Tuesday that its survey showed a reading of 88.5, down nearly a point from February and the lowest since December 2012.

A quarter of all respondents reported that rising costs were the biggest problem.

“Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” NFIB Chief Economist Bill Dunkelberg said. “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”

A quarter of all respondents cited inflation, and in particular higher input and labor costs, as their most pressing issue. A net 28% reported raising average selling prices for the month and 33% planned additional price hikes, according to seasonally adjusted data.

As part of those escalating costs, a net 38% said they raised compensation, up 3 percentage points from the February reading that was the lowest since May 2021. The Labor Department on Friday reported that average hourly earnings rose 0.3% in March and 4.1% from a year ago.

The survey comes with other indicators showing that inflation, while not eradicated, is at least receding.

A Commerce Department measure of personal consumption expenditures prices put the annual inflation rate at 2.5% in February. The measure, which the Federal Reserve uses as its main inflation gauge, showed a 2.8% level when excluding food and energy, which policymakers prefer as a better sign of longer-run trends.

The consumer price index, a more widely watched figure by the public, will be released Wednesday and is expected to show a 3.4% headline rate and 3.7% on core. Fed policymakers target 2% annual inflation.

Inflation expectations have been fairly well-anchored in recent months. A New York Fed survey on Monday showed respondents for March expected a 3% rate over the next year, unchanged from February. The three-year outlook rose slightly but the five-year expectation decreased.

However, the survey did show a big jump in the expectations for rent increases — by 8.7% over the next year, a 2.6 percentage point surge from February. Declining shelter inflation is at the core of the Fed’s thesis that inflation will continue to ebb toward the central bank’s 2% target, allowing for interest rate cuts later in the year.

Fed survey respondents also said they expect prices to rise substantially for most other major components. They see gas prices up 4.5% in the next year and food up 5.1%, both 0.2 percentage point higher than the February survey.

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Americans converge on the path of totality to experience the solar eclipse

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The sun rises behind the Empire State Building on the day of the solar eclipse in New York City on April 8, 2024, as seen from Jersey City, New Jersey. 

Gary Hershorn | Corbis News | Getty Images

Today marks a total solar eclipse that is expected to cross the United States as millions of Americans try to position themselves in the path of totality to capture this celestial moment. The next time an eclipse of this magnitude will cross the U.S. will be on Aug. 23, 2044. Towns in the path of totality are preparing for an influx of people vying for the ultimate viewing experience and providing an economic boon.

Bloomington, Indiana

Signage advertising the total solar eclipse in Bloomington, Indiana, US, on Sunday, April 7, 2024. 

Chet Strange | Bloomberg | Getty Images

Houlton, Maine

\Visitors look through a pair of oversized eclipse glasses set up in the town square on April 07, 2024, in Houlton, Maine. 

Joe Raedle | Getty Images

Cheryll Simmons-Heit, wearing a moon, and Johanna Johnston, wearing a sun, participate in the Solar Sprint 3k on April 07, 2024 in Houlton, Maine. 

Joe Raedle | Getty Images News | Getty Images

Dawn MacDonald (R), the owner of Crowe’s Tattoos, places an eclipse tattoo on the arm of Morgan Flewelling (L) on April 07, 2024, in Houlton, Maine. 

Joe Raedle | Getty Images

Fredericksburg, Texas

A sign displaying ‘No School’ is seen at Fredericksburg middle school ahead of the total solar eclipse on April 07, 2024 in Fredericksburg, Texas. 

Brandon Bell | Getty Images

Carbondale, Illinois

Eclipse-themed T-shirts are offered for sale at a science fair at Southern Illinois University on April 07, 2024 in Carbondale, Illinois. 

Scott Olson | Getty Images

Orlando, Florida

Special OREO donuts from Krispy Kreme are shown in a picture illustration in Orlando. The celestial-themed donuts went on sale today to celebrate the total solar eclipse on April 8, 2024. 

Paul Hennessy | Lightrocket | Getty Images

Pinchneyville, Illinois

Solar eclipse t-shirts are offered for sale at Audra’s Footprint on April 05, 2024 in Pinckneyville, Illinois. 

Scott Olson | Getty Images

Makanda, Illinois

Brittany Sunderman and Gianna Debenham, 6, from Effingham, Illinois, and other members of the Debenham family who travelled from Utah and Las Vegas to experience the total solar eclipse together, try out their eclipse viewing glasses at their campsite a day ahead of the event at Camp Carew in Makanda, Illinois, U.S., April 7, 2024.

Evelyn Hockstein | Reuters

Niagara Falls, Ontario

People sit next to the Horseshoe Falls in Niagara Falls, Ontario, Canada, on April 8, 2024 as they prepare for the total eclipse which is set to pass over the region later in the day. 

Geoff Robins | AFP | Getty Images

Unemployment rate among Black Americans jumped in March, contrasting overall trends

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We’re Hiring, Part-time heroes wanted, sign at entrance to Target Store, Queens, New York.

Lindsey Nicholson | Universal Images Group | Getty Images

The unemployment rate among Black Americans jumped in March, according to data released Friday by the Department of Labor.

Black unemployment rose to 6.4% last month, up from 5.6% in February. That’s higher than the overall unemployment rate, which edged lower to 3.8% last month, as well as the 3.4% jobless rate for white Americans, which held steady from February.

When accounting for gender, the unemployment rate for Black women aged 20 or older spiked to 5.6%, a big increase from the 4.4% rate in February. Black men’s jobless rates climbed slightly higher to 6.2% from 6.1%.

“That’s a concerning trend,” said Elise Gould, a senior economist at the Economic Policy Institute.

Gould pointed out that the unemployment rate for Black Americans has been steadily increasing since December. “I would say it’s not alarming yet, but I think it’s something that we really need to watch in coming months,” she added.

While March’s increase was primarily driven by the surge among Black women, Gould noted that in the past four months, the unemployment rates for both men and women has risen. However, she also cautioned that monthly data for demographic groups can be volatile by nature.

Last month, the labor force participation rate – the percentage of the population that is either employed or actively seeking work – among Black Americans inched lower to 63.6%, down from 63.7% in February.  For Black women, the rate ticked lower to 63% from 63.4%, while it inched down to 69.6% from 69.8% among Black men.

“People are looking for more opportunities, not all of them are getting them, and that’s why the unemployment rate is rising,” Gould added.

This compares to the overall U.S. labor market participation rate, which rose to 62.7% in March from February’s 62.5%.

Black Americans were the demographic group that suffered the most from Covid-induced business shutdowns. The unemployment rate for Black workers peaked at 16.8% in 2020, higher than the overall unemployment rate’s April 2020 high of 14.7%.

Hispanic Americans saw their unemployment rate drop to 4.5% from 5% last month. Similarly, Asian unemployment fell to 2.5% from 3.4% in February.

— CNBC’s Gabriel Cortes contributed to this report.

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Demand for french fries reflects resilient consumer as so-called fry attachment rate holds steady

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A McDonald’s crew member prepares french fries in Miami, Florida.

Getty Images

It’s a timeless question at fast-food counters: Do you want fries with that?

Responders continue answering affirmatively at a higher-than-average rate, a top potato supplier indicated. It underscores the resilience of consumer spending, even as inflation pinches pocketbooks and pandemic savings dry up.

A larger share of customers keep adding the iconic side to meal orders than in the past, according to frozen potato supplier Lamb Weston. Looking at the bigger picture, strength in the so-called fry attachment rate bolsters economic data, showing the willingness of average Americans to still shell out for everyday luxuries.

“The fry attachment rate has stayed pretty consistent,” said CEO Thomas Werner during the company’s earnings call on Thursday. “It’s been above historical levels for the past two, three years.”

This is just one example of how consumers keep purchasing despite mounting reasons to tighten purse strings, a phenomenon that’s puzzling economists.

Spending on retail and food services in America topped $700 billion in February, according to advance and adjusted government figures. That’s about 1.5% higher than the same month a year ago. And it’s a whopping 38.5% higher when compared with February 2019.

Rising wages and fiscal stimulus measures padded bank accounts during the early years of the Covid-19 crisis, prompting increased purchasing. But in more recent years, U.S. consumers have felt increasing pressure amid runaway inflation, elevated interest rates and the end of pandemic-era financial benefits.

And experts have been surprised by the unwavering propensity of Americans to use their cash, even as consumer confidence sours and fears of an economic downturn swirl. The choice to add french fries provides one case study of what some have dubbed “YOLO” or “revenge” spending, with the first term named after the acronym for “you only live once.”

Slowdown elsewhere

To be sure, there are signs of financial stress on consumers that impact monetary decisions around food. WK Kellogg CEO Gary Pilnick told CNBC earlier this year that cereal was trending as a dinner alternative while shoppers grappled with higher grocery costs.

Though customers still opt for fries, Werner said Lamb Weston’s volume took a hit nonetheless due to softer foot traffic overall in the restaurants it serves. That slide comes as consumers grow accustomed to increased prices for menu items as a result of inflation, the executive said. (Lamb Weston provides potatoes for large chains such as McDonald’s and Chick-fil-A, though Werner did not specify which companies are experiencing slowdowns.)

“On the one hand, fries remain as popular as ever with consumers,” Werner said. “But on the other hand, consumers are going out to eat less often.”

Lamb Weston on Thursday reported adjusted earnings and revenue for the fiscal third quarter that came in below estimates of analysts polled by FactSet. The Idaho-based company’s outlook for full-year performance on both financial measures also missed Wall Street forecasts.

Shares tumbled more than 19% in Thursday’s session, touching lows not seen in more than a year.

Correction: This article has been updated to remove an inaccurate reference to the timing of the Covid pandemic. This article was also updated with the correct spelling of Chick-fil-A.

Fed caution may be justified if the labor market starts to deteriorate. Here's why that could happen

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Here's where the jobs are for March 2024 — in one chart

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The U.S. labor market surprised economists with its strength once again, adding more than 300,000 jobs in March, with a few key sectors continuing to fuel its growth.

Health care and social assistance were the top sector for job gains — a common theme in recent years — adding 81,300 jobs. Government and leisure and hospitality were the next two strongest sectors, and together these top groups accounted for more than 60% of March’s gains.

Within health care, ambulatory services and hospitals combined to add 55,000 jobs, according to the Bureau of Labor Statistics. Local government was another strong sub-group for hiring, growing by 49,000 jobs.

Notably, the leisure and hospitality sector is now back to its pre-pandemic employment level, according to the Bureau of Labor Statistics. Employment in this area, which includes bars and restaurants, fell dramatically in 2020 when many such establishments were closed for health concerns.

The continued rebound of these jobs, along with strong months for sectors like construction, could be a sign that immigration is helping the labor market grow without putting too much upward pressure on wages. The Bureau of Labor Statistics noted that the labor force participation has changed little in the past year despite consistent upside surprises for job gains.

“Last year, half of the growth in the labor force came from net immigration. There were 5.2 million additional jobs last year, thanks to net immigration. It’s been the key to rebalancing the labor market. It’s a huge part of the reason we’ve got the growth that we’ve got and the disinflation that we’ve had,” Stony Brook University professor Stephanie Kelton said Friday on “Squawk Box.”

Job growth zoomed in March as payrolls jumped by 303,000 and unemployment dropped to 3.8%

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Job creation in March easily topped expectations in a sign of continued acceleration for what has been a bustling and resilient labor market.

Nonfarm payrolls increased 303,000 for the month, well above the Dow Jones estimate for an increase of 200,000 and higher than the downwardly revised 270,000 gain in February, the Labor Department’s Bureau of Labor Statistics reported Friday.

The unemployment rate edged lower to 3.8%, as expected, even though the labor force participation rate moved higher to 62.7%, a gain of 0.2 percentage point from February. A broader measure that includes discouraged workers and those holding part-time positions for economic reasons held steady at 7.3%.

In the key average hourly earnings measure, wages rose 0.3% for the month and 4.1% from a year ago, both in line with Wall Street estimates.

Job growth came from many of the usual sectors that have powered gains in recent months. Health care led with 72,000, followed by government (71,000), leisure and hospitality (49,000) and construction (39,000). Retail trade contributed 18,000 while the “other services” category added 16,000.

“This is another really strong report,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “This report and the February report showed some broadening in terms of job creation, which is a very good sign.”

Despite the move lower in the broader unemployment level, the rate for Black people surged to 6.4%, a gain of 0.8 percentage point, tying the highest level since August 2022. Rates for Asians and Hispanics both fell sharply to 2.5% and 4.5% respectively.

Markets have been keeping close watch over the employment data particularly as the Federal Reserve weighs its next moves on monetary policy. Stocks have tumbled this week amid concerns that a strong labor market and resilient economy could keep the central bank on hold for longer than expected.

Stock market futures rose following the report while Treasury yields also added to gains.

The Fed is looking to guide inflation back down to 2% annually, a goal that has proven elusive even as the rate of price gains has decelerated from its peak in mid-2022. Most measures have inflation running above 3%, though the Fed’s preferred gauge is below that level.

Market pricing is pointing toward the first interest rate cut coming in June, though several Fed officials, including Chair Jerome Powell, this week indicated they prefer to take a cautious data-dependent approach. The BLS on Wednesday will release its consumer price index reading for March.

Despite a string of positive gains that has kept unemployment below 4% since January 2022, there have been some signs of cracks. For instance the level of household employment had grown only modestly over the past year while temporary employment has declined sharply.

However, the household survey, which is used to calculate the unemployment rate, posted an even more robust gain in March, up 498,000, more than absorbing the 469,000 increase in the civilian labor force level.

This is breaking news. Please check back here for updates.

Economist El-Erian says the Fed has turned into a play-by-play commentator

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Mohamed Aly El-Erian, chief economic advisor for Allianz SE. 

Bloomberg | Getty Images

The U.S. Federal Reserve has become too data dependent and has lost sight of its overall strategy, Mohamed El-Erian, chief economic adviser at Allianz, said Friday.

The economist told CNBC that a longer-term, more strategic outlook could see policymakers settle on a new inflation target of closer to 3%.

“Rather than be strategic, this Fed is overly data dependent, and has turned into a play-by-play commentator,” El-Erian told CNBC’s Steve Sedgwick at the Ambrosetti Spring Forum in Italy.

“That’s not the role of the Fed,” he continued. “The Fed should be strategic, the Fed should provide a strategic anchor, a stabilizer.”

“The mistake that they may make is they’ll end up this time being too tight,” he said.

The U.S. Federal Reserve did not immediately respond to a CNBC request for comment.

El-Erian’s comments follow a recent chorus of Fed policymakers who have begun speaking conservatively about rate cuts.

Fed Chair Jerome Powell said Wednesday that the Bank would need further evidence to assess the current state of inflation, casting doubt on expectations for a June interest rate cut.

A day later, Minneapolis Fed President Neel Kashkari said he wondered if the central bank should cut rates at all if inflation remained sticky, causing markets to tumble.

El-Erian said the comments were an example of the Fed “overreacting to data,” and said that it should take a more holistic view of the economy.

However, he noted that policymakers’ hawkish approach could be an indication that they are considering the possibility of a new normal inflation target.

“The way you discuss it politely is you don’t say ‘let’s change the inflation target,’ you say ‘let’s get to 2% somewhere in the future. Let’s have a trajectory’,” El-Erian said. “It may well prove that the economy is stable nearer to 3%. I don’t think that’s going to de-anchor inflation expectations,” he added.

In an effort to drag inflation back down toward its target, the Fed has hiked interest rates 11 times in total over the last few years to a target range of 5.25%-5.5% — the highest level for more than 22 years.

Job gains expected again in March. Here are all the things to look for in Friday's report

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A person works on a Bowlus RV at Bowlus’s factory in Oxnard, California, U.S., February 23, 2024. Each Bowlus RV is assembled by hand with aircraft-grade rivets and is hand polished. 

Timothy Aeppel | Reuters

The March nonfarm payrolls count likely will indicate hiring continuing at a solid pace, though some weakening foundations of the labor market could take greater focus when the Labor Department releases its key report Friday morning.

Job growth is expected to come in at 200,000 for the period, according to the Dow Jones consensus forecast. If that’s correct, it will mark a slowdown from February’s initially reported 275,000, but still a strong pace by historical terms.

Yet a funny thing has been happening with the jobs reports recently: Initially strong numbers have tended to be lowered in subsequent estimates, raising questions about whether the jobs situation is as positive as it looks.

That will be just one of several key areas in focus when the report is released at 8:30 a.m. ET.

Strong, but how strong?

February’s release raised eyebrows with a gain that trounced the Wall Street outlook for 198,000 new jobs. Also gaining notice, though, were revisions to the prior two months that reduced December by 43,000 to 290,000 and January’s by a whopping 124,000 to 229,000.

For all of 2023, revisions took 520,000 off the initial estimates — there are three readings in total — countering a historical trend in which the final numbers are generally higher than the first readings.

The trend “makes me wonder about the credibility of the first number,” said Dan North, senior economist at Allianz Trade Americas. “So I’ll be looking for the revisions from the prior month to see if they’re going to be knocked down, and most likely they will be. That’s why if you get a big number, take it with a grain of salt.”

There is some anticipation on Wall Street of an upside surprise: Goldman Sachs raised its initial forecast to 240,000, an increase of 25,000, following strong private payroll data from ADP showing a gain of 184,000 on the month, and other indicators.

Drivers of growth

Along with numbers, composition is important, namely where the growth is coming from and whether there are any cracks in the employment armor. The job market’s resilience has confounded many economists who spent the past two years searching for a jobs-led recession that never happened.

“Firms are seeing strong demand. They’ve dramatically increased their productivity, and so they’re hiring for different kinds of jobs,” said Luke Tilley, chief economist at Wilmington Trust. “That has enabled them to deal with the high-rate environment.”

Still, there are areas of concern.

Household employment, which counts individual workers rather than total jobs and is used to calculate the unemployment rate, has fallen by nearly 1 million since November. The survey is more volatile and uses a much smaller sample than the establishment count that yields the headline payrolls growth total. But there’s no obvious reason for the weakness, though some economists speculate it could involve the surge in illegal immigration over the past few years.

Also, full time employment has declined slightly over the past year while the rolls of part-time workers have swelled by more than 900,000. There also has been a sharp decline in temporary workers, a classic sign of a slowdown.

Inflation signals

Federal Reserve officials will watch all those factors for signs of inflation pressures. Stocks have been under pressure this week as investors worry about the direction of monetary policy.

Average hourly earnings are projected to have increased 0.3% in March, which would be a jump from 0.1% in February, though the estimate for the annual gain is 4.1%, or 0.2 percentage point less.

If the consensus calls are correct, it’s unlikely to move the needle much for the Fed, which is expected to begin cutting interest rates gradually starting in June, according to futures market pricing tracked by the CME Group.

“Unless there is a wildly positive or outright tragic employment report, they’re going to stay on course,” North said. “They’ve been really clear recently pushing back on the market saying we’re in no big hurry, inflation is not down to 2%.”

For his part, however, North noted that he expects the Fed to wait until July before it starts cutting rates — contrary to current market expectations.

Private payrolls increased by 184,000 in March, better than expected, ADP says

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Private sector job growth expanded in March at its fastest pace since July 2023, indicating continuing buoyance in the U.S. labor market, payrolls processing firm ADP reported Wednesday.

Companies added 184,000 workers on the month, an increase from the upwardly revised February gain of 155,000, which also was the Dow Jones estimate for March.

In addition to the strong employment pickup, ADP reported that wages for workers who stayed in their jobs increased 5.1% from a year ago, the same rate as February after showing a steady easing going well back into 2023. Those switching jobs saw gains of 10%, also higher than in previous months.

“March was surprising not just for the pay gains, but the sectors that recorded them,” said ADP’s chief economist, Nela Richardson. “Inflation has been cooling, but our data shows pay is heating up in both goods and services.”

Job gains were fairly broad-based, led by leisure and hospitality with 63,000. Other sectors showing significant increases included construction (33,000), trade, transportation and utilities (29,000), and education and health services (17,000). Professional and business services saw a loss of 8,000.

Services-related industries accounted for 142,000 of the total, with goods providing the rest. ADP, whose survey is based on payroll data analysis of more than 25 million workers, does not track government jobs.

Most of the growth came from companies that employ more than 50 workers, with small businesses adding just 16,000 to the total. From a regional standpoint, the South saw the biggest gains, adding 91,000 workers.

The ADP estimate serves as a precursor to the Labor Department’s nonfarm payrolls survey, set to be released Friday, though the numbers often diverge sharply. The department’s Bureau of Labor Statistics reported job growth of 275,000 in February, or 120,000 more than even ADP’s revised figure. Economists surveyed by Dow Jones expect the March count to show growth of 200,000.

Solid payroll growth along with improving inflation has allowed the Federal Reserve to be patient in its approach to easing monetary policy. Central bank officials expect to start cutting interest rates later this year but have said in recent days that they haven’t seen enough evidence yet that inflation is on a sustained path lower to begin reductions.

Turkey's inflation climbs to 68.5% despite continued rate hikes

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A money changer holds Turkish lira and U.S. dollar banknotes at a currency exchange office in Ankara, Turkey December 16, 2021.

Cagla Gurdogan | Reuters

Turkey’s annual inflation rose to 68.5% for the month of March, an increase on February’s 67.1% inflation read, according to the Turkish Statistical Institute’s report released Wednesday.

The monthly rise in consumer prices came out at 3.16%, led by education, communication, and hotels, restaurants and cafes, which saw month-on-month rises of 13%, 5.6%, and 3.9%, respectively.

On an annual basis, education again saw the highest cost inflation at 104% year on year, followed by hotels, restaurants and cafes at 95% and health at 80%.

Turkey has launched a concerted effort to tackle soaring inflation with interest rate hikes, most recently raising the country’s key rate from 45% to 50% in late March.

Much of the inflation in recent months stems from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year rose to 17,002 Turkish lira (around $530) per month in January, a 100% hike from the same period a year prior.

Economists expect further rate hikes from the central bank will be necessary.

While the March inflation count represents “the smallest monthly increase in three months and suggests that the impact of the large minimum wage hike in January may now have largely passed, it is still far from consistent with the single-digit inflation that policymakers are trying to achieve,” Nicholas Farr, an Emerging Europe economist at London-based Capital Economics, wrote in an analyst note Wednesday.

“The latest inflation figures do little to change our view that further monetary tightening lies in store and that a more concerted effort to tighten fiscal policy will be needed too,” he said.

Turkey’s central bank implemented eight consecutive interest rate hikes from June 2023 to January 2024, totaling a cumulative 3,650 basis points. It paused in February, suggesting the tightening cycle was over, before raising rates again in March, citing “deterioration in the inflation outlook” and saying that “tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed.”

Supporters of Istanbul Mayor Ekrem Imamoglu, mayoral candidate of the main opposition Republican People’s Party (CHP), celebrate following the early results in front of the Istanbul Metropolitan Municipality (IBB) in Istanbul, Turkey March 31, 2024. 

Umit Bektas | Reuters

Analysts note that with Turkey’s local elections, which took place on March 31, out of the way, pushing ahead with tighter monetary policy will likely be easier. The vote for municipal leaders across the country, which took place on Sunday, saw Turkey’s opposition party deal a historic blow to Turkish President Recep Tayyip Erdogan’s ruling AK Party, winning the country’s five largest cities and several rural areas as well.

Economic pain and steep living cost increases for ordinary Turks over the last several years played a major role in the results, political observers said.

Exercising tight control over the central bank, Erdogan for the last few years refused to raise rates, calling them “the mother of all evil” and insisting, against economic orthodoxy, that lowering rates was the way to cool inflation. This was despite declining foreign currency reserves and a rapidly weakening Turkish lira, which has lost some 82% of its value against the dollar in the last five years.

Only after appointing a new finance and central bank team in May of 2023 did the central bank stage a turnaround in policy, suggesting greater independence at the bank from the executive branch of Turkey’s government. But the political loss for Erdogan’s party in the March local elections could make his future moves more unpredictable, some analysts say.

“The outcome of the vote fuels political uncertainty and raises doubts about whether President Recep Erdogan will stick to unpopular orthodox policies,” Bartosz Sawicki, a market analyst at fintech firm Conotoxia fintech, wrote in a note. But, he added: “With no elections until 2028, another overhaul leading to the return of extra-loose monetary policy seems unlikely.”

Euro zone inflation unexpectedly slows to 2.4% in March, with core print also below forecast

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Two women hold an umbrella while sitting at an outdoor table of a cafe on April 01, 2024 in Rome, Italy. 

Emanuele Cremaschi | Getty Images News | Getty Images

Inflation in the 20-nation euro zone eased to 2.4% in March, according to flash figures published on Wednesday, boosting expectations for interest rate cuts to begin in the summer.

Economists polled by Reuters had forecast the rate would hold steady against the previous month at 2.6%.

The core rate of inflation, excluding energy, food, alcohol and tobacco, cooled from 3.1% to 2.9%, also coming in below expectations.

However, inflation in services — a key watcher for the European Central Bank — remained stuck at 4% for a fifth straight month, pointing to continued pressure from wage growth.

Another indicator for the ECB released Wednesday, the euro area unemployment rate, stood at 6.5% in February, stable against January but down from 6.6% in February 2023.

Price rises in France and Spain came in lower than forecast last week. On Tuesday, headline inflation in the bloc’s biggest economy, Germany, was estimated at a three-year low of 2.2%.

Markets expect the euro zone’s central bank will begin lowering borrowing costs in June — a position reflected in the recent messaging of ECB decision-makers. They are next set to hold a monetary policy meeting on April 11.

Even Austrian central bank head Robert Holzmann, an ECB hawk who previously said it was possible that no cuts at all would take place in 2024, told Reuters this week that he did not have an “in-principle objection to easing in June.”

“The current narrative is clearly pointing to a first rate cut in June,” Carsten Brzeski, global head of macro at ING, said in a note on Wednesday. That is due to the March inflation print as well as the data on wage growth and ECB staff forecasts on gross domestic product and inflation that will be released by then, he said.

Kamil Kovar, senior economist at Moody’s Analytics, said the release of Wednesday “poured cold water on the idea that the last mile in defeating inflation will be hardest,” and reiterated a call for five rate cuts this year.

“Inflation has declined despite a jump in energy inflation, and a boost from an early Easter. Even if the good headline number masked some less favorable details, such as services coming in hot while food prices tumbled, inflation overall is still on course to dip below 2% sometime during the summer,” Kovar said.

Steve Eisman says the Fed shouldn't cut rates, risks creating a stock market bubble if it does

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Key Points

  • Neuberger Berman portfolio manager Steve Eisman said the Fed would be better off just staying put as the economy shows continuing signs of strength and inflation eases.
  • “Why would you cut? My actual fear is that if the Fed were actually to cut rates, the market becomes bubblicious and then we have a real problem,” Eisman told CNBC.

'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.

Watch CNBC's live coverage of Friday's key inflation data

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The Commerce Department on Friday will release the February reading for the personal consumption expenditures price index, which the Federal Reserve considers its most important inflation measure.

CNBC TV will have special coverage starting at 8:15 a.m. ET that you can only watch here. The PCE data is released at 8:30 a.m. ET.

CNBC will analyze the numbers and what it means for markets Monday. U.S. financial markets are closed Friday for Good Friday.

Excluding food and energy, the core index was expected to rise 0.3% in February and 2.8% from a year ago, according to the Dow Jones consensus estimate, after respectively rising 0.4% and 2.8% in January. For the main number, the respective estimates are 0.4% and 2.5%, compared to 0.3% and 2.4%.

While the Fed looks at both numbers, it considers core a more reliable indicator of longer-term inflation trends.

Along with the PCE numbers, the department will release the figures for personal income and consumer spending. They are expected to show respective increases of 0.4% and 0.5%.

Read more
Fed holds rates steady and maintains three cuts coming sometime this year
Now comes the hard part for the Fed to achieve its goal of getting inflation to 2%
Long-term inflation expectations rise, spelling possible trouble for the Fed, survey shows

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Key Fed inflation gauge rose 2.8% annually in February, as expected

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Inflation rose in line with expectations in February, likely keeping the Federal Reserve on hold before it can start considering interest rate cuts, according to a measure the central bank considers its more important barometer.

The personal consumption expenditures price index excluding food and energy increased 2.8% on a 12-month basis and was up 0.3% from a month ago, the Commerce Department reported Friday. Both numbers matched the Dow Jones estimates.

Including volatile food and energy costs, the headline PCE reading showed a 0.3% increase for the month and 2.5% at the 12-month rate, compared to estimates for 0.4% and 2.5%.

Both the stock and bond markets were closed in observance of the Good Friday holiday.

While the Fed looks at both measures when making policy, it considers core to be a better gauge of long-term inflation pressures. The Fed targets 2% annual inflation; core PCE inflation hasn’t been below that level in three years.

“Nothing really super surprising. Obviously not the numbers the Fed wants to see, but I don’t think this is going to catch anybody off guard when they come back to work on Monday,” Victoria Greene, chief investment officer at G Squared Private Wealth, told CNBC. “I think everybody is going to pivot to labor pretty quickly and say well maybe if we see some weakness and cracks over here, this little stickiness in inflation and PCE isn’t going to matter as much.”

Rising energy costs helped push up the headline reading, with a 2.3% increase. The food index edged up 0.1%. Inflation pressures came more from the goods side, which rose 0.5%, compared to the 0.3% increase for services. That countered the trend over the past year, during which services rose 3.8% while goods actually fell by 0.2%.

Other upward pressure came from international travel services, air transportation, and financial services and insurance. On the goods side, the motor vehicles and parts category was the biggest contributor.

Along with the inflation increase, consumer spending shot up 0.8% on the month, well ahead of the 0.5% estimate, possibly indicating additional inflation pressures. Personal income increased 0.3%, slightly softer than the 0.4% estimate.

The release comes a little more than a week after the central bank again held its benchmark short-term borrowing rate steady and indicated it still has not seen enough progress on inflation to consider cutting. In their quarterly update of rate projections, members of the Federal Open Market Committee again pointed to three quarter-percentage point cuts this year and in 2025.

Markets expect the Fed to remain on hold again when it releases its decision on May 1, then begin cutting at the June 11-12 meeting. Market pricing is in line with FOMC projections for three cuts, according to the CME Group’s FedWatch measure of futures market action.

Former Fed Vice Chair Clarida sees possibility of fewer rate cuts than expected this year

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Stubbornly high inflation could push the Federal Reserve into a more cautious stance this year regarding interest rate cuts, the central bank’s former vice chair said Friday.

Richard Clarida, who served as Fed governor until January 2022 and is now a global economic advisor at asset management giant Pimco, said his former colleagues need to be on guard against sticky prices that could thwart plans to ease monetary policy this year.

At its meeting earlier this week, the rate-setting Federal Open Market Committee indicated it would likely decrease rates three times this year, assuming quarter percentage point intervals. Chair Jerome Powell said receding inflation and a strong economy give policymakers room to cut.

“This may be more of a hope than a forecast,” Clarida said during an interview on CNBC’s “Squawk Box.” “I do hope that the Fed really moves into data-dependent mode, because there can be a very good case if inflation is sticky and stubborn that they shouldn’t deliver three cuts this year.”

Markets also are expecting three cuts this year, though that pricing has been scaled back after data to start the year showed inflation higher than expected.

Fed officials are banking that elevated shelter inflation is on its way down, paving the way to lower their key borrowing rate from its highest level in more than 23 years. Clarida, however, said the extent to which the Fed can cut is unclear.

“Under a pretty broad range of scenarios, they’re going to get at least one cut in this year,” he said.

However, the calculus gets different as inflation data provides mixed signals.

The Fed prefers the Commerce Department’s measure of personal consumption expenditures prices, with a particular focus on the core reading that excludes food and energy. The headline 12-month PCE reading for January was 2.4% and core was at 2.8% — both above the Fed’s 2% goal but headed in the right direction.

However, the more commonly followed consumer price index in February was at 3.2% for headline and 3.8% for core, both well above the central bank target. Moreover, the Atlanta Fed’s measure of “sticky” inflation was at 4.4% on a 12-month basis and even higher, at 5%, on a three-month annualized basis, which marked the highest since April 2023.

“If the Fed were targeting CPI right now, we wouldn’t even be discussing rate cuts,” Clarida said.

He also noted that even though Powell on Wednesday said financial conditions are tight, they in fact are “a lot easier than they were in November.” A Chicago Fed measure of financial conditions is at its loosest since January 2022.

“What I think is going on here is a delicate balance that [Powell is] trying to navigate,” Clarida said. “Financial conditions will very naturally start to ease when they get the sense the Fed is done and [will start] cutting. Then of course that improves the economic outlook and potentially makes it harder to get inflation down to 2” percent.

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Falling fertility rates pose major challenges for the global economy, report finds

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Falling fertility rates are set to spark a transformational demographic shift over the next 25 years, with major implications for the global economy, according to a new study.

By 2050, three-quarters of countries are forecast to fall below the population replacement birth rate of 2.1 babies per female, research published Wednesday in The Lancet medical journal found.

That would leave 49 countries — primarily in low-income regions of sub-Saharan Africa and Asia — responsible for the majority of new births.

“Future trends in fertility rates and livebirths will propagate shifts in global population dynamics, driving changes to international relations and a geopolitical environment, and highlighting new challenges in migration and global aid networks,” the report’s authors wrote in their conclusion.

By 2100, just six countries are expected to have population-replacing birth rates: The African nations of Chad, Niger and Tonga, the Pacific islands of Samoa and Tonga, and central Asia’s Tajikistan.

That shifting demographic landscape will have “profound” social, economic, environmental and geopolitical impacts, the report’s authors said.

In particular, shrinking workforces in advanced economies will require significant political and fiscal intervention, even as advances in technology provide some support.

“As the workforce declines, the total size of the economy will tend to decline even if output per worker stays the same. In the absence of liberal migration policies, these nations will face many challenges,” Dr. Christopher Murray, a lead author of the report and director at the Institute for Health Metrics and Evaluation, told CNBC.

“AI (artificial intelligence) and robotics may diminish the economic impact of declining workforces but some sectors such as housing would continue to be strongly affected,” he added.

Baby boom vs. bust

The report, which was funded by the Bill & Melinda Gates Foundation, did not put a figure on the specific economic impact of the demographic shifts. However, it did highlight a divergence between high-income countries, where birth rates are steadily falling, and low-income countries, where they continue to rise.

From 1950 to 2021, the global total fertility rate (TFR) — or average number of babies born to a woman — more than halved, falling from 4.84 to 2.23, as many countries grew wealthier and women had fewer babies. That trend was exacerbated by societal shifts, such as an increase in female workforce participation, and political measures including China’s one-child policy.

From 2050 to 2100, the total global fertility rate is set to fall further from 1.83 to 1.59. The replacement rate — or number of children a couple would need to have to replace themselves — is 2.1 in most developed countries.

That comes even as the global population is forecast to grow from 8 billion currently to 9.7 billion by 2050, before peaking at around 10.4 billion in the mid-2080s, according to the UN.

Already, many advanced economies have fertility rates well below the replacement rate. By the middle of the century, that category is set to include major economies China and India, with South Korea’s birth rate ranking as the lowest globally at 0.82

Meantime, lower-income countries are expected to see their share of new births almost double from 18% in 2021 to 35% by 2100. By the turn of the century, sub-Saharan Africa will account for half of all new births, according to the report.

Murray said that this could put poorer countries in a “stronger position” to negotiate more ethical and fair migration policies — leverage that could become important as countries grow increasingly exposed to the effects of climate change.

Switzerland becomes first major economy to cut interest rates in surprise move

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The Swiss national flag hangs from the Federal Palace, Switzerland’s parliament building, in Bern, Switzerland, on Thursday, Dec. 13, 2018. The Swiss National Bank cut its inflation forecast and showed no inclination of moving off its crisis-era settings, citing the francs strength and mounting global risks. Photographer: Stefan Wermuth/Bloomberg via Getty Images

Bloomberg | Bloomberg | Getty Images

The Swiss National Bank on Thursday surprised the market with a decision to lower its main policy rate by 0.25 percentage points to 1.5%, saying national inflation is likely to stay below 2% for the foreseeable future.

Economists polled by Reuters had expected the Swiss central bank to hold rates at 1.75%.

“For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. According to the new forecast, inflation is also likely to remain in this range over the next few years,” the bank said. Swiss inflation continued to fall in February, hitting 1.2%.

The SNB also reduced its annual inflation forecasts. The bank now sees average inflation reaching 1.4% in 2024, down from its 1.9% estimate in December, and 1.2% for 2025, trimmed from the previous 1.6% estimate. Its first forecast for 2026 puts average inflation at 1.1% over the period.

Following the announcement, analysts at Capital Economics said they expect two more SNB rate cuts over the course of this year, “with the Bank sounding more dovish and inflation likely to undershoot its forecasts.”

“As it happens, we think inflation will come in even lower than the new SNB forecasts imply and remain around the current level of 1.2% before falling to below 1.0% next year. Accordingly, we forecast the SNB to cut rates at the September and December meetings taking the policy rate to 1%, where we think it will remain throughout 2025 and 2026,” Capital Economics analysts said in a note.

The September meeting is likely to be the last under the stewardship of SNB Chairman Thomas Jordan, who will step down at the end of that month after 12 years at the helm.

The SNB said Swiss economic growth is “likely to remain modest in the coming quarters,” with the GDP poised to expand by roughly 1% this year.

“Our forecast for Switzerland, as for the global economy, is subject to significant uncertainty. The main risk is weaker economic activity abroad. Momentum on the mortgage and real estate markets has weakened noticeably in recent quarters,” the SNB said. “However, the vulnerabilities in these markets remain.”

On a macro level, the SNB flagged “moderate” global economic growth in the coming quarters, along with likely falls in inflation partly thanks to restrictive monetary policy strategies. It nevertheless acknowledged “significant risks” and geopolitical tensions that could cloud the international economic horizon.

First to blink

Switzerland is the first advanced economy to cut interest rates following a prolonged period of high inflationary pressures, exacerbated by the Covid-19 pandemic’s impact on global trade and Russia’s war in Ukraine. Switzerland was also affected by jitters in the banking space last year, when the government stepped in to facilitate UBS’ takeover of fallen rival Credit Suisse.

The Swiss National Bank’s announcement comes ahead of a monetary policy decision by the Bank of England, which is broadly expected to leave its monetary policy unchanged despite declines in inflation.

Also on Thursday, Norway’s central bank refused to blink, holding rates steady at 4.5%. It comes after the U.S. Federal Reserve on Wednesday held rates steady following its March meeting and reiterated its expectations for three rate cuts in 2024.

European Central Bank's Lagarde says June data key for rate cut decision

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Christine Lagarde, president of the European Central Bank, at the ECB And Its Watchers conference in Frankfurt, Germany, on March 20, 2024. 

Bloomberg | Bloomberg | Getty Images

European Central Bank chief Christine Lagarde on Wednesday reiterated that June is the month in which policymakers will consider bringing interest rates lower.

“By June we will have a new set of projections that will confirm whether the inflation path we foresaw in our March forecast remains valid,” Lagarde said in a speech in Frankfurt.

Her message overall was highly positive on the path on inflation, despite flagging geopolitical uncertainty and ongoing domestic price pressures. Euro zone inflation cooled to 2.6% in February, though the print for services remained stickier at 3.9%.

“Unlike in the earlier phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue,” Lagarde said, stressing confidence in the latest set of staff macroeconomic projections, which see inflation averaging 2.3% in 2024, 2% in 2025, and 1.9% in 2026.

The euro zone’s central bank has held rates steady since bringing them to a record high in September. Until its March meeting, the bank’s messaging was that it was too early to discuss when to start rate cuts. It next meets in April, then June.

Lagarde said Wednesday that it would judge its three criteria — the inflation outlook, the dynamics of underlying inflation and the strength of monetary transmission — to gain “sufficient confidence to begin the dialling-back phase in which we make policy less restrictive.”

June has been flagged as a key month by numerous members of the ECB’s Governing Council, which votes on the path of rates. In a phrase repeated by Lagarde on Wednesday, ECB Chief Economist Philip Lane told CNBC last week that the central bank would “learn a lot by April, [and] a lot more by June.”

Earlier this month, Dutch central bank head Klaas Knot told a media briefing that he had “pencilled in June for a first rate cut,” according to Reuters.

The June meeting is considered a potential turning point, as it will be the first gathering for which data from spring wage negotiations will be available. The ECB is on alert for potential knock-on inflationary effects from rising salaries.

Market attention is now moving to how many rate cuts the ECB is likely to carry out over the course of this year.

Money markets indicate three cuts taking place by December, along with a potential fourth, according to Reuters data.

Turkey opts for new tightening strategy after signaling a pause to hikes

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A picture taken on August 14, 2018 shows the logo of Turkey’s Central Bank at the entrance of its headquarters in Ankara, Turkey.

ADEM ALTAN | AFP | Getty Images

Turkey’s central bank is opting for a different monetary tightening method as it grapples with climbing inflation, after previously signaling that its rate-hiking cycle was over.

The institution sent a directive to lenders, effective Friday, instructing them to put parts of their required lira reserves into blocked accounts.

That’s pushed loan rates up higher and cut the sizes of some banks’ loan limits, with some lenders shrinking their commercial loan limits to 100,000 lira, or $3,100, Reuters reported Thursday.

“Some banks have stopped lending. Some banks even recall their already granted loans. This is going to cause further liquidity squeeze,” Arda Tunca, an Istanbul-based economist at PolitikYol, told CNBC. 

“If a central bank is willing to reduce the rate of inflation, liquidity conditions should be squeezed for sure, but the methodology is of utmost importance,” he said. “If the methodology is wrong, market expectations can’t be managed.”

Indeed, Turkish bank stocks dipped after the news Thursday. Economic data platform Emerging Market Watch posted on X, describing the central bank as taking “another tightening step via reserve requirements.”

Analysts at London-based firm Capital Economics made similar observations.

“In the past month, new quantitative and credit tightening tools have been announced,” the firm wrote in a research note. “Last week the CBRT tightened restrictions on lira loan growth, a move that would likely have a similar impact to an interest rate hike.” 

Meanwhile, Turkey in January recorded its first monthly drop in reserves since May 2023, according to balance of payments data released this week.

Turkish annual consumer price inflation soared to 67.07% in February. The strong figures have fueled concerns that Turkey’s central bank, which had indicated last month that its painful eight-month-long rate-hiking cycle was over, may have to return to tightening.

“Pressures on Turkish policymakers are building ahead of the local elections on 31st March as capital inflows have slowed and FX reserves are falling again,” Capital Economics wrote. “We doubt the central bank will hike interest rates next week, but we’re growing more convinced that at least one further hike will be delivered in Q2.”

— CNBC’s Dan Murphy contributed to this report.

This week provided a reminder that inflation isn't going away anytime soon

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Gas prices are displayed at a gas station on March 12, 2024 in Chicago, Illinois. 

Scott Olson | Getty Images

From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders this week that inflation isn’t going away anytime soon.

Data across the board showed pressures increasing at a faster-than-expected pace, causing concern that inflation could be more durable than policymakers had anticipated.

The bad news began Monday when a New York Federal Reserve survey showed the consumer expectations over the longer term had accelerated in February. It continued Tuesday with news that consumer prices rose 3.2% from a year ago, and then culminated Thursday with a release indicating that pipeline pressures at the wholesale level also are heating up.

Those reports will provide a lot for the Fed to think about when it convenes Tuesday for a two-day policy meeting where it will decide on the current level of interest rates and offer an updated look on where it sees things heading longer term.

“If the data keep rolling in like this, it becomes increasingly difficult to justify a pre-emptive rate cut,” wrote Steven Blitz, chief U.S. economist at TS Lombard. Taken together, the numbers show “the great disinflation has stalled and looks to be reversing.”

The latest jolt on inflation came Thursday when the Labor Department reported that the producer price index, a forward-looking measure of pipeline inflation at the wholesale level, showed a 0.6% increase in February. That was double the Dow Jones estimate and pushed the 12-month level up 1.6%, the biggest move since September 2023.

Earlier in the week, the department’s Bureau of Labor Statistics said the consumer price index, a widely followed gauge of goods and services costs in the marketplace, increased 0.4% on the month and 3.2% from a year ago, the latter number slightly higher than forecast.

While surging energy prices contributed substantially to the increase in both inflation figures, there also was evidence of broader pressures from items such as airline fares, used vehicles and beef.

In fact, at a time when the focus has shifted to services inflation, goods prices leaped 1.2% in the PPI reading, the biggest increase since August 2023.

“There continue to be signs in PPI data that the disinflation in goods prices is largely coming to an end,” Citigroup economist Veronica Clark wrote after the report’s release.

Taken together, the stubbornly high prices appear to have taken their toll on both consumer expectations and behavior. While substantially lower than its mid-2022 peak, inflation has proved resilient despite the Fed’s 11 rate hikes totaling 5.25 percentage points and its moves to cut its bond holdings by nearly $1.4 trillion.

The New York Fed survey showed that three- and five-year inflation expectations respectively moved up to 2.7% and 2.9%. While such surveys often can be especially sensitive to gas prices, this one showed energy expectations relatively constant and reflected doubt from consumers that the Fed will achieve its 2% mandate anytime soon.

On a policy level, that could mean the Fed may hold rates higher for longer than the market expects. Traders in the fed funds futures market earlier this year had been pricing in as many as seven cuts totaling 1.75 percentage points; that since has eased to three cuts.

Along with the surprisingly strong inflation data, consumers are showing signs of letting up on their massive shopping spree over the past few years. Retail sales increased 0.6%, but that was below the estimate and came after a downwardly revised pullback of 1.1% in January, according to numbers adjusted seasonally but not for inflation.

Over the past year, sales increased 1.5%, or 1.7 percentage points below the headline inflation rate and 2.3 points below the core rate that excludes food and energy.

Investors will get a look at how policymakers feel when the rate-setting Federal Open Market Committee convenes next week. The FOMC will release both its rate decision — there’s virtually no chance of a change in either direction — as well as its revised outlook for longer-term rates, gross domestic product, inflation and unemployment.

Blitz, the TS Lombard economist, said the Fed is correct to take a patient approach, after officials said in recent weeks that they need more evidence from the data before moving to cut rates.

“The Fed has time to watch and wait,” he said, adding that “odds of the next move being a hike [are] greater than zero.”

Wholesale inflation rose 0.6% in February, much more than expected

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Wholesale prices accelerated at a faster-than-expected pace in February, another reminder that inflation remains a troublesome issue for the U.S. economy.

The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.

Excluding food and energy, the core PPI accelerated by 0.3%, compared with the estimate for a 0.2% increase. Another measure that also excludes trade services rose 0.4%, compared with the 0.6% gain in January, and was above the estimate for a 0.2% advance.

On a year-over-year basis, the headline index increased 1.6%, the biggest move since September 2023.

The data did little to dent what looks like a positive open on Wall Street. Futures tied to major stock market indexes all were positive, though Treasury yields rose as well.

A busy morning for economic data also showed that retail sales rebounded, up 0.6% on the month, according to Commerce Department data that is adjusted seasonally but not for inflation. The increase helped reverse a downwardly revised 1.1% slump in January, but was still below the estimate for a 0.8% rise.

Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported. Continuing claims edged higher to 1.81 million, though the previous week’s count was revised sharply lower.

The market focused on the PPI release, which comes two days after the consumer price index, which measures what consumers pay in the marketplace, showed that inflation was slightly higher than anticipated on a year-over-year basis.

The PPI is considered a leading indicator for inflation as it indicates costs early in the supply chain.

The BLS reported that about two-thirds of the rise in the headline PPI came from a 1.2% surge in goods prices, the biggest increase since August 2023. As with the CPI, the acceleration was traced to energy prices, with saw a 4.4% increase in the final demand measure. Gasoline prices jumped 6.8% at the wholesale level.

Services costs increased 0.3%, boosted by a 3.8% surge in traveler accommodation services.

Retail shows rebound

On the retail sales side, the data indicated that consumers kept ahead of CPI inflation, which increased 0.4% on the month, though sales were still sluggish.

Excluding auto, retail sales rose 0.3%, one-tenth of a percentage point below expectations. Motor vehicle parts and dealers saw an increase of 1.6%, second only to the 2.2% gain for building material and garden centers on the month.

Despite slumping prices, gasoline stations reported an increase of 0.9%. Electronics and appliance sales rose 1.5% while miscellaneous store sales climbed 0.6% and restaurants and bars were up 0.4%.

Retail sales posted a 1.5% gain on a year-over-year basis, below the 3.2% increase in the CPI.

Inflation-related data is being watched closely on Wall Street, ahead of the Federal Reserve’s two-day policy meeting starting next Tuesday.

While the central bank is almost certain to hold its benchmark interest rate in place, markets will be looking for clues about the future of monetary policy. Futures pricing is pointing toward the rate-setting Federal Open Market Committee to start cutting interest rates in June, with three quarter-percentage point decreases expected this year.

At the meeting, policymakers will update their outlooks for rates, economic growth, inflation and unemployment.

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European Central Bank chief economist says we need to 'take our time' to get rate cuts right

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The European Central Bank must take its time to get interest rate cuts right, the institution’s chief economist told CNBC, adding that companies should take a hit on profits to allow real wages to rise without fueling inflation.

“A lot of evidence is accumulating, but what’s also fair to say is that the transition from this holding phase, we’ve been on hold since last September since a substantial hiking cycle, we do have to take our time to get that right, from holding to dialing back restrictions,” Philip Lane told CNBC’s Steve Sedgwick on Thursday.

Lane, a member of the ECB’s Governing Council, said the euro zone central bank’s March meeting had been an “important milestone” in the accumulation of evidence, which showed the “disinflation process has been ongoing.” During the meeting, the ECB held rates and released updated macroeconomic projections, which lowered its inflation forecast for this year to 2.3% from 2.7%.

“We’ve continued to make progress, we continued to move towards our 2% target,” Lane said Thursday.

Inflation in the 20-nation bloc eased to 2.6% in February.

In line with the ECB’s March messaging, Lane said that more data was required, particularly around wages, and that the institution would “learn a lot by April, a lot more by June.”

Numbers from the ECB were 'reassuring,' and a June rate cut is likely, portfolio manager says

In a press conference following that meeting, ECB President Christine Lagarde said market pricing on the timing of rate cuts — which indicate a start in June as of Thursday — “seems to be converging better” with the central bank’s view.

Asked about other colleagues on the ECB’s Governing Council who have suggested rate cuts could take place before the summer, Lane said he believed this was a reference to the second quarter, which could include June.

He stressed that it was important, in his own role, to “avoid trying to provide calendar guidance to the market.”

“Once we are sufficiently confident that we will get back to target in a sustainable manner, in a timely manner, that’s the right time to move to the next phase,” he said.

Room for profits to come down

June emerged as a key date in market commentary, as it’s set to mark the first meeting where the ECB can assess spring data on wage negotiations for the year.

Policymakers have repeatedly stressed that many of the causes of the inflationary cycle have subsided, such as the energy price spike and supply chain issues. But the officials say they remain concerned about domestic inflationary pressures from corporate profits and wage rises.

Bank of England Governor Andrew Bailey caused controversy in 2022 for suggesting workers should not ask for a pay rise in order to avoid stoking inflation.

Lane said Thursday that, while the ECB’s forecast relied on some moderation in wage growth, it was “important” for people’s inflation-adjusted salaries to improve, and that companies should shoulder lower profits to allow this to happen.

“Wages were not the source of this inflation problem. But in terms of making sure we get back to target, the interplay between wages and profits, our forecast is built on a degree of wage deceleration,” he said.

“It’s important to say, we need to see workers’ real incomes improve, to rebuild, not just this year, [but] the year after. So we allow for higher to normal wage increases.”

Lane added, “But we also need to see, essentially, firms absorbing a fair amount of that in lower profits. Profits were quite high in 2022, there is some room for profits to come down. And that is part of the open questions we have.”

Recession-hit Britain swings to economic growth in January, helped by construction bounce

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People walk along Waterloo Bridge past the City of London skyline, the capital’s financial district, on a sunny and mild day.

Sopa Images | Lightrocket | Getty Images

LONDON — U.K. gross domestic product grew 0.2% in January, the Office for National Statistics said Wednesday, as construction output jumped unexpectedly.

The headline figure was in line with the forecast from economists polled by Reuters.

It follows a 0.1% contraction in December, while the U.K. economy entered a shallow recession in the second half of last year.

Construction output was 1.1% higher in January, the ONS said, but fell 0.9% over a three-month period. Services recorded 0.2% growth in January, providing the biggest contribution to growth, as production output fell 0.2%.

Jack Meaning, chief U.K. economist at Barclays, described the figures as “not a hugely positive picture, but it’s ahead of where we were at the end of last year.”

“Industrial and manufacturing have been weak for the last few prints, you’d expect some bounce-back from that in the end,” Meaning told CNBC’s “Squawk Box Europe” Wednesday.

“This is good to see, but we’ll have to see it on a more prolonged basis to know that it is something sustained.”

The British pound remained flat against the U.S. dollar and the euro following the release.

Consumer prices rose 0.4% in February and 3.2% from a year ago

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Inflation rose again in February, keeping the Federal Reserve on course to wait at least until the summer before starting to lower interest rates.

The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago, the Labor Department’s Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.

Excluding volatile food and energy prices, the core CPI rose 0.4% on the month and was up 3.8% on the year. Both were one-tenth of a percentage point higher than forecast.

While the 12-month pace is off the inflation peak in mid-2022, it remains well above the Fed’s 2% goal as the central bank approaches its two-day policy meeting in a week.

A 2.3% increase in energy costs helped boost the headline inflation number. Food costs were flat on the month, while shelter rose another 0.4%.

The BLS reported that the increases in energy and shelter amounted to more than 60% of the total gain. Gasoline jumped 3.8% on the month while owners’ equivalent rent, a hypothetical gauge of what homeowners could get renting their properties, rose 0.4%.

“Inflation continues to churn above 3%, and once again shelter costs were the main villain. With home prices expected to rise this year and rents falling only slowly, the long-awaited fall in shelter prices isn’t coming to the rescue any time soon,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Reports like January’s and February’s aren’t going to prompt the Fed to lower rates quickly.”

Fresh chicken breasts are displayed for sale in the meat area of a Sprouts Farmers Market grocery store in Redondo Beach, California on February 23, 2024. 

Patrick T. Fallon | AFP | Getty Images

Airline fares posted a 3.6% increase, apparel prices rose 0.6% and used vehicles were up 0.5%. Medical care services, which helped feed a higher-than-expected CPI increase in January, decreased 0.1% last month.

The year-over-year increase for headline CPI was 0.1 percentage point higher than January, while core was one-tenth of a point lower.

Wall Street opened higher following the report, major stock averages as well as Treasury yields positive in early trading.

While the 12-month pace is off the inflation peak in mid-2022, it remains well above the Fed’s 2% goal as the central bank approaches its two-day policy meeting in a week.

Fed officials in recent weeks both have signaled that rate cuts are likely at some point this year and expressed caution about letting up too soon in the battle against high prices. The statement after the January meeting indicated that policymakers need “greater confidence” that inflation is moving back to target.

Chair Jerome Powell, in congressional testimony last week, echoed those concerns, though he did mention that the Fed is probably “not far” from the point where it can start easing up on monetary policy.

Tuesday’s report “leaves Fed officials some way from attaining the ‘greater confidence’ needed to begin cutting interest rates,” said Paul Ashworth, chief North America economist at Capital Economics.

For financial markets, the shift in the Fed stance from its apparent policy pivot in late 2023 has meant a repricing on the pace of rate cuts. Where futures traders entered the year expecting cuts to start coming in March, with six or seven total on the year, they have pushed out the first reduction to June, with two or three to follow, assuming cuts in quarter percentage point increments.

'Squawk on the Street' crew react to February's CPI report

A bustling economy has helped the Fed focus on incoming data and allowed policymakers to avoid having to rush to lower rates. Gross domestic product expanded at a 2.5% annualized pace in 2023 and is on pace to increase at a 2.5% pace in the first quarter of 2024, according to the Atlanta Fed’s GDPNow tracker.

One key ingredient in that growth has been a resilient consumer boosted by a strong labor market. The economy added another 275,000 nonfarm jobs in February, though the increase skewed heavily to part-time positions and the unemployment rate rose to 3.9%.

Such strength can be a double-edged sword: While the growth in the face of aggressive rate hikes has bought the Fed time on policy, it also raises concerns that inflation could be more durable than expected.

Housing costs in particular have caused concern.

Shelter comprises about one-third of the CPI weighting and has been slow to decelerate, at least according to the BLS measure. Fed officials see rental prices coming down through the year, and other measures outside the CPI computation of owners-equivalent rent have shown easing price pressures.

Correction: The BLS reported that the increases in energy and shelter amounted to more than 60% of the total gain. An earlier version misstated a sector.

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Consumer spending rebounded in February, according to the CNBC/NRF Retail Monitor

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Customers shop in a Walmart Supercenter on February 20, 2024 in Hallandale Beach, Florida. 

Joe Raedle | Getty Images News | Getty Images

Consumer spending bounced back in February from a January dip, with a little help from Leap Day. But sales still registered good gains even after correcting for that extra spending day.

The CNBC/NRF Retail Monitor, derived from actual credit card spending data from Affinity Solutions, rose 1.06% in February, when excluding autos and gas. It increased 0.95% when taking out restaurants as well, the Retail Monitor’s core measure.

Removing the effect of the Leap Day, sales rose 0.4%, or less than half of the unadjusted gain, but they were still up from the 0.2% decline in January. Taking out restaurants, the Retail Monitor adjusted for the Leap Day was up 0.3%, compared with a 0.04% gain in January.

“While the future direction of interest rates and inflation remains uncertain, it’s clear that a strong job market and increases in real wages are continuing to support spending,” said Matt Shay, the president of the National Retail Federation.

Looking at individual sectors, not adjusted of the Leap Day:

  • Online and other non-store sales were up 0.8% month over month seasonally adjusted and up 18.08% year over year.
  • Sporting goods, hobby, music and bookstores were up 2.29% month over month seasonally adjusted and up 13.67% year over year.
  • Health and personal care stores were up 0.96% month over month seasonally adjusted and up 11.18% year over year.
  • Clothing and accessories stores were up 0.51% month over month and up 8.05% year over year unadjusted.

The sector data was also impacted by the Leap Day and the index overall could differ more sharply this month from the Census retail data than it normally does.

Unlike survey-based numbers collected by the Census Bureau, the Retail Monitor uses actual, anonymized credit and debit card purchase data compiled by Affinity and is not revised monthly or annually.

Economists are looking for a 0.8% gain in the Census retail report on Thursday, a complete reversal of the 0.8% decline in January. So both that forecast, if accurate, and the CNBC/NRF Monitor for February, suggest January was the not the beginning of the long-awaited consumer spending slowdown.

A key inflation reading is due out Tuesday morning. Here's what to expect

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Shoppers are seen in a Kroger supermarket on October 14, 2022, in Atlanta, Georgia. 

Elijah Nouvelage | AFP | Getty Images

Rising gasoline prices likely put a floor under inflation in February, potentially reinforcing the Federal Reserve’s decision to take a go-slow approach with interest rate reductions.

Economists expect that prices across a broad spectrum of goods and services rose 0.4% on the month, just ahead of the January pace for 0.3%, according to the Dow Jones consensus. Excluding food and energy, the increase for core inflation, is forecast at a 0.3% gain, also one-tenth of a percentage point above the previous month.

On a year-over-year basis, headline inflation is expected to show a 3.1% gain and core inflation a 3.7% increase when the Labor Department’s Bureau of Labor Statistics releases its latest reading on the consumer price index Tuesday at 8:30 a.m. ET. The respective 12-month readings in January were 3.1% and 3.9%.

Though it has fallen sharply since its peak in mid-2022, inflation’s resilience almost certainly will assure no Fed rate cuts at its meeting on April 30-May 1, and possibly into the summer, according to current market pricing. Markets were rattled in January when the CPI data came in higher than expected, and Fed officials shifted their rhetoric afterwards to a more cautious tone about easing policy.

“While we do not expect the trend in inflation to re-accelerate this year, less clear progress over the next few months is likely to keep the Fed searching for more confidence that inflation is on course to return to target on a sustained basis,” Sarah House, senior economist at Wells Fargo, said in a recent client note.

Energy prices had eased earlier in the winter, putting some downward pressure on headline readings.

But Wells Fargo estimates that energy services rebounded by 4% in February, leading to an increase at the pump, where a gallon of regular gas is up about 20 cents, or more than 6%, from a month ago, according to AAA.

The bank also estimates that goods prices have held their ground despite an easing in supply chain pressures and pressure from higher interest rates. On the brighter side, House said lower prices on travel, medical care and other services helped keep inflation in check.

Still, Wells Fargo has raised its full-year inflation forecast.

The bank’s economists now expect core CPI to run at a 3.3% rate this year, up from the previous 2.8% estimate. Focusing on the core personal consumption expenditures price index, the preferred Fed gauge, Wells Fargo sees inflation at 2.5% for the year, versus a prior estimate for 2.2%.

Wells Fargo isn’t alone in expecting a higher pace of inflation.

In its February survey of consumers, the New York Fed found that while respondents held to their one-year outlook for inflation at 3%, their expectations at the three- and five-year horizons accelerated to 2.7% and 2.9% respectively, both well ahead of the central bank’s 2% target.

While increases in gas prices can play an outsized role in monthly fluctuations for the survey, the outlook for gas price increases was actually relatively benign.

An Atlanta Fed measure of “sticky price” inflation held at 4.6% on a 12-month basis in January. The gauge is weighted toward items such as housing and insurance, and Fed officials are hoping that shelter costs decrease through the year, taking some pressure off the cost of living gauges.

On Thursday, the BLS will release the February producer price index, which measures what producers get for their goods and services at the wholesale level. The two indexes will be the last inflation data the rate-setting Federal Open Market Committee will see before it meets next on March 19-20.

Long-term inflation expectations rise, spelling possible trouble for the Fed, survey shows

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Customers shop at a Costco store on August 31, 2023 in Novato, California. According to a report by the Commerce Department, consumer spending rose 0.8% in July beating expectations of 0.7%. (Photo by Justin Sullivan/Getty Images)

Justin Sullivan | Getty Images News | Getty Images

Consumers increasingly doubt the Federal Reserve can achieve its inflation goals anytime soon, according to a survey Monday from the New York Federal Reserve.

While the outlook over the next year was unchanged at 3%, that wasn’t the case for the longer term. At the three-year range, expectations rose 0.3 percentage point to 2.7%, while the five-year outlook jumped even more, up 0.4 percentage point to 2.9%.

All three are well ahead of the Fed’s 2% goal for 12-month inflation, indicating the central bank may need to keep policy tighter for longer. Economists and policymakers consider expectations as a key factor in viewing the path of inflation, so the Survey of Consumer Expectations for February could be bad news.

“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,” Fed Chair Jerome Powell said last week during testimony on Capitol Hill. “We remain committed to bringing inflation back down to our 2 percent goal and to keeping longer-term inflation expectations well anchored.”

Headline inflation as judged by personal consumption expenditures prices, the Fed’s preferred gauge, rose 2.4% in January — or 2.8% at the core level when excluding food and energy. Those readings represented progress in the Fed’s battle, though some economists have warned the “last mile” back to 2% would be the most difficult.

The Fed is expected to hold rates steady when it meets next week, with market pricing pointing to a cut in June followed possibly by three more before the end of the year, according to CME Group gauging of futures markets.

Other inflation measures in the February survey offered some hope.

Most notably, the outlook for rent costs decreased to 6.1%, down 0.3 percentage point for the lowest reading since December 2020. Shelter has remained the most stubborn of the inflation components but one Fed officials think will ease as the year goes on and tenants negotiate new leases.

Elsewhere, the one-year outlook for gas rose 0.1 percentage point to 4.3%, fell by 1.8 percentage points to 6.8% for medical care and was unchanged for food at 4.9%. The outlook for household spending over the next year rose to 5.2%, up 0.2 percentage point.

Respondents also indicated some unease over job prospects. The perceived probability for losing one’s job in the next year rose to 14.5%, an increase of 2.7 percentage points.

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Trump pledges to get tough with tariffs again if elected

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Proclaiming that “I’m a big believer in tariffs,” former President Donald Trump on Monday indicated he’s likely to reinstitute duties on foreign goods should he win election to a second term.

In a CNBC interview, Trump cited both economic and political benefits from targeting foreign goods entering the U.S.

“I fully believe in them economically when you’re being taken advantage of by other countries,” the presumptive Republican nominee said during a “Squawk Box” interview, referring to tariffs. “Beyond the economics, it gives you power in dealing with other countries.”

The comments come as Trump is running a close race in the polls with President Joe Biden. With his latest slew of victories in the Republican primaries and all his opponents dropping out, Trump looks set to become the party nominee in a race where the economy will loom large.

During his administration, from 2017-21, Trump instituted a variety of tariffs on China, Mexico, the European Union and others. In particular, he slapped 25% duties on imported steel as well as aluminum.

In China’s case, many of the tariffs have remained in place under the Biden administration.

“China was taking advantage of us on the steel. They were destroying our entire steel industry, which was never doing very well over the last 25 years anyway … because it’s been eaten alive by foreign competition,” Trump said. “I put a 50% tax on China’s steel coming in. And every person in the steel industry, when they see me they started crying. They would hug me.”

Trump called out the Chinese automobile industry specifically for future targeting.

“China is right now our boss. They are the boss of the United States, almost like we’re a subsidiary of China,” he said.

China produced about 30 million vehicles in 2023 and saw about a 50% year-over-year increase in January, according to MarkLines. A group of Democratic senators from auto-producing states recently urged Biden to slap tariffs on Chinese electric vehicles entering the U.S.

Trump said he would seek tariffs to try to get China to build more of its cars in the U.S.

“The whole topic of tariffs is so simple. No. 1, it’s great economically for us, and it brings our companies back, because if you charge tariffs to China, they’re going to build … their car plants here and they’re going to employ our people,” he said. “We don’t want to get cars from China. We want to get cars made by China in the United States using our workers.”

Critics charge that tariffs are counterproductive because they make imported goods more expensive. Inflation, however, was subdued during Trump’s time in office, as the consumer price index rose less than 8% total over the four-year span, compared with about 18% under Biden.

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Saudi oil giant Aramco posts 25% fall in full-year profit

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Logo of Aramco, officially the Saudi Arabian Oil Group, Saudi petroleum and natural gas company, seen on the second day of the 24th World Petroleum Congress at the Big 4 Building at Stampede Park, on September 18, 2023, in Calgary, Canada. 

Artur Widak | Nurphoto | Getty Images

Saudi Arabia’s state oil giant Aramco reported a 25% decline in profit to $121.3 billion in 2023, down from $161.1 billion in 2022.

“The year-on-year decrease can be attributed to lower crude oil prices and volumes sold, as well as reduced refining and chemicals margins, partially offset by a decrease in production royalties during the year and lower income taxes and zakat,” Aramco said in a statement. 

Aramco said total revenue also fell 17% to $440.88 billion, down from $535.19 billion last year.

The result still represents Aramco’s second-highest ever net income. Free cash flow also fell to $101.2 billion in 2023, compared to $148.5 billion in 2022. 

“Our resilience and agility contributed to healthy cash flows and high levels of profitability, despite a backdrop of economic headwinds,” Aramco CEO Amin Nasser said. 

Changing Hands

The earnings come after the Saudi government transferred an additional 8% of Aramco shares, worth $164 billion, to Saudi Arabia’s Public Investment Fund (PIF). Yasir Al-Rumayyan is both the Chairman of Aramco’s Board of Directors and the Governor of the PIF. 

The share transfer to PIF is one of the largest transactions Aramco has undertaken since listing, and will allow the PIF to benefit from Aramco’s mega dividend payout policy. PIF already owned 4% of Aramco, and controls Sanabil, a financial investment firm, which owns 4% of Aramco as well. 

Aramco said total dividends of $97.8 billion were paid in 2023, up 30% from 2022. It declared a base dividend of $20.3 billion for the fourth quarter, to be paid in the first quarter of 2024. Aramco also pays performance-linked dividends, worth $10.8 billion this year.  The full year performance-linked dividend to be paid in 2024 is expected to be $43.1 billion.

The PIF’s 16% state in Aramco, worth an estimated $328 billion, is set to strengthen its financial position and boost its ability to deploy capital to invest on behalf of the Saudi state. The new stake also pushes PIF closer to achieving its end-2025 target of $1 trillion in assets under management. 

More Investment

Aramco confirmed it would halt plans to raise its oil production capacity from 12 million barrels per day to 13 million barrels per day — a move expected to reduce capital investment by approximately $40 billion between 2024 and 2028.

“The recent directive from the government to maintain our Maximum Sustainable Capacity at 12 million barrels per day provides increased flexibility, as well as an opportunity to focus on increasing gas production and growing our liquids-to-chemicals business,” Nasser said. 

Aramco’s average hydrocarbon production was 12.8 million barrels of oil equivalent per day in 2023, including 10.7 million barrels per day of total liquids.

Aramco aims to ramp up its investments in gas, and has a target to increase gas production by more than 60% by 2030, compared to 2021 levels. Its flagship investment is the Jaffoura project — the largest gas play in the Middle East — with an estimated 200 trillion standard cubic feet of natural gas.

Unemployment fell for Black women in February as more joined the labor force

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A sign posted outside a restaurant looking to hire workers in Miami on May 5, 2023.

Joe Raedle | Getty Images News | Getty Images

Unemployment among Black women fell in February as the number of those looking for work increased, data released Friday by the U.S. government showed.

The U.S. unemployment rate edged higher last month to 3.9% from 3.7% in January, according to the U.S. Bureau of Labor Statistics on Friday. Adult women age 20 and older in the labor force followed that trend, with the unemployment rate ticking up to 3.5% from 3.2%.

The percentage of unemployed Black women, however, fell to 4.4% from 4.8%. This comes as the labor force participation rate within the group — which measures how many workers are currently employed or searching for work — rises to 63.4% from 62.9%.

Valerie Wilson, director at the Economic Policy Institute’s Program on Race, Ethnicity and the Economy, said that the labor market is showing positive signs for Black women. She pointed to the decrease in the unemployment rate, while the employment/population ratio edged higher to 60.6% from 59.9%.

“That seems unambiguously that things are moving in a positive direction,” she told CNBC.

As for why the cohort was able to buck the trend, Wilson said it could be due to the specific industries that added jobs last month.

“We saw increases in health care and government services, which are sectors where we see a significant number of Black women being employed,” she said. “The fact that those were two sectors that added jobs and had the highest job growth in the last month is probably a factor in that increased participation rate and reduced unemployment rate.”

For Hispanic women, unemployment rose to 5% from 4.3%.

Overall, with the unemployment rate still sitting below 4%, this month’s report paints the picture of a strong labor market, Wilson said.

“At this point, at that lower rate of unemployment, you’re not going to get huge shifts as long as that growth is still positive on the net,” she said. While economists could still see slight moves from month to month, at the current pace of U.S. job growth, the labor market should remain stable and steady.

— CNBC’s Gabriel Cortes contributed to this report.

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U.S. job growth totaled 275,000 in February but unemployment rate rises to 3.9%

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Job creation topped expectations in February and pointed to a still-vibrant U.S. labor market, even though the unemployment rate moved higher

Nonfarm payrolls increased by 275,000 for the month while the jobless rate moved higher to 3.9%. Economists surveyed by Dow Jones had been looking for payroll growth of 198,000, a step slower from the downwardly revised gain of 229,000 in January. The December gain also was revised down to 290,000 from 333,000.

The jobless level increased even though the labor force participation rate held steady at 62.5%.

Average hourly earnings, watched closely as an inflation indicator, showed a slightly less than expected increase for the month and a deceleration from a year ago. Wages rose just 0.1% on the month, one-tenth of a percentage point below the estimate, and were up 4.3% from a year ago, below the 4.5% gain in January and slightly below the 4.4% estimate.

Markets showed little reaction to the news, with futures tied to the major averages around flat. Treasury yields, however, were sharply lower..

This is breaking news. Please check back here for updates.

Jobs report Friday is expected to show a slowing but still healthy labor market

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A workers stocks the shelves in a CVS pharmacy store on February 07, 2024 in Miami, Florida. 

Joe Raedle | Getty Images

Job growth in the U.S. likely decelerated in February while still a long way from stall speed as companies continue to keep up demand for workers.

When the Labor Department releases the nonfarm payrolls report Friday at 8:30 a.m. ET, it’s expected to show growth of 198,000 and the unemployment rate holding steady at 3.7%, according to Dow Jones consensus estimates.

If the forecast is close to accurate, it would mark a considerable downshift from January’s explosive growth of 353,000, but still representative of a fairly vibrant labor market.

“This is kind of a cautious labor market. Employers are hiring to keep pace with business activity,” said Julia Pollak, chief economist at ZipRecruiter. “Many businesses still report higher than expected sales. But they’re not aggressively hiring for growth and to expand. For that, many are still taking a wait-and-see approach.”

January’s surge followed a robust gain of 333,000 in December, seemingly countering the picture of an apprehensive hiring climate.

However, Pollak noted that both numbers were inflated from seasonal distortions, where retailers in particular cut fewer holiday jobs than expected. February, though, could see growth as high as 240,000, as companies look to fill an elevated level of open positions, Pollak said.

Too much growth?

ZipRecruiter’s quarterly job-seeker survey showed expectations for the medium-term outlook hitting a series high, while applicants also indicated stronger levels of confidence in their financial wellbeing and current state of the labor market.

Under normal conditions, those would all be positive attributes. But there are other concerns now.

A jobs market that remains red-hot could deter the Federal Reserve from cutting interest rates this year as expected. Earlier this week, Atlanta Fed President Raphael Bostic expressed concern about potential “pent-up exuberance” that could be unleashed in the business community after the central bank starts easing.

“Once rate cuts begin, that will give a boost to certain industries that they’ve been waiting for, especially when it comes to capital investments,” Pollak said. “Many companies are still holding back and waiting. Manufacturing will be a very interesting one to watch. There has recently been a bit of an improvement in durable goods manufacturing job openings. The checks are in the mail.”

Markets expect the Fed to start cutting rates in June, though the outlook has become less certain in recent weeks as policymakers weigh the direction of inflation.

Despite the uncertainty over monetary policy, companies have forged ahead with hiring.

There have been mixed signs regarding layoffs. This was the biggest February for announced layoffs since 2009, according to Challenger, Gray & Christmas, but workers seem to be able to find other jobs quickly, as evidenced by little change in the weekly jobless claim filings with the Labor Department.

The department’s Job Openings and Labor Turnover Survey for January, released earlier this week, showed layoffs actually decreased over the month and were down nearly 16% from a year ago. Job openings were little changed on the month but decreased 15% from the same period in 2023. Vacancies outnumbered available workers 1.4 to 1, down from 1.8 to 1 on the year.

“I haven’t seen layoffs,” said Tom Gimbel, founder and CEO of LaSalle Network, a staffing and recruiting firm. “What I keep seeing is the small- and mid-market going after market share, and the hiring seems to come in that bracket. They’re hiring the people that the bigger companies, specifically Big Tech, are laying off.”

Demand still strong

Indeed, a steady procession of layoffs at tech giants has attracted headlines recently. The trend continued into February, as employment placement site Indeed reported a 28% slide in job postings for software development and a 26% plunge in information design and documentation.

But other sectors are still showing demand. Job postings surged 102% for physicians and surgeons, 83% for therapists and 82% for civil engineering.

In its most recent survey of economic conditions, the Fed found that the ultra-tight labor market has loosened somewhat, but there are still active pockets.

“Businesses generally found it easier to fill open positions and to find qualified applicants, although difficulties persisted attracting workers for highly skilled positions, including health-care professionals, engineers, and skilled trades specialists such as welders and mechanics,” the Fed said in its “Beige Book” report released Wednesday.

The report precedes each Fed meeting by two weeks and helps inform policymakers on trends across the economy. Business contacts noted that wages are continuing to rise, though at a slower pace. Wage gains are an important piece of the inflation puzzle.

Friday’s report is expected to show average hourly earnings up just 0.2% on the month, down from a 0.6% jump in January, though still increasing at a 4.4% pace. The big monthly move in January came largely from a decline in the average work week, which elevates the appearance of average hourly earnings.

Even with the hotter than expected inflation numbers, Fed Chair Jerome Powell said Thursday that the central bank is “not far” from gaining enough confidence in the trajectory of inflation to start cutting rates.

“A lot of the hourly wage increases were driven by two things primarily: more liberal municipalities, and a scarcity of workers from Covid,” Gimbel said. “I don’t see a lot of wage growth this year.”

The entire soft landing is predicated on the Fed cutting rates, says JPMorgan's Priya Misra

Layoffs rise to the highest for any February since 2009, Challenger says

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More than 75 employers were taking resumes and talking to prospective new hires at a career fair in Lake Forest, CA on Wednesday, February 21, 2024. 

Paul Bersebach | Medianews Group | Orange County Register | Getty Images

Layoff announcements in February hit their highest level for the month since the global financial crisis, according to outplacement firm Challenger, Gray & Christmas.

The total of 84,638 planned cuts showed an increase of 3% from January and 9% from the same month a year ago, with technology and finance companies at the forefront.

From a historical perspective, this was the worst February since 2009, which saw 186,350 announcements as the worst of the financial crisis was seemingly coming to an end. Financial markets bottomed the following month, paving the way for the longest economic expansion on record, lasting until the Covid pandemic in March 2020.

For the year, companies have listed 166,945 cuts, a decrease of 7.6% from a year ago.

“As we navigate the start of 2024, we’re witnessing a persistent wave of layoffs,” said Andrew Challenger, the firm’s labor and workplace expert. “Businesses are aggressively slashing costs and embracing technological innovations, actions that are significantly reshaping staffing needs.”

With a series of high-profile layoff waves, tech leads the way this year in cuts with 28,218, though that number has fallen 55% from the same period a year ago. Layoff announcements at financial firms have risen 56% compared to the first two months of 2023.

Other industries planning significant cuts include industrial goods manufacturing (up 1,754% from a year ago), energy (up 1,059%) and education (up 944%).

The layoff numbers, however, are not feeding through to weekly jobless claims, suggesting that unemployment is short-lived and workers are able to find new positions. Initial filings for unemployment insurance totaled 217,000 in the most recent week, unchanged from the previous period and exactly in line with Wall Street estimates.

Challenger’s experts say companies most often cite restructuring plans as the main reason for the reductions in workforce. Artificial intelligence has been cited for just 383 cuts, though “technological updates” in general have been at the root of more than 15,000 reductions, or nearly as much as all the years combined since 2007.

“In truth, companies are also implementing robotics and automation in addition to AI. It’s worth noting that last year alone, AI was directly cited in 4,247 job reductions, suggesting a growing impact on companies’ workforces,” Challenger reported.

European Central Bank holds interest rates, cuts inflation and growth forecasts

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European Central Bank policymakers on Thursday lowered their annual growth forecast, as they confirmed a widely expected hold of interest rates.

Staff projections now see economic growth of 0.6% in 2024, from a prior forecast of 0.8%. Their inflation forecast for the year was brought to 2.3% from 2.7%.

As the ECB has held rates at a record high since its September meeting, market participants have been eagerly awaiting the March projections for an indication on when it may begin cuts.

Its key rate is currently 4%, up from -0.5% in June 2022, following a run of 10 hikes.

Expectations have shifted to the June meeting, even as ECB staff stress they want to assess wage data from the spring before making a decision.

Euro zone inflation eased to 2.6% in February from 2.8% in January, showing continued progress towards the ECB’s 2% target. However, the core figure which strips out energy, food, alcohol and tobacco proved stickier, at 3.1%.

This is a breaking news story. Please check back for updates.

Egypt hikes interest rates by 600 basis points, pound crumbles to record low

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Yousef Gamal El-Din | CNBC

Egypt’s pound hit a record low against the dollar on Wednesday after its central bank hiked interest rates by 600 points and devalued the currency.

The steps were meant to facilitate an agreement with the International Monetary Fund, which is expected to confirm the extension of its current $3 billion financial support package for Egypt.

The Egyptian pound was trading at roughly 50 to the dollar following the announcement, from 30.85 previously, according to LSEG data. The country’s key interest rate now stands at 27.25%, the central bank said Wednesday.

The development “shows that policymakers are committed to the turn back toward economic orthodoxy. This is likely to pave the way for an IMF deal within hours,” James Swanston, a Middle East and North Africa economist at London-based Capital Economics, wrote in a research note.

“This appears to be a positive step for Egypt on the path out of its current crisis,” he wrote.

Egypt, the Arab world’s most populous country at roughly 110 million people, is facing a protracted shortage of foreign currency. The country’s moves suggest it is confident that hard currency inflows are on the horizon, particularly from an investment deal signed last month with the United Arab Emirates worth $35 billion and the expectation of an agreement with the IMF for further support.

“The domestic economy has been recently weighed down by foreign exchange shortages resulting in the existence of a parallel exchange rate market and constraining economic growth,” Egypt’s central bank said in a statement, following the meeting of its Special Monetary Policy Committee on Wednesday.

Cairo has in previous instances pledged to let its currency trade more freely, but would still step in to control the pound when it fell.

“The announced measures have been adopted as part of a set of comprehensive economic reforms in coordination with the Government, and backed by the steadfast support of multilateral and bilateral partners,” the central bank said. “In preparation for the successful implementation of these measures, sufficient funding has been secured to avail foreign exchange liquidity.” 

Analysts at S&P Global Market Intelligence expect further monetary tightening in 2024 to combat inflation and offset the price increases stemming from Egypt’s weakened pound. They forecast inflation reaching around 30.3% this year, down slightly from 33.9% in 2023. They anticipate the rate will ease into the teens in 2025, but only hit single digits by 2027.

In its comments, Egypt’s monetary policy committee said it “judges that this tightening brings the monetary stance to a sufficiently restrictive level, to anchor inflation expectations, and will be maintained for as long as necessary to achieve the desired disinflation course.” 

Private payrolls rose by 140,000 in February, less than expected, ADP reports

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People work at a restaurant at Chelsea Market in Manhattan on February 02, 2024 in New York City. 

Spencer Platt | Getty Images

Private sector job growth improved during February though growth was slightly less than expected, payrolls processing firm ADP reported Wednesday.

Companies added 140,000 positions for the month, an increase from the upwardly revised 111,000 in January but a bit below the Dow Jones estimate for 150,000.

Job gains came across multiple areas, led by leisure and hospitality with 41,000 and construction, which added 28,000 positions. Other industries showing solid gains included trade, transportation and utilities (24,000), finance (17,000) and the other services category (14,000).

Of the total, 110,000 came from the services sector while goods producers added 30,000. Growth was concentrated among larger companies, as establishments with fewer than 50 employees contributed just 13,000 to the total.

Along with the job growth, annual pay increased 5.1% for those staying in their jobs, which ADP said was the smallest increase since August 2021, a potential indication that inflation pressures are receding.

The report comes with the labor market getting added attention for signals of whether U.S. economic growth will stall this year after gross domestic product posted a solid 2.5 percent annualized gain in 2023.

“Job gains remain solid. Pay gains are trending lower but are still above inflation,” said ADP chief economist Nela Richardson. “In short, the labor market is dynamic, but doesn’t tip the scales in terms of a Fed rate decision this year.”

ADP’s report precedes the Labor Department’s official nonfarm payrolls release, which happens Friday. In recent months, ADP has consistently undershot the closely watched report from the Bureau of Labor Statistics, which showed an increase of 353,000 in January, more than triple the ADP estimate.

Economists surveyed by Dow Jones are expecting Friday’s report to show an increase of 198,000.

Turkish annual inflation soars to 67% in February

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The Maslak financial and business center in the Sariyer district of Istanbul.

Ayhan Altun | Moment | Getty Images

Turkish annual consumer price inflation soared to 67.07% in February, the Turkish Statistical Institute said Monday, coming in above expectations.

Analysts polled by Reuters had anticipated annual inflation would climb to 65.7% last month.

The combined sector of hotels, cafes and restaurants saw the greatest annual price inflation increase at 94.78%, followed by education at 91.84%, while the rate for health stood at 81.25% and transportation at 77.98%, according to the statistical institute.

Food and non-alcoholic beverage consumer prices jumped 71.12% in February year-on-year and recorded a surprisingly large monthly rise of 8.25%.

The monthly rate of change for the country’s inflation from January to February was 4.53%.

The strong figures are fueling concerns that Turkey’s central bank, which had indicated last month that its painful eight-month long rate hiking cycle was over, may have to return to tightening.

“The stronger-than-expected rise in Turkish inflation to 67.1% y/y in February adds to our concerns given that it comes on the back of a large increase in inflation in January and the strength of household spending growth in Q4,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note on Monday.

“Core price pressures continue to run hot and if this continues, the possibility of a restart to the central bank’s tightening cycle will only increase in the coming months,” he said.

Some analysts predicted an eventual fall in inflation down to around 35% by the end of this year. According to Capital Economics, the latest figures “highlight that inflation pressures in the economy remain very strong and suggest that the disinflation process has taken a setback at the start of this year.”

Turkish Finance Minister Mehmet Simsek was cited by Reuters as saying that the country’s inflation would remain high in the first half of the year “due to base effects and the delayed impact of rate hikes,” but that the print would come down in the next 12 months.

Persistently high inflation has been fueled by Turkey’s dramatically weakened currency, the lira, which is at a record low against the dollar. The lira was trading at 31.43 to the greenback around noon local time on Monday. The Turkish currency has lost 40% of its value against the dollar in the past year, and 82.6% in the last five years.

“Obviously a disappointing set of inflation prints this morning,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, wrote in a note. The Turkish central bank, he said, “has been trying to wind down the protected FX-linked deposit accounts and the need to rebuild FX reserves.”

He added that this development has “continued to put downward pressure on the lira,” creating an inflation pass-through.

Analysts note that Turkey’s policymakers wanted to avoid raising rates again, especially ahead of the country’s local elections on March 31. But relentlessly rising inflation may force them to hike again after the vote. Turkey’s key interest rate is currently at 45%, following a cumulative increase of 3,650 basis points since May 2023.

“Hopefully favourable base period effects should begin to create a more virtuous cycle from mid year. The CBRT might though need to further hike policy rates after local elections,” Ash wrote.

'Last chance saloon': UK finance minister expected to pledge pre-election tax cuts

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British Finance Minister Jeremy Hunt said earlier this month the U.K. would not enter a recession this year.

Hannah Mckay | Reuters

LONDON — Economists expect U.K. Finance Minister Jeremy Hunt to use a small fiscal windfall to deliver a modest package of tax cuts at his Spring Budget on Wednesday.

Heading into what will likely be the Conservative government’s last fiscal event before the country’s upcoming General Election, Hunt is under pressure to offer a sweetener to voters as his party trails the main opposition Labour Party by more than 20 points across all national polls.

But he must also navigate the constraints of fragile public finances and a stagnant economy that recently entered a modest technical recession.

On the upside, inflation has fallen faster than anticipated and market expectations for interest rates are well below where they were going into Hunt’s Autumn Statement in November.

The Treasury pre-announced plans over the weekend to deliver up to £1.8 billion ($2.3 billion) worth of benefits by boosting public sector productivity, including releasing police time for more frontline work.

The Independent Office for Budget Responsibility estimates that returning to levels of pre-pandemic productivity could save the Treasury up to £20 billion per year.

Hunt will also announce £360 million in funding to boost research and development (R&D) and manufacturing projects across the life sciences, automotive and aerospace sectors, the Treasury said Monday.

However, the big questions over tax cuts remain heading into Wednesday’s statement.

Increased fiscal headroom

“On balance, we think Chancellor Hunt’s fiscal headroom will have likely increased – but only marginally, and nowhere close to what he had in the Autumn Statement (owing largely to the fall in expected debt costs),” Deutsche Bank Senior Economist Sanjay Raja said in a research note Thursday.

The German lender estimates that the government’s fiscal headroom will have grown from around £13 billion to around £18.5 billion, and that tax cuts are “very likely” the first port of call. Raja suggested the finance minister will err on the side of caution in loosening fiscal policy, favoring supply side support over boosting demand.

“Supply side measures are more likely in our view, particularly with the Bank of England more amenable to loosening monetary policy,” Raja said.

“Therefore, tax cuts to national insurance contributions (NICs) and changes to child benefits are more likely to come in the Spring Budget (in contrast to earlier expectations of income tax cuts).”

A substantial cut to National Insurance was the highlight of Hunt’s Autumn Statement, though economists were quick to point out that its benefit to payers would be more than erased by the effect of existing freezes on personal income tax thresholds — known as the “fiscal drag.”

The U.K. National Insurance is a tax on workers’ income and employers’ profits to pay for state social security benefits, including the state pension.

Raja also suggested an extension of the government’s existing freeze on fuel duty remains a possibility, and that some spending cuts will likely be used to partially offset a loosening of fiscal policy.

In total, Deutsche Bank expects Hunt to deliver net loosening of £15 billion over the coming fiscal year, dropping to around £12.5 billion in the medium-term.

“The outlook for the public finances remains precarious. Slight changes to the macroeconomic outlook could result in big shifts to the public finances. The Chancellor continues to walk a fine line between managing his fiscal rules now and rising austerity later,” Raja said.

“To be sure, big questions on the public finances remain – including whether spending cuts, or limited rises in some areas, remain realistic to tackle the rising strain in public services, and the Government’s own ambitions around net-zero, defence, and overseas development spending.”

BNP Paribas economists expect a more modest package of tax cuts worth around £10 billion across the 2024/25 fiscal year, and projected that the government will start the year with a fiscal windfall of around £11 billion.

Economist shares three troubling takeaways from latest UK economic data

The French bank agreed that the reductions will be aimed at stimulating labor supply, with “little impact on inflation and thus the Bank of England.”

“Our base case is that the government will spend GBP10bn of the near-term fiscal windfall and use the additional medium-term fiscal space to cut personal taxes,” economists Matthew Swannell and Dani Stoilova said in a research note entitled “last-chance saloon.”

They also expect the Treasury to postpone the March 2024 rise in fuel duty for another 12 months, at a cost of £3.7 billion a year, and to introduce a permanent 1 pence reduction in the basic rate of income tax at a cost of between £6 billion and £7.35 billion per year.

“The overall effect of this policy package would be to leave medium-term fiscal headroom roughly back where it started at GBP12.7bn,” they added.

“With the Conservative party trailing in the opinion polls and the Budget possibly the last opportunity to loosen fiscal policy before a general election, we expect Chancellor Hunt to once again, at least, spend any additional fiscal space available to him.”

Inflation remains sticky in Europe, with core prices cooling less than expected

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A salesman preparing a bag of sweets for a customer in the Sicilian confectionery shop Mazzone on February 02, 2024 in Catania, Italy. 

Fabrizio Villa | Getty Images News | Getty Images

Inflation in the 20-nation euro zone eased to 2.6% in February, flash figures showed on Friday, but both the headline and core figures were higher than expected.

Economists polled by Reuters had forecast a headline reading of 2.5%.

Core inflation, stripping out volatile components of energy, food, alcohol and tobacco, was 3.1% — above the 2.9% expected.

The European Union statistics agency said food, alcohol and tobacco had the highest inflation rate in February at 4%, followed by services at 3.9%.

Energy prices, which had swollen last year as a result of Russia’s invasion of Ukraine, continued to reduce, with the rate of deflation moving from -6.1% to -3.7%.

The headline print previously came in at 2.8% in January, with further easing expected after price rises cooled in Germany, France and Spain.

Investors are hunting for clues on when the European Central Bank will start to bring down interest rates, with market pricing pointing to a June cut. Yet many ECB officials still stress that they need spring wage negotiations to conclude before they have a clearer picture of domestic inflationary pressures.

The February figures will be a mixed bag for policymakers, as core inflation is holding above 3% even as the headline rate moves toward the ECB’s 2% target. Price rises have nonethless cooled significantly from their peak of 10.6% in October 2022.

The ECB must also contend with economic stagnation in the euro zone, after the bloc narrowly avoided a recession last year, posting flat gross domestic product growth in the fourth quarter.

European stock gains moderated following the inflation print, trading 0.2% higher down from 0.5% earlier in the morning. The euro was flat against the U.S. dollar and the British pound.

Key Fed inflation measure rose 0.4% in January as expected, up 2.8% from a year ago

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Inflation rose in line with expectations in January, according to an important gauge the Federal Reserve uses as it deliberates cutting interest rates.

The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected according to the Dow Jones consensus estimates. The monthly gain was just 0.1% in December and 2.9% from the year prior.

Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis, compared with respective estimates for 0.3% and 2.4%, according to the numbers released Thursday by the Commerce Department’s Bureau of Economic Analysis. The respective December numbers were 0.1% and 2.6%.

The moves came amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% versus the estimate for a 0.2% gain.

January’s price rises reflected an ongoing shift to services over goods as the economy normalizes from the Covid pandemic disruptions.

Services prices increased 0.6% on the month while goods fell 0.2%; on a 12-month basis, services rose 3.9% and goods were down 0.5%. Within those categories, food prices accelerated 0.5%, offset by a 1.4% slide in energy. On a year-over-year basis, food was up 1.4% while energy fell 4.9%.

Both the headline and core measures remain ahead of the Fed’s goal for 2% annual inflation, even though the core reading on an annual basis was the lowest since February 2021. While the Fed officially uses the headline measure, policymakers tend to pay more attention to core as a better indication of where long-term trends are heading.

CHICAGO, ILLINOIS – FEBRUARY 13: Customers shop at a grocery store on February 13, 2024 in Chicago, Illinois. Grocery prices are up 0.4% from December and 1.2% over the last year, the slowest annual increase since June 2021. (Photo by Scott Olson/Getty Images)

Scott Olson | Getty Images News | Getty Images

“Overall, [the report] is meeting the expectations, and some of the worst fears in the market weren’t met,” said Stephen Gallagher, chief U.S. economist at Societe Generale. “The key is we’re not seeing the broad nature of increases that we had been more fearful of.”

Wall Street reacted little to the news, with stock market futures up slightly and Treasury yields slightly lower. Futures markets where traders bet on the direction of interest rates also indicated little movement, with pricing tilted toward the Fed’s first rate cut coming in June.

Thursday’s BEA report also showed that consumers are continuing to dip into savings as prices stay elevated. The personal savings rate was 3.8% on the month, slightly higher than December but off a full percentage point from where it was as recently as June 2023.

In other economic news, a Labor Department report showed that companies are still reluctant to lay off workers.

Initial jobless claims totaled 215,000 for the week ended Feb. 24, up 13,000 from the previous period and more than the 210,000 Dow Jones estimate but still largely in keeping with recent trends. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate for 1.88 million.

The reports come as central bank officials mull the future of monetary policy following 11 interest rate increases totaling 5.25 percentage points. Running from March 2022 to July 2023, the hikes came as the Fed battled inflation that peaked at a more than 40-year high in mid-2022.

Officials have said in recent days that they expect to begin reversing the increases at some point this year. However, the timing and extent of the policy easing is uncertain as recent data has indicated that inflation could be more stubborn than expected.

“Hot January inflation data adds to uncertainty and pushes back rate cut expectations,” said David Alcaly, lead macroeconomic strategist at Lazard. “But odds remain that this is a speed bump and that, while there may be additional short-term swings in market narrative, it will ultimately matter more how deep any rate cutting cycle goes over time than when it begins.”

January’s consumer price index data raised fears of persistently high inflation, though many economists saw the rise as impacted by seasonal factors and shelter increases unlikely to persist.

While the CPI is used as an input to the PCE, Fed officials focus more on the latter as it adjusts for substitutions consumers make for goods and services as prices fall. Where the CPI is viewed as a simpler price measure, the PCE is viewed as more representative of what people are actually buying.

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A little-noticed inflation report in the past could get a lot of market attention on Thursday

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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 Cox, 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.

Cox, 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 Cox.

Courtesy: Autumn Cox

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 Cox 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,” Cox 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.”

Bonawyn Eison: Removing barriers will lead to reform

Jamie Dimon is 'cautious about everything' as he sees risks to a soft landing

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JPMorgan Chase CEO Jamie Dimon thinks there’s a better-than-even chance that the U.S. is heading for a recession, though he doesn’t see systemic issues looming.

Speaking Monday from the JPMorgan High Yield and Leveraged Finance Conference in Miami, the head of the largest U.S. bank by assets said markets probably aren’t pricing in a strong enough probability that interest rates could stay higher for longer.

Dimon noted “there are things out there which are kind of concerning,” and he disagreed with the high level of probability being assigned to the economy missing a recession.

“The market is kind of pricing in a soft landing. That may very well happen,” he told CNBC’s Leslie Picker. “But the [market’s] odds are 70 to 80 percent. I’ll give you half that, that’s all.”

The comments come as the market indeed has had to reprice its expectations for monetary policy. Where futures traders earlier in the year had been assigning a high probability to an aggressive series of interest rate cuts starting in March, they now see the easing not starting until June or July, with three cuts now priced in — half of the prior expectations.

Along with the elevated rates, markets have had to contend with the Federal Reserve rolling off its bond holdings, a process known as quantitative tightening. While the central bank is expected to start tapering the program soon, it remains another factor in tight monetary policy.

“It’s always a mistake to look at just the year,” Dimon said. “All these factors we talked about: QT, fiscal spending deficits, the geopolitics, those things may play out over multiple years. But they will play out and they will have an effect and in my mind I’m just kind of cautious about everything.”

However, Dimon said he doesn’t expect a replay of some of the other serious downturns the U.S. economy has faced, such as the 2008 financial crisis that saw Wall Street plunge as banks were hit with fallout from the subprime mortgage industry collapse.

Higher interest rates along with a recession could hit areas such as commercial real estate and regional banks hard, but with limited macroeconomic impacts, Dimon said.

“If we have a recession, yes, it’ll get worse. If we don’t have recession, I think most people will be able to muddle through this,” he said. “Part of this is just a normalization process. [Rates] were so low for so long. If rates go up, and we have recession, there will be real estate problems, and some banks will have a much bigger real estate problem than others.”

As far as regional banks go, he labeled issues that hit institutions such as Silicon Valley Bank and New York Community Bank as “idiosyncratic” and said private credit could take hit but not at a systemic level.

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Goldman Sachs and Abu Dhabi's Mubadala ink $1 billion partnership to invest in Asia Pacific

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An Emirati woman paddles a canoe past skyscrapers in Abu Dhabi, United Arab Emirates, on Wednesday, Oct. 2, 2019.

Christopher Pike | Bloomberg | Getty Images

DUBAI, United Arab Emirates — Goldman Sachs and Abu Dhabi sovereign wealth fund Mubadala on Monday signed a $1 billion private credit partnership to co-invest in the Asia-Pacific region, with a particular focus on India, the institutions said in a joint statement.

The separately managed account, termed the “Partnership,” will be managed by Private Credit at Goldman Sachs Alternatives, with a staff based on the ground in various markets across the region. It will invest the long-term capital in “high quality companies … across the private credit spectrum” across a number of Asia-Pacific markets.

The news follows Goldman’s 2023 expansion in the Middle East with the opening of its office in Abu Dhabi Global Market, the financial center of the United Arab Emirates capital.

It also comes as the UAE and other Gulf states increase their economic footprint in India, which is set to be the fastest-growing G20 economy for the 2023-24 fiscal year. The UAE in October 2023 announced a target to invest $75 billion in India over a period of time, while Saudi Arabia set an investment target in the country of $100 billion.

India, in particular, stands out as a key market with significant opportunities in private credit, and where Goldman Sachs has strong exposure and capabilities,” said Fabrizio Bocciardi, Mubadala’s head of credit investments, in a press release.

“The opportunity in private credit in Asia Pacific is expansive,” Greg Olafson, global head of private credit at Goldman Sachs Alternatives, said. “With strong economic growth in the region and favorable conditions for private lenders to support the growth of leading companies by providing flexible, long-term capital, we believe we are at the early stages of a defining era for private credit in Asia Pacific.”

He said the partnership with Mubadala will enable the bank to expand its “long-established investment focus on the region.”

Omar Eraiqat, Mubadala’s deputy CEO of diversified investments, said that the Goldman Sachs partnership “compliments our aspirations to grow our private credit exposure in APAC, a region that is central to Mubadala’s strategic growth initiatives.”

Mubadala Investment Company manages a global portfolio of $276 billion spanning six continents and a range of sectors and asset classes, according to the firm, with a focus on diversification of the UAE economy.

Economic boost from Taylor Swift's Eras Tour could be overstated, Nomura warns

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Taylor Swift performs onstage at Lumen Field in Seattle on July 22, 2023.

Mat Hayward/tas23 | Getty Images Entertainment | Getty Images

The devil’s in the details, but local economies have a friend in Taylor Swift.

The American pop star has spent nearly a year crossing the U.S. and the globe with her high-flying Eras Tour. The economic effect of the “Karma” singer’s show has caught the attention of everyone from the Federal Reserve to Wall Street.

Her tour undoubtedly helped the local economies she visited, according to a new report out from Japanese investment bank Nomura. But the firm questions how much of an imprint it made on national data.

“Her boost to consumption has certainly enchanted US economic analysts, but we believe the total macroeconomic effect is probably overstated,” Nomura global economist Si Ying Toh wrote to clients last week.

Between the first and third quarter of 2023, Swift’s venture alone lifted nominal U.S. retail sales by 0.03%, and real gross domestic product, a measure of economic output, by 0.02%, Nomura estimates show.

For all of 2023, the 14-time Grammy winner’s tour accounted for 0.5% of nominal consumption growth, according to the firm’s calculations.

Though those data points can be considered marginal, Toh said the economic boost — which some have dubbed the “Swift-lift” — is “undeniable” for the 20 cities U.S. she visited.

Stops on The Eras Tour saw a bump of 2.1 percentage points to lodging inflation during the month of Swift’s visit, according to STR data cited by Toh. Data from hotel booking platform Trivago shows a similar rise, she added.

Looking at Chicago specifically, Toh estimated that lodging prices rose 3.1 percentage points due to Swift’s three shows there. The city, which is the third-most populated in the U.S., saw a bump of 8.1 percentage points in occupancy and a 59% increase in hotel revenue per available room during Swift’s stint.

From that, the consumer price index for the Illinois city increased 0.5 percentage points from the singer’s visit alone. CPI is the measure of a basket of goods and services used to calculate changes in costs over time.

It’s less likely for these local improvements to materialize in national-level statistics from larger economies such as the U.S., U.K. or Japan, Toh said. Still, these events are worth watching as potential economic catalysts in countries around the globe, she said.

Internationally, small economies such as Singapore and Sweden could see the biggest macro boosts from her tour, according to Toh.

“Exogenous shocks play a key role in economic modeling, whether in the form of an extreme weather event, a pandemic or … a pop concert,” Toh wrote to clients. “In recent years, concert tours have grown to become not just major social phenomena but also potentially a significant driver of economic activity.”

Swift’s tour is set to conclude near the end of 2024. The film version, which already captured more than $200 million globally through a movie theater run, begins streaming on Disney+ on March 15.

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Germany’s housebuilding sector is in a 'confidence crisis' as the economy struggles

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A construction site with new apartments in newly built apartment buildings.

Patrick Pleul | Picture Alliance | Getty Images

Germany’s housebuilding sector has gone from bad to worse in recent months.

Economic data is painting a concerning picture, and industry leaders appear uneasy.

“The housebuilding sector is, I would say, a little bit in a confidence crisis,” Dominik von Achten, chairman of German building materials company Heidelberg Materials, told CNBC’s “Squawk Box Europe” on Thursday.

“There are too many things that have gone in the wrong direction,” he said, adding that the company’s volumes were down significantly in Germany.

In January both the current sentiment and expectations for the German residential construction sector fell to all-time lows, according to data from the Ifo Institute for Economic Research. The business climate reading fell to a negative 59 points, while expectations dropped to negative 68.9 points in the month.

“The outlook for the coming months is bleak,” Klaus Wohlrabe, head of surveys at Ifo, said in a press release at the time.

Meanwhile, January’s construction PMI survey for Germany by the Hamburg Commercial Bank also fell to the lowest ever reading at 36.3 — after December’s reading had also been the lowest on record. PMI readings below 50 indicate contraction, and the lower to zero the figure is, the bigger the contraction.

“Of the broad construction categories monitored by the survey, housing activity remained the worst performer, exhibiting a rate of decline that was among the fastest on record,” the PMI report stated.

The issue has also been weighing on Germany’s overall economy.

German Economy and Climate Minister Robert Habeck on Wednesday said the government was slashing its 2024 gross domestic product growth expectations to 0.2% from a previous estimate of 1.3%. Habeck pointed to higher interest rates as a key challenge for the economy, explaining that those had led to reduced investments, especially in the construction sector.

Light at the end of the tunnel?

Ifo’s data showed that the amount of companies reporting order cancellations and a lack of orders had eased slightly in January, compared to December. But even so, 52.5% of companies said not enough orders were being placed, which Wohlrabe said was weighing on the sector.

“It’s too early to talk of a trend reversal in residential construction, since the tough conditions have hardly changed at all,” he said. “High interest rates and construction costs aren’t making things any easier for builders.”

Heidelberg Materials’ von Achten however suggested there could be at least some relief on the horizon, saying that there could be good news on the interest rate front.

Germany has been benefitting from a 'peace dividend' for years, defense minister says

“I’m positive inflation really comes down now in Germany, maybe the ECB [European Central Bank] is actually earlier in their decrease of interest rates than we all think, lets wait and see, and if that comes then obviously the confidence will also come back,” he said.

Even if interest rate cuts are a slow process, von Achten says as soon as “people see the turning point” confidence should return.

Speaking to the German Parliament about the economic outlook on Thursday, Habeck said the government was expecting inflation to continue falling and return to the 2% target level in 2025.

The European Central Bank said at its most recent meeting in January that discussing rate cuts was “premature,” even as progress was being made on inflation. While the exact timeline for rate cuts remains unclear, markets are widely pricing in the first decrease to take place in June, according to LSEG data.   

Fed's Waller wants more evidence inflation is cooling before cutting interest rates

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Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, D.C., on Friday, Sept. 23, 2022.

Al Drago | Bloomberg | Getty Images

Federal Reserve Governor Christopher Waller said Thursday he will need to see more evidence that inflation is cooling before he is willing to support interest rate cuts.

In a policy speech delivered in Minneapolis that concludes with the question, “What’s the rush?” on cutting rates, the central bank official said higher-than-expected inflation readings for January raised questions on where prices are heading and how the Fed should respond.

“Last week’s high reading on CPI inflation may just be a bump in the road, but it also may be a warning that the considerable progress on inflation over the past year may be stalling,” Waller said in prepared remarks.

While he said he still expects the Federal Open Market Committee to begin lowering rates at some point this year, Waller said he sees “predominately upside risks” to his expectation that inflation will fall to the Fed’s 2% goal.

He added that there are few signs inflation will fall below 2% anytime soon based on strong 3.3% annualized growth in gross domestic product and employment, with few signs of a potential recession in sight. Waller is a permanent voting member on the FOMC.

“That makes the decision to be patient on beginning to ease policy simpler than it might be,” Waller said. “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.”

The remarks are consistent with a general sentiment at the central bank that while further rate hikes are unlikely, the timing and pace of cuts is uncertain.

The inflation data Waller referenced showed the consumer price index rose 0.3% in January and was up 3.1% from the same period a year ago, both higher than expected. Excluding food and energy, core CPI ran at a 3.9% annual pace, having risen 0.4% on the month.

Reading through the data, Waller said it’s likely that core personal consumption expenditures prices, the Fed’s preferred inflation gauge, will reflect a 2.8% 12-month gain when released later this month.

Such elevated readings make the case stronger for waiting, he said, noting that he will be watching data on consumer spending, employment and wages and compensation for further clues on inflation. Retail sales fell an unexpected 0.8% in January while payroll growth surged by 353,000 for the month, well above expectations.

“I still expect it will be appropriate sometime this year to begin easing monetary policy, but the start of policy easing and number of rate cuts will depend on the incoming data,” Waller said. “The upshot is that I believe the Committee can wait a little longer to ease monetary policy.”

Markets just a few weeks ago had been pricing in a high probability of a rate cut when the Fed next meets on March 19-20, according to fed funds futures bets gauged by the CME Group. However, that has been pared back to the June meeting, with the probability rising to about 1-in-3 that the FOMC may even wait until July.

Earlier in the day, Fed Vice Chair Philip Jefferson was noncommittal on the pace of cuts, saying only he expects easing “later this year” without providing a timetable.

Governor Lisa Cook also spoke and noted the progress the Fed has made in its efforts to bring down inflation without tanking the economy.

However, while she also expects to cut this year, Cook said she “would like to have greater confidence” that inflation is on a sustainable path back to 2% before moving.

Turkey ends hiking cycle after 8 months, holding key rate at 45%

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Turkish flag over a DenizBank building. Turkey is expected to head to the polls on Sunday.

Ismail Ferdous | Bloomberg | Getty Images

Turkey’s central bank held its key interest rate on Thursday, keeping it at 45% despite soaring inflation after eight consecutive months of hikes.

The move was widely expected as the bank indicated in January that its 250-basis-point hikes would be its last for the year, despite inflation now at roughly 65%.

Consumer prices in the country of 85 million last month jumped 6.7% from December — its biggest monthly jump since August — according to the Turkish central bank’s figures. They rose 64.8% year-on-year in January.

Turkey’s key interest rate climbed by a cumulative 3,650 basis points since May 2023. The latest decision to hold rates, rather than cut them, signals consistency from the newly appointed Turkish central bank governor Fatih Karahan with the strategy of his predecessor, Hafize Erkan. Karahan took office in early February.

Analysts viewed the accompanying press statement from the central bank as hawkish and indicating no easing of rates in the near future.

“The Committee assesses that the current level of the policy rate will be maintained until there is a significant and sustained decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range,” the bank’s statement said. “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation outlook is anticipated.”

Economists expect a hold on the current interest rate for much of 2024, and see inflation roughly halving by the end of the year — meaning monetary easing could still be on the cards.

“An extended interest rate pause is likely in our view over the coming months. With inflation likely to end the year at 30-35% (broadly in line with the CBRT’s forecast of 36%), there is still a possibility that the central bank starts an easing cycle before the end of the year, which many analysts are expecting,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a note Thursday.

“But our baseline view remains that interest rates will stay on hold throughout this year and that rate cuts won’t arrive until early next year.”

Germany slashes 2024 growth forecast to just 0.2% as economy in 'tricky waters,' minister says

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Robert Habeck, German Minister for Economy and Climate Protection and Vice Chancellor, is pictured during the weekly meeting of the cabinet on February 21, 2024 in Berlin, Germany.

Florian Gaertner | Photothek | Getty Images

Germany’s gross domestic product is now expected to grow by just 0.2% this year, as the country wades in “tricky waters,” German Economy Minister Robert Habeck said Wednesday.

The revised GDP growth forecast is down from a previous estimate of 1.3%. Habeck said the government now anticipates German GDP to grow by 1% in 2025.

Speaking during a news briefing, the minister attributed the revised forecast to an unstable global economic environment and to the low growth of world trade, alongside higher interest rates.

Those issues have negatively impacted investments, especially in the construction industry, he said.

German housebuilding is amongst the sectors that have been most affected by this, with developers canceling projects and order numbers declining, according to recent data. Analysts fear the sector may face further difficulties this year.

“The economy is in tricky waters,” Habeck said in a statement released online, according to a CNBC translation. “We are coming out of the crisis more slowly than we had hoped.”

This is despite energy costs and inflation falling and consumer spending power increasing again, he said. Habeck nevertheless maintained that Germany has proven resilient in the face of losing access to Russian seaborne crude and oil product supplies, as a result of the war in Ukraine.

Budget crisis

The country narrowly avoided a recession in the second half of 2023, despite its GDP declining by 0.3% in the final quarter as well as for the full-year 2023. The third-quarter GDP for 2023 was revised to reflect stagnation, however. It means the country dodged a technical recession, which is characterized by two consecutive quarters of negative growth.

Habeck pointed to Germany’s recent budget crisis which left a 60-billion-euro ($65 billion) hole in the government’s financial plans over the coming years as an additional economic challenge.

Last year, the country’s constitutional court ruled that it was unlawful for the government to re-allocate emergency debt that was taken on but not used during the Covid-19 pandemic to their current budget plans. This caused significant disruption to financial planning and forced the government to make cuts and savings.

The biggest challenge for Germany is a lack of skilled workers, which will only intensify in the years ahead, Habeck said in remarks published Wednesday. He also said there were various structural issues which need to be addressed to “defend” the competitiveness of Germany as an industrial hub.

Habeck also addressed the outlook for inflation, saying it is expected to fall to 2.8% throughout 2024, before returning to the 2% target range again in 2025. The harmonised consumer price index for January 2024 came in at 3.1% on an annual basis.

Bank of England rate cuts likely later but larger, Goldman Sachs says

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Blurred buses pass the Bank of England in the City of London on 7th February 2024 in London, United Kingdom. 

Mike Kemp | In Pictures | Getty Images

The Bank of England is likely to hold interest rates higher for longer before slashing them more sharply than expected in the second half of the year, new forecasts from Goldman Sachs show.

In a research note released Tuesday, the Wall Street bank pushed back its expectations for rate cuts by one month, from May to June, citing several key inflation indicators “on the firmer side.”

But it said the central bank was then likely to cut rates more quickly than previously anticipated as inflation shows signs of cooling.

Goldman now sees five consecutive 25 basis point interest rate cuts this year, lowering rates from their current 5.25% to 4%. It then sees the Bank settling at a terminal rate of 3% in June 2025.

That compares to more moderate market expectations of three cuts by December 2024.

“We continue to think that the BoE will ultimately loosen policy significantly faster than the market expects,” the note said.

Bank of England Governor Andrew Bailey said Tuesday that bets by investors on interest rate cuts this year were “not unreasonable,” but resisted giving a timeline.

“The market is essentially embodying in the curve that we will reduce interest rates during the course of this year,” Bailey told U.K. lawmakers at the Treasury Select Committee.

“We are not making a prediction of when or by how much [we will cut rates],” he continued. “But I think you can tell from that, that profile of the forecast … that it’s not unreasonable for the market to think about.”

The Bank’s Chief Economist Huw Pill also said last week that the first rate cut is still “several” months away.

Cooling underway

Goldman analysts put their delay down to the persistent strength of the British labor market and continued wage growth. However, it noted than those pressures were likely to subside in the second half of the year, with lower inflation suggesting a “cooling is underway.”

U.K. inflation held steady at 4% year-on-year in January, though price pressures in the services industry remained hot. Meanwhile, the month-on-month headline consumer price index fell to -0.6% after recording a surprise uptick in December.

Goldman said there was a 25% chance the BOE would delay rate cuts beyond June if wage growth and services inflation remained sticky. However, it also said there was an equal chance of the Bank cutting rates by a more aggressive 50 basis points if the economy slips into a “proper” recession.

Bank of England rate cuts would help our business, ProsperCap says

The U.K. economy slipped into a technical recession in the final quarter of last year, with gross domestic product shrinking 0.3%, preliminary figures showed Thursday.

Bailey said Tuesday, however, that the economy had already shown signs of an upturn.

“There was a lot of emphasis again on this point about the recession, and not as much emphasis on … the fact that there is a strong story, particularly on the labor market, actually also on household incomes,” he said.

Still, he noted that the Bank did not need to see inflation fall to its 2% target before it begins cutting rates.

U.K. government bond yields fell as Bailey spoke, suggesting increased investor expectations of rate cuts.

Israel's GDP contracts nearly 20% in fourth quarter amid Gaza war

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An Israeli national flag above produce for sale at Carmel Market in Tel Aviv, Israel, on Nov. 7, 2023.

Bloomberg | Bloomberg | Getty Images

Israel’s gross domestic product shrank nearly 20% in the fourth quarter of 2023, according to official figures.

The contraction was significantly larger than expected, as analysts predicted a contraction of around 10%. It reflects the toll of the country’s war against Hamas in Gaza, now entering its fifth month.

The economic data out Monday “pointed primarily to a contraction in private sector consumption and a deep contraction in investment, especially in real estate,” analysts at Goldman Sachs wrote in a research note.

“The deep GDP contraction occurred despite a strong surge in public sector consumption as well as a positive net trade contribution, with the decline in imports outpacing the decline in exports.”

Official figures showed a 26.9% quarter-on-quarter annualized drop in private consumption, and fixed investment plummeting nearly 68% as residential construction ground to a halt amid a shortage of both Israel workers due to military mobilization and Palestinian workers as the latter group has been mostly barred from entering Israel since Oct. 7.

Before then, more than 150,000 Palestinian workers from the occupied West Bank entered Israel daily for work in a range of sectors, predominantly in construction and agriculture.

Israel’s GDP contraction “was much worse than had been expected and highlights the extent of the hit from the Hamas attacks and the war in Gaza,” Liam Peach, senior emerging markets economist at London-based Capital Economics, said in an analysis note.

“While a recovery looks set to take hold in Q1, GDP growth over 2024 as a whole now looks likely to post one of its weakest rates on record.”

Israel’s high-tech economy is particularly affected by the fact that it has mobilized 300,000 of its men and women as military reservists to deploy in both Gaza and on its northern border with Hezbollah in Lebanon.

The mobilization was triggered by the terror attack of Oct. 7 led by Palestinian militant group Hamas that killed about 1,200 people in Israel. Israel’s subsequent offensive against the Gaza strip and relentless bombing campaign has killed more than 28,000 people in the blockaded territory, according to Gaza’s Hamas-run health ministry.

British retail rebound provides some hope for recession-hit economy

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A general view of a kiosk near Charing Cross station in London, England, on January 20, 2024. (Photo by Alberto Pezzali/NurPhoto via Getty Images)

Nurphoto | Nurphoto | Getty Images

LONDON — Stronger-than-expected January retail sales provided a glimmer of light for the struggling British economy on Friday — and suggest that the country’s recession will be short-lived, according to some economists.

Sales rebounded by 3.4% from December, according to the Office for National Statistics, the strongest monthly gain since April 2021. Economists polled by Reuters had expected a more modest growth of 1.5%.

Sales volumes increased in all areas except closing, as food shops saw the biggest boost. Consumers “spent more for less in January,” the ONS said, with the total they paid rising by 3.9%.

The latest figures follow the news of Thursday that the British economy entered a technical recession in the final quarter of 2023. Gross domestic product declined by 0.3%, following a 0.1% contraction in the third quarter.

Sales over the key holiday trading period were far weaker than expected, with December seeing the biggest monthly fal since January 2021.

British retail sales meanwhile remain 1.3% below their pre-pandemic level from February 2020, according to the ONS.

The “strong pick up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” Joe Maher, assistant economist at Capital Economics, said in a note.

The hike also points to a fading drag on consumer spending from higher interest rates, as well as the economy exiting recession territory, Maher said —but there is “still a long way back for retailers” to their pre-pandemic highs.

Kris Hamer, director of insight at the British Retail Consortium, said two months of higher sales volumes over the last three months were “promising” after 19 months of decline.

“Nonetheless, shoppers remained cautious as they entered the third year of the high cost of living,” Hamer said, adding that a rise in business rates and new border control costs would weigh on the retail sector.

Despite the poor growth figures, the retail report — along with steady inflation figures and a healthy December jobs report — ended the week on a “half positive note,” said Kallum Pickering, senior economist at Berenberg.

Anecdotal evidence from retailers suggests consumers held back in December, but came out in force to benefit from January sales, he said.

“However, we need to be cautious. Monthly data are volatile. The January jump merely offsets the big 3.3% [month-on-month drop in December – and hence returns real sales to the November level,” Pickering said in a note.

The fresh figures are consistent with “haphazard stagnation” in the retail sector and with broader economic activity in the last 18 months, though Berenberg economists expect retail momentum to pick up over the coming months due to higher real wages and consumer confidence, he added.

January wholesale prices rise more than expected, another sign of persistent inflation

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Customers shop at a Costco Wholesale store in Miami on Dec. 15, 2023.

Joe Raedle | Getty Images News | Getty Images

Wholesale prices rose more than expected in January, further complicating the inflation picture, according to a U.S. Department of Labor report Friday.

The producer price index, a measure of prices received by producers of domestic goods and services, rose 0.3% for the month, the biggest move since August. Economists surveyed by Dow Jones had been looking for an increase of just 0.1%. PPI fell 0.2% in December.

Excluding food and energy, core PPI increased 0.5%, also against expectations for a 0.1% gain. PPI excluding food, energy and trade services jumped 0.6%, its biggest one-month advance since January 2023.

The report comes just days after the consumer price index showed inflation holding stubbornly higher despite Federal Reserve expectations for moderation through the year. The CPI was up 3.1% from a year ago, down from its December level but still well ahead of the Fed’s goal for 2% inflation.

On a core basis, which the Fed focuses on more as a longer-term gauge of inflation, the CPI was up 3.9%. CPI differs from PPI in that it measures the prices consumers actually pay in the marketplace.

Markets fell sharply after Tuesday’s CPI reading, and there were fears that a hot PPI number also could cause another jolt. Expectations have been rising high that the Fed would use the easing inflation numbers as incentive to cut interest rates aggressively this year, but traders have had to pare back those expectations in recent days as inflation has shown unexpected persistence.

Stock market futures moved lower after the PPI report and Treasury yields surged.

Just a few weeks ago, markets had been pricing in the first Fed rate cut in March. That since has been pared back to June as policymakers have expressed caution about giving up the inflation fight too quickly while noting that an otherwise stable economy buys them time before having to move.

A 0.6% increase in final demand service helped propel the wholesale index higher, which in itself was boosted by a 2.2% rise in hospital outpatient care. Goods prices actually decreased 0.2% on the back of a 1.7% decline in final demand energy as gasoline slid 3.6%.

On a 12-month basis, headline PPI increased just 0.9%, slightly lower than the 1% level in December. However, excluding food, energy and trade services, the index rose 2.6%.

Along with the troublesome inflation readings, the Commerce Department reported this week that retail sales in January slid by 0.8%, far more than anticipated.

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Retail sales tumbled 0.8% in January, much more than expected

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Consumer spending fell sharply in January, presenting a potential early danger sign for the economy, the Commerce Department reported Thursday.

Advance retail sales declined 0.8% for the month following a downwardly revised 0.4% gain in December, according to the Census Bureau. A decrease had been expected: Economists surveyed by Dow Jones were looking for a drop of 0.3%, in part to make up for seasonal distortions that probably boosted December’s number.

However, the pullback was considerably more than anticipated. Even excluding autos, sales dropped 0.6%, well below the estimate for a 0.2% gain.

The sales report is adjusted for seasonal factors but not for inflation, so the release showed spending lagging the pace of price increases. On a year-over-year basis, sales were up just 0.6%.

Headline inflation rose 0.3% in January and 0.4% when excluding food and energy prices, the Labor Department reported Tuesday. On a year-over-year basis, the two readings were 3.1% and 3.9%, respectively.

Sales at building materials and garden stores were especially weak, sliding 4.1%. Miscellaneous store sales fell 3% and motor vehicle parts and retailers saw a 1.7% decrease. Gas station sales also declined 1.7% as prices at the pump dropped during the month. On the upside, restaurants and bars reported an increase of 0.7%.

The control group of retail sales, which excludes items such as food service, autos, gas and building materials, fell 0.4%. The number feeds directly into the Commerce Department’s calculations for gross domestic product.

The Fed's going to remain on hold longer than many of us expected: John Hancock's Emily Roland

Consumer strength has been at the center of a U.S. growth picture that has proven far more durable than most policymakers and economists had expected. Spending accelerated by 2.8% in the fourth quarter of 2023, finishing out a year in which gross domestic product rose 2.5% despite widespread predictions for a recession.

However, worries linger that stubbornly high inflation could take its toll and jeopardize prospects going forward.

“It’s a weak report, but not a fundamental shift in consumer spending,” said Robert Frick, corporate economist for Navy Federal Credit Union. “December was high due to holiday shopping, and January saw drops in those spending categories, plus frigid weather plus an unfavorable seasonal adjustment. Consumer spending likely won’t be great this year, but with real wage gains and increasing employment it should be plenty to help keep the economy expanding.”

A separate economic report Thursday showed continuing labor market strength, another critical bedrock for the economic picture.

Initial claims for unemployment insurance totaled 212,000 for the week ended Feb. 10, a decline of 8,000 from the previous week’s upwardly revised total and below the estimate for 220,000, the Labor Department reported.

Continuing claims, which run a week behind, totaled just shy of 1.9 million, up 30,000 on the week and higher than the 1.88 million estimate.

There also was some good news on the manufacturing front, as regional surveys in the Federal Reserve’s Philadelphia and New York districts both came in better than expected for February.

The Philadelphia survey showed a reading of 5.2, up 16 points and better than the -8 estimate, while the Empire State survey for New York was at -2.4. Although the New York survey still indicated contraction, it was a much better reading than January’s -43.7 and the -15 estimate. The surveys measure the share of companies reporting growth, so a positive reading indicates expansion.

Markets largely took the reports in stride, with stock futures pointing to a higher open on Wall Street.

Investors are closely watching the numbers for clues about which way the Fed will go in terms of monetary policy and interest rates.

Federal Reserve officials have said they are satisfied enough with the prospects for both inflation falling and growth holding steady that the rate-hiking cycle begun in March 2022 is likely over. But they are watching the data closely, with most saying that they will need more evidence that inflation is on a sustainable path back to the central bank’s 2% goal before starting to cut.

Futures market pricing is indicating the first rate reduction will happen in June, with the Fed moving a total of four times, or a full percentage point, by the end of 2024.

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Brexit Britain has 'significantly underperformed' other advanced economies, Goldman Sachs says

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Pro-EU demonstrators protest outside Parliament against Brexit on the fourth anniversary of Britain’s official departure from the European Union in London, United Kingdom on January 31, 2024.

Future Publishing | Getty Images

LONDON — Post-Brexit Britain has “significantly underperformed” other advanced economies since the 2016 EU referendum, according to new analysis from Goldman Sachs, which aims to quantify the economic cost of the Leave vote.

In a note last week entitled “The Structural and Cyclical Costs of Brexit,” the Wall Street bank estimates that the U.K. economy grew 5% less over the past eight years than other comparable countries.

The true hit to the British economy could be anywhere from 4% to 8% of real gross domestic product (GDP), however, the bank said, acknowledging the difficulties of extracting the impact of Brexit from other simultaneous economic events including the Covid-19 pandemic and the 2022 energy crisis. Real GDP is a growth metric that has been adjusted for inflation.

Goldman Sachs attributed the economic shortfall to three key factors: reduced trade; weaker business investment; and labor shortages as a result of lower immigration from the EU.

The U.K. voted 52% to 48% to leave the EU on June 23, 2016, but officially exited the union on Jan. 31, 2020.

Over that period until today, U.K. goods trade has underperformed other advanced economies by around 15% since the Leave vote, according to the bank’s estimates, while business investment has fallen “notably short” of pre-referendum levels.

Meantime, immigration from the EU has fallen — a key pledge of the Vote Leave campaign — only to be replaced by a less economically active cohort of non-EU migrants, primarily students, the research said.

“Taken together, the evidence points to a significant long-run output cost of Brexit,” the report’s authors said.

The bank noted the reduction in trade was in line with expectations and the underperformance in investment was “more pronounced” that anticipated. However, it said the shifts in immigration patterns posed the most important cyclical repercussions for the U.K. economy — and inflation in particular.

“The post-Brexit change in immigration flows has reduced the elasticity of labor supply in the U.K., contributing to the post-pandemic surge in inflation and pointing to more cyclical labor market and inflation pressures going forward,” the report said.

U.K. real GDP per capita has barely risen above pre-Covid levels and currently stands 4% above the mid-2016 level, it said. That compares to 8% for the euro zone area and 15% for the U.S.

Meantime, the U.K. has recorded higher inflation over the period, with U.K. consumer prices rising 31% since mid-2016 compared with 27% in the U.S. and 24% in the euro zone, it added.

While the report noted that new non-EU trade agreements could potentially mitigate the costs of Brexit, estimates suggest that the benefit is likely to be small.

The British government estimates that its free trade agreement with Australia will boost U.K. GDP by 0.08% per year, while the economic impact of a new trade deal with Switzerland is unclear.

Meantime, the timelines for prospective new trade deals with major partners such as the U.S. and India have not yet been announced.

Consumer prices rose 0.3% in January, more than expected, as the annual rate moved to 3.1%

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Inflation rose more than expected in January as stubbornly high shelter prices weighed on consumers, the Labor Department reported Tuesday.

The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month, the Bureau of Labor Statistics reported. On a 12-month basis, that came out to 3.1%, down from 3.4% in December.

Economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.

Excluding volatile food and energy prices, so-called core CPI accelerated 0.4% in January and was up 3.9% from a year ago. The forecast had been for 0.3% and 3.7% respectively.

Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the increase. The index for that category rose 0.6% on the month, contributing more than two-thirds of the headline increase, the BLS said. On a 12-month basis, shelter increased 6%.

Food prices moved higher as well, up 0.4% on the month. Energy helped offset some of the increase, down 0.9% due largely to a 3.3% slide in gasoline prices.

Stock market futures slid sharply following the release. Futures tied to the Dow Jones Industrial Average were off more than 250 points and Treasury yields surged higher.

Even with the rise in prices, inflation-adjusted earnings increased 0.3% for the month. However, adjusted for the decline in the average workweek, real weekly earnings fell 0.3%. Real average hourly earnings rose 1.4% from a year ago.

The release comes as Federal Reserve officials look to set the proper balance for monetary policy in 2024. Though financial markets have been looking for aggressive interest rate cuts, policymakers have been more cautious in their public statements, focusing on the need to let the data be their guide rather than preset expectations.

Fed officials expect inflation to recede back to their 2% annual target in large part because they think shelter prices will decelerate through the year. January’s increase could be problematic for a central bank looking to take its foot off the brake for monetary policy at its tightest in more than two decades.

“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”

Generally, the inflation data had been encouraging, even if annual rates remain well above the Fed’s 2% target. Moreover, core inflation, which officials believe is a better guide of long-run trends, has been even more stubborn as housing costs have held higher than anticipated.

In recent days, policymakers including Chair Jerome Powell have said the broader strength of the U.S. economy gives the Fed more time to process data is it doesn’t have to worry about high rates crushing growth.

Market pricing prior to the CPI release indicated a tilt towards the first rate cut coming in May, with a likely total of five quarter-percentage point moves lower before the end of 2024, according to CME Group data. However, several Fed officials have said they think two or three cuts are more likely.

Outside of the jump in shelter costs, the rest of the inflation picture was a mixed bag.

Used vehicle prices declined 3.4%, apparel costs fell 0.7% and medical commodities declined 0.6%. Electricity costs rose 1.2%. At the grocery store, ham prices fell 3.1% and eggs jumped 3.4%.

This is breaking news. Please check back here for updates.

China's biggest problem is a 'lack of confidence,' Standard Chartered CEO says

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DUBAI, United Arab Emirates — China is facing a confidence deficit as its economy undergoes massive transition and concern grows over its ongoing property crisis, a top banking CEO said while onstage at Dubai’s World Governments Summit.

“China’s biggest problem to me is a lack of confidence. External investors lack confidence in China and domestic savers lack confidence,” Bill Winters, CEO of emerging markets-focused bank Standard Chartered, told CNBC’s Dan Murphy Monday during a panel discussion.

“But I think China is going through a major transition from old economy to new economy,” Winters added. “If you visit the new economy, which many of you have — I have — it’s booming, absolutely booming, well into double-digit growth rates and in everything EV-related, the whole supply chain, everything sustainable finance and sustainability related, etc.”

Investors are closely watching China, whose stock market gyrations, deflation problem and property woes are casting a shadow over the global growth outlook. According to an International Monetary Fund report completed in late December 2023, demand for new housing in China is set to drop by around 50% over the next decade.

Decreased demand for new housing will make it harder to absorb excess inventory, “prolonging the adjustment into the medium term and weighing on growth,” the report said. Property and related industries account for about 25% of China’s gross domestic product.

IMF chief: China must show determination to take on economic reforms

IMF Managing Director Kristalina Georgieva, speaking to CNBC in Dubai on Sunday, stressed what she saw as the need for reforms from Beijing in order to stem its economic challenges.

The international lender has discussed with China “longer-term structural issues that the country needs to address,” Georgieva said. “Our analysis shows that without deep structural reforms, growth in China can fall below 4%. And that will be very difficult for the country.”

“We want to see the economy genuinely moving more towards domestic consumption, and less reliance on exports … but for that, [they need] confidence of the consumer,” she said, echoing Winters’ sentiments on domestic confidence. “And that means fix the real estate, get the pension system in place, as well as these longer-term improvements in the fundamentals of the Chinese economy, would be necessary.”

Standard Charters’ Winters, meanwhile, is ultimately optimistic about the world’s second-largest economy, pointing out that every society that’s undergone major economic transition inevitably experiences some level of tumult and growing pains.

“They’re trying to manage this transition without disrupting the financial system, which in the West, we’ve never managed to do,” the CEO said. “Every big industrial transition has had a major depression associated with it, or global financial crisis. They’re trying to avoid that which means it gets dragged out. I think they’ll get through the back end just fine.”

— CNBC’s Evelyn Cheng contributed to this report.

Russia’s economy ‘in for very tough times’ despite improved growth outlook, IMF managing director says

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Kristalina Georgieva, managing director of the International Monetary Fund, at a press conference at the IMF Headquarters on April 14, 2023.

Kevin Dietsch | Getty Images News | Getty Images

The head of the International Monetary Fund warned the Russian economy is still facing significant headwinds despite receiving a recent growth upgrade by the Washington-based institution.

Russia’s economy has proven to be surprisingly resilient amid waves of Western sanctions in the nearly two years since it launched its full-scale invasion of Ukraine.

In late January, the International Monetary Fund more than doubled its forecast for the pace of the country’s economic growth this year, raising it from 1.1% in October to 2.6%.

Despite this, IMF Managing Director Kristalina Georgieva sees more trouble ahead for the country of roughly 145 million.

Speaking to CNBC’s Dan Murphy at the World Governments Summit in Dubai, Georgieva described what she believed was fueling Russia’s growth and why the forecast figure does not tell the full story.

“What it tells us is that this is a war economy in which the state — which let’s remember, had a very sizeable buffer, built over many years of fiscal discipline — is investing in this war economy. If you look at Russia, today, production goes up, [for the] military, [and] consumption goes down. And that is pretty much what the Soviet Union used to look like. High level of production, low level of consumption.”

Russian defense spending has skyrocketed since the war began. Last November, Russian President Vladimir Putin approved a state budget that increased military spending to roughly 30% of fiscal expenditure, amounting to a nearly 70% rise from 2023 to 2024.

Defense and security spending is expected to comprise some 40% of Russia’s total budget spending this year, according to analysis by Reuters.

At the same time, however, more than 800,000 people have left Russia, according to estimates by exiled academics compiled last October. Many among those who fled are highly skilled workers in fields like IT and sciences.

“I actually think that the Russian economy is in for very tough times because of the outflow of people, and because of the reduced access to technology that comes with the sanctions,” Georgieva said.

“So although this number looks like a good number, there is a bigger story behind that, and it’s not a very good story.”

Germany’s economy is on shaky ground and glimmers of hope are few and far between

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Federal Chancellor Olaf Scholz (SPD, r-l), Robert Habeck (Alliance 90/The Greens), Federal Minister for Economic Affairs and Climate Protection, and Christian Lindner (FDP), Federal Minister of Finance, follow the debate at the start of the budget week.

Michael Kappeler | Picture Alliance | Getty Images

Good news has been sparse for the German economy. And the latest economic data has not done much to change this.

A few key 2023 data points, namely factory orders, exports and industrial production, were out last week and indicated a weak end to the year that saw questions about Germany being the “sick man of Europe” resurface.

“The data confirm that German industry is still in recession,” Holger Schmieding, chief economist at Berenberg Bank, told CNBC.

Industrial production declined by 1.6% in December on a monthly basis, and was down 1.5% in 2023 overall compared to the previous year. Exports – which are a major cornerstone of the German economy – fell by 4.6% in December and 1.4%, or 1.562 trillion euros ($1.68 trillion), across the year.

Meanwhile, factory orders data seemed promising at first glance as it reflected an 8.9% increase in December compared to November.

But this growth “is not much reason for comfort,” Franziska Palmas, senior Europe economist at Capital Economics told CNBC, explaining that it is thanks to several large-scale orders, which tend to be volatile. “Orders excluding large-scale orders actually fell to a post-pandemic low,” she added.

For 2023 overall in comparison to the previous year, factory orders were down 5.9%.

While this “hard” data from December does not yet suggest recovery is in sight, the most recent Purchasing Managers’ Index report indicates that the worst may be over soon in the manufacturing sector, Schmieding said.

“Although at 45.5 still below the 50 line that divides growth from contraction, it edged up to an 11-month high,” he noted.

Even so, economic growth is unlikely to be imminent, Erik-Jan van Harn, a macro strategist for global economics and markets at Rabobank, told CNBC.

“We are still nowhere near the kind of activity in the German industry that we saw pre-pandemic,” he explained. “We still expect a modest contraction in Q1, but it’s likely to be less severe than 23Q4,” van Harn said. He is then anticipating growth to pick up slightly, but sees full-year growth as being flat.

Others are even more pessimistic about the German economy.

“We stick to our forecast that the German economy will shrink by 0.3% in 2024 as a whole,” Commerzbank Chief Economist Jörg Krämer told CNBC.

This would be broadly in line with how Germany’s economy fared in 2023, when it contracted by 0.3% year-on-year, according to data released by the federal statistics office last month. The data also showed a 0.3% decline of the gross domestic product in the fourth quarter, but Germany still managed to avoid a technical recession, which is characterized by two consecutive quarters of negative growth.

This is due to the statistics office finding that the third quarter of 2023 saw stagnation rather than contraction. But should the economy contract as expected in the first three months of 2024, Germany would indeed fall into a recession.

“Companies simply have too much to digest — global rate hikes, high energy prices, less tailwind from China and an erosion of Germany as a business location,” Krämer explained, addressing reasons for the downturn.

Some of these headwinds may also play a key role when it comes to weakening export figures, Rabobank’s van Harn pointed out. Factors like cheap energy from Russia, strong demand from China and surging global trade buoyed Germany’s exports for decades, “but are now faltering,” he said.

Looking beyond the purely economical, national and international politics could also be a risk for the country’s economy, the experts say.

Germany sets sights on 2024 budget

Germany’s coalition government has been under pressure after going through a budget crisis following a decision from the constitutional court that the re-allocation of unused debt taken on during the pandemic to current budget plans is unlawful.

This left a 60-billion-euro hole in the coalition’s budget plans, and as the funds were allocated for years to come, the crisis is likely to rear its head again at the end of the year when 2025 budget planning begins.

Voter satisfaction with the government is also low, with the opposition CDU party currently leading in the polls and being followed in second place by Germany’s far-right party, the AfD. Support for the latter has however declined in recent weeks amid protests against the far-right sweeping the country, with hundreds of thousands of Germans taking to the streets.

Elsewhere, the U.S. election could make things more difficult as well, Schmieding suggested.

“Trade war threats by Trump could be a significant negative for Germany,” he said – however this of course depends on the outcome of the election, and may not unfold in full force until 2025, he noted.

Inflation in December was even lower than first reported, the government says

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People shop in a supermarket in the Manhattan borough of New York city on January 27, 2024.

Charly Triballeau | AFP | Getty Images

The prices consumers pay in the marketplace rose at an even slower pace than originally reported, according to closely watched revisions the government released Friday.

Updates to the consumer price index showed that the broad basket of goods and services measured increased 0.2% on the month, less than the originally reported 0.3%, the Labor Department’s Bureau of Labor Statistics said.

While the change is only modest, it helped confirm that inflation was moderating as 2023 ended, giving more leeway to the Federal Reserve to start cutting interest rates later this year.

The revisions are done as a matter of course for the BLS, but garnered extra attention this year after the market reacted sharply to last year’s changes. Indications that inflation in 2022 rose more than anticipated drove Treasury yields higher and sparked worry from investors that the Fed might keep monetary policy more restrictive.

Fed Governor Christopher Waller, in particular, had called attention to the 2022 revisions, sparking market attention for the latest round.

Excluding food and energy, the so-called core CPI increased 0.3% for the month, the same as originally reported. Fed policymakers tend to focus more on core measures as they provide a better indication of long-run movements in inflation.

Also, the headline November reading was revised higher, up 0.2% versus the initial 0.1% estimate.

In aggregate, the revisions indicate that headline CPI accelerated at a 2.7% annualized rate in the fourth quarter, down 0.1 percentage point from the initially stated figures, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. Further out, the second-half revisions put CPI higher — by 0.003 percentage point, according to Goldman Sachs calculations.

The revisions amounted to “a damp squib,” said Paul Ashworth, chief North America economist at Capital Economics, though they could exert some influence on the Fed.

“Since some Fed officials were apparently worried about a repeat of last year — when the revision pushed up the monthly changes in core prices in the final few months of last year — the lack of any meaningful change this year, at the margin at least, supports an earlier May rate cut,” Ashworth added.

The Fed prioritizes the personal consumption expenditures price index as its main inflation gauge. CPI readings feed into the Commerce Department’s PCE calculation. The difference between the two gauges is essentially that the CPI reflects what items cost while the PCE adjusts for what consumers actually buy, accounting for changes in behavior when prices rise and fall.

Futures market pricing was little changed after the data release.

Traders still largely expect the Fed to hold its benchmark overnight borrowing rate steady when it next meets in March, then cut in May, to be followed by four more quarter percentage point reductions by the end of the year, according to CME Group projections.

Reuters contributed to this report.

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El-Erian, Krugman and other economists have very different opinions on China’s struggling economy

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Many Chinese developers have halted or delayed construction on presold homes due to cash flow problems. Pictured here is a property construction site in Jiangsu province, China, on Oct. 17, 2022.

Future Publishing | Future Publishing | Getty Images

China’s economy is sputtering.

Its property market is crumbling, deflationary pressures are spreading across the nation, and its stock market has weathered a turbulent ride so far this year, with the country’s CSI 300 index erasing some 40% of its value from its 2021 peaks.

Adding salt to the wound, January PMI numbers released by China’s National Bureau of Statistics showed manufacturing activity contracted for the fourth month in a row, driven by slumping demand. 

The slew of downbeat data has consequently triggered a wave of skepticism toward the world’s second-largest economy. Allianz for one, reversed its buoyant view of China, now forecasting Beijing’s economy to grow by an average 3.9% between 2025 to 2029. That’s down from a 5% forecast before the Covid-19 pandemic broke out.

Ex-International Monetary Fund official Eswar Prasad also told Nikkei Asia that “the likelihood of the prediction that China’s GDP will one day overtake that of the U.S. is declining.” 

Meanwhile, top economist and Allianz advisor Mohamed El-Erian highlighted China’s dismal stock market performance against those in the U.S. and Europe in a chart on X, saying it shows the stark divergence between all three equity markets.

China itself, however, isn’t willing to confess its economy is in tatters. Chinese leader Xi Jinping said on New Year’s Eve that the nation’s economy had grown “more resilient and dynamic this year.”

Feeding on such optimism, it’s fair to say there’s been some signs of hope for the beleaguered economy, but perhaps not enough to sway the bears. For instance, factory activity in China expanded for a third-straight month in January, while the nation’s luxury sector appears to be snapping back. 

Such data has prompted bullish chatter among investors, suggesting consensus on China clearly lacks uniform.

Era of stagnation 

Nobel laureate Paul Krugman has been among some of the most bearish voices toward China, saying the country is entering an era of stagnation and disappointment. 

China was supposed to boom after it lifted its stringent “zero-Covid” measures, Krugman wrote in a recent New York Times op-ed. But it did the exact opposite. 

China is in the middle of a secular stagnation, says Clocktower Group's Marko Papic

From bad leadership to high youth unemployment, the country is facing headwinds from all corners, Krugman argued. And the country’s economic stumble isn’t isolated, Krugman warns, potentially becoming everyone’s problem.  

Property crisis

Glimmers of hope

China would be very happy if we were more isolationist and dysfunctional politically: Michael Froman

At the same time, Clocktower Group partner and chief strategist Marko Papic took an optimistic short-term view toward Chinese equities. In a Feb. 7 CNBC interview, Papic said he forecasts China stocks to jump at least 10% in the coming days as officials signal support efforts to bolster its flailing stock market.

A “10% to 15% rally in Chinese equities is likely in coming trading days,” Papic said.

JPMorgan Private Bank also outlined bull case scenarios for China in a recent post. “Despite the stock market’s slipping sentiment and persistent problems with the property market, certain segments of the Chinese economy have also proved their resilience,” it said.

The bank said China’s crucial role as a global manufacturer is unlikely to abate, adding that cyclical demand for its exports could remain intact.

Looking ahead, China has hurdles to overcome. Whether it has the firepower to do so, however, remains to be seen.

‘A slow fiscal death’ awaits some countries in this 'decade of debt,' says economist Art Laffer

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A mosaic collection of world currencies.

FrankvandenBergh | E+ | Getty Images

The world is looking at a debt crisis that will span the next 10 years and it’s not going to end well, economist Arthur Laffer has warned, with global borrowings hitting a record of $307.4 trillion last September. 

Both high-income countries as well as emerging markets have seen a substantial rise in their debt piles, which has grown by a $100 trillion from a decade ago, fueled in part by a high interest rate environment. 

“I predict that the next 10 years will be the Decade of Debt. Debt globally is coming to a head. It will not end well,” Laffer, who is President at investment and wealth advisory Laffer Tengler Investments, told CNBC.

As a share of the global gross domestic product, debt has risen to 336%. This compares to an average debt-to-GDP ratio of 110% in 2012 for advanced economies, and 35% for emerging economies. It was 334% in the fourth quarter of 2022, according to the most recent global debt monitor report by the Institute of International Finance.

To meet debt payments, it is estimated that around 100 countries will have to cut spending on critical social infrastructure including health, education and social protection.

Countries that manage to improve their fiscal situation could benefit by attracting labor, capital and investment from abroad, while those that do not could lose talent, revenue — and more, Laffer said.

“I would expect that some of the bigger countries that don’t address their debt issues will die a slow fiscal death,” Laffer said, adding that some emerging economies “could quite conceivably go bankrupt.”

Mature markets such as the U.S., U.K., Japan and France were responsible for over 80% of the debt build-up in the first half of last year. While in the case of emerging markets, China, India and Brazil saw the most pronounced increases. 

The economist warned that repaying the debt will become more of an issue as population in the developed countries continues to age and workers become more scarce.

“There are two main ways to cover this issue:  raise taxes or grow your economy faster than debt is piling up,” he said.

Laffer’s comments come on the heels of the U.S. Federal Reserve’s decision to leave rates unchanged in January, and shooting down hopes of a rate cut in March. 

Credit card delinquencies surged in 2023, indicating 'financial stress,' New York Fed says

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Credit card delinquencies surged more than 50% in 2023 as total consumer debt swelled to $17.5 trillion, the New York Federal Reserve reported Tuesday.

Debt that has transitioned into “serious delinquency,” or 90 days or more past due, increased across multiple categories during the year, but none more so than credit cards.

With a total of $1.13 trillion in debt, credit card debt that moved into serious delinquency amounted to 6.4% in the fourth quarter, a 59% jump from just over 4% at the end of 2022, the New York Fed reported. The quarterly increase at an annualized pace was around 8.5%, New York Fed researchers said.

Delinquencies also rose in mortgages, auto loans and the “other” category. Student loan delinquencies moved lower as did home equity lines of credit. Overall, 1.42% of debt was 90 days or more past due, up from just over 1% at the end of 2022.

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”

While delinquency levels are rising, the New York Fed researchers said total debt is moving higher about in line with the pace before the Covid-19 pandemic began in March 2020.

Household debt rose by $212 billion in the quarter, a 1.2% increase quarterly and about 3.6% from a year ago. Credit card debt, however, jumped 14.5% from the same period in 2022. Auto debt climbed to $1.61 trillion, up $12 billion on a quarterly basis and $55 billion annually, or 3.5%.

Borrowers have been hit by higher interest rates. In a tightening cycle that ran from March 2022 to July 2023, the Federal Reserve hiked its short-term borrowing rate by 5.25 percentage points, taking the fed funds rate to its highest level in about 23 years. The benchmark rate feeds into most adjustable-rate consumer debt products.

Since the central bank began its tightening, the typical rate on credit cards leaped from about 14.5% to 21.5%, according to Fed data. Credit card debt as a share of income is still below pre-pandemic levels.

Fed researchers said rising rates probably have played a role in delinquency rates. In the case of autos, for instance, they said payments have changed little even as prices have come down, owing to the elevated rate structure.

Student loan debt, an area of interest for Washington lawmakers, has increased little during the pandemic period, currently totaling just more than $1.6 trillion. That was little change from the third quarter and it was up just 0.4% from a year ago. President Joe Biden has forgiven some $136.6 billion in student loan debt since taking office. The share of debt in serious delinquency edged lower to 0.8%.

Mortgage debt rose 2.8% in 2023, while the delinquency rate increased to 0.82%, up a quarter percentage point from the previous year.

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Red Sea tensions risk significantly higher inflation, OECD warns

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Elevated shipping costs as a result of ongoing tensions in the Red Sea could impede the global fight against inflation, the Organisation for Economic Co-operation and Development said Monday.

The Paris-based group estimates that the recent 100% rise in seaborne freight rates could increase import price inflation across its 38 member countries by nearly 5 percentage points if they persist.

That could add 0.4 percentage points to overall price rises after a year, the OECD said in its latest economic outlook.

In late 2023, major shipping firms began diverting their vessels away from Egypt’s Suez Canal, the quickest trade route between Europe and Asia, due to a spate of attacks by Iran-backed Houthi militants based in Yemen. Tensions remain high, with the navies of countries including the United States involved in the conflict.

A cargo ship travels on the Suez Canal in Ismailia Province, Egypt, Jan. 13, 2024. 

Ahmed Gomaa | Xinhua News Agency | Getty Images

Ships are taking the longer Cape of Good Hope route around the southern coast of Africa, which increases journey times by between 30% and 50%, taking capacity out of the global market.

However, the OECD also notes that the shipping industry had excess capacity last year, a result of new container ships being ordered, which should moderate cost pressures.

Clare Lombardelli, chief economist at the OECD, told CNBC on Monday that a sustained increase in inflation as a result of the latest crisis is a risk, but not the group’s base case.

“It’s something we’re watching closely … we have seen an increase in shipping prices, if that were to continue for for an extended period, then that would feed through into consumer price inflation. But at the moment, we don’t anticipate that to be the case,” Lombardelli said.

According to Tiemen Meester, chief operating officer at Dubai-based logistics firm DP World, European imports are presenting the biggest challenge and have seen significant delays to cargo that was already en route.

“Unfortunately, there’s higher cost in the inefficiencies in the network, so ultimately, the rates are going up. But it’s actually nowhere near to where they were at their peaks during Covid … How that costs will find its way to the consumer, we’ll have to see,” Meester told CNBC, describing it as a “short-term problem.”

“I think kind of where we are now is a steady state, because the networks have adjusted and cargo is flowing, bookings are taking, it just takes more time,” he added.

Red Sea crisis: DP World Group COO says biggest challenge is European imports

The OECD’s Lombardelli said that overall there has been positive data among its members in recent months showing inflation coming down consistently. This will help rebuild real incomes and support consumption, she said.

The OECD’s 38 members include the United States, United Kingdom, Australia, Canada, Mexico, France, Germany, Israel, Turkey, Japan and South Korea.

Its latest outlook hiked its economic growth forecast for the U.S. by 0.6 percentage points from its previous November estimate, to 2.1% for this year. Its euro zone outlook was lowered by 0.3 percentage points, to 0.6%, while its U.K. outlook was flat at 0.7%.

“We’ve seen positive news in the U.S., we’re seeing inflation coming down now, but we’re not seeing a big cost in terms of the labor market there,” Lombardelli told CNBC.

“Growth is looking stronger, and inflation is coming down. So you’ll see a rebuilding of real incomes there in the U.S., and that will support consumption growth.”

Europe has been hit harder by an energy price shock, the impact of inflation on real incomes and consumption, and its greater dependence on bank-based financing amid tighter montary policy, she said.

In the medium-term, the OECD expects a greater drag on growth from its aging workforce.

The OECD nonetheless sees the European Central Bank as being in a position to cut interest rates in the second half of the year if current trends continue, Lombardelli said.

Turkey's new central bank governor, formerly at Amazon and New York Fed, seen as a 'credible choice'

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Newly appointed Governor of Turkish Central Bank, Fatih Karahan is seen in Ankara, Turkey on February 04, 2024. 

Emin Sansar | Anadolu | Getty Images

Turkey’s newly appointed central bank governor Fatih Karahan has his work cut out for him, named to the job by presidential decree over the weekend after the sudden resignation of his predecessor, Hafize Gaye Erkan.

Previously the central bank’s deputy governor, Karahan’s resume features years spent in prominent American institutions and companies. He received both a masters degree and doctorate in economics at the University of Pennsylvania, spent nearly a decade as an economist at the Federal Reserve Bank of New York, worked as a part-time lecturer at Columbia University and New York University, and served as a senior economist for Amazon.

It is hoped that the 42-year-old economist’s experience will serve him well as he heads the institution working to tackle the eye-watering inflation and cost-of-living crisis that has hit Turkey’s population of 85 million. The country’s currency, the lira, is down 38% against the dollar year-to-date and has lost more than 80% of its value against the greenback over the last five years. 

Turkey’s consumer price index print came out Monday showing a roughly 65% increase year-on-year for the month of January. Its central bank has made eight consecutive interest rate hikes since May 2023 — for a cumulative 3,650 basis points — in an effort to rein in soaring inflation. The latest rate hike, on Jan. 25, raised Turkey’s key interest rate by 250 basis points to 45%, though its leaders signaled at the time that the hiking cycle was at its end.

While painful for the country, investors and economists say the rate hikes have been necessary and that continuity in monetary policy priorities will engender confidence in the new central bank chief.

In his statement posted to the Turkish Central Bank’s website on Sunday, Karahan stressed “price stability” as his team’s main priority, vowing to “ensure disinflation” and “maintain the necessary monetary tightness until inflation falls to levels consistent with our target.”

“All eyes now focus on new central bank governor Fatih Karahan,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a note Monday. “As things stand, continuity in monetary policy looks set to continue.”

Wolfango Piccoli, co-president at advisory firm Teneo, agreed.

“Like Erkan, Karahan is not a monetary economist, but is nevertheless regarded as a credible choice,” Piccoli wrote in an analysis for the firm.

“Unlike recent gubernatorial changes, Erkan’s departure will not result in a dramatic shift in policy stance,” he said, adding that the central bank could still “adopt a more hawkish tone in terms of forward guidance to support Karahan in his new role.”

Unorthodox policy

Piccoli noted that Turkey’s monetary policy still ultimately remains at the mercy of Turkish President Recep Tayyip Erdogan, who spooked investors for years by stifling the central bank’s independence and preventing it from raising interest rates despite runaway inflation that at one point topped 85%.

The more conventional policy approach that began under Hafize Erkan and Turkish Finance Minister Mehmet Simsek, also appointed last year, followed several years of unorthodox policy. Erdogan has previously decried interest rates as “the mother of all evil” even as consumer prices soared and the lira plunged.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.

Anadolu Agency | Anadolu Agency | Getty Images

“Regardless of Karahan’s stature and the backing provided by Treasury and Finance Minister Mehmet Simsek, Erdogan remains the ultimate decision-maker,” Piccoli said.

“As long as the president stays supportive of the (gradual) turn to orthodoxy that he endorsed after the 2023 elections, the identity of the governor is almost irrelevant as the TCMB has weak (if any) institutional independence.”

Karahan “will still have to operate within the boundaries of a central bank that is neither independent nor staffed by adequate professionals,” Piccoli added. CNBC has reached out to the Turkish central bank for comment.

Investor confidence in Turkey improved over the roughly eight-month tenure of Hafize Erkan, who became Turkey’s first-ever female central bank governor in June of 2023. She tendered her resignation on Friday in a surprise announcement, saying that the decision was due to a “reputation assassination” campaign and the need to protect her family.

Erkan, like Karahan, also has a resume featuring elite American institutions; she has a PhD in financial engineering from Princeton and degrees from both Harvard and Stanford’s business schools, and later worked at Goldman Sachs and First Republic Bank, the latter for which she served as co-CEO. She also served on the board of directors for Tiffany & Co., and was appointed director of Marsh McLennan, a professional services company and Fortune 500 firm.

Turkey's inflation sees biggest monthly jump since August, nears 65% year-on-year

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A tram passes shoppers as it travels along Istiklal Street in the Beyoglu district of Istanbul, Turkey, on Tuesday, Dec. 19, 2023.

Bloomberg | Bloomberg | Getty Images

In January, Turkish inflation logged its biggest monthly jump since August with a 6.7% rise from December, while year-on-year inflation hit nearly 65%, according to the Turkish Central Bank’s figures released Monday.

The consumer price index (CPI) for the country of 85 million people increased by 64.86% annually, up slightly from the 64.77% of December. Sectors with the largest monthly price rises were health at 17.7%, hotels, cafes and restaurants at 12%, and miscellaneous goods and services at just over 10%. Clothing and footwear was the only sector showing a monthly price decrease, with -1.61%.

Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month-on-month, while housing was up 7.4% since December.

The monthly rises, economists say, stem from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year has increased to 17,002 Turkish lira ($556.50) per month, a 100% hike from January 2023.

Turkey’s central bank has been on a prolonged mission to bring down inflation, implementing eight consecutive interest rate hikes since May 2023, for a cumulative 3,650 basis points. The bank’s latest hike, on Jan. 25, raised the key interest rate by 250 basis points to 45%.

The more conventional approach follows several years of unorthodox policy during which Ankara refused to tighten rates despite ballooning inflation. The lira is down 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the last five years. 

The latest inflation print comes just days after Turkey’s Central Bank Governor Hafize Gaye Erkan announced her resignation, saying on Friday that the decision was due to a “reputation assassination” campaign and the need to protect her family.

Erkan became the bank’s central governor by presidential decree in June of 2023, and led — along with Turkish Finance Minister Mehmet Simek — the turnaround in Turkey’s monetary policy and subsequent series of interest rate rises.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.

Anadolu Agency | Anadolu Agency | Getty Images

She was replaced on Saturday by the central bank’s deputy governor, Fatih Karahan, who spent nearly a decade as an economist at the Federal Reserve Bank of New York.

January’s inflation figures “highlight the continued strength of services inflation and may put pressure on new central bank governor Karaham to restart the central bank’s tightening cycle,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note.

“The fact that inflation didn’t rise significantly more than expected in January is positive given the uncertainty about the impact of the minimum wage hike,” Peach wrote. “But the figures present a small setback to the disinflation process and highlight the continued strength of services inflation. For now, the central bank’s end-year inflation forecast of 36% remains intact.”  

The unemployment rate of Black men rose in January, underscoring continued inequality in labor market

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Black men lost ground in the workforce last month, marking a continuation of the disparities that have permeated the U.S. labor market.

Black males who were at least 20 years old saw an unemployment rate of 5.3% in January, up from 4.6% in December, according to seasonally adjusted data from the Labor Department. These workers had the highest unemployment rate when breaking down Black, Hispanic and white workers by gender.

By comparison, white men saw a jobless rate of just 3.3% in January, holding steady from December. The overall unemployment rate was unchanged from December at 3.7%.

Meanwhile, the Black community as a whole was the only tracked racial group to see unemployment increase from December. This underscores the impact of job losses among Black men, especially considering the fact that the rate for Black women was unchanged between December and January at 4.8%.

Though the uptick in the unemployment rate for Black men is something to monitor, it can be more indicative of an anomaly in December’s low data, said Elise Gould, senior economist at the Economic Policy Institute. January’s 5.3% rate comes basically in line with the average 2023 month, while December’s 4.6% was the lowest level seen in the year.

The tight labor market experienced during the pandemic helped close the gap in work-related opportunities among Black and white men, she said. Indeed, the difference in unemployment rates between Black and white men shrunk to 2 percentage points in January from 4.1 percentage points the same month in 2019.

Growth in the total number of employed Black men and the ratio of those with jobs to the total population compared with the start of 2023 also paints a picture of improvement, she added.

But Gould said the continued inequity in employment and pay highlights the need for further social progress, while bolstering the argument that a strong labor market alone won’t bring equality.

The average white worker aged 16 or older had a median weekly pay that was nearly 20% higher than their Black counterparts, according to federal data as of the last quarter of 2023. That disparity grew to almost 25% when looking at male workers alone.

“A better economy absolutely can help historically disadvantaged groups more because they’re the ones that are often left out and are slow to recover in weaker times,” Gould said. “Full employment is definitely sort of a requirement for many historically marginalized groups to be able to see positive impact in the labor market, but it’s not the only thing.”

She pointed to unions as one example of a positive force for Black workers, noting that the wage transparency among members can help close any racial pay gaps.

‘A canary in the coal mine’

When combining genders, the unemployment rates of white and Asian workers ticked lower in January to levels last seen in late fall. The rate of unemployed Hispanics held steady from December at 5%, while the share of jobless Black workers inched higher to 5.3% from 5.2%.

Gould warned that month-to-month variations like what was seen in the unemployment rate of Black men can be fickle. Because of this, she said it’s important to evaluate longer-term trends before drawing conclusions.

Still, Gould said following employment patterns among Black workers and other marginalized groups can be important for spotting major economic trends. That’s true even when broader employment data like what was released on Friday signals a “hot” labor market, she added.

“It’s a canary in the coal mine,” she said. “When you’re thinking about where you’re going to see the signs of a recession, you’re not seeing it in the data today, but it’s always something to keep an eye on.”

— CNBC’s Gabriel Cortes contributed reporting.

U.S. economy added 353,000 jobs in January, much better than expected

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Job growth posted a surprisingly strong increase in January, demonstrating again that the U.S. labor market is solid and poised to support broader economic growth.

Nonfarm payrolls expanded by 353,000 for the month, much better than the Dow Jones estimate for 185,000, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate held at 3.7%, against the estimate for 3.8%.

Wage growth also showed strength, as average hourly earnings increased 0.6%, double the monthly estimate. On a year-over-year basis, wages jumped 4.5%, well above the 4.1% forecast. The wage gains came amid a decline in average hours worked, down to 34.1, or 0.2 hour lower for the month.

Job growth was widespread on the month, led by professional and business services with 74,000. Other significant contributors included health care (70,000), retail trade (45,000), government (36,000), social assistance (30,000) and manufacturing (23,000).

“This just reaffirms that the jobs market is entering 2024 on solid ground,” said Daniel Zhao, lead economist at Glassdoor. “The fact that job growth was so widespread across industries is a healthy sign. Coming into today’s report, we were concerned about how concentrated jobs were in really just three sectors — health care, education and government. While it is great to see those sectors drive job gains, there was no guarantee that would be enough to support a health labor market.”

The report also indicated that December’s job gains were much better than originally reported. The month posted a gain of 333,000, which was an upward revision of 117,000 from the initial estimate. November also was revised up, to 182,000, or 9,000 higher than the last estimate.

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While the report demonstrated the resilience of the U.S. economy, it also could raise questions about how soon the Federal Reserve will be able to lower interest rates.

“Make no mistake, this was a blowout jobs report and will vindicate the recent posturing by the Fed which effectively ruled out an interest rate cut in March,” said George Mateyo, chief investment officer at Key Private Bank. “Moreover, strong job gains combined with faster than expected wage gains may suggest an additional delay in rate cuts for 2024 and should cause some market participants to recalibrate their thinking.”

Futures markets shifted after the report, with traders now pricing in a better than 80% chance that the Fed does not cut interest rates at its March meeting, according to the CME Group.

Stocks were mixed following the report. The Dow Jones Industrial Average dropped at the open but the S&P 500 and Nasdaq both were positive. Treasury yields surged.

The January payrolls count comes with economists and policymakers closely watching employment figures for direction on the larger economy. Some high-profile layoffs recently have raised questions about the durability of what has been a powerful trend in hiring.

A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged higher to 7.2%. The household survey, which measures the number of people actually holding jobs, differed sharply from the establishment survey, showing a decline of 31,000 on the month. The labor force participation rate was unchanged at 62.5%.

Broader layoff numbers, such as the Labor Department’s weekly report on initial jobless claims, show companies hesitant to part with workers in such a tight labor market. Gross domestic product growth also has defied expectations.

The fourth quarter saw GDP increase at a strong 3.3% annualized pace, closing out a year in which the economy defied widespread predictions for a recession. Growth in 2023 came even as the Fed further raised interest rates in its quest to bring down inflation.

The Atlanta Fed’s GDPNow tracker is pointing toward a 4.2% gain in the first quarter of 2024, albeit with limited data of where things are heading for the first three months of the year.

The economic, employment and inflation dynamics make for a complicated picture as the Fed seeks to ease monetary policy. Earlier this week, the Fed again held benchmark short-term borrowing costs steady and indicated that rate cuts could be ahead but not until inflation shows further signs of cooling.

No one predicted a jobs report like this, says National Urban League’s Marc Morial

Chair Jerome Powell indicated in his post-meeting news conference that the central bank does not have a “growth mandate” and said central bankers remain concerned about the impact that high inflation is having on consumers, particularly those on the lower end of the income scale.

Outside of the wage numbers, recent data is showing that inflation is moving in the right direction.

Core inflation as measured by personal consumption expenditures prices was just 2.9% in December on a year-over-year basis, while six- and three-month gauges both indicated the Fed is at or around its 2% goal.

Still, the Atlanta Fed’s measure of “sticky” inflation, which focuses on items such as housing, medical care services and insurance costs, was at 4.6% on a 12-month basis in December.

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January hiring was the lowest for the month on record as layoffs surged

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A UPS driver makes a delivery on January 30, 2024 in Miami Beach, Florida. 

Joe Raedle | Getty Images

Companies announced the highest level of job cuts in January since early 2023, a potential trouble spot for a labor market that will be in sharp focus this year, according to a report Thursday from Challenger, Gray & Christmas.

The job outplacement firm said planned layoffs totaled 82,307 for the month, a jump of 136% from December though still down 20% from the same period a year ago.

It was the second-highest layoff total and the lowest planned hiring level for the month of January in data going back to 2009.

Technology and finance were the hardest-hit sectors, with high-flying Silicon Valley leaders such as Microsoft, Alphabet and PayPal announcing workforce cuts to start the year. Amazon also said it would be cutting as did UPS in the biggest month for layoffs since March 2023.

“Waves of layoff announcements hit US-based companies in January after a quiet fourth quarter,” said Andrew Challenger, senior vice president of the firm. The cuts were “driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs,”

Financial sector layoffs totaled 23,238, the worst month for the sector since September 2018. Tech layoffs totaled 15,806, the highest since May 2023. Food producers announced 6,656, the highest since November 2012.

“High costs and advancing automation technology are reshaping the food production industry. Additionally, climate change and immigration policies are influencing labor dynamics and operational challenges in this sector,” Challenger said.

The report follows news Wednesday from ADP that private payrolls increased by just 107,000 for the month. On Friday, the Labor Department will be releasing its nonfarm payrolls count, which is expected to show growth of 185,000.

Initial jobless claims totaled 224,000 for the week ended Jan. 27, up 9,000 from the previous week. Continuing claims, which run a week behind, jumped by 70,000, the Labor Department reported Thursday.

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Euro zone inflation eases as expected, but core figures disappoint

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Patrons at sidewalk tables of Janis bar in Cais do Sodre in Lisbon, Portugal.

Horacio Villalobos | Corbis News | Getty Images

Euro zone headline inflation eased slightly in January, flash figures published by the European Union’s statistics agency showed on Thursday, while core figures declined less than expected.

Annual headline price rises came in at 2.8%, in line with a forecast of economists polled by Reuters. Inflation stood at 2.9% in December, up from 2.4% in November, largely due to the wind-down of energy price support measures.

Core inflation dipped to 3.3% in January from 3.4% in December. A Reuters forecast indicated a fall to 3.2% for last month.

By sector, services inflation — an important gauge for policymakers due to its link to domestic wage pressures — held steady at 4%. Disinflationary effects from the energy market continued to reduce, from -6.7% to -6.3%.

Economic growth has been stagnating in the bloc.

Preliminary figures out earlier this week showed inflation in Germany easing slightly more than had been forecast, reaching 3.1%. The euro zone’s biggest economy has become one of its main drags on growth, with the German GDP contracting by 0.3% in the fourth quarter.

European Central Bank officials are monitoring a host of data to see if and when they can begin bringing interest rates down from their current record highs. Price rises have cooled significantly from a peak of 10.6% in October 2022, with the central bank’s 2% target coming into sight.

While markets continue to price in cuts starting in April, some policymakers have pushed back with suggestions that declines are likelier to take place in the summer or even later. The ECB stresses it remains data-dependent.

At last week’s monetary policy meeting, when interest rates were left unchanged, ECB President Christine Lagarde said that the “disinflation process is at work” despite the December uptick.

Kamil Kovar, senior economist at Moody’s Analytics, said the figures presented a “mixed bag.”

“The decline to 2.8% was welcome news, especially relative to ECB projections that were for an increase in the inflation rate. But it was driven by a downside surprise in energy, which is all the more shocking given the end of government interventions,” Kovar said in emailed comments.

“However, core inflation only inched lower, with services especially coming in quite hot. While some of this hot reading is explained by regular annual re-pricing and a change in weights, it nevertheless makes a March rate cut a pipe dream, and raises [the] bar for a cut in April. A cut in June remains our baseline forecast.”

Private payroll growth slowed to just 107,000 in January, below expectations, ADP reports

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Private payroll growth declined sharply in January, a possible sign that the U.S. labor market is heading for a slowdown this year, ADP reported Wednesday.

Companies added 107,000 workers in the first month of 2024, off from the downwardly revised 158,000 in December and below the Dow Jones estimate for 150,000, according to the payrolls processing firm.

Only one sector — information services (-9,000) — reported a decline, but hiring was slow across virtually all sectors.

Leisure and hospitality posted the biggest increase, with an addition of 28,000 workers, while trade, transportation and utilities added 23,000, and construction rose by 22,000. Services-providing companies were responsible for 77,000 jobs, with goods producers adding the rest.

The release comes two days ahead of the Labor Department’s nonfarm payrolls report, which is expected to show growth of 185,000, against the 216,000 increase in December. While the ADP data can provide a barometer for private sector hiring, the two reports often differ, with ADP often undershooting the Labor Department’s numbers.

On wage gains, ADP reported a 5.2% annual rise, a number that has run above the government’s measure of average hourly earnings.

“Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally,” said ADP’s chief economist, Nela Richardson.

Midsize establishments, with between 50 and 499 employees, led job creation, adding 61,000. Small business added just 25,000.

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IMF warns British government against more tax cuts

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British Finance Minister Jeremy Hunt said earlier this month the U.K. would not enter a recession this year.

Hannah Mckay | Reuters

LONDON — The U.K. government should not introduce further tax cuts this year, the International Monetary Fund said Tuesday, as its chief economist argued the national budget needed the money for public services and growth-friendly investments.

“What we are seeing in the U.K. and a number of other countries is a need to put in place medium-term fiscal plans that will accommodate a significant increase in spending pressures,” Pierre-Olivier Gourinchas said during a press briefing.

In the U.K., he said, this included spending on the National Health Service, social care, education and the climate transition, as well as measures to boost growth, while preventing debt levels from increasing.

“In that context, we would advise against further discretionary tax cuts, as envisioned or discussed now,” he said.

An IMF spokesperson separately said the U.K. had higher spending needs across public services and investments than were currently reflected in the government’s budget plans. The IMF has recommended the U.K. strengthens taxes on carbon emissions and property, eliminates loopholes in wealth and income taxation, and reforms rules which set pension levels.

British Finance Minister Jeremy Hunt will announce his latest budget in early March, in what may be the last major fiscal announcement before a General Election is held. The timing of the vote is uncertain, but it must be called by the Conservative government at some point this year.

The Conservatives face an uphill battle, with the opposition Labour party ahead in most polls.

Hunt announced several tax cuts in his fall budget, and made several suggestions he wants to introduce more in the spring.

U.K. public sector net borrowing has fallen sharply, and in December 2023 was around half that of the prior year due to higher VAT (a sales levy) and income tax receipts and lower spending.

The IMF on Tuesday forecast 0.6% growth for the U.K. economy this year, up slightly from an estimated 0.5% figure for 2023. It revised its forecast for 2025 lower by 0.4 percentage points, to 1.6%, when it said disinflation will ease financial conditionals and allow real incomes to recover.

The downgrade, it said, “reflects reduced scope for growth to catch up in light of recent upward statistical revisions to the level of output through the pandemic period.”

Gourinchas told CNBC on Tuesday that despite a weak growth outlook for the year, the U.K. had seen positive news on inflation, which is forecast to average 2.8%.

“We’re at that point, we think, that the Bank of England will be in a position like the Federal Reserve and [European Central Bank] to ease policy rates as inflation is finally brought towards target,” he said.

IMF upgrades global growth forecast, citing U.S. resilience and policy support in China

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Buildings in Pudong’s Lujiazui Financial District in Shanghai, China, on Monday, Jan. 29, 2024. 

Bloomberg | Bloomberg | Getty Images

The International Monetary Fund on Tuesday nudged its global growth forecast higher, citing the unexpected strength of the U.S. economy and fiscal support measures in China.

It now sees global growth in 2024 at 3.1%, up 0.2 percentage points from its prior October projection, followed by 3.2% expansion in 2025.

Large emerging market economies including Brazil, India and Russia have also performed better than previously thought.

The IMF believes there is now a reduced likelihood of a so-called “hard landing,” an economic contraction following a period of strong growth, despite new risks from commodity price spikes and supply chain issues due to geopolitical volatility in the Middle East.

It forecasts growth this year of 2.1% in the U.S., 0.9% in both the euro zone and Japan, and 0.6% in the United Kingdom.

“What we’ve seen is a very resilient global economy in the second half of last year, and that’s going to carry over into 2024,” the IMF’s chief economist, Pierre-Olivier Gourinchas, told CNBC’s Karen Tso on Tuesday.

“This is a combination of strong demand in some of these countries, private consumption, government spending. But also, and this is quite important in the current context, a supply component as well … So very strong labor markets, supply chain frictions that have been easing, and the decline in energy and commodity prices.”

The latest official figures showed the U.S. economy tearing past economists’ expectations in the fourth quarter, with growth of 3.3%.

China has faced a host of issues over the last year, including a disappointing rebound in post-pandemic spending, concerns over deflation and an ongoing property sector crisis. The government has rolled out a host of stimulus measures in response, contributing to the IMF’s upgrade.

However, the IMF’s forecasts remain below the global growth average between 2000 and 2019 of 3.8%. Higher interest rates, the withdrawal of some fiscal support programs and low productivity growth continue to weigh, the institution said.

IMF chief: China needs reforms to halt 'significant' growth declines

But restrictive monetary policy has led to inflation falling faster than expected in most regions, which Gourinchas called the “other piece of good news” in Tuesday’s report. The IMF sees global inflation at 5.8% in 2024 and 4.4% in 2025. In advanced economies, that falls to 2.6% this year and 2% next year.

“The battle against inflation is being won, and we have a higher likelihood of a soft landing. So that sets the stage for central banks, the Federal Reserve, the European Central Bank, the Bank of England, and others, to start easing their policy rates, once we know for sure that we are on that path,” Gourinchas said.

“The projection right now is that central banks are going to be waiting to get a little bit more data, they are going meeting by meeting, they are data dependent, confirming that we are on that path. That’s the baseline. And then if we are, then by the second half of the year we’ll see rate cuts,” he continued.

While central banks must not ease too early, there is also a risk coming into sight of policy remaining too tight for too long which would slow growth and bring inflation below 2% in advanced economies, Gourinchas added.

Euro zone economy narrowly skirts recession, stagnates in fourth quarter

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Cargo trains stand on the railway tracks at a transshipment station in Frankfurt am Main, western Germany, as in background can be seen the city’s skyline, on January 23, 2024.

Kirill Kudryavtsev | Afp | Getty Images

The euro zone economy stabilized in the fourth quarter of 2023, flash figures published by the European Union’s statistics agency showed on Tuesday.

The bloc narrowly avoided the shallow recession that was forecast in a Reuters poll of economists, following a 0.1% fall in GDP in the third quarter.

The euro zone’s seasonally-adjusted GDP was flat compared with the previous quarter and expanded by 0.1% versus the previous year. In a preliminary estimate, the euro area was seen posting 0.5% growth over the whole of 2023.

Its biggest economy, Germany, posted a 0.3% contraction in the final quarter of the year, according to figures also out on Tuesday. The country narrowly skirted a technical recession due to an upwards revision to its reading for the third quarter, when the economy stagnated.

The French economy was steady in the fourth quarter, while Spain outperformed forecasts to expand by 0.6%.

The European Commission’s euro zone sentiment indicator meanwhile showed a decline in consumer confidence — though the outlook for businesses in services and industrials was slightly brighter.

The euro zone economy is in a “phase of prolonged weakness” that is being driven by Germany, while southern European economies lead the way in growth, Bert Colijn, senior economist at ING, said in a note.

“Germany is struggling with weak global demand for goods and heavy industry is suffering from higher energy prices,” he said.

The euro zone’s divergence from the U.S. is growing, he added, partly explained by a larger decline in inflation-adjusted wages, energy prices hitting industrials, and lower levels of fiscal support.

The euro continued to log narrow losses against the U.S. dollar following the fresh Tuesday data, also posting tight gains against the British pound. The U.S. economy smashed expectations for the end of the year, expanding by 3.3% in the fourth quarter. U.K. figures are due out in the middle of February.

The European Central Bank has hauled interest rates to a record high over the last year and a half, creating tighter financial conditions across the region which have helped cool inflation from a peak of 10.6% in October 2022 to 2.9% in December. The latest euro zone inflation flash figures are due Thursday.

Fed's favorite inflation gauge rose 0.2% in December and was up 2.9% from a year ago

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People walk by sale signs in the Financial District on the first day back for the New York Stock Exchange (NYSE) since the Christmas holiday on December 26, 2023 in New York City.

Spencer Platt | Getty Images

An important inflation gauge released Friday showed that the rate of price increases cooled as 2023 came to a close.

The Commerce Department’s personal consumption expenditures price index for December, an important gauge for the Federal Reserve, increased 0.2% on the month and was up 2.9% on a yearly basis, excluding food and energy. Economists surveyed by Dow Jones had been looking for respective increases of 0.2% and 3%.

On a monthly basis, core inflation increased from 0.1% in November. However, the annual rate declined from 3.2%.

Including volatile food and energy costs, headline inflation also rose 0.2% for the month and held steady at 2.6% annually.

The release adds to evidence that inflation, while still elevated, is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year. The central bank targets 2% as a healthy annual inflation rate.

Markets took little notice of the data, with stock futures indicating little change at the open and Treasury yields mostly lower.

As inflation drifted closer to the Fed’s target, consumer spending increased 0.7%, stronger than the 0.5% estimate. Personal income growth edged lower to 0.3%, in line with the forecast.

Within the inflation numbers, prices for goods declined by 0.2% while services prices rose by 0.3%, reversing a trend when inflation began to spike. As the pandemic forced people to stay home more, demand for goods spiked, adding to supply chain problems and exacerbating price increases.

Food prices increased 0.1% on the month while energy goods and services rose 0.3%. Prices for longer-lasting durable goods such as appliances, computers and vehicles decreased 0.4%.

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Turkey hikes interest rate again to 45% after inflation nears 65%

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Residents waiting at a bus stop under a large Turkish flag in Istanbul, Turkey, on Sunday, April 30, 2023.

Bloomberg | Bloomberg | Getty Images

Turkey’s central bank on Thursday hiked its key interest rate by another 250 basis points to 45%.

The hike to the benchmark one-week repo rate was in line with economists’ expectations.

It comes amid an ongoing battle against double-digit inflation for Turkey’s monetary policymakers, with the rate hike the latest step in that effort.

Inflation in Turkey increased to 64.8% year-on-year in December, up from 62% in November, and the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January, breaking 30 to the greenback for the first time.

Analysts predict this will be the last hike for some time, especially with local elections approaching in March.

“Encouragingly, the communications were relatively hawkish and suggest that policymakers recognise the need to keep interest rates high for a prolonged period if they are to have success in bringing inflation back down to single digits,” Liam Peach, senior emerging markets economist at London-based firm Capital Economics wrote in a note. “Our baseline view remains that the central bank will keep rates unchanged throughout this year.”

The Central Bank of the Republic of Turkey itself signaled that this was likely the end of the tightening cycle, saying of its decision: “The monetary tightness required to establish the disinflation course is achieved … The current level of the policy rate will be maintained until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range.”

The central bank’s move is the latest in a series of interest rate increases — now eight consecutive hikes since the May 2023 elections — that have been painful for Turks, as the country grapples with a dramatically weakened currency and skyrocketing living costs.

Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.

Anadolu Agency | Anadolu Agency | Getty Images

The last several years of high inflation are in large part the result of stubbornly loose monetary policy by the Ankara government. The lira is down 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the last five years. 

A new finance team was appointed in June last year, and Turkey’s central bank embarked on a sharp pivot, pulling rates higher under the supervision of Turkish Central Bank governor Hafize Erkan. The country’s benchmark interest rate has since been lifted from 8.5% to 45%. 

Still, some observers still don’t believe it’s enough to effectively bring down inflation.

Capital Economics expects Turkey’s inflation to drop “towards 30-35% by year-end” from 65% now, while Bartosz Sawicki, a market analyst at Conotoxia Fintech, sees it hitting close to 75% in May before starting to fall.

“The cumulative tightening of 3650 basis points may not be enough to decisively tame Turkey’s long-standing inflation problem,” Sawicki said, which he described as being caused by “a vicious mix of loose monetary policy, deep negative real interest rates and persistent lira weakness.”

Broadly, analysts expect the central bank to hold rates for the rest of the year — and no rate cuts anytime soon.

“Inflation and inflation expectations will need to have fallen a long way before the central bank starts to cut interest rates,” Peach wrote.

ECB's Lagarde responds to scathing staff survey: 'I'm very proud and honored to lead the institution'

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European Central Bank President Christine Lagarde looks on as she attends the European Parliament’s Committee on Economic and Monetary Affairs, at the European Parliament, in Brussels, Belgium September 25, 2023. 

Yves Herman | Reuters

President Christine Lagarde on Thursday said she was “proud and honored” to leead the European Central Bank, after her leadership was slammed in a union-run survey of staff.

She was responding to a question about the findings, published by ECB union IPSO earlier this week, in which more than half of respondents rated her performance so far as “very poor” or “poor.”

The survey’s qualitative responses suggested some staff believed she had created a negative atmosphere at the central bank, and that she spends “too much time on topics unrelated to monetary policy,” IPSO said.

Appearing unfazed, former politician and lawyer Lagarde said that the ECB conducted its own surveys in a “way that we can trust.” These showed a majority of respondents say they are happy to work at the institution, would recommend working there to a friend, and felt a mission associated to their work.

The surveys are conducted by around 60% of employees, and also cover wages, respect in the workplace and workplace satisfaction, she said.

“We pay great attention to these technically sound responses and we act upon them, and we will continue to do so. What keeps me going is those answers,” Lagarde told reporters in a briefing following the ECB’s January monetary policy meeting.

“And I’m extremely proud of the staff of the ECB, and I’m very proud and honored to lead the institution, because we are driven by mission. Delivering price stability, but serving the Europeans, and we will continue doing that,” she continued.

IPSO’s survey was completed by around 1,100 people. The ECB has more than 5,000 employees and trainees.

The union said the responses “generally” described Lagarde as being “an autocratic leader” who does not necessarily act according to the values she proclaims.

She was rated significantly more poorly than her predecessors Jean-Claude Trichet and Mario Draghi, it said.

An ECB spokesperson called the survey “flawed” and said it included topics that were not specific to the presidency and outside of IPSO’s remit. They also said it could have been filled out multiple times by the same person.

—CNBC’s SiIvia Amaro contributed to this article.

The U.S. economy grew at a 3.3% pace in the fourth quarter, much better than expected

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The economy grew much more rapid pace than expected in the final three months of 2023, as the U.S. easily skirted a recession that many forecasters had thought was inevitable, the Commerce Department reported Thursday.

Gross domestic product, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023, according to data adjusted seasonally and for inflation.

That compared to the Wall Street consensus estimate for a gain of 2% in the final three months of the year. The third quarter grew at a 4.9% pace.

The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains.

As had been the case through the year, a strong pace of consumer spending helped drive the expansion. Personal consumption expenditures increased 2.8% for the quarter, down just slightly from the previous period.

State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures. Gross private domestic investment rose 2.1%, another significant factor for the robust quarter.

On the inflation front, the price index for personal consumption expenditures rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase, compared to 5.1%. However, the inflation rates both were

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Thursday's GDP report expected to show the U.S. economy at a crossroads

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Consumers shop in Rosemead, California, on Dec. 12, 2023.

Frederic J. Brown | Afp | Getty Images

Economic growth likely slowed to its weakest pace in a year and a half to end 2023, possibly setting the stage for a more pronounced slowdown ahead, according to Wall Street economists.

The consensus outlook for the fourth quarter is that gross domestic product grew at a 2% seasonally adjusted annualized pace, sliding downward from the 4.9% in Q3 and the lowest reading since the 0.6% decline in the second quarter of 2022.

As the U.S. Department of Commerce’s report hits Thursday morning, Wall Street’s attention almost immediately will turn to what the signs are for growth going into 2024.

The report likely will “represent a sharp deceleration” from the previous period, Bank of America economist Shruti Mishra said in a client note. “Incoming data continue to point to a resilient, but cooling, U.S. economy, led by consumer spending on the back of a tight labor market, higher than expected holiday spending, and moderately strong balance sheets.”

BofA has a below-consensus view that GDP — the sum of all goods and services produced during the period — will slow to a 1.5% pace, largely because parts of the economy not directly related to consumer spending, such as nonresidential business fixed investment and housing, will tail off.

In addition, the bank expects a slowdown in inventory restocking to shave close to a full percentage point off the headline number.

Looking forward, BofA forecasts the first quarter of 2024 to show growth of just 1%.

“Consumer spending is likely to slow from its current pace due to lagged effects from tighter financial conditions, higher energy prices, and cooling labor market,” Mishra said.

Elsewhere on Wall Street, expectations are mixed.

Goldman Sachs earlier this week lifted its Q4 estimate to 2.1%, an increase of 0.3 percentage points, taking its full-year GDP outlook to 2.8%. One significant factor Goldman sees is stronger-than-expected state and local government spending, which boosted Q3 growth by nearly a full percentage point and is predicted to show a 4.5% increase in the final three months of the year.

The bank’s economists also see growth holding up fairly well in 2024, ending the year at 2.1%.

Two other key elements will take the focus as investors digest the GDP report: the state of consumer spending, which accounted for about two-thirds of all activity in Q3, and inflation, specifically how the Federal Reserve might react to personal consumption prices that come out of Thursday’s report as well as a separate Commerce Department release Friday.

“We do expect the economy to slow … further in 2024 as the impact of monetary tightening continues to weigh on economic activities,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “However, we do not expect the economy to hit a recession.”

RSM expects the GDP report to show a 2.4% gain on solid growth in consumer spending, though some economists say December’s larger-than-expected retail sales increase was fueled by seasonal distortions in the data that will be corrected in January.

Citigroup agrees with the consensus call of 2% growth in Q4 but sees tougher times ahead, mainly because of the lagged effect the Fed’s previous rate cuts will exert, as well as inflation that could turn out to be more durable than anticipated.

“Data released [Thursday] may in retrospect turn out to document the one quarter of true ‘Goldilocks’ conditions,” Citi economist Andrew Hollenhorst wrote. “But we do not share the market and Fed’s sanguine assessment of the macroeconomy over the remainder of the year.”

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No 'economic collapse': Top Citi strategist says healthier economic growth is coming

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Jim Dyson | Getty Images News | Getty Images

The global economy does not need a “collapse” in order to bring inflation back to target and return to sustainable growth, according to Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth.

Major economies have proven surprisingly resilient to sharp interest rate increases from central banks over the last two years. This has been particularly evident in the U.S., with a recession thus far avoided and the labor market remaining robust.

Talk has now turned to rate cuts as inflation remains on a downward trajectory toward central banks’ targets, while growth has slowed.

Wieting told CNBC’s “Squawk Box Europe” on Monday that he is optimistic the global economy does not need an “economic collapse” to rein in inflation.

“We had one massive shock — one pandemic, one collapse. We didn’t need two recessions to ultimately cure our inflation problem,” he said.

“It’s holding down parts of our economy now — manufacturing and trade declines are happening around the world — but these are likely to bottom within the year.”

U.S. headline inflation came in at an annual 3.4% year on year in December, remaining above the Federal Reserve’s 2% target but down considerably from a peak of 9.1% in June 2022.

Investors will be closely watching Friday’s personal consumption expenditure inflation figure, the Fed’s preferred metric, for further clues as to when the central bank will begin cutting rates.

Meanwhile, a preliminary estimate of fourth-quarter GDP is scheduled for Thursday, with the economy expected to have grown by 1.7%, its lowest rate since the 0.6% decline in the second quarter of 2022.

“This period of slower global growth and slowing employment growth in the United States we think can pass and lead to a healthier growth period if we take a look particularly at the next year and beyond, and that’s this year’s business for investors,” Wieting said.

He highlighted that while there is excess supply that needs to be worked out of the economy, this was not the result of a “true overheating” or prolonged “boom,” but instead of excess government fiscal stimulus related to the pandemic recovery that wasn’t going to be repeated.

“If you take a look at money supply in the United States, it declined 4% over the past year. Take a look at the 1970s, it was almost 10% growth for the entire decade, import prices surging 14% every single year — that’s sustained inflation,” Wieting said.

“This story with just all of this government spending coming and going — upheaval in supply and demand, consumer spending going up or down 30% between goods and services, during the pandemic period — that’s not the environment we’re in any longer.”

Correction: “Take a look at the 1970s, it was almost 10% growth for the entire decade, import prices surging 14% every single year — that’s sustained inflation,” Wieting said. An earlier version misstated the quote.

'It's really bad': China strategist warns of deflation and rock-bottom consumer confidence

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BEIJNG, CHINA – NOVEMBER 13: Illuminated skyscrapers stand at the central business district at sunset on November 13, 2023 in Beijing, China. (Photo by Gao Zehong/VCG via Getty Images)

Vcg | Visual China Group | Getty Images

Deflation may soon start biting into Chinese growth, as Beijing looks at another three to six months of a “very painful economy,” according to one analyst who covers the country.

“This is something investors need to be cautious of. The economy here is bad, it’s pretty … it’s really bad. I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” Shaun Rein, founder of the China Market Research Group, told CNBC’s “Squawk Box Europe” on Monday.

“So deflation is starting to wield its ugly head. Consumers are waiting for discounts. They’re very nervous.”

Linked to a decline in the prices of goods and services, deflation is generally associated with an economic slowdown — raising questions over the growth outlook for China, whose post-Covid-19 recovery has already fallen short of some expectations in 2023. In December, depressed prices for pork — which makes up around a fifth of China’s CPI basket — heralded the possible advent of deflation.

“Deflation is a serious issue, I know the Chinese government doesn’t want me saying it, but it’s an issue that we need to be worried about,” Rein stressed. “So I am kind of surprised that they kept the prime rates unchanged. You know, it would have been nice if they had lowered them to try to get some stimulus into the country.”

Earlier on Monday, the People’s Bank of China held its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively, in line with forecasts. These are the pegs for most household and corporate loans in China and are one of many levers that the PBOC usually pulls in an effort to stimulate the economy.

The decision comes amid infectious expectations among investment banks that China’s economy will expand at a more sluggish pace in 2024. Beijing has set an official growth target of 5% this year, with Premier Li Qiang telling the World Economic Forum in Davos, Switzerland, last week that the Chinese economy swelled by a marginally higher 5.2% in 2023.

At the time, Li highlighted that China did not achieve its economic development through “massive stimulus” and “did not seek short-term growth while accumulating long-term risks.” “Rather, we focused on strengthening the internal drivers,” Li said.

Despite this, the International Monetary Fund in November outlined a forecast for China’s growth to slow in 2024 to just 4.6%. In a more recent Jan. 15 report, Moody’s assessed that China’s real GDP growth would hit 4% this year and in 2025, from an average of 6% between 2014 and 2023.

Economic slowdown is widely seen as a potential threat to Xi Jinping, whose Chinese Community Party has cultivated national political legitimacy through rapid growth. China’s status as the world’s second-largest economy has also solidified its international footing, making it and heavyweight energy exporter Russia the epicenter of the BRICS emerging markets group.

Yet Rein says that Beijing may stomach a “slight rough time” as long as the economy retains 5% growth, as the administration focuses on social transformation.

“The Communist Party of China doesn’t necessarily want a restructuring of the economy, they want a reform of society, so it’s a much bigger picture … Which is why I don’t think the government is going to want a major stimulus, so the new normal is going to be 4-5% growth over the next 3-5 years,” he said.

“I think you’re gonna deal with another 3-6 months minimum of a very painful economy, as China restructures, or as China, you know, transforms its economy towards a more slower-growth, fairer society.”

Among the more tremulous sectors of the Chinese economy, Rein identified the country’s once-bloated real estate market, which accounts for roughly a third of China’s economic activity and has been tumbling sharply since Beijing’s broad-stroke crackdown on the debt levels of mainland property developers. Real estate giants Evergrande and Country Garden have become key casualties of the clampdown.

“[Buyers] think housing prices might continue to drop, so even if there’s pent-up demand for housing, a lot of home buyers are telling us, we’re not going to buy this month, we’re not going to buy this quarter, because we’re scared prices are going to drop another couple [of] percent in the coming months,” Rein said Monday.

Such a consumer behavior could compound some expectations that China could take more than 10 years to liquidate the current overhang in its housing inventory.

Two important events this week could determine the future of Fed rate policy

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 19, 2024. 

Brendan Mcdermid | Reuters

Markets have become less convinced that the Federal Reserve is ready to press the button on interest rate cuts, an issue that cuts at the heart of where the economy and stocks are headed.

Two big economic reports coming up this week could go a long way toward determining at least which way the central bank policymakers could lean — and how markets might react to a turn in monetary policy.

Investors will get their first look at the broad picture of fourth-quarter economic growth for 2023 when the Commerce Department releases its initial gross domestic product estimate on Thursday. Economists surveyed by Dow Jones are expecting the total of all goods and services produced in the U.S. economy to grow at a 1.7% pace for the final three months of 2023, which would be the slowest growth since the 0.6% decline in Q2 of 2022.

A day later, the Commerce Department will release the December reading on the personal consumption expenditures price index, a favorite Fed inflation gauge. The consensus expectation for core PCE prices, which exclude the volatile food and energy components, is 0.2% growth for the month and 3% for the full year.

Both data points should garner a lot of attention, particularly the inflation numbers, which have been trending towards the Fed’s 2% goal but aren’t there yet.

“That’s the thing that everybody should be watching to determine what the Fed’s rate path will end up being,” Chicago Fed President Austan Goolsbee said during an interview Friday on CNBC. “It’s not about secret meetings or decisions. It’s fundamentally about the data and what will enable us to become less restrictive if we have clear evidence that we’re on the path to get” inflation back to target.

Lowered rate-cut outlook

The releases come amid a market snapback about where the Fed is heading.

As of Friday afternoon, trading in the fed funds futures market equated to virtually no chance the rate-setting Federal Open Market Committee will cut at its Jan. 30-31 meeting, according to CME Group data as indicated through its FedWatch Tool. That’s nothing new, but the odds for a cut at the March meeting fell to 47.2%, a steep slide from 81% just a week ago.

Along with that, traders have taken one expected cut off the table, reducing the outlook for easing to five quarter percentage point decreases from six previously.

The change in sentiment followed data showing a stronger-than-expected 0.6% growth in consumer spending for December and initial jobless claims falling to their lowest weekly level since September 2022. On top of that, several of Goolsbee’s colleagues, including Governor Christopher Waller, New York Fed President John Williams and Atlanta Fed President Raphael Bostic, issued commentary indicating that at the very least they are in no hurry to cut even if the hikes are probably done.

The bar for the Fed to make massive rate cuts is high, says Franklin Templeton Sonal Desai

“I don’t like tying my hands, and we still have weeks of data,” Goolsbee said. “Let’s take the long view. If we continue to make surprising progress faster than was forecast on inflation, then we have to take that into account in determining the level of restrictiveness.”

Goolsbee noted that one particular area of focus for him will be housing inflation.

The December consumer price index report indicated that shelter inflation, which accounts for about one-third of the weighting in the CPI, rose 6.2% from a year ago, well ahead of a pace consistent with 2% inflation.

However, other measures tell a different story.

A new Labor Department reading known as the New Tenant Rent Index, tells a different story. The index, which measures prices for new leases that tenants sign, showed a 4.6% decline in the fourth quarter of 2023 from a year ago and more than double that quarterly.

Watching the data, and other factors

“In the very near term, we think the inflation data will cooperate with the Fed’s dovish plans,” Citigroup economist Andrew Hollenhorst said in a client note.

However, Citi foresees inflation as stubborn and likely to delay the first cut until at least June.

While it’s unclear how much difference the timing makes, or how important it is if the Fed only cuts four or five times compared to the more ambitious market expectations, market outcomes have seem linked to the expectations for monetary policy.

There are plenty of factors that change the outlook in both directions — a continued rally in the stock market might worry the Fed about more inflation in the pipeline, as could an acceleration in geopolitical tensions and stronger-than-expected economic growth.

“By keeping the potential alive for inflation to turn up, these economic and geopolitical developments could put upward pressure on both short-term rates and long-term yields,” Komal Sri-Kumar, president of Sri-Kumar Global Strategies, said Saturday in his weekly market note.

“Could the Federal Reserve be forced to raise the Federal Funds rate as its next move rather than cut it?” he added. “An intriguing thought. Don’t be surprised if there is more discussion along these lines in coming months.”

American Express CEO says spending is strong, delinquencies are down from 2019

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Stephen Squeri, chair and CEO of American Express, speaks during an Economic Club of New York event in New York on Nov. 10, 2022.

Stephanie Keith | Bloomberg | Getty Images

American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.

In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner in an interview at the American Express PGA Tour event in La Quinta, California.

“Our customers are high-spending premium customers, and they are continuing to spend,” he said.

The signs of resilient consumer spending run somewhat counter to persistent inflation. December’s consumer price index increased 0.3%, hotter than the 0.2% expected by economists.

But Squeri said he’s not surprised, adding he’s of the opinion that the U.S. is in the middle of a “soft landing,” slowing spending and bringing inflation down — without spurring a recession.

JPMorgan Chase CEO Jamie Dimon said earlier this week that he remains cautious on the U.S. economy, along with Goldman Sachs CEO David Solomon, who said it’s hard to imagine the number of Federal Reserve rate cuts that the market seems to be calling for in 2024.

“I mean look, recessions do happen,” Squeri said Friday. “The nice part about recessions is there’s always a recovery. … We’ll get through whatever we need to get through, and part of that is because of our customer base, and our colleagues that are supporting our customers.”

American Express reports its fourth-quarter earnings Jan 26.

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Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows

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An employer representative at a Veteran Employment and Resource Fair in Long Beach, California, US, on Tuesday, Jan. 9, 2024. The Department of Labor is scheduled to release initial jobless claims figures on January 11. 

Eric Thayer | Bloomberg | Getty Images

Consumers have grown more confident about the direction of the economy and inflation at onset of 2024, despite persistent worries about a looming slowdown, a survey released Friday showed.

The University of Michigan’s Consumer Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021 and up 21.4% from a year ago. That followed a big jump in December and comes despite public opinion surveys showing concern about the nation’s direction.

On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director.

“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said. “Democrats and Republicans alike showed their most favorable readings since summer of 2021. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.”

Along with the improved outlook on general conditions, survey respondents displayed more confidence that inflation is coming down.

The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in December for the lowest reading since December 2020. The Federal Reserve has boosted short-term interest rates to their highest level in more than 22 years and inflation has followed suit lower, though it remains above the central bank’s 2% target.

At the same time, the survey’s index of current conditions also leaped higher, rising to 83.3, or 21.6% higher than a year ago.

Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains. The price at the pump for a gallon of regular gas is about 30 cents lower than it was a year ago, according to AAA, and the S&P 500 is near a record high.

The survey is “another sign that the economy is on track for a soft landing,” said Andrew Hunter, deputy chief economist at Capital Economics. However, he noted that such surveys don’t always feed through to consumer behavior.

Stocks rose slightly following the release while Treasury yields also were higher.

Market have been tethered to expectations for where the Fed will take interest rates this year. The prevailing outlook is for a series of up to six quarter percentage point cuts this year. But the timing of those cuts is unclear, with market pricing now pointing to a tossup as to whether the Fed eases in March or waits until May.

Grim retail sales suggest possible recession for Britain

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Shoppers walk past shops on Regent Street on the final weekday before Christmas in London on December 22, 2023. Britain’s economy unexpectedly shrank in the third quarter and flatlined in the previous three months, official data showed Friday, raising fears of a recession before an election due next year. (Photo by HENRY NICHOLLS / AFP) (Photo by HENRY NICHOLLS/AFP via Getty Images)

Henry Nicholls | Afp | Getty Images

U.K. retail sales dropped significantly more than expected in December, in a sign that the economy may have entered a shallow recession in the second half of 2023.

The Office for National Statistics said sales volumes fell by 3.2% during the key trading month, after a 1.4% rise in November. Economists polled by Reuters had expected a fall of just 0.5%.

December marked the largest monthly decline since January 2021, when strict pandemic lockdown measures dampened demand. The ONS said people appeared to have done their Christmas shopping earlier than in previous years.

Volumes were 0.9% lower in the three months to December 2023, compared with the previous quarter.

It comes after U.K. gross domestic product for the third quarter was revised down to a 0.1% contraction, from a prior reading of no growth.

“Today’s release would subtract around 0.15 percentage points from real GDP growth in December, which increases the chances the economy may have ended 2023 in the mildest of mild recessions,” said Alex Kerr, assistant economist at Capital Economics.

Trade body British Retail Consortium said that the figures “capped a difficult year for retailers” and showed Black Friday sales ate into Christmas spending.

Fed's Raphael Bostic expects rate cuts to happen in the third quarter

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Raphael Bostic at Jackson Hole, Wyoming

David A. Grogan | CNBC

Atlanta Federal Reserve President Raphael Bostic expects policymakers to start cutting rates in the third quarter of this year, saying Thursday that inflation is well on its way back to the central bank’s goal.

Bostic, a voting member this year on the rate-setting Federal Open Market Committee, asserted that the goal ahead is to calibrate policy to be not so restrictive as to choke off growth while still acting as a bulwark against persistently elevated prices.

However, he said a “golden path” scenario of tamping down inflation while promoting solid growth and healthy employment is getting closer than many Fed officials had expected.

“Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter,” Bostic said in prepared remarks for a speech to business leaders in Atlanta.

While the remarks help illuminate a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations about policy easing.

Current pricing in the fed funds futures market points to the first cut coming as soon as March, according to the CME Group’s FedWatch measure. The implied probability for a quarter percentage point reduction has decreased in recent days but still stood around 57% Thursday morning. Pricing further indicates a total of six cuts this year, or one at every FOMC meeting but one from March forward.

Bostic said he’s not dead set against cutting earlier than the third quarter, implying a move in July at the earliest, but said the bar will be high.

“If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalization sooner than the third quarter,” he said. “But the evidence would need to be convincing.”

A number of factors could change the calculus, such as geopolitical conflicts, the ongoing budget battle in Washington and looming presidential election, to name a few that Bostic cited.

Consequently, he advocated caution and said his approach will be “grateful and vigilant.”

“In such an unpredictable environment, it would be unwise to lock in an emphatic approach to monetary policy,” Bostic said. “That is why I believe we should allow events to continue to unfold before beginning the process of normalizing policy.”

Some of the data points he said he will be watching include overall economic growth, inflation readings such as the Commerce Department’s personal consumption expenditures price index and data on job growth and losses.

The Labor Department reported Thursday that initial jobless claims hit their lowest level since September 2022, a sign that the labor market remains tight.

Weekly jobless claims post lowest reading since September 2022

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A networking and hiring event for professionals of color in Minneapolis, MN. 

Michael Siluk | Getty Images

The labor market continued to show surprising resiliency in the early days of 2024, with initial jobless claims posting an unexpected drop last week.

Initial filings for unemployment insurance totaled 187,000 for the week ended Jan. 13, the lowest level since Sept. 24, 2022, the Labor Department reported Thursday. The total marked a 16,000 decline from the previous week and came in below the Dow Jones estimate of 208,000.

Labor strength has persisted despite attempts by the Federal Reserve to slow the economy, and the jobs market in particular, through a series of interest rate hikes. Central bank policymakers have linked the supply-demand mismatch between companies and the available labor pool as an ingredient that had sent inflation to its highest level in more than 40 years.

Along with the drop in weekly claims came an unexpected decline of 26,000 in continuing claims, which run a week behind. The total for continuing claims hit 1.806 million, below the FactSet estimate for 1.83 million.

“Employers may be adding fewer workers monthly, but they are holding onto the ones they have and paying higher wages given the competitive labor market,” said Robert Frick, corporate economist at Navy Federal Credit Union.

In other economic news Thursday, the Philadelphia Fed reported that its manufacturing index registered a reading of -10.6 for January, representing the difference between companies reporting growth against contraction. While the number marked an increase from the -12.8 posted in December, it was still below the Dow Jones estimate of -7.

The Philadelphia Fed gauge showed a decline in unfilled orders, delivery times and inventories. The employment index improved somewhat but was still negative at -1.8 while the prices paid and received measures both eased from December.

A third report Thursday showed some optimism for housing: Building permits totaled 1.495 million, a monthly increase of 1.9% and a bit above the 1.48 million estimate, according to the Commerce Department. However, housing starts totaled 1.46 million, a 4.3% monthly decline but better than the 1.43 million estimate.

The reports come a day after the Fed, in its periodic summary of economic conditions, reported mostly stagnant activity since late November.

According to the central bank’s Beige Book report, the economy broadly showed “little or no change in economic activity” during the period.

On employment, the report did note signs of a “cooling labor market,” with lower wage pressures. On housing, it said high interest rates were limiting activity, though the prospects of future easing from the Fed were raising hopes that the pace could accelerate.

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Retail sales rise 0.6% in December, topping expectations for holiday shopping

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Holiday shopping turned out even better than expected in December as shoppers picked up the pace to close out a strong 2023, the Commerce Department reported Wednesday.

Retail sales increased 0.6% for the month, buoyed by a pickup in clothing and accessory stores as well as online nonstore businesses. The results were better than the 0.4% Dow Jones estimate.

Excluding autos, sales rose 0.4%, which also topped the 0.2% estimate.

The report comes amid speculation about how much strength the U.S. economy possessed heading into the new year, when growth is expected to slow. However, a resilient consumer could signal more momentum and possibly give the Federal Reserve some caution about how to proceed on interest rates.

Stock market futures held negative following the release.

“The Fed was already hammering away on its ‘no rush to cut rates’ message, and today’s stronger-than-expected retail sales won’t give them any reason to change their tune,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.

On a year-over-year basis, retail sales ended 2023 up 5.6%. The numbers are not adjusted for inflation, so sales show that consumers are more than keeping up with an annual inflation rate of 3.4% as measured by the consumer price index. The CPI increased 0.3% in December, also lower than the retail sales increase.

Another measure of retail sales strength that excludes sales from auto dealers, building materials stores, gas stations, office suppliers, mobile homes and tobacco stores rose 0.8% for the month. The Commerce Department uses this so-called control group when computing gross domestic product.

The report showed broad-based strength in sales for the month, though there were a few areas of weakness. Both clothing and accessory stores and online retailers saw 1.5% increases on the month.

“Consumers shunned brick and mortar stores in favor of online shopping,” said Jeffrey Roach, chief economist at LPL Financial. “The behavioral change that happened during the pandemic will likely persist and successful retailers will adjust to this new model.”

Health and personal-care store receipts declined 1.4% and gas stations saw a 1.3% drop as fuel prices eased. Furniture and home furnishing stores sales also fell 1%.

On a yearly basis, food services and drinking places saw the biggest gains, rising 11.1% though sales were flat in December. Both health and personal care and electronics and appliances saw 10.7% increases. Gas stations dropped 6.6%.

In other economic news Wednesday, import prices were unchanged in December, despite the Wall Street estimate for a 0.5% decline and following a 0.5% drop the previous month. Export prices, however, slid 0.9%, the same as in November.

The reports come with markets anxious over the direction of Fed policy. Current market pricing anticipates the central bank enacting six quarter-percentage point rate cuts in 2024, twice what Fed officials indicated in December. Stronger-than-expected economic growth and inflation could force the Fed into keeping policy more restrictive.

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Corporate debt defaults soared 80% in 2023 and could be high again this year, S&P says

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Javier Ghersi | Moment | Getty Images

Corporate debt defaults soared last year and could be a problem again in 2024 as cash-strapped companies deal with the burden of high interest rates, S&P Global Ratings reported Tuesday.

The number of companies that failed to make required payments on their debt totaled 153 for 2023, up from 85 the year before, an increase of 80%. It was the highest default rate outside of the Covid-related spike in 2020 in seven years.

Much of the total came from low-rated companies that had negative cash flows, high debt burdens and weak liquidity, S&P said. From a sector standpoint, consumer-facing companies — media and entertainment in particular — led the defaults.

S&P said there could be hard times ahead for corporate America, which, according to the Federal Reserve, is carrying a $13.7 trillion debt load. Company debt has jumped 18.3% since 2020 as companies took advantage of the Fed slashing interest rates in the early days of the Covid-19 pandemic.

“In 2024, we expect further credit deterioration globally, predominantly at the lower end of the rating scale (rated ‘B-‘ or below), where close to 40% of issuers are at risk of downgrades,” the firm wrote. “We expect financing costs to remain elevated despite the prospect of rate cuts. And while borrowers have reduced their 2024 maturities, a large share of speculative-grade debt is expected to mature in 2025 and 2026.”

Some economists worry that a “corporate debt cliff” could become a more serious problem as a large share of maturing debt that initially was financed at very low rates comes due in the next few years.

The burden, both in the U.S. and globally, could be exacerbated by “slower economic growth and higher financing costs” that could contribute to defaults, S&P said. Along with media and entertainment, the firm sees potential trouble spots in consumer products and retail because of a weaker economy “and the already elevated number of weakest links in those sectors.”

But the damage won’t be isolated in those areas, as S&P sees higher rates causing more widespread pain to sectors such as health care, which is suffering from elevated debt and staffing problems that are constraining revenue.

Fed rate cuts are expected to alleviate the burden somewhat, though rates are expected to remain elevated at least through 2024. While markets think the central bank could cut short-term rates as much as 1.5 percentage points this year, Fed officials have indicated a slower course of perhaps half that much, depending on how the inflation data unfolds.

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Fed's Christopher Waller advocates moving 'carefully' with rate cuts

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Federal Reserve Governor Christopher Waller acknowledged Tuesday that interest rate cuts are likely this year, but said the central bank can take its time relaxing monetary policy.

The comments, delivered during a speech in Washington, D.C., seemed to counter market anticipation for aggressing easing this year.

“As long as inflation doesn’t rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year,” Waller said in prepared remarks for an audience at the Brookings Institution.

“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added. “In many previous cycles … the cut rates reactively and did so quickly and often by large amounts. This cycle, however, … I see no reason to move as quickly or cut as rapidly as in the past.”

Market pricing Tuesday morning indicated about a 71% chance the FOMC will begin cutting in March, according to the CME Group’s FedWatch measure. In fact, traders have further ramped up expectations for 2024 and added another cut this week, bringing the anticipated total to seven quarter-percentage point rate decreases by the end of the year.

Along with rate cuts, Waller said he anticipates the Fed this year can start slowing the pace of “quantitative tightening,” or the reduction of the central bank balance sheet by allowing proceeds from maturing bonds to roll off without reinvesting them. The Fed has been allowing up to $95 billion a month roll off and thus far has cut its holdings by about $1.2 trillion.

“I would say sometime this year will be a reasonable thing to start thinking about it,” he said. However, he noted that “tapering” would apply on to Treasurys and not mortgage-backed securities holdings, which he prefers to allow to decrease at the current pace.

Data ‘almost as good as it gets’

At their December meeting, Fed officials indicated three cuts were likely this year. The benchmark fed funds rate is currently in a targeted range between 5.25%-5.5%.

In making the pitch for rate cuts, Waller noted the progress made against inflation has not come at the cost of the labor market. As a governor, Waller is a permanent FOMC voter.

Stocks held in sharply negative territory after the release of Waller’s remarks, while Treasury yields moved higher.

While 12-month inflation is still running well above the Fed’s 2% goal, measures over shorter time frames such as six months are much closer to target. For instance, the core personal consumption expenditures price index, one of the Fed’s preferred measures, is showing annual inflation at 3.2%, the six-month measure is around 1.9%.

At the same time, unemployment has held below 4% and gross domestic product has grown at a rate defying Wall Street expectations for a recession.

“For a macroeconomist, this is almost as good as it gets. But will it last?” Waller said. “Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC’s price-stability goal. Time will tell if this can happen while the labor market still performs above expectations.”

While the Fed has wrestled with the quandary of not tightening and enough and allowing inflation to expand and tightening too much that it chokes off growth, Waller said those risks are becoming more balanced.

In fact, he said that as the level of job openings compared to the size of the labor force declines, the Fed is now running more of a risk of doing too much.

“So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening,” he said.

Waller said he thinks the Fed is “within striking distance” of achieving its 2% inflation goal, “but I will need more information” before declaring victory. One data point he said he will be especially focused on is upcoming revisions to the Labor Department’s consumer price index inflation measure.

Germany skirts recession at the end of 2023 but faces prolonged slump

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German Chancellor, Olaf Scholz arrives for the weekly federal government cabinet meeting on Oct. 11, 2023 in Berlin, Germany.

Michele Tantussi | Getty Images News | Getty Images

Europe’s largest economy contracted by 0.3% year-on-year in 2023, as high inflation and firm interest rates bit into growth, the Federal Statistical Office of Germany said Monday.

The estimate is in line with the expectations of analysts polled by Reuters. The decline in economic output eases to 0.1% when adjusted for calendar purposes.

“The overall economic development in Germany stalled in 2023 in the still crisis-ridden environment,” said Ruth Brand, president of the federal statistics office, according to a Google translation. 

“Despite the recent declines, prices remained high at all levels of the economy. Added to this were unfavorable financing conditions due to rising interest rates and lower demand from home and abroad,” Brand added.

German inflation ticked up by 3.8% year-on-year in December on a harmonized basis, the statistics office said on Jan. 4. The European Central Bank in December opted to hold rates unchanged for the second consecutive time, shifting its inflation outlook from “expected to remain too high for too long” to expectations that it will “decline gradually over the course of next year.”

Germany’s manufacturing sector, excluding construction, fell by a sharp 2%, led by lower production in the energy supply sector. Weak domestic demand last year and “subdued global economic dynamics” also stifled foreign trade, despite a drop in prices. Imports fell by 1.8%, declining more sharply than exports and leading to a positive trade balance.

Household consumption contracted by 0.8% on the year, adjusted for prices, while government expenses slimmed by 1.7%.

The fourth quarter recorded a similar 0.3% drop compared with the July-September period. The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession that is defined by two successive quarters of consecutive GDP declines.

Early indicators do not signal a quick German economic recovery is in the cards, a German economy ministry report out Monday warned, according to Reuters.

Capital Economics also expects Germany’s troubles are not yet over and forecasts no growth for the country in 2024.

“The recessionary conditions which have been dragging on since the end of 2022 look set to continue this year,” Chief Europe Economist Andrew Kenningham said in a note. “Admittedly, the recent fall in inflation should provide some relief for households, but residential and business investment are likely to contract, construction is heading for a steep downturn and the government is tightening fiscal policy sharply. We forecast zero GDP growth in 2024.”

Germany was haunted by its moniker as the “sick man” of Europe for the better part of last year, despite weathering the shocks of losing access to some sanctioned Russian energy supplies in the wake of Moscow’s invasion of Ukraine. Analysts had predicted Germany would be the only major European economy to shrink last year.

The German economy faced the throes of a deep budgetary crisis at the end of last year, after a constitutional court ruling over the national borrowing restrictions threatened a $17-billion-euro gap in the country’s 2024 spending plans.

Enshrined in Germany’s constitution, the national debt brake restricts the federal deficit to 0.35% of GDP outside of emergencies and became a major bone of contention in national politics last year. The German government agreed to suspend the limit on borrowing, after the constitutional court blocked attempts to repurpose any leftover emergency funds initially assigned to address the Covid-19 pandemic.

Weeks-long negotiations yielded a budget deal that retains debt restrictions into 2024, with the government expecting to save 17 billion euros ($18.6 billion) in its core budget by ending climate-damaging subsidies and implementing cost cutting, German Chancellor Olaf Scholz’s three-way coalition announced in mid December.

Wholesale prices unexpectedly fell 0.1% in December in positive inflation sign

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A customer shops for milk at a grocery store on December 12, 2023 in San Anselmo, California. 

Justin Sullivan | Getty Images News | Getty Images

Wholesale prices unexpectedly declined in December, providing a positive signal for inflation, the Labor Department reported Friday.

The producer price index fell 0.1% for the month and ended 2023 up 1% from a year ago, the Labor Department reported Friday. Economists surveyed by Dow Jones had been looking for a monthly gain of 0.1%. The index had surged 6.4% in 2022.

Excluding food and energy, core PPI was flat against the estimate for a 0.2% increase. Excluding food, energy and trade services, PPI also was up 0.2%, in line with the estimate. For the full year, the final demand measure less food, energy and trade services rose 2.5% for all of 2023 after being up 4.7% in 2022.

The PPI release comes a day after less encouraging news from the Labor Department, which reported Thursday that the prices consumers pay for goods and services rose 0.3% in December and were up 3.4% on the year. That was higher than Wall Street expectations and still a good deal away from the Fed’s 2% inflation target.

However, PPI is generally considered a better leading index as it measures pipeline prices that companies get for intermediate goods and services.

Markets reacted positively to the PPI release, with stock futures shaving losses and Treasury yields mostly lower.

Prices for final demand goods declined 0.4% in December, the third straight month of decreases, according to the release. Diesel fuel prices tumbled 12.4%, even though gasoline increased 2.1%.

On the services side, prices held at unchanged for the third straight month. Prices in fields associated with financial advice rose 3.3%, while margins for machinery and vehicle wholesaling dipped 5.5%.

PPI measures the prices that producers pay for goods and services, while CPI gauges what consumers pay in the marketplace. CPI also includes imports whereas PPI does not. PPI, however, covers a broader set of goods and services.

Markets are convinced that waning inflation signs will push the Fed to cut interest rates starting in March, even with inflation above target.

Traders in the fed funds futures market are pricing in about a 70% probability that the first quarter percentage point cut will come at the March 19-20 meeting of the Federal Open Market Committee, according to the CME Group’s FedWatch tracker. From there, markets expect another five rate cuts, taking the benchmark fed funds rate down to a target range of 3.75%-4%.

However, various Fed officials in recent days have made statements that seem to counter the market’s aggressive view. Moreover, JPMorgan Chase CEO Jamie Dimon on Friday warned that heavy government deficit spending along with a bevy of other factors could cause inflation to be stickier and rates to be higher than the market expects.

U.S. deficit tops half a trillion dollars in the first quarter of fiscal year

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The U.S. Treasury building in Washington, D.C., on Aug. 15, 2023.

Nathan Howard | Bloomberg | Getty Images

The U.S. government ran up another half a trillion dollars in red ink in the first quarter of its fiscal year, the Treasury Department reported Thursday.

For the period from October 2023 through December 2023, the budget deficit totaled just shy of $510 billion, following a shortfall of $129.4 billion in just December alone, which was 52% higher than a year ago. The jump in the deficit pushed total government debt past $34 trillion for the first time.

Compared to last year, which saw a final deficit of $1.7 trillion, 2024 is running even hotter.

In the first quarter of fiscal 2023, for example, the difference between spending and receipts totaled $421.4 billion. On an unadjusted basis, that’s an increase of $89 billion between fiscal 2024 and last year. Adjusted for calendar factors, the Treasury Department said the change between the two years is actually $97 billion. December’s shortfall was higher by more than $34 billion compared to the previous year, driven by higher Social Security payments and interest costs.

If the current pace continues, 2024 would end with a deficit of just more than $2 trillion.

The deficit has continued to pile up despite the Biden administration’s assurances that the Inflation Reduction Act, in addition to reducing prices, would shave “hundreds of billions” off the deficit.

While the rate of inflation has come down, Labor Department data Thursday showed the consumer price index increased another 0.3% in December, pushing the 12-month rate up to 3.4%, higher than the Wall Street consensus and above the Federal Reserve’s 2% goal.

With interest rates elevated as the Fed fights inflation, financing costs for the government in 2023 totaled nearly $660 billion. Debt as a percentage of gross domestic product rose to 120% in the third quarter of 2023.

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Shipping boss says ongoing Red Sea disruption could have 'significant consequences' for global growth

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Ongoing disruption to trade flows through the Red Sea could hit global economic growth, the head of one of the world’s largest container shipping firms said Thursday.

Maersk CEO Vincent Clerc said it remained unclear whether passage through the waterway would be re-established in “days, weeks or months,” in comments first provided to the Financial Times and confirmed to CNBC.

“It could potentially have quite significant consequences on global growth,” Clerc said.

The company announced Friday its vessels would be diverted from the Red Sea — which provides access to Egypt’s Suez Canal, the quickest route between Europe and Asia — for the “foreseeable future.”

Vessels are instead traveling around the southern coast of Africa, which can add between two to four weeks to a Europe-Asia voyage, Clerc previously told CNBC.

Maersk further said this week that some inland transportations were facing delays due to a wave of strikes in Germany.

The seaborne diversions by Maersk and a host of other firms are due to a series of attacks on ships by Houthi militants from Yemen. The group’s leaders say they are responding to Israel’s bombing of Gaza.

Clashes have continued into the new year despite the launch of a U.S.-led military taskforce which has seen major powers send warships to the area.

Houthi militants this week launched the largest attack of the campaign so far.

Red Sea shipping disruption 'worse than Ever Given' but 'not as bad as Covid': Analyst

Companies including Sweden’s Ikea have warned of potential product delays as a result, while freight rates are moving higher.

In a further sign of volatility in the region, an oil tanker was hijacked near the Gulf of Oman on Thursday.

The World Bank meanwhile said Tuesday that global growth is set to mark its worst half decade for 30 years.

Ayhan Kose, the group’s deputy chief economist, told CNBC that the world economy faced a host of risks, including escalations of conflict in the Middle East or the war in Ukraine.

— Additional reporting by Ruxandra Iordache

Consumer prices rose 0.3% in December, higher than expected, pushing the annual rate to 3.4%

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Prices that consumers pay for a variety of goods and services rose more than expected in December, according to a Labor Department measure Thursday that shows inflation still holding a grip on the U.S. economy.

The consumer price index increased 0.3% for the month, higher than the 0.2% estimate at a time when most economists and policymakers see inflationary pressures easing. On a 12-month basis, the CPI closed 2023 up 3.4%. Economists surveyed by Dow Jones had been looking for respective readings of 0.2% and 3.2%.

Excluding volatile food and energy prices, so-called core CPI increased 0.3% for the month and 3.9% from a year ago, compared to respective estimates of 0.3% and 3.8%.

Much of the increase came do to rising shelter costs. The category rose 0.5% for the month and accounted for more than half the core CPI increase. On annual basis, shelter costs increased 6.2%, or about two-thirds of the rise in inflation.

Fed officials largely expect shelter costs to decline through the year as renewed leases reflect lower rents.

Food prices increased 0.2% in December, the same as in November, while energy posted a 0.4% gain after sliding 2.3% in November. Gasoline rose 0.2%.

In other key price indexes, motor vehicle insurance bounced 1.5% higher, medical care accelerated by 0.6% and used vehicle prices, a key contributor in the initial inflation surge, increased another 0.5% after being up 1.6% in November.

This is breaking news. Please check back here for updates.

Turkish lira hits fresh record low against the U.S. dollar

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Vanishing Turkish Currency: 1 Turkish Lira with the Portrait of Kemal AtatürkTurkish

Manuel Augusto Moreno | Moment | Getty Images

The Turkish lira hit a fresh record low against the U.S. dollar on Thursday, trading at 30.005 to the greenback just before noon local time.

It marks the first time that the lira has broken 30 against the dollar, which was up 0.17% against the Turkish currency from the previous day’s session.

The beleaguered lira has fallen some 37% against the U.S. benchmark over the past year, as monetary policymakers try to combat double-digit inflation by steadily raising interest rates.

The more conventional approach follows several years of unorthodox policy during which Ankara refused to tighten rates despite ballooning inflation, while Turkish President Recep Tayyip Erdogan routinely called interest rate rises “the mother of all evil.”

Inflation in the country of roughly 84 million rose to 64.8% on an annual basis in December, up from 62% in November. It’s still an improvement on the prior year, after Turkish inflation hit a peak of 85.5% in October 2022.

The lira’s weakening comes as Turkey’s top finance officials gather at J.P. Morgan’s Wall Street headquarters in New York for investor presentations focused on the country’s monetary policy, banking, assets, and financial markets.

Dubbed “Investor Day,” the inaugural event will feature question-and-answer sessions and will include presentations from new Turkish central bank governor Hafize Gaye Erkan, who was appointed in June 2023, on a range of topics, such as the country’s disinflation path. Turkish Finance Minister Mehmet Simsek will deliver presentations virtually on the outlooks for Turkish financing and fiscal policy.

Turkish outlet Daily Sabah reports the event will be attended by more than 200 senior executives from major finance institutions, including Vanguard, BlackRock, Goldman Sachs, Morgan Stanley, and J.P. Morgan.

The Turkish lira has lost more that 80% of its value against the dollar over the last five years, increasing import and foreign debt costs and dramatically weakening the purchasing power of ordinary Turkish people.

A new finance team was appointed in June last year, and Turkey’s central bank embarked on a sharp pivot, pulling rates higher under Erkan’s supervision. The country’s benchmark interest rate has since been lifted from 8.5% to 42.5%.

Thursday's inflation report could challenge the market outlook for big Fed rate cuts

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Consumers shop at a retail chain store in Rosemead, California, on Dec. 12, 2023.

Frederic J. Brown | AFP | Getty Images

Economists expect that inflation nudged higher in December, a trend that could call into question the market’s eager anticipation that the Federal Reserve will slash interest rates this year.

The consumer price index, a widely followed measure of the costs folks pay for a wide range of goods and services, is projected to have risen 0.2% in the final month of 2023, or 3.2% for the full year, according to Dow Jones.

At a time when the Fed is fighting inflation through tight monetary policy including elevated rates, news that prices are holding at high levels could be enough to disrupt already-fragile markets.

“The Fed did its policy pivot, and the data’s got to support that pivot,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “The market seems to have gotten excited that the Fed’s going to have to do more than what the Fed thinks in terms of rate cuts now. … The market got ahead of itself.”

There is certainly a wide gap between what the Fed has indicated in terms of rate cuts and what the market is expecting.

After months of insisting that easier monetary policy is still a ways off, central bank policymakers in December penciled in three quarter-percentage-point rate cuts by the end of 2024, effectively a policy pivot for this inflation-fighting era. Minutes from that meeting released last week did not indicate any discussion about a timetable for the reductions.

Markets hold a different view.

Looking for easing

Traders in the fed funds futures market are pointing to a strong chance of an initial rate cut in March, to be followed by five more reductions through the year that would take the benchmark overnight borrowing rate down to a range of 3.75% to 4%, according to the CME Group’s FedWatch gauge.

If inflation data such as Thursday morning’s CPI release and Friday’s producer price index don’t show stronger inflation progress, that is liable to cause more volatility in a year when stocks have already gotten off to a rocky start.

“We’re going to see it across all markets, because it’s going to be that dynamic between what the Fed’s doing and what the market expects them to do,” McIntyre said of a likely volatile time ahead. “Ultimately, they’ve got to come together. It probably means that right now, the market needs to give back some of the rate cuts that they priced in.”

A smattering of public statements since the December meeting of the Federal Open Market Committee provided little indication that officials are ready to let down their guard.

Fed Governor Michelle Bowman said this week that while she expects rate hikes could be done, she doesn’t see the case yet for cuts. Likewise, Dallas Fed President Lorie Logan, in more pointed remarks directed at inflation, said Saturday that the easing in financial conditions, such as 2023’s powerful stock market rally and a late-year slide in Treasury yields, raise the specter that inflation could see a resurgence.

“If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made,” Logan said. “In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”

The search for balance

Logan, however, did concede that it could be time to think about slowing the pace of the Fed’s balance sheet reduction. The process, nicknamed “quantitative tightening,” involves allowing proceeds from maturing bonds to roll off without reinvesting them, and has cut the central bank’s holdings by more than $1.2 trillion since June 2022.

The Fed’s central mission now is calibrating policy in a way that it doesn’t ease too much and allow inflation to return or hold policy too tight so that it causes a long-anticipated recession.

“Policy is too restrictive given where inflation is and likely where it’s going,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “The Fed is clearly positioning itself to put a floor under the economy as we head into the second half of the year with rate cuts, and create the conditions for reacceleration of the economy later this year or next year.”

Still, Brusuelas thinks the market is too aggressive in pricing in six rate cuts. Instead, he expects maybe four moves as part of a gradual normalization process involving both rates and the rollback of the balance sheet reduction.

As for the inflation reports, Brusuelas said the results likely will be nuanced, with some gradual moves in the headline numbers and likely more focus on internal data, such as shelter costs and the prices for used vehicles. Also, core inflation, which excludes volatile food and energy prices, is expected to increase 0.3% on the month, equating to a 3.8% rate compared to a year ago, which would be the first sub-4% reading since May 2021.

“We’re going to have a vigorous market debate on whether we’re going back to 2% on a durable basis,” Brusuelas said. “They’ll need to see that improvement in order to set the predicate for modifying QT.”