We are going through one of those phases of time where almost every economic road goes through the United States. It is always of significance as the world’s largest economy but at the moment developments mean that it is a real leader of the pack on many fronts. As we look around the world there are so many examples of it and here is one from this morning.
The onshore Rupee falls 0.63% to 82.40 all-time low despite RBI’s intervention
That is the Reserve Bank of India which has been intervening in an attempt to gold the Rupee at around 80 to the Dollar, and as you can see it is not going so well. The Business Standard is rather downbeat on its prospects.
“Basically, the RBI is making its presence felt and letting traders know once again that it will not allow one-sided moves,” said one of the state-run bankers who confirmed the intervention.
“The intervention will have an impact to (the extent) that it will not allow the rupee to fall more, but will not help rupee recover by much.”
When we looked at India not so long ago it was 70 which was seen as the significant level so we learn something from that alone.
Japan is also feeling the heat as in spite of the previous intervention we have headed back to 145 Yen again and this morning they have tried some open mouth operations.
Japan’s PM Kishida: Recent Sharp, One-Sided Yen Moves Undesirable – Japan’s Intervention Last Month Reflected View We Cannot Turn A Blind Eye To Speculative FX Moves ( @LiveSquawk )
Also we learnt that last time around the Bank of Japan intervened in scale.
Japan Foreign Reserves Sep: $1.24T (prev $1.29T)………Japan Foreign Reserves Fall In September From Previous Month By Biggest Amount On Record – MoFJ ( @LiveSquawk )
With today being US Labour market data day ( NFP) I am sure both central banks will be alert as it is released.
The Federal Reserve
It too has been conducting some open mouth operations. so let me hand you over to Governor Waller at the University of Kentucky.
Meanwhile, the labor market remains strong and very tight……..As a result, I don’t expect tomorrow’s jobs report to alter my view that we should be focused 100 percent on reducing inflation.
That is brave ahead of the figures and to the obvious question, at his level he probably does not know the numbers but may have been given a hint. Also he wants us to think he is worried about inflation.
We currently do not face a tradeoff between our employment objective and our inflation objective, so monetary policy can and must be used aggressively to bring down inflation.
Okay so we are getting an implied view on interest-rates which then became explicit.
And, though there are additional data to come, in my view, we haven’t yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand.
This was backed up bu the current media mouthpiece for the Federal Reserve which is Nick Timiraos of the Wall Street Journal.
Fed governor Christopher Waller pushes back against the idea of a premature Fed policy pivot due to market instability “Let me be clear that this is not something I’m considering or believe to be a very likely development.”
So we were told interest-rates were going higher and they are also claiming to coin a phase they are not for turning. Indeed we are also guided to this part of the speech.
These projections showed participants expected an additional 100 to 125 basis points of tightening by the end of the year, which means either a couple of 50 basis point hikes at our remaining two meetings, or 75 basis points in November and 50 basis points in December. Of course, the exact path for policy will depend on the data we receive between now and the end of the year.
From his other words and the tenet of his speech we were clearly being guided towards 1.25% more. This was spotted by financial markets.
The benchmark US 10-year bond yield jumped 7 basis points to 3.82% while two-year US treasury rates climbed to 4.25% from 4.15%. Other global rates rose but to a lesser degree. Germany’s 10-year Bund yield rose 6 basis points to 3.08%. ( acy.com)
It was not that people were seeing something outright new as they had seen the projections previously it was the additional conformation which put the squeeze not only on bond yields but other currencies.
New Zealand’s Kiwi (NZD/USD) plunged 2.1% against the Greenback to 0.5655 (0.5742 yesterday) after the RBNZ raised its Official Cash Rate by 50 bps (to 3.50%). Which was totally discounted.
The Australian Dollar slid 1.55% to 0.6412 (0.6490). On Wednesday, the RBA raised rates by a dovish 25 bps which when combined with a strong Greenback, weighed on the Aussie Battler. ( acy.com)
There was a message there for the Bank of England which as I have pointed out before is simply that to protect your currency you need to match the Federal Reserve. The Kiwi’s played a similar hand to the Bank of England moving with a “bazooka” of 0.5% and finding they not only have interest-rates 0.5% higher they have a weaker currency too.
There was a curious section when he repeated the mantra that they would be looking at the data and then determining policy.
Of course, the exact path for policy will depend on the data we receive between now and the end of the year.
Then he denied it.
Before the next meeting on November 1–2, there is not going to be a lot of new data to cause a big adjustment to how I see inflation, employment, and the rest of the economy holding up.
Then he seemed to lose the plot even more because if he is as focused on inflation as he claims then surely the inflation numbers matter?
We will get September payroll employment data tomorrow, and CPI and PCE inflation reports later this month. I don’t think that this extent of data is likely to be sufficient to significantly alter my view of the economy, and I expect most policymakers will feel the same way.
Comment
There are various lessons from this and the first is that the Fed wants us to believe it will raise interest-rates by 1.25% between now and the end of the year. There are internal domestic issues from this such as higher mortgage rates. But it is the external issue where we see so many other central banks struggling to cope. They are doing a combination of raising interest-rates and/or intervening. Many face both higher interest-rates and higher inflation partly driven by a weaker currency. But the Fed has never been much bothered by such issues.
FED’S WALLER: IT IS NOT THE FED’S RESPONSIBILITY TO TACKLE THE ISSUES OF OTHER COUNTRIES. ( @financialjuice )
There is, however a clear undercut to this as we note what he told us this time last year as on the 19th of October he could not have been much more wrong.
On that score, I continue to believe that the escalation of inflation will be transitory and that inflation will move back toward our 2 percent target next year
Also it was kind of him to confirm one of my long-running themes which is that it is so often simply about house prices.
Because the housing market is sensitive to changes in interest rates and thus to monetary policy, I’ll conclude by discussing how housing is being affected by the Federal Open Market Committee’s (FOMC) efforts to achieve our dual mandate of maximum employment and stable prices.
That brings us round to thinking that any sustained fall in house prices will leadto what his colleagues have been denying.
Fed’s Daly: I don’t see rate cuts in 2023. ( @unusual_whales )