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The Fed's meeting will be followed with expected rate increases by the European Central Bank on Thursday and the Bank of England next week. But the U.S. central bank is furthest along in the process, and may signal that this week's rate increase is the last, at least for now. Inflation has been edging down, gradually, with the main price index the Fed watches still more than double the central bank's 2% target. The anticipated quarter-percentage-point increase on Wednesday will put the target federal funds rate at roughly the same spot, between 5% and 5.25%. With this rate increase, Fed officials will hit a level that will be about 1 percentage point above the rate they consider to have a neutral impact on economic activity.

That surge is now driving debate inside the U.S. Federal Reserve about how much weight to give ongoing wage increases as policymakers assess the path of inflation. Reuters GraphicsThe Fed will also receive updated data on the personal consumption expenditures price index, the measure it uses to set its 2% price target. Reuters Graphics“The one thing that I think we’re spending too much time looking at is wage growth as an indicator of prices,” Chicago Fed President Austan Goolsbee told CNBC this month, citing recent research by Chicago Fed staff. He said he views rising wages as the result of that still- strong demand, something that should ease alongside price pressures once the money is gone. Reporting by Howard Schneider; Editing by Dan Burns and Andrea RicciOur Standards: The Thomson Reuters Trust Principles.

Signature Bank's failure took only marginally longer. "The number 36 has just been, you know, branded in my brain," Atlanta Fed President Raphael Bostic told Reuters earlier this month. "I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed," Barr told U.S. lawmakers in a hearing in March. "It's how do we allow a bank whose failure threatened the financial system to persist without being subject to more aggressive intervention?" "One thing for certain ... this was a very significant supervisory failure," Tarullo said at the Peterson Institute for International Economics event on Wednesday.

Indeed, the annual Occupational Employment and Wage Statistics report appears to show the pandemic was a trend-hastening event rather than a trend disrupter. A larger share of jobs reshuffled across occupations from 2016 to 2019 than was the case between 2019 and 2022, as the economy emerged from the pandemic. The highest rates of increased wages occurred in the lowest-paying jobs after the pandemic struck. The smallest median pay increases in that span came for management occupations, where the median wage rose by just 2.6% versus 8.6% in the three years before the pandemic. Some of the big occupation gainers reflect changes driven by the pandemic and other issues, such as the growth of the non-fossil fuel energy sector.

☆ Analysis: It's not 2020 anymore. Biden's re-election campaign faces new challenges
▼ + stars: | 2023-04-23 | by ( Jeff Mason | ) www.reuters.com time to read: +6 min

"It's quite shocking that Biden thinks he would be able to fill a second term, let alone the rest of this term," said Republican strategist Scott Reed. "An extensive travel schedule is not the measure of a candidate's ability to do the job," said Democratic strategist Karen Finney. CAMPAIGN REINVENTEDBiden campaign aides reinvented his 2020 campaign as COVID-19 spread across the country. But other issues may trip up the incumbent president on the campaign trail, including his handling of the economy. We don't need rah rah rallies," said Democratic strategist Joe Lestingi.

At the same time, hiring remained strong through March, and wages continue growing faster than Fed officials feel is sustainable. The ECI is only released quarterly and includes both worker pay and benefits like healthcare, giving what Fed officials regard as a clearer sense of employment-related cost trends. For Fed officials, it could influence their view of whether the economy and inflation are likely to slow more - perhaps much more - quickly than anticipated. Reuters GraphicsEconomists expect the upcoming survey will show conditions tightening further still, this time alongside data showing credit from banks in decline. "Banks may not be done tightening lending standards, which will restrict access to credit, hurt business investment, reduce business formation, and weigh on job growth and consumer spending."

Investors may see rate cuts in the Fed's near future, part of a recession-breeds-accommodation view of the world, but "the labor market just seems very, very strong. The bulk of Fed policymakers as of March felt one more rate increase, which would raise the benchmark overnight interest rate to a range between 5.00% and 5.25%, was all that would be needed. Some policymakers and analysts worry it is those final steps that could push the economy into a recession. Reuters Graphics Reuters GraphicsLIMIT GUIDANCEGiven how inflation and the economy are behaving, Bullard said, the fewer promises made the better. Recession forecasts "are coming from models that put too much weight on the idea that interest rates went up quickly," Bullard said.

Her comments were echoed by others who feel the narrative shared by three top central banks of relatively cost-free disinflation rests on shaky ground. Among the Fed, ECB and BoE, only the British central bank projects a recession will be needed to slow inflation - only a mild one at that. U.S. central bank officials have split the difference, projecting a modest one-percentage-point rise in the unemployment rate this year from its near-historic low of 3.5%, and slow, but continued, economic growth. Martins Kazaks, Latvia's central bank chief, said the risk of a recession was still "non-trivial," with a host of factors still putting pressure on prices. For the Fed, different policymakers offer different ideas about the forces that will lower inflation as high interest rates slowly cool demand.

April 14 (Reuters) - Despite a year of aggressive rate increases U.S. central bankers "haven't made much progress" in returning inflation to their 2% target and need to move interest rates higher still, Federal Reserve Governor Christopher Waller said on Friday. Important measures of underlying inflation have "basically moved sideways with no apparent downward movement," Waller said in remarks that continue the Fed's steady discounting of the immediate economic risks posed by recent bank failures. So far, Waller said, he sees both the economy and inflation remaining stronger than he expected. "Economic output and employment are continuing to grow at a solid pace while inflation remains much too high," Waller said, noting that investors should not expect rates to fall any time soon. "Monetary policy will need to remain tight for a substantial period of time, and longer than markets anticipate," he said.

The retail sales data provided at least a hint that a pandemic-era spending boom may be nearing an end, though some economists argued that the historically low unemployment rate and rising wages make a sharp drop in consumption unlikely. In separate comments, Fed Governor Christopher Waller said he'd seen little evidence yet that the economy was under stress, little progress on inflation, and no reason to call off further rate increases. The current inflation rate is more than twice that target, and progress on getting it to move in that direction has been slow. The data showed households expected inflation to accelerate significantly in the year ahead, reversing months of progress towards them viewing inflation as a receding phenomenon. There won't be much more topline economic data before the Fed's May 2-3 meeting.

That's a good reason to pause after one more rate increase, he said, to study how the economy and inflation evolve, and try to limit the damage to growth and jobs. 'HAD TO DOWNSHIFT'The Atlanta Fed chief spoke in detail about how the recent turmoil in banking markets buffeted his monetary policy views. At first, high inflation made him open to a half-percentage-point increase at the March 21-22 Fed meeting. Indeed, Bostic sketched out why he still believes the inflation battle can be won without a recession or even much of a rise in the unemployment rate. People and businesses "are sitting in a financial condition that is abnormal, and abnormal in a way that would drive excess consumption," Bostic said.

REUTERS/Brendan McDermid/File PhotoWASHINGTON, April 12 (Reuters) - Several Federal Reserve policymakers last month considered pausing interest rate increases after the failure of two regional banks and a forecast from Fed staff that banking sector stress would tip the economy into recession. But even they concluded high inflation remained so paramount they pressed on with a rate hike despite the risk. Fed staff assessing the potential fallout of banking sector stress projected a "mild recession" starting later this year, with a recovery in 2024-2025, the minutes showed. "Some participants noted ...they would have considered a 50-basis-point increase ... in the absence of the recent developments in the banking sector," the minutes said. "Participants observed that inflation remained much too high and that the labor market remained too tight; as a result they anticipated that some additional policy firming may be appropriate," the minutes said.

Another quarter-point increase is expected, but policymakers have also said they are watching banking data closely for signs of stress or a larger-than-anticipated drop in lending. The minutes "will likely express confidence in the separability of price stability and financial stability." Still, the events on that March 10 weekend added new complexity to a Fed policy debate that had been singlemindedly focused on lowering inflation from levels that last year were more than triple the Fed's 2% target. New consumer price index data released Wednesday is expected to show headline inflation falling, but with a still-high level of underlying or "core" inflation likely to concern Fed policymakers. Reporting by Howard Schneider; Editing by Andrea RicciOur Standards: The Thomson Reuters Trust Principles.

Reuters GraphicsNOTHING 'BROKEN' YETInternational economic officials gathering in Washington this week for the IMF and World Bank spring meetings can take some comfort that pandemic-era risks are continuing to diminish. An aggressive year of central bank rate hikes hasn't yet "broken" any of the economies involved, with the U.S. unemployment rate at 3.5%, near its lowest level since the late 1960s. Still, that terminal rate remains unclear, and the end of synchronized tightening by the Fed, BoE and European Central Bank doesn't mean tight monetary policy is going away. Wages, services and food are driving price growth to the point that the ECB's attention has shifted almost entirely to underlying inflation on fears that rapid price growth is at risk of getting stuck above target. The U.S. central bank is expected to increase its benchmark overnight interest rate by another quarter of a percentage point next month, and signal whether more hikes may be warranted.

But overall bank credit has been stalled at about $17.5 trillion since January. The response - less lending, tighter credit standards and higher interest on loans - was already taking shape. Hard data on bank lending and credit will come into play, augmenting topline statistics like unemployment and inflation that the Fed is focused on. Reuters GraphicsSENTIMENT WEAKENINGThe survey of large and small banks asks high-level questions - Are lending standards tighter or looser? A Dallas Fed bank conditions survey, conducted in late March after the two bank failures, indicated lending standards in that Fed regional bank's district have kept tightening, with loan demand falling.

Though rates are high now as major central banks battle inflation, "when inflation is brought back under control, advanced economies’ central banks are likely to ease monetary policy and bring real interest rates back toward pre-pandemic levels," IMF analysts said in research released as part of the latest World Economic Outlook. The so-called "natural" rates of interest, an anchor for monetary policy that neither stimulates nor discourages economic activity, "will remain low in advanced economies or decline further in emerging markets," the IMF concluded. But is also means central banks, particularly in developed countries, may again have to rely on bond buying and other strategies once some future downturn prompts them to cut policy interest rates to zero. The IMF said it is possible things have changed, and noted that the impact of developments like the transition to a less carbon-intensive economy remain to be seen. Once rates normalize at prior low levels, a deep enough recession may force central banks "to resort to the same strategies they employed in the decade before the pandemic, such as balance sheet policy and forward guidance."

[1/2] A "now hiring" sign is displayed outside Taylor Party and Equipment Rentals in Somerville, Massachusetts, U.S., September 1, 2022. Economists polled by Reuters expect a gain of 239,000 jobs in March, with hourly wages rising at a 4.3% annual rate and the unemployment rate remaining at 3.6%, a level seen less than 20% of the time since World War Two. Unemployment is still at a very low level," Boston Fed President Susan Collins said in an interview with Reuters last week. How "slack" in the labor market links to lower inflation may depend on where job growth slows, and over what timeline. "The services sector, in particular, has contributed substantially to recent inflation, reflecting ongoing imbalances in labor markets where supply remains impaired and demand remains robust," they wrote.

April 7 (Reuters) - The Black unemployment rate hit a record low in March, a milestone for a U.S. labor market that most policymakers and economists expect to begin cooling in the face of higher interest rates, jeopardizing those historic gains. The 0.7 percentage point decline in the African American unemployment rate was the largest since November 2021 and was led by Black women, for whom joblessness dropped to a record low 4.2%. The rate for Black men ticked up to 5.2% from February's record-low-matching 5.1%. Net flows into the labor market and the labor force participation rate are both improving, developments that research shows come along late in the employment cycle. In every U.S. recession since the 1970s the Black unemployment rate has risen by at least 2 percentage points more than for whites, and often by far more than that.

They also now expect the Fed will start easing policy as early as July, cutting its benchmark rate to near 4% by the end of the year. Job openings, a measure of labor demand, also fell to its lowest level since May 2021 and data for January was revised lower to show 10.6 million job openings instead of the previously reported 10.8 million. "The U.S. labor market is definitively cooling off," said Indeed economist Nick Bunker, noting that job openings have now fallen by about 1.3 million in two months. Welcome relief on the job market front follows a key report last week that showed while inflation ebbed in February, it remained high enough to possibly compel the Fed to raise interest rates one more time this year. At their March policy meeting, most Fed policymakers signaled they expected to need to raise rates one more time, to 5.1%, and not to cut them until 2024.

There are uncertainties," Boston Fed President Susan Collins said in an interview with Bloomberg Television on Friday. Richmond Fed President Thomas Barkin struck a similar note last week. "When you raise rates there's always the risk of the economy softening faster than it might have otherwise. "People will continue to spend as long as they get paid," said Yelena Shulyatyeva, senior U.S. economist with BNP Paribas. It will, but only at the point at which they stop getting paid" because of a slowing economy and rising unemployment.

But with the Fed targeting 2% annual inflation, central bankers will likely be wary about declaring victory too soon. Potentially worrisome to central bank policymakers may be continued pressure in services inflation, excluding housing, a measure that Fed Chair Jerome Powell has said he is watching carefully. That stickiness could prompt the Fed to do more and risk an "overshoot on rate hikes and a deeper, more scarring recession," she said. Traders also were betting more heavily that the Fed would start cutting rates as soon as July, with the policy rate seen reaching the 4.25%-4.50% range by the end of this year, based on interest-rate contract pricing. Fed policymakers earlier this month signaled that most of them expect one more quarter-of-a-percentage-point increase this year and, contrary to market expectations, they don't plan to deliver any interest rate cuts until 2024.

WASHINGTON, March 29 (Reuters) - Almost all of the remaining shortfall in U.S. labor force participation is the result of demographic and other trends that predate the COVID-19 pandemic, according to new research that suggests little chance that growth in the number of workers will help ease a tight American job market. After accounting for factors such as population aging and changes in education that influence people's willingness to work, the study showed that U.S. labor force participation was only about 0.3 percentage points short of where it would have been without the pandemic - equivalent to around 700,000 "missing" workers. Still, the figures suggest a winnowing down of COVID-related impacts on the labor force, a significant conclusion for U.S. policymakers hoping labor force participation rates could rebound to pre-pandemic levels. As of February, about 62.5% of U.S. adults were either working or looking for work, 0.8 percentage points below where it was in February of 2020, according to government figures. It has been in a steady decline for nearly a quarter century after peaking at 67.3% in April 2000.

☆ Euro zone underlying inflation sticky, ECB's Schnabel says in Washington
▼ + stars: | 2023-03-29 | by ( ) www.reuters.com time to read: +2 min

WASHINGTON, March 29 (Reuters) - Underlying inflation in the euro zone is proving sticky and the recent fall in energy costs may not pull it down as fast as some expect, European Central Bank board member Isabel Schnabel said on Wednesday, highlighting the bank's chief concern. Overall inflation in the 20 nations sharing the euro currency is falling quickly but core prices, which exclude volatile fuel and food costs, is still rising, suggesting rapid price growth could prove durable and difficult to break. Schnabel, head of the ECB's market operations, said last year's energy price spike seeped into the broader economy quickly but the reversal may take longer. Schnabel said the ECB has some flexibility in reaching its 2% target and did not want to create needless pain by acting too quickly. Conservative policymakers have said underlying inflation is now increasingly driven by domestic factors, particularly more expensive services, and they are wary of wage growth, which at 5-6% lags inflation but remains inconsistent with the ECB's 2% inflation target.

☆ Fed's Jefferson: Trouble among small, regional banks could hit small businesses
▼ + stars: | 2023-03-27 | by ( ) www.reuters.com time to read: 1 min

LEXINGTON, Virginia, March 27 (Reuters) - The shuffling of deposits from small to large banks could have a disproportionate impact on U.S. small businesses who depend heavily on community and regional financial institutions for credit, Federal Reserve Governor Philip Jefferson said on Monday. "We are focused on the macroeconomy but we are aware that there are potential distributional aspects," if depositors move cash away from smaller banks, Jefferson said. Recent banking sector stress has led to declining deposits at smaller institutions and "we are going to have to see how that plays out," Jefferson said. Reporting by Howard Schneider Editing by Chris ReeseOur Standards: The Thomson Reuters Trust Principles.

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