2025-01-10 17:49

Job growth exceeds expectations, unemployment rate falls to 4.1% US central bank faces dilemma with strong job market, sticky inflation Some Fed officials suggesting rate cuts may be near an end Jan 10 (Reuters) - The U.S. job market again defied an anticipated slowdown, with firms adding more than a quarter of a million jobs in the last full month of Joe Biden's presidency and leaving Federal Reserve policymakers to puzzle over the need for more interest rate cuts in a strong economy. The gain of 256,000 jobs in December went well beyond the 160,000 expected by economists in a Reuters poll. The unemployment rate, as reported in the Labor Department's monthly jobs report, ticked down to 4.1% from 4.2%. In another blow to the prospect for further rate cuts and the Fed's confidence in easing inflation, consumers now expect prices over the coming year to increase 3.3%, a sharp jump from prior months, a separate University of Michigan sentiment survey showed. Stickier-than-expected inflation and uncertainty over the effects of President-elect Donald Trump's economic policies when he takes power on Jan. 20 had already put U.S. central bankers on a path for slower interest rate cuts this year. Last month many started to pencil in faster growth and more inflation to take into account Trump's plans for broader tariffs on imports, tax cuts and limits on immigration. The renewed strength in the job market poses a fresh dilemma, adding to arguments that inflationary pressures may not be fully quenched and setting up a potential conflict with Trump, who has already said he thinks interest rates are too high. It also may challenge Fed Chair Jerome Powell's view that the labor market is no longer a source of inflationary pressure. The data "will raise concerns at an edgy Fed that the labor market might be reaccelerating after the election in ways that could lead to renewed tightening in labor market conditions," Krishna Guha, vice chairman of Evercore ISI, wrote in a note. If data in the new year continue to show the labor market strengthening, Guha said, that could keep the Fed on hold until at least June, if not beyond. That's a forecast in line with financial market expectations, which have moved to price in a single rate cut no sooner than June that would mark the end of the Fed's rate-cutting cycle. Stocks fell and Treasury yields surged on Friday. Speaking on CNBC shortly after the release of the jobs report, Chicago Fed President Austan Goolsbee said he still feels cooling inflation calls for further rate cuts, with the policy rate likely to be a "fair bit lower" 12 to 18 months from now if current expectations are met. "Is there evidence of overheating of the economy? So far, in recent months, there is not a lot of evidence," Goolsbee said, noting that inflation had been running at 1.9% over the past six months, while wage growth was in line with the Fed's 2% inflation goal. "It makes me comfortable the job market is stabilizing at something like the full employment rate." INFLATION DATA The Fed had begun cutting rates last September with a bigger-than-usual half-percentage-point move to protect the labor market from a slowdown officials feared was beginning to take shape; data at the time showed the unemployment rate had jumped in July to 4.3%. By December, as the central bank cut its benchmark overnight interest rate to the current 4.25%-4.50% range, stronger economic readings had largely eased those worries. A round of revisions in the official labor market data on Friday showed the unemployment rate last year never exceeded 4.2%. Some policymakers have already been flagging a potential reinvigoration of the labor market. "With business optimism so high and labor supply unlikely to continue to grow so robustly, it feels like the current labor market equilibrium is more likely to break toward hiring than toward firing," Richmond Fed President Thomas Barkin said in recent comments, citing a survey of chief financial officers that his regional Fed bank helps field and which showed a post-election jump in the outlook. A clutch of other U.S. central bank policymakers in recent days, including Fed Governor Michelle Bowman and St. Louis Fed President Alberto Musalem, have also said they feel the Fed's rate-cutting days are near an end, if not over already. Key to the debate will be upcoming inflation data, including a read next week on consumer inflation for December, which some officials note is almost hardwired to slow. The only reason recent inflation releases have shown so little progress, Goolsbee said, is because of a jump in inflation early in 2024. The Fed is nearly universally expected to leave short-term borrowing costs unchanged at its Jan. 28-29 policy meeting. Sign up here. https://www.reuters.com/markets/us/fed-seen-cutting-policy-rate-just-once-2025-job-growth-surges-2025-01-10/

2025-01-10 15:33

WASHINGTON, Jan 10 (Reuters) - The potential next head of a U.S. banking regulator laid out a sweeping plan on Friday to adopt a lighter touch on the banking industry on matters ranging from capital to cryptocurrency. Travis Hill, the vice chair of the Federal Deposit Insurance Corporation, said in prepared remarks the FDIC needs a "new direction," which he expects will be ushered in at the beginning of President-Elect Donald Trump's second term. Hill, who is a leading candidate to head the agency on a full-time basis and will take over as its acting chief following the Jan. 19 retirement of Chairman Martin Gruenberg, made the broad case that regulators have strayed too far in trying to police the banking sector on a range of issues, and their approach needs to change. Specifically, Hill said he anticipates U.S. regulators will reconsider efforts to impose new capital requirements on large banks via the so-called "Basel III Endgame." Efforts to write those rules, which would have significantly raised big bank capital via new risk measurements, stalled under Democratic leadership, and Hill said the new effort should focus on ensuring rules are written with minimal capital impact. He added that regulators should also reconsider existing capital requirements as part of the effort, such as rules dictating credit risk transfers and leverage. "Addressing the issue holistically and transparently...would be a much better approach," he said in prepared remarks to the American Bar Association. Hill also signaled a more open stance towards new technologies used by banks, including digital assets and fintech partnerships. He said the current FDIC stance of requiring banks to gain individual approval before pursuing any blockchain-related activities has been "damaging," and that the regulator should focus on establishing clear standards of legally permissible activity. His comments came one day after another potential Trump bank regulator, Federal Reserve Governor Michelle Bowman, similarly signaled a desire to adopt less stringent rules for banks. Bowman, seen as a candidate to take over the Fed's top regulatory post, called for a more "pragmatic" approach to rules instead of an "adversarial" relationship between banks and their watchdogs. Sign up here. https://www.reuters.com/markets/us/potential-trump-pick-lead-bank-regulator-signals-lighter-rulewriting-touch-2025-01-10/

2025-01-10 14:17

Jan 10 (Reuters) - U.S. job growth unexpectedly accelerated in December while the unemployment rate fell to 4.1% from November's 4.2% as the labor market ended 2024 on a solid footing, reinforcing the Federal Reserve's cautious approach to interest rate cuts this year. Nonfarm payrolls increased by 256,000 jobs last month after rising by a downwardly revised 212,000 in November, the Labor Department said on Friday. Economists polled by Reuters had forecast payrolls advancing by 160,000. MARKET REACTION: STOCKS: S&P 500 E-minis extended losses and were down 0.75%, pointing to a weak open on Wall Street BONDS: The yield on benchmark U.S. 10-year notes jumped to 4.765%, the two-year note yield jumped to 4.352% FOREX: The dollar index turned 0.4% higher and the euro extended a loss to -0.45% COMMENTS: JACK MCINTYRE, PORTFOLIO MANAGER, BRANDYWINE GLOBAL (emailed comment) "The outsized strength in the November employment report put a stake in the heart of more Fed rate cuts in the first half of 2025. The December employment report gives further evidence to the Fed that 1. They made a policy mistake by cutting rates 100bps late last year. 2. En masse, they are becoming more cautious about executing future rate cuts. The longer the Fed is on pause the more likely the next move will be to start increasing policy rates. As important as the labor situation is, THE critical variable for the Fed and markets is all things inflation. Next week’s inflation data will be more important. Look for Treasury market to shift to a bear flattening from its recent bear steepening trajectory. Higher oil prices won’t help the Treasury complex." CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NORTH CAROLINA (emailed comment) "In the topsy turvy world of financial markets, what’s good news for job seekers is bad news for the stock market. "The better-than-expected increase in jobs caused an immediate reaction in both stocks and bonds, with prices moving lower (and bond yields moving higher, as yields move inversely with price), as the Federal Reserve has even less of a reason to cut interest rates this year. "Although the stock market doesn’t need lower rates in order to go higher, lower rates are a tailwind for equities and, more importantly, a Federal Reserve bank that is easing policy is always a better environment for equity investors than one where they are tightening policy (or leaving policy unchanged). "At this point in the cycle, earnings will need to improve – and not just within the large tech companies – in order to have markets “grow into” their already high valuations, so we would be cautious in the short term." SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT (emailed comment) "The important payroll beat will be good news for the U.S. economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts. U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive. The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March. "For global bonds, the strength of the U.S. jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford." SAM STOVALL, MARKET STRATEGIST, CFRA, ALLENTOWN, PENNSYLVANIA "The number of payrolls rising 100,000 more than anticipated has added to the uncertainty about the trend in inflation, as well as the prospects for the Fed to cut interest rates in 2025." "The 10-year yield will remain above 4% this year and as a result it could be quite challenging for the stock market. We started the year on the wrong foot." ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT "The reaction was pretty much what I expected from a stronger than expected non-farm payroll report: 256,000 is good for Main Street, but it's not good for Wall Street. The market was hoping for something either directly in line or weaker in order to pull the Federal Reserve from the sidelines back into cutting interest rates." "But the report really goes just the opposite way. It has the Fed staying on hold because it appears that the economy doesn't need additional rate cut." "Many of the jobs seem to have been created in the hospitality space. If Trump has his way of deporting 15-20 million people there's going to be a lot more job openings." TORSTEN SLOK, CHIEF ECONOMIST, APOLLO GLOBAL MANAGEMENT (emailed comments) "Nonfarm payrolls coming in stronger than expected. The unemployment rate comes in lower than expected. Strong private sector job growth. "Higher for longer continues to be the key theme in markets. Higher for longer in the front end because of a strong economy. And higher for longer in the long end because of a strong economy and fiscal worries." LINDSAY ROSNER, HEAD OF MULTI SECTOR FIXED INCOME INVESTING, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK (emailed comment) “Data did not earn a January cut. The US labor market ended 2024 on a firm footing with strong employment growth, falling unemployment and resilient wage pressures. The strength of today’s December jobs report puts to rest lingering chances of a 25bp cut in January and shifts the focus to the March meeting, where further rate cuts will depend on progress on inflation.” BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN "The knee-jerk response to this payrolls report is to suggest the Fed doesn’t need to cut ever again. In fact, why not hike? But the details matter and the gains are still mostly in non-cyclical sectors. Wages aren’t contributing to inflationary pressures. The Fed can afford to wait to cut further, but unless inflation drifts higher there’s no need for the Fed to hike to tamp down inflation. MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON "I think this will only encourage a continuation of the USD upside that has been the market's bias for a while, certainly serves to reinforce the US exceptionalism theme, and should keep the Fed relatively hawkish compared to peers in the G10 space." "Biggest risk to that USD bullish view would be if participants seek to take profit/trim risk early next week ahead of Trump's inauguration." PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK “This report will fuel yields even higher, the labor market is not showing any signs of weakening.” “This, combined with the unknowns over Trump’s tariff policies, seals the fact that the Fed is going to stay on pause for a longer period than expected.” "The good news is there’s no increase in wage inflation and the participation rate can’t be blamed on the unemployment rate moving lower.” “This is a good report for the economy but a headache for the Fed. The Fed’s not going to lower rates any time soon and the pause is likely to continue well into the second quarter.” “If the labor market continues this way and Trump enacts his tariff policies, we’ve probably seen the end of the easing cycle.” Sign up here. https://www.reuters.com/world/us/view-surprising-dec-payrolls-jump-supports-longer-fed-pause-2025-01-10/

2025-01-10 13:08

WASHINGTON, Jan 10 (Reuters) - The U.S. Senate Finance Committee on Friday said it will hold a Jan. 16 nomination hearing on President-elect Donald Trump's nominee to lead the U.S. Treasury Department, Scott Bessent. Sign up here. https://www.reuters.com/world/us/trump-treasury-nominee-bessents-senate-hearing-set-jan-16-2025-01-10/

2025-01-10 12:51

Inflation ends 2024 above central bank's target range Central bank likely to continue interest rate hikes Food, beverage costs drive December's inflation increase SAO PAULO, Jan 10 (Reuters) - Brazil's annual inflation came in slightly below market forecasts in December but still ended 2024 above the upper limit of the central bank's target range, with policymakers tightening monetary policy as they vow to bring prices back to their goal. In Latin America's largest-economy, 12-month inflation closed last year at 4.83%, statistics agency IBGE said on Friday, below both the 4.88% expected by economists polled by Reuters and the previous month figure of 4.87%. Despite the modest easing in the headline data, economists believe the figure will not prevent the local central bank from pressing ahead with interest rate hikes. The bank had previously said inflation was all but certain to end 2024 above its 1.5% to 4.5% target range, a level it expects to remain in place until the third quarter before a decline starts. Policymakers at the bank have faced a challenging scenario marked by robust activity, a tight labor market and unanchored inflation expectations despite projections of a more aggressive rate path through this year. They unanimously voted to accelerate their tightening pace with a 100 basis-point hike last month, bringing interest rates to 12.25%, and signaled matching moves for the next two meetings as they seek to reach the official 3% inflation target. "There is little in this IPCA release that will prevent (interest rate-setting committee) Copom following through with its guidance at its meeting in December," Capital Economics' deputy chief emerging markets economist Jason Tuvey said. In December alone, IBGE data showed, consumer prices as measured by the benchmark IPCA index rose 0.52%, slightly below the 0.57% increase expected in the Reuters poll but accelerating from the previous month's 0.39% rise. The monthly figure was driven by higher food and beverage costs, which rose 1.18% in the period. Transportation and clothing prices were also up, the statistics agency said, while housing costs dropped. "This is a relatively positive end to the year, but it offers little comfort as the inflation outlook has deteriorated significantly," Pantheon Macroeconomics' chief Latin America economist Andres Abadia said. "Leading indicators and unfavorable inertia suggest inflation will remain uncomfortably high in the coming months, compelling the Copom to continue tightening rates." Sign up here. https://www.reuters.com/world/americas/brazils-inflation-ends-2024-above-target-setting-stage-more-rate-hikes-2025-01-10/

2025-01-10 12:43

BERLIN, Jan 10 (Reuters) - German authorities confirmed the country's first outbreak of foot-and-mouth disease in nearly 40 years on Friday in a herd of water buffalo on the outskirts of Berlin. Foot-and-mouth disease causes fever and mouth blisters in cloven-hoofed ruminants such as cattle, swine, sheep and goats. Measures to contain the highly infectious disease, which poses no danger to humans though they can transmit it, are being implemented, and the affected animals have already been euthanised, said local authorities. An exclusion zone of 3 kilometres and a monitoring zone of 10 kilometres have been set up, and no more products or animals may be taken out of these zones, said a federal agricultural ministry spokesperson at a regular government news conference. Local authorities are investigating how the animals became infected, but there are no plans for measures at the federal or international level, the spokesperson added. Germany and the European Union are officially recognised as being free of the disease. The last cases in Germany occurred in 1988, according to the FLI animal health research institute. The FLI said the disease occurs regularly in the Middle East and Africa, in many Asian countries and in parts of South America. Illegally imported animal products from these countries pose a threat to European agriculture, it said. Sign up here. https://www.reuters.com/business/healthcare-pharmaceuticals/germany-confirms-first-case-foot-and-mouth-disease-nearly-40-years-2025-01-10/