Central Bank Watch – Powell, ECB and BoE Speakers at Riksbank

We kicked off 2023 with no surprises from the FOMC December meeting minutes which were followed up a barrage of Fed Speakers later in the week. They continued the party line but did caution on too fast, too high. This week’s main event will be Chair Powell’s speech at the Riksbank International Symposium and the reaction to US CPI, particularly given U.S. Treasuries closed out the first week of 2023 in beastly form Friday following the December jobs report average hourly earnings growth moderating. We also get speeches from Bank of England policymakers and Japan Tokyo CPI drops which will be of interest.

Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.

Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.

To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.

Weekly Recap and Outlook

A quiet week Central Bank wise passed with softer data rising to questions about hiking end points and aggression. We have Powell of interest after December’s minutes and we get Fed speakers including Bullard and Bostic. We continue keep eyes on the bond market, as we have said the US 10-year Treasury peaked around 4.33% on the same day as the US dollar peaked against the yen USDJPY 151.95 on October 21. The BOJ had spent billions intervening and by the time the BOJ met late last month and surprised the market with the Yield control change the 10-year yield was consolidating after falling to around 3.40%, and the dollar was in a range between JPY134-JPY138.

Tokyo’s CPI is interesting this week, given we don’t think it was unintentional that the BoJ unexpectedly on December 20 announced it was widening the range of the 10-year yield under yield-curve-control to +/- 50 bp of zero. The BoJ took a lesson from the SNB and stellar traders going to wear there was most pain and getting the most bang for their buck. Keep an eye on such moves in 2023 from bankers.

Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.

Highlights – Federal Reserve

  • Federal Reserve Credit declined $4.9bn last week to $8.502 TN.
  • Fed Credit was down $399bn from the June 22nd peak.
  • Over the past 173 weeks, Fed Credit expanded $4.775 TN, or 128%.
  • Fed Credit inflated $5.691 Trillion, or 202%, over the past 530 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt jumped $9.4bn last week at $3.325 TN.
  • “Custody holdings” were down $90.4bn, or 2.6%, y-o-y.

Central Bank Highlights This Past Week:

Central Bank Week Ahead:

The most notable event will Fed Chair Powell’s speech at the Riksbank International Symposium in Stockholm. Speeches by Fed Chair Powell, BOE Governor Bailey, ECB’s Schnabel, de Cos, and Knot. We also have this week Fed’s Bostic, Bullard, Barkin; BOE’s Pill and ECB’s Holzmann and Vujcic on deck.

This Week’s Interest Rate Announcements (Time E.T.)

  • None Seen

Monday January 09, 2023

  • 1230 Federal Reserve Bank of Atlanta President Raphael Bostic participates in moderated conversation on the economic outlook before the Rotary Club of Atlanta, approx. 1230 EST/1730 GMT. No livestream. Audience and media Q&As expected. No embargoed text. Loudermilk Conference Center, 40 Courtland N.E.
  • BOE’s Pill speaks on the UK economic and monetary policy outlook at Money Marketeers event
  • Swiss National Bank releases 2022 results

Tuesday January 10, 2023

  • Symposium at Riksbank in Stockholm. Speeches by Fed Chair Powell, BOE Governor Bailey, ECB’s Schnabel, de Cos, and Knot
  • World Bank expected to release global economic prospects report

Wednesday January 11, 2023

  • ECB’s Holzmann and Vujcic speak in Vienna at the Euromoney CEE conference
  • Bank of Italy releases banks and money monthly statistics

Thursday January 12, 2023

  • 0730 Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the economic outlook before the Main Line Chamber of Commerce Economic Forecast 2023 and Annual Meeting, 0730 EST/1230 GMT. Livestream and text available. Audience Q&A expected. The Desmond Malvern, One Liberty Blvd., Malvern, PA.
  • 1130 Federal Reserve Bank of St. Louis President James Bullard speaks and participates in moderated conversation on the U.S. Economy and Monetary Policy before virtual Wisconsin Bankers Association Midwest Economic Forecast Forum, 1030 CST/1130 EST/1630 GMT. Livestream available. No media availability.
  • 1240 Federal Reserve Bank of Richmond President Thomas Barkin speaks before the Virginia Bankers Association/Virginia Chamber of Commerce Financial Forecast event, 1240 EST/1740 GMT. Text available. Audience and media Q&As expected. Speech essentially same as Jan. 6. Greater Richmond Convention Center, 403 N. Third St.

Friday January 13, 2023

  • 1020 Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the Chamber of Commerce for Greater Philadelphia Economic Outlook Survey, and participates in panel of regional business leaders on the economic trends that will impact Greater Philadelphia in 2023, 1020 EST/1520 GMT. No livestream. Text available. Audience Q&A expected. No media Q&A. Perelman Theater at the Kimmel Center for Cultural Campus, 300 South Broad Street, Philadelphia, PA.

Federal Reserve FOMC Schedule 2023

  • January 31-February 1, 2023 (second day: statement released 1400 EST/1900 GMT; news conference expected 1430 EST/1930 GMT)
  • March 21-22 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • May 2-3 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • June 13-14 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • July 25-26 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • September 19-20 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • October 31-November 1 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
  • December 12-13 (second day: statement released 1400 EST/1900 GMT; news conference expected 1430 EST/1930 GMT)

The Fed with a Strong US Dollar

The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.

The survey of 40 economists was conducted Oct. 21-26.

  • 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
  • 38% said the policy makers would be forced to cut rates earlier than expected and
  • 18% said the Fed would not be able to raise rates as much as planned.
  • Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.

The Fed as expected raised another 50 basis-points last meeting. The median estimate for the terminal rate in 2023 had been raised to 5.10% versus the September projection of 4.60%. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.

“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”

Anna Wong (Bloomberg chief US economist)

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Sources: TC WSJ Bloomberg

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