Focus on Fed as FOMC Meets Amid Signals on Coming Rate Hikes

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Biden met with national security team amid reports Russia was planning to install a pro-Kremlin leader in Ukraine

 


Washington Focus


 

The House and Senate are on another recess.

Key Washington focus this week is the Federal Reserve’s meeting Tuesday and Wednesday. The Federal Open Market Committee's (FOMC) two-day policy meeting includes a Wednesday news conference from Fed Chair Jerome Powell scheduled shortly after the conclusion of the gathering. Fed watchers believe this will be the meeting in which central bank officials tip their hands on raising interest rates in March, with a keen interest on what words the Fed uses on forward guidance. Regardless of the timing, this monetary policy meeting will likely center on the Fed's plans for transitioning away from its easy-money policies of the past two years and instead trying to deal with inflation it once called transitory. President Joe Biden last week said during a news conference that it is the Fed's responsibility to ensure that "elevated prices don't become entrenched," adding that he respects the independence of the central bank.

     Chicago Mercantile Exchange data shows that the market is pricing in an 88% chance of a quarter-point interest rate increase at the Fed's March 16 meeting. But a small number of traders believe the Fed will raise rates more aggressively. Investors are pricing in a 5% probability that the Fed will boost rates by a half-point. (The remaining 7% believe the Fed will sit tight.) The consensus view is that the central bank will fire off three or four quarter-point rate increases this year beginning with the March 15-16 meeting. Fed funds trading suggests rate hikes for the June 14-15 meeting and September 20-21 meeting as well.

Commodity Futures Trading Commission Chairman Rostin Behnam will take part in a Q&A at the Commodity Markets Council's State of the Industry 2022 event. The session is scheduled for Tuesday morning in Miami Beach, Fla., and will not be livestreamed.

    Cryptocurrency key. Behnam's appearance comes after a bipartisan group of lawmakers from the Senate and House Agriculture committees asked him about a variety of cryptocurrency-related matters and how the CFTC intends to regulate digital assets. Securities and Exchange Commission Chair Gary Gensler has repeatedly indicated that crypto exchanges are in his purview, so observers will see whether Behnam — who said during his October nomination hearing that the agency should be the "primary cop" on the crypto beat — weighs in on the regulatory turf battle.

     The Federal Reserve last week released its report looking into the possible effects of issuing a central bank digital currency (CBDC), soliciting public comment while detailing potential benefits and risks associated with Fed-backed electronic cash. The report stated that the central bank wouldn't move forward with a CBDC absent "clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law."

"Another emerging-market debt crisis?" is the topic Tuesday morning sponsored by the American Enterprise Institute. Speaking will be Robin Brooks, chief economist at the Institute of International Finance; Joyce Chang, chair of global research at JPMorgan Chase & Co., and M. Ayhan Kose, chief economist for equitable growth, finance and institutions at the World Bank. The discussion will be on the catastrophic pandemic-induced effects on emerging-market economies and their finances. The panel will address the economic outlooks for these markets and forecast their capabilities for dealing with a growing pile of debt.

On the tariff front, this week could signal the Biden administration's consideration of whether to extend its Section 201 tariffs on imported solar panels. The deadline is Feb. 6. The subject has split the Senate, with one group pushing for an extension to protect the still-new U.S. solar manufacturing industry and encourage its growth, while another group urged the president to let the tariffs expire to speed solar deployment. The Solar Energy Industries Association backs the latter, saying the tariffs make purchasing solar panel components too pricey.

On the geopolitical front, Ukraine and Russia was the main topic on Sunday news shows. Secretary of State Antony Blinken signaled that the U.S. and its European allies were prepared to make a "united response" against any further Russian aggression Ukraine, following his diplomatic trip through Europe last week.

     Meanwhile, President Biden met with his national security team Saturday amid reports that Russia was planning to install a pro-Kremlin leader in Ukraine. Earlier Saturday, the U.K.'s Foreign, Commonwealth & Development Office disclosed it had information suggesting the Russian plan was in the works. "We have information that indicates the Russian Government is looking to install a pro-Russian leader in Kyiv as it considers whether to invade and occupy Ukraine," a spokesperson for the British agency said. Former Ukrainian Member of Parliament Yevhen Murayev was being considered a potential candidate, the spokesperson added. Murayev heads Nashi, a small pro-Russian political party that currently has no representation in Ukraine's parliament, the Associated Press reported. The U.K. government said its claim was based on an intelligence assessment, but it provided no evidence to support it, according to the AP.

     Sen. Joni Ernst (R-Iowa) said the U.S. should impose sanctions on Russia “now,” as tensions grow amid reports of a potential invasion of Ukraine by Moscow. Sen. Chris Coons (D-Del.) said that he did not support deploying U.S. troops into Ukraine if Russia invades the former Soviet nation, saying “we would simply be sacrificing them.”

On the congressional agenda ahead, Sen. Bernie Sanders (I-Vt.) said Senate Republicans are “laughing all the way to Election Day” because “they have not had to cast one bloody vote” on the Democrats' roughly $1.2 trillion social spending and climate package, which is stalled in the upper chamber. Of note, Sanders said President Biden cannot count on him to support "almost any" compromise social spending and climate package the Senate cobbles together, emphasizing that he must review the details of a proposal before deciding if he can vote for it.

     On the prospects for election reform, Sen. Ron Johnson (R-Wis.) accused Democrats of trying to radically change the country through voting legislation and of being "willing to destroy the institution of the Senate to pass a bill that's a non-solution looking for a problem."

 


Economic Reports for the Week



The Federal Reserve’s (FOMC) meeting Tuesday and Wednesday is the big event for markets in the week ahead, with investors looking for more guidance on the central bank’s plan to raise interest rates. Economists expect the Fed to steer markets to a quarter-percentage-point March rate hike. The economy will also be a focus with a first look at fourth-quarter GDP on Thursday, and Friday’s personal consumption expenditures data, which includes the Fed’s preferred inflation measure.

Monday, Jan. 24

  • IHS Markit reports its Manufacturing and Services Purchasing Managers’ indexes for January. Consensus estimate is for a 56 reading for the manufacturing PMI and a 54 for the Services PMI. Both figures are less than the December data. The PMIs are off their record peaks from the middle of last year but remain well above the expansionary level of 50. 

Tuesday, Jan. 25

  • S&P CoreLogic releases its Case-Shiller National Home Price Index for November. Economists forecast a 18% year-over-year rise, marginally less than in October. If estimates prove correct, it would be the 12th consecutive month with double-digit gains for home prices.
  • FOMC meeting begins.
  • FHFA home prices
  • Consumer confidence 

Wednesday, Jan. 26

  • MBA Mortgage Applications
  • Federal Open Market Committee announces its monetary-policy decision. The central bank is expected to keep the federal-funds rate unchanged near zero. The Fed has become increasingly hawkish in the past three months, and Wall Street has priced in one quarter-point rate hike at the FOMC’s March meeting and a total of four quarter-point hikes for the year. Fed Chairman Jerome Powell also gives a briefing.
  • Census Bureau reports new residential home sales data. Consensus estimate is for a seasonally adjusted annual rate of 762,500 new single-family homes sold in December, 2.5% more than in November.
  • Advance economic indicators

Thursday, Jan. 27

  • Jobless Claims
  • Bureau of Economic Analysis releases its preliminary estimate for fourth-quarter 2021 gross domestic product. Economists forecast a 5.6% rate of growth, after a 2.3% increase in the third quarter.
  • Durable goods
  • Pending home sales
  • Fed Balance Sheet
  • Money Supply  

Friday, Jan. 28

  • Personal income/spending
  • Q4 Employment cost index
  • Consumer sentiment  
     

Key USDA & international Ag & Energy Reports and Events 



USDA provides another update for food price inflation on Tuesday.

Monday, Jan. 24

     Ag reports and events:

  • Export Inspections
  • Cold Storage
  • Milk Production
  • Poultry Slaughter
  • Brazil’s Unica to release cane crush, sugar output data during the week (tentative)

Energy reports and events:

  • Argus Americas Crude Summit, Houston, with CEOs of ConocoPhillips, Occidental, among other industry executives, to speak; first day of two
  • Earnings: Halliburton Co.

Tuesday, Jan. 25

     Ag reports and events:

  • Food Price Outlook
  • State Stories
  • EU weekly grain, oilseed import and export data
  • Malaysia’s Jan. 1-25 palm oil exports
  • Moscow Agros Expo conference, Jan. 25-27

     Energy reports and events:

  • API weekly U.S. oil inventory report
  • Argus Americas Crude Summit; second day of two

Wednesday, Jan. 26

     Ag reports and events:

  • Broiler Hatchery
  • Livestock and Meat Domestic Data
  • Peanut Stocks and Processing
  • Holiday: Australia, India

     Energy reports and events:

  • EIA weekly U.S. oil inventory report
  • U.S. weekly ethanol inventories
  • Genscape weekly crude inventory report for Europe’s ARA region

Thursday, Jan. 27

     Ag reports and events:

  • Weekly Export Sales
  • Citrus: World Markets and Trade
  • Paris Grain Day conference, Jan. 27-28
  • Port of Rouen data on French grain exports

     Energy reports and events:

  • EIA natural gas storage change
  • Russian weekly refinery outage data from ministry
  • Insights Global weekly oil product inventories in Europe’s ARA region
  • Earnings: Valero Energy Corp., Murphy Oil Corp.

Friday, Jan. 28

     Ag reports and events:

  • CFTC Commitments of Traders report
  • Peanut Prices
  • Egg Products

     Energy reports and events:

  • Baker Hughes weekly U.S. oil/gas rig counts
  • Earnings: Chevron Corp., Phillips 66

 

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