Federal Reserve officials may debate a historic one percentage-point rate hike later this month after another searing inflation report piled pressure on the central bank to act.
“Everything is in play,” Atlanta Fed president Raphael Bostic told reporters in St Petersburg, Florida, on Wednesday after US consumer prices rose a faster-than-forecast 9.1 per cent in the year through June.
Asked if that included raising rates by a full percentage point, he replied: “It would mean everything."
Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets on July 26 and 27, which would be the largest increase since it started directly using overnight interest rates to conduct monetary policy in the early 1990s.
Americans are furious over high prices, and critics blame the Fed for its initial slow response.
Cleveland Fed President Loretta Mester, in an interview on Bloomberg Television on Wednesday, declined to say if she favoured going bigger at the July meeting, noting there were important data releases between now and then.
However she said there was “no reason” for raising rates by less than the 75 basis points that policymakers delivered last month.
“What I take from the report, and it was uniformly bad — there was no good news in that report at all — is that inflation remains at an unacceptably high level,” she said.
“We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”
San Francisco Fed chief Mary Daly, speaking in a separate interview with The New York Times late on Wednesday, said: “My most likely posture is 0.75 [per cent], because of the data I’ve seen.”
She said that she had expected the CPI number to be high: “I saw that data and thought: this isn’t good news. Wasn’t expecting good news.”
The Fed has turned aggressively against inflation, after being blamed for its slow response initially that rocked financial markets and increased the risk that its actions could tip the US economy into recession.
Both Mr Bostic and Ms Mester pushed back against the idea of a trade-off between inflation and employment, arguing that they had to deliver price stability, even if that hurts the labour market.
“The Fed is right to worry about the unmooring of inflation expectations — and this report raises the chance of an even larger rate hike than 75 basis points down the line,” said Bloomberg economists Anna Wong and Andrew Husby.
Given the acceleration in monthly inflation, economists at Nomura Securities International now expect a full percentage-point increase in the Fed’s benchmark rate at the coming policy meeting.
“Incoming data suggests the Fed’s inflation problem has worsened, and we expect policymakers to react by scaling up the pace of rate hikes to reinforce their credibility,” Nomura’s Aichi Amemiya, Robert Dent and Jacob Meyer, said in a note.
Fed Chair Jerome Powell told reporters last month after the central bank raised rates by 75 basis points, to a range of 1.5 per cent to 1.75 per cent, that either a 50 or 75 bps increase was likely in July. A majority of his colleagues since then have either echoed his line or endorsed a bigger move.
Fed Governor Christopher Waller is scheduled to speak on Thursday, while Mr Bostic and his St. Louis colleague James Bullard both have events on Friday. After that officials enter their pre-meeting blackout period.
Central banks globally are confronting unprecedented inflation, prompting historic rate increases from Hungary to Pakistan. The Bank of Canada on Wednesday increased rates by a surprise full percentage point amid fears that decades-high price pressures are becoming entrenched.
Brett Ryan, senior US economist at Deutsche Bank AG, said it made sense to price in some risk of a larger Fed move, but saw it as unlikely without explicit communication from the central bank.
“The hawks had to have agreed to the guidance of 50 to 75 [bps], with the understanding that if we got an upside print, 75 [bps] would be the number,” he said. “They have time to communicate if they want to put that message out there.”
The US central bank has pivoted to aggressive policy tightening to confront the highest inflation in 40 years. They raised rates by 75 bps last month — the largest increase since 1994 — despite previously signalling that they were on track for a smaller half-point move.
“You have to put 100 [bps] on the table for July,” said Andrew Hollenhorst, Citigroup chief US economist. “Everybody should be quite cautious about calling peak inflation — a few months ago the peak was supposed to be 8.3 per cent.”
Fed officials have said they want to push policy into restrictive territory, to a range of 3.25 per cent to 3.5 per cent by the end of this year, according to the median projection from the quarterly economic projections released in June. Futures markets Wednesday showed investors pricing in an even higher 3.5 per cent to 3.75 per cent range by the end of the year.
The Fed’s abrupt change to a 75 bps increase last month came on the back of a preliminary survey showing consumer expectations for future inflation were rising.
Subsequent updates to the data, which came after the Fed’s meeting, erased most of that sharp rise, but preliminary July figures, expected Friday, may provide policymakers with more ammunition to supersize this month’s increase.
Inflation expectations are particularly concerning to Mr Powell and his colleagues, who are trying to avoid a 1970s-style price spiral.
“After what happened in June, I do not rule anything out,’ said Stephen Stanley, chief economist at Amherst Pierpont Securities.
“I had been thinking that the Fed would decelerate to a 50 bps-per-meeting pace beginning in September, but if the next two monthly inflation numbers look like May’s and June’s, all bets are off.”
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
THE BIO
Age: 30
Favourite book: The Power of Habit
Favourite quote: "The world is full of good people, if you cannot find one, be one"
Favourite exercise: The snatch
Favourite colour: Blue
Fresh faces in UAE side
Khalifa Mubarak (24) An accomplished centre-back, the Al Nasr defender’s progress has been hampered in the past by injury. With not many options in central defence, he would bolster what can be a problem area.
Ali Salmeen (22) Has been superb at the heart of Al Wasl’s midfield these past two seasons, with the Dubai club flourishing under manager Rodolfo Arrubarrena. Would add workrate and composure to the centre of the park.
Mohammed Jamal (23) Enjoyed a stellar 2016/17 Arabian Gulf League campaign, proving integral to Al Jazira as the capital club sealed the championship for only a second time. A tenacious and disciplined central midfielder.
Khalfan Mubarak (22) One of the most exciting players in the UAE, the Al Jazira playmaker has been likened in style to Omar Abdulrahman. Has minimal international experience already, but there should be much more to come.
Jassim Yaqoub (20) Another incredibly exciting prospect, the Al Nasr winger is becoming a regular contributor at club level. Pacey, direct and with an eye for goal, he would provide the team’s attack an extra dimension.
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
The figures behind the event
1) More than 300 in-house cleaning crew
2) 165 staff assigned to sanitise public areas throughout the show
3) 1,000 social distancing stickers
4) 809 hand sanitiser dispensers placed throughout the venue
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Gifts exchanged
- King Charles - replica of President Eisenhower Sword
- Queen Camilla - Tiffany & Co vintage 18-carat gold, diamond and ruby flower brooch
- Donald Trump - hand-bound leather book with Declaration of Independence
- Melania Trump - personalised Anya Hindmarch handbag
UAE currency: the story behind the money in your pockets
TO A LAND UNKNOWN
Director: Mahdi Fleifel
Starring: Mahmoud Bakri, Aram Sabbah, Mohammad Alsurafa
Rating: 4.5/5
Bugatti Chiron Super Sport - the specs:
Engine: 8.0-litre quad-turbo W16
Transmission: 7-speed DSG auto
Power: 1,600hp
Torque: 1,600Nm
0-100kph in 2.4seconds
0-200kph in 5.8 seconds
0-300kph in 12.1 seconds
Top speed: 440kph
Price: Dh13,200,000
Bugatti Chiron Pur Sport - the specs:
Engine: 8.0-litre quad-turbo W16
Transmission: 7-speed DSG auto
Power: 1,500hp
Torque: 1,600Nm
0-100kph in 2.3 seconds
0-200kph in 5.5 seconds
0-300kph in 11.8 seconds
Top speed: 350kph
Price: Dh13,600,000
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
Australia tour of Pakistan
March 4-8: First Test, Rawalpindi
March 12-16: Second Test, Karachi
March 21-25: Third Test, Lahore
March 29: First ODI, Rawalpindi
March 31: Second ODI, Rawalpindi
April 2: Third ODI, Rawalpindi
April 5: T20I, Rawalpindi
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
MATCH INFO
Manchester City 3
Danilo (16'), Bernardo Silva (34'), Fernandinho (72')
Brighton & Hove Albion 1
Ulloa (20')
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
