Next year, China will ease monetary policy to stimulate its economy. The measure has the support of President Xi Jinping.

Currently, the Asian country, the second-largest economy in the world, is struggling to contain the slowdown in the sector, which could be accentuated by Donald Trump’s threats to raise tariffs on Chinese exports upon his return to the White House.

The 24 members of the Political Bureau of the Central Committee of the Communist Party held a meeting on Monday, December 9, to “analyze and study future economic measures in 2025.”

The goal is to “strongly stimulate consumption, improve investment efficiency and broadly expand domestic demand” by 2025, through a more proactive fiscal policy and appropriate monetary policy easing.”

With this change of attitude, the Chinese government recognizes the challenges that the country is currently facing, in the midst of a struggle to “avoid the spectre of deflation, triggered by a severe real estate crisis and consumption levels well below those seen before the pandemic.”

Some measures are already being implemented, such as a reduction in interest rates along with an increase in the debt ceiling for local governments.

M.Pino

Source: cactus24

(Reference image source: Ling Tang on Unsplash)

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The European Central Bank (ECB) decided to cut interest rates this month by 25 basis points, to set the reference rate at 3.25 %.

This is the third adjustment by the European body, announced by the ECB Governing Council at a meeting in Ljubljana (Slovenia). Meanwhile, “the main refinancing operations (MROs) – the weekly injections of money – and the credit facility – the one that lends to banks for one day – stood at 3.4 % and 3.65 %, respectively.”

With this technical adjustment, the ECB seeks to “align short-term interest rates in the money market with the decisions of the Governing Council, as well as to remove excess liquidity from the system so that it does not interfere with the correct transmission of monetary policy.”

The slowdown in inflation in the eurozone, which was already reported in September at 1.7 %, is the result of the decrease in the price of energy, fresh food, alcohol, tobacco, among other items during the month of August.

M.Pino

Source: publico.es

(Reference image source: Dimitri Karastelev in Unsplash)

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In the first nine months of 2023, central banks around the world have intensified their interest in acquiring reserves of this coveted metal, with China and Russia leading the bullish trend. According to the World Gold Council, purchases of gold by central banks reached 800 tonnes net, an increase of 14% compared to the same period last year.

For 2024, projections indicate that central banks’ gold rush will persist for at least the first half of this year, according to data from Schiffgold.

This phenomenon is explained by two main factors. First, de-dollarization is expected to accelerate in 2024, with powers like China and Russia strategically moving away from the hegemony of the dollar. In Russia, the actions of the Biden administration to isolate Moscow with sanctions, stemming from the conflict in Ukraine, further push Russia’s disinvestment in the US dollar. It is therefore logical that Russia’s gold reserves will continue to grow in 2024.

Second, the Fed’s proclamation of a victory against inflation could further fuel interest in buying gold. The possibility that the Fed will be forced to cut interest rates in 2024, according to Schiffgold, leads central banks to seek easier protection against monetary policies.

In short, lower rates in 2024 reinforce the prospect of rising inflation, leading to a depreciation of the dollar and higher prices for gold and other commodities. Central banks, anticipating downward pressures on the dollar, are gearing up to strengthen their gold reserves, even as the Fed proclaims victory in the battle against inflation.

The question remains: A dollar crisis or a sovereign debt collapse? Central banks are not willing to wait to find out.

Finally, the year 2024 presents more uncertainty, with ongoing conflicts between the powers of the United States and presidential elections that amplify global political instability. Candidates like RFK Jr. and Vivek Ramaswamy advocate anti-system messages about central bank control, adding an element of intrigue to this complex picture.

K. Tovar

Source: Bancaynegocios

(Reference image source: Unsplash+)

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The Federal Open Market Committee (FOMC) of the US Federal Reserve discussed the possibility of lowering interest rates in 2024, but stressed the need to maintain a restrictive stance to control inflation, according to the minutes of its December 12-13 meeting.

FOMC members estimated that the reference rate had probably peaked in the current monetary tightening cycle. However, they cautioned that future adjustments would depend on economic developments.

The issuing institute emphasized the importance of a data-based approach and caution in setting monetary policy. He reiterated that the strategy should remain restrictive until inflation was aligned with the 2 per cent target.

Fed officials considered that the current monetary policy was curbing economic activity and inflation, but also acknowledged that the economy might require a further increase in the target range.

All members of the FOMC agreed that “clear progress” had been made in reducing inflation by 2023, and most saw that inflation risks were balancing out.

However, some members expressed concern about the “uncertainty” of maintaining an overly restrictive policy. Based on the December macroeconomic projections, almost all participants anticipated that interest rates in 2024 would close below the current target range of 5.25% to 5.5%.

K. Tovar

Source: Idealista

(Reference image source: @FJRL65, x)

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At an event organized by JP Morgan Asset Management, Lucía Gutiérrez-Mellado, the firm’s director of strategy, announced a slowdown in economic growth. However, she stressed that recession has been avoided, and the strength of this slowdown will depend largely on developments in the labor market.

Gutiérrez-Mellado noted signs of weakening in the U.S. labor market, noting that this year has been a surprise, with unexpectedly robust growth in the first half, driven by savings and tax aid that now has limited room to continue supporting the economy. According to her, the future of the American economy will be linked to the labor market.

As for Europe, the director of JP Morgan AM predicted a less pronounced slowdown, in part due to the surprising resilience of the United States.

Gutiérrez-Mellado also highlighted the leadership of raw materials in the last quarter, especially the price of oil, which is influenced by events in the Middle East.

As far as China is concerned, she anticipated that macroeconomic data will reach a nadir before the end of the year and some recovery in economic growth is expected as the Chinese government implements monetary policy measures.

Consequently, Gutiérrez-Mellado emphasized that she will maintain a neutral position in the manager’s portfolios, given the perspective of a low growth environment and a restrictive monetary policy. Furthermore, they will remain neutral in fixed income compared to equities.

Regarding inflation, Gutiérrez-Mellado expressed that, despite some increases in interest rates, they believe that the end of interest rate increases by central banks is near, with the possibility of an additional rise in the United States at best and the conclusion in Europe.

To conclude, she highlighted that the economic scenario is more positive compared to a few months ago, with moderate economic growth and a restrictive monetary policy. Additionally, she announced that the JP Morgan AM markets guide, which used to be updated quarterly, will now be updated daily in Europe, following the same practice as in the United States.

K. Tovar

Source: Descifrado

(Referential image source: Mathieu Stern, Unsplash)

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In a statement issued after the XLI Meeting of Presidents of Central Banks of South America, held in Quito, the Central Bank of Ecuador reported that digital payments in the South American region experienced an impressive growth of 84 % in the annual volume of retail transactions between 2018 and 2022.

During this meeting, the monetary authorities of the region discussed various economic issues, including the impact of the United States monetary policy in South America, the role of central banks in the innovation of payment systems, the estimation of the interest rate neutral and the determining factors of inflation at a global, sectoral and local level.

One of the highlights was the crucial role of payment systems in the region during and after the Covid-19 pandemic. South American central banks have been promoting initiatives to advance regulation and innovation in this field, promoting the creation of instant payment platforms, greater interoperability between participants in the payments’ ecosystem, and financial inclusion.

In addition, the importance of estimating the neutral interest rate and its impact on the economic variables of the countries was discussed, with emphasis on the uncertainty in its estimation and structural changes. The inflationary dynamics in the region were also analyzed, highlighting the influence of local factors in Latin American countries.

Representatives from Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru and Uruguay participated in the meeting and agreed to convene the XLII Meeting in Colombia in the second half of 2024.

In the next edition, research on payment systems and cross-border payments will be delved into, methods for estimating potential gross domestic product in the region will be analyzed, and the determinants of inflation in the region will be explored, with contributions from different central banks.

K. Tovar

Source: Bancaynegocios

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The US Federal Reserve (Fed) should not relax yet in the fight against inflation, according to the deputy managing director of the International Monetary Fund (IMF), Gita Gopinath, for whom the US central bank has to “stay the course” and continue raising interest rates.

“If you look at the indicators in the labor market and if you look at the components of inflation, such as inflation in services, I think it’s clear that we haven’t turned the corner yet in terms of inflation,” the economist said in an interview with ‘Financial Times’.

In this sense, Gopinath considers it “important” that the Fed “maintain a restrictive monetary policy” until there is a “very defined and lasting decrease in inflation” that is evident in wages and sectors not related to food or energy.

For the ‘number 2’ of the IMF, the main concern in relation to the behavior of inflation comes from the resilience shown by the US labor market, where the unemployment rate is still hovering around historical lows and the shortage of workers contributes to promoting salary increases that make it difficult for the Fed to reach its 2% inflation target.

On the other hand, Gopinath said that she expects China’s economy to suffer significantly in the short term as a result of Covid-19 and warned that the slowdown in the Asian giant would have a negative impact on global growth.

As for Europe, Gopinath expects monetary tightening to stretch out longer than the Fed’s. “We’re looking good to 2024 before we start to see inflation move closer to the ECB’s target,” he says, adding that the fiscal support implemented by European governments to address the rising cost of living would lengthen the process.

Source: dpa

(Reference image source: dpa; RT news, via web)

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The Federal Reserve of the United States (FED) decreed a new increase in reference interest rates in the order of 0.5 percentage points to place them in a range that oscillates between 0.75 % and 1 % with the purpose of avoiding a increase in inflation.

The information was provided through an official statement from the institution where they indicated that “Inflation remains high, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures”.

This increase is the third that the FED has made since March, after inflation registered an unexpected increase last month and warned that other increases may come. Not since 1994 has a rise in interest rates of this magnitude been recorded.

Control of employment and long-term inflation

The FED projected a slowdown in the economy and a rise in unemployment in the coming months, which is why it plans to “achieve maximum employment and inflation at a rate of 2 percent in the long term, because they have decided to raise the target range for the federal funds rate of 1-1/2 to 1-3/4 percent and anticipates that continued increases in the target range will be appropriate.”

On the other hand, the Committee will reduce its trends “for Treasury securities and agency debt and agency mortgage-backed securities” in accordance with the provisions of the Plans to reduce the size of the Federal Reserve balance sheet, published last month of May.

The institution indicated that it would be prepared to adjust the monetary policy if factors occur that impede the control of inflation. Forecasts indicate that interest rates will reach 3.4% by the end of the year, a movement that affects citizens in aspects such as higher borrowing costs for credit cards or mortgages.

M. Rodríguez

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Source: finanzasdigital.com 

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The United States Federal Reserve (Fed) opened the door, in its last monetary policy meeting, to a reduction in its balance of assets worth 95,000 million dollars, (equivalent to 87,188 million euros) per month as of summer, according to the recently published minutes of the organization.

During the meeting, no final decision was made, only the options on the table were examined. The central bankers did agree that, given the current situation, the balance sheet reduction should be faster than that which took place between 2017 and 2019.

In this way, most of the meeting participants agreed that it would be convenient to reduce the monthly reinvestments of maturing assets so that the balance sheet shrinks by 60,000 million dollars (55,066 million euros), in the case of Treasury bonds, and 35,000 million (32,122 million euros), in the case of mortgage securitizations.

Central bankers broadly agreed that these limits should come into effect in the next three months, so the start of these reductions could come in June or July.

It is not certain when the final decision will be adopted, but the members of the Fed considered that the process of reducing the balance sheet could take place, at the earliest, at the end of the monetary policy meeting that will take place between May 3 and 4.

In its last meeting, the Fed decided to raise interest rates by 25 basis points, to a target range of between 0.25 % and 0.50 %, while bringing forward several additional hikes during the rest of the year to deal with contain inflation and normalize monetary policy.

Source: dpa

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The Monetary Policy Committee of the Bank of England decided to increase, for the third consecutive time, the reference interest rate for operations by 25 basis points, going to 0.75 %. The decision was approved with votes in favor against one who preferred to keep the price of money at the previous rate of 0.5 %.

In this way, the monetary organization responds to the perspective on inflationary pressures in the world in the coming months and to the probability that “growth in net energy importing economies, such as the United Kingdom” will be reduced.

The financial entity communicated the decision a day after the United States Federal Reserve began the period of “normalization with a rise of 25 basis points, up to a target range of between 0.25 % and 0.50 %”.

For the decision making, the Bank of England carried out an analysis of the global environment taking into account the invasion that Russia carried out in Ukraine, a fact that has essentially stimulated the rise in inflation, as a consequence of the increase in the prices of “energy and other basic products, including food. As well as the strong probabilities of a disruption in the global supply chain, significantly raising the uncertainty surrounding the economic outlook.

Monetary policy tightening

An analysis of economic activity during 2022 in the United Kingdom shows that the month of January GDP was stronger than estimated, in addition to solid business confidence and the labor market. Consumer hope has declined on the back of shrinking real disposable incomes, which they believe will be larger than expected, consistent with a weaker outlook for growth and employment.

According to the information issued by the entity, “the economy has recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine is another such shock, warning that these are events that monetary policy cannot prevent.”

That is why the Committee is studying applying a moderate additional tightening of monetary policy for the coming months, although it admits that the risks will depend on the evolution of inflation in the medium term.

“The Committee will review these developments in light of incoming data and their implications for inflation over the medium term, including the economic implications of recent geopolitical events,” it said.

M. Rodríguez

Source: eldiario.es

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