Fed's Goolsbee: PCE Inflation Set to Trail CPI

Remarks of Officials

Summary:

Chicago Federal Reserve President Austan Goolsbee on Thursday said he does not expect the inflation reading the U.S. central bank uses to set its inflation target to be as “sobering” as the previously reported Consumer Price Index figures.

"My view is, before we got to the uncertainties from policy and from geopolitics and from some others, the overall thing (inflation) looked pretty good to me," Austan Goolsbee, Chicago Federal Reserve President, said. The Labor Department reported a larger-than-expected 0.5% month-over-month increase in CPI for January. The year-on-year figure also climbed back to 3% for the first time since June, having risen each month since September. The comparable Personal Consumption Expenditures Price Index the Fed uses for its 2% inflation target is due to be released next week, and most economists estimate it will show less of an increase than reflected in the CPI.

In his discussion about the labor market, Goolsbee described it as "epically strong." He suggested that the job market remains robust despite uncertainties around immigration policy. Over half of the labor force in the past decade has been composed of new workers, many of whom are likely immigrants.

President Trump has recently proposed or implemented a series of tariffs. Last week, Trump announced a 25% tariff on steel and aluminum imports and plans to impose "reciprocal tariffs" on other countries. Additionally, there are considerations for tariffs on automobiles, semiconductors, pharmaceuticals, and lumber this week. Goolsbee expressed concern about the potential for these large-scale tariffs to cause a significant supply shock, which could exacerbate inflation, similar to the effects seen during the COVID-19 pandemic.

The tariffs imposed during Trump's first term as president did not have a material impact on inflation, Goolsbee said, in part because they were narrower and included enough exemptions that supply networks were not affected. But in thinking about the more broad-based and higher tariffs currently in development by Trump," it depends on how many countries they are going to apply to and how big are they going to be. And the more it looks like a COVID-sized shock, the more nervous you should be about that."

Goolsbee said it's important to remember that great progress has been made in bringing inflation down from the four-decade highs reached in 2022, but the level of uncertainty around the economy and the evolving policies of the new Trump administration around tariffs may be having an impact. If tariffs raise prices, the Fed has to think about it.

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Justin

Economic

China’s distressed developers are increasingly asking local courts to drive their restructuring efforts, as weak home sales continue to weaken their ability to make headway or deliver on private debt workout plans.

Chongqing Casin Property Development Group Co late last month became the newest among its peers to apply for the court to overhaul its debt. The move followed a Bloomberg News’ report that defaulter China Fortune Land Development Co is considering scrapping a creditor-approved debt plan for a court-led solution.

Meantime, Jinke Property Group Co, the country’s first high-profile, listed delinquent builder to pursue this option, started a creditor vote on its relevant restructuring proposal earlier this week. The vote will end on March 31.

The expanding list of Chinese developers seeking the court’s help is the latest sign of stress in a property debt crisis that’s entering its fifth year, as private debt talks become protracted and existing restructuring efforts suffer setbacks. While a court-driven process does present an alternative path for distressed firms, its success hinges on key factors including the introduction of cash-rich new investors.

“Court-led restructuring is the last resort for distressed companies,” said Qian Wenhan, a partner of Zhong Yin Law Firm, who specialises in restructuring and bankruptcies. “As China’s housing market has yet to notably stabilise, and some companies’ debt negotiations become lengthy or even hit an impasse, more developers are expected to use this approach to solve their predicament.”

The trend is also evident across industries as a slowdown in the world’s second-largest economy takes its toll. The number of Chinese listed companies seeking court-led restructuring rose to a six-year high of 29 last year, according to a report by Shanghai-based AllBright Law Offices. Nearly a quarter of them were from real estate or construction firms, it shows.

Court-supervised restructuring for developers in China remains a novelty, despite a record wave of defaults in the industry over recent years. Such an approach generally requires a procedure to place the company under bankruptcy administration, and may include white knights to bring in new funds.

A growing number of Chinese developers also have ended up in court in Hong Kong since the crisis began, although it was predominantly the offshore creditors that applied to liquidate the defaulters’ business. At least seven such builders, including former industry behemoth China Evergrande Group, has received the court’s so-called winding-up rulings.

To be sure, whether a local court will agree to drive a company’s restructuring depends on key conditions such as securing strategic investors who can inject new life into the debt-laden firm, lawyers and analysts say.

While the sample pool in China remains too small to meaningfully analyse the impact of court-led restructuring on creditors and investors, the prolonged nature of the debt crisis has lowered the expectations for some.

“Holders of public bonds can otherwise only live to see corporate assets depreciate over time,” said Ma Suiqing, a senior partner and fixed income investment director at Tensor Pacific Co, a Hangzhou-based hedge fund. “That’s why court-led restructuring of developers is clearly beneficial to most bondholders, as it at least offers some level of transparency and fairness.”

Source: Theedgemarkets

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FED

Remarks of Officials

The overall picture is that the U.S. economy remains on a firm footing, with output growing at a solid pace. Real gross domestic product grew 2.5 percent in 2024. Consumer spending continued to drive this solid pace last year. While retail sales posted a decline last month, January data are often difficult to interpret. Bad weather and seasonal adjustment difficulties may have affected the release, and it should be noted the slowdown came after a strong pace of sales in the second half of last year.

Inflation has fallen significantly since its peak in the middle of 2022, though the path continues to be bumpy and inflation remains somewhat elevated. Readings last week from the BLS showed price pressures persisted in the economy in January. Based on the consumer price index and producer price index data for January, it is estimated that the PCE index advanced about 2.4 percent on a 12-month basis in January. Excluding food and energy costs, core prices are estimated to have risen 2.6 percent. Those readings show there is still some way to go before achieving the FOMC's 2 percent objective.

Employment readings show that the labor market is healthy and stable. Payroll job gains have been solid recently, averaging 189,000 per month over the past four months, according to the Bureau of Labor Statistics (BLS). After touching 4.2 percent as recently as November, the unemployment rate has flattened to 4 percent since then, consistent with a labor market that is neither weakening nor showing signs of overheating.

Governor Kugler noted that while downside risks to employment have diminished, upside risks to inflation remain. Additionally, the potential net effects of new economic policies are still highly uncertain. Therefore, it is appropriate for the Federal Reserve to maintain the federal funds rate target range at 4.25% to 4.50%.

Overall, the net impact of new economic policies remains uncertain, and the future path of interest rates will depend on specific developments. Given the current balance of risks, it is appropriate to keep the federal funds rate unchanged for a period of time.

Fed Governor Kugler

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ING

Economic

Core inflation accelerated faster than expected in January, while Japan’s service-led recovery continued. The Bank of Japan (BoJ) is expected to deliver a 25 bp rate hike in May, though a sharp rise in the JPY complicates the economic outlook.

Fresh food prices propelled inflation higher in January

Japan’s consumer price inflation accelerated to 4.0% year on year in January, in line with market consensus (vs 3.6% in December), as fresh food surged 21.9% (vs 17.3% in December). Rice prices skyrocketed 70.9%. Excluding fresh food, core CPI rose faster than expected to 3.2% (vs 3.0% in December, 3.1% market consensus). Costs of eating out have been on the rise for the past three months. Inflation rose 0.5% month on month, seasonally-adjusted, with goods up 1.0% and service costs unchanged. We believe that the BoJ is likely to focus on core trends rather than headline inflation. Though in line with BoJ projections, price dynamics support the central bank’s rate normalization strategy.

JPY rising as market expectations for a rate hike increase

A variety of factors have market expectations pivoting toward rate hikes: recent hawkish comments from BoJ officials; stronger-than-expected GDP data; and a rising CPI. As such, 10Y Japanese government bond (JGB) yields rose significantly, while the JPY surged against the USD over the past week.

We believe that the BoJ prefers to avoid any sudden moves in market rates, as the currency reaction could dampen economic sentiment and activity. A sudden jump in long-term yields would increase uncertainty about corporate and government funding. Sharp JPY appreciation may hurt earnings. So, the BoJ will try to limit the extremes of market reactions. This morning, Governor Ueda told parliament that the BoJ will keep JGB buying operations flexible. Trading in the JPY and JGBs seemed to calm down somewhat after his remarks.

Flash PMIs advanced in February

Japan’s flash purchasing managers indexes showed services are helping to drive the economic recovery, while manufacturing remains sluggish. Overall, both indices improved from the previous month. The service PMI rose to 53.1 in February from 53 in January, marking the fourth consecutive month of expansion. The manufacturing PMI edged up to 48.9 from 48.7, but has remained in contractionary territory for eight months. Output and new orders were up. We are concerned that US tariffs will eventually dampen the economy. But so far, the negative impact hasn't materialised.

Inflation outlook uncertain

Tokyo inflation data, due out next week, is expected to ease modestly in February. Food prices are likely to rise further, but renewed energy subsidy programmes should offset some gains. We also believe the government is likely to introduce measures to stabilise rice prices, which could tame broader food costs. Yet with Trump's tariff policies intensifying, the BoJ will remain quite cautious going forward.

Core inflation is likely to stay above 2% for a considerable time, which allows the terminal rate to reach 1.25% by 2026

Japanese Inflation Accelerates, Raising Odds of Another Rate Hike_1

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ING

Economic

The EU’s vision on Agriculture and Food is clearly farmer-centric. But what's in the document – and equally, what isn't – provides valuable guidance for food manufacturers, traders and retailers about the direction of EU policy towards 2040. With limited guidance on how to achieve emission cuts, the Commission remains open to a range of solutions.

Greenhouse gas reduction targets – ambition versus reality

In its long-awaited Vision on agriculture and food, the EU states that the Commission ‘expects agriculture to achieve the emission cuts in alignment with the EU's climate target for 2030’, but without mentioning the 55% target explicitly. That commitment from policymakers should comfort corporates in the food industry, given that their Scope 3 targets largely rely on progress at farm level.

Still, we remain largely in the dark on exactly how the EU Commission plans to achieve this, aside from the fact that incentives, carbon removals and technological advancements should help to do the trick. And we have doubts on how realistic it is given that the reduction in agricultural emissions currently stands at around -25% compared to 1990. With just five more years to go, projections from the European Environment Agency show that the sector will be falling short of the broader target.

Voluntary benchmarking – EU could learn from existing schemes

Rolling out mandatory on-farm benchmarking on sustainability parameters is proving to be a political no-go. Still, the Commission aims to get more farmers engaged in sustainability benchmarking by developing an ‘on-farm sustainability compass’ with input from various stakeholders. Some food manufacturers have already rolled out such schemes. We see a clear opportunity for these companies to share best practices with policymakers – and in turn, provide valuable input for the Commission's 'Compass'.

Generational renewal – farmers of the future

The fates of farmers and food processors are often intertwined. A lack of perspective for farmers could reduce supply and lead to higher prices and excess capacity in production, which is most worrying for companies that depend on a ‘local’ farm base (like meat, dairy and sugar processors). So if the Commission is taking the lead on a Generational Renewal Strategy to slow down the drop in the number of farmers and the pressure on farm land, that’s also positive news for food companies and suppliers of farm inputs.

Don't expect any bold or swift action on livestock

It’s not surprising that the Commission is promising a long-term vision for the livestock sector, given its economic weight; livestock accounts for a third of EU food exports. However, it also remains the most carbon-intensive part of the agri-food value chain. The direction the Commission takes on this will be crucial, particularly for EU meat and dairy processors. The Vision mentions technological advancements as a solution, including feeding strategies. In our view, that's a signal that policymakers will continue to be supportive of feed additives and other feed based solutions. But for more particular recommendations, we have to await the results from a ‘livestock work stream’ that still needs to be set up.

Emissions Trading System – agriculture not in scope

You can search long and hard for it, but you won’t find it in the text. We think it's safe to say this won’t be introduced in the foreseeable future.

Trade: Directorate-General for Agri’s stance on trade creates challenges and opportunities

The Vision takes a tougher stance on the residue levels of the most hazardous pesticides on imported food products like fruits and vegetables, and makes it clear that high EU standards on animal welfare should also apply to imported meat, dairy and eggs. This is supportive for EU farmers as it raises the bar for their competitors. For some EU importers of fruits and vegetables, like citrus fruit, it will require more effort to make sure their suppliers comply.

At the same time, the drive for more reciprocity when it comes to animal welfare standards makes it more complicated to strike trade deals with large meat exporters such as Australia. The Vision also promises a ‘comprehensive protein strategy’, which would primarily focus on animal feed and reducing dependencies on imports (mainly from South America). This is at odds with the recently agreed EU Mercosur trade agreement and could resurface during the ratification process of the trade agreement, which is expected in the second half of 2025.

EU funding: Agriculture faces fierce competition for EU funds

Food security, energy security, safety – they’re all important. But when you take into account what the Vision says about public support for agriculture (better targeted) and the broader debate on the next EU budget, it seems quite probable that the share of agriculture in the budget will decrease – especially because energy and defence security are critical issues for the EU. The fact that there is no mention of an Agri-Food Just Transition Fund in the Vision is a clear signal that calls by stakeholders for more public funding are not being answered. As a result, we expect more calls from policymakers to the private sector to step in when it comes to financing.

Steering demand: EU delegates responsibility to national governments

As we've indicated previously, there is very little appetite to influence or steer consumer demand at the EU level. Scientists consider a partial shift away from animal-based to plant-based food an effective strategy to make the food system more sustainable – but plant-based food isn’t featured in the Vision in any meaningful way. Part of the argumentation is that the main competence lies not in Brussels but with national governments. Since many national governments aren’t keen on demand-side policies either, we expect that these tools will largely remain in the toolbox.

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Alex

Economic

Forex

Key Highlights

USD/JPY declined heavily below the 151.50 support zone.

A key bearish trend line is forming with resistance at 151.25 on the 4-hour chart.

EUR/USD is eyeing a fresh move above the 1.0520 resistance zone.

GBP/USD could soon attempt a move toward the 1.2750 level.

USD/JPY Technical Analysis

The US Dollar started a major decline from well above 154.00 against the Japanese Yen. USD/JPY traded below the 152.50 and 151.50 support levels.

Looking at the 4-hour chart, the pair settled below the 150.50 support, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even dived below the 150.00 level.

It is now showing many bearish signs. On the downside, immediate support sits near the 149.20 level. The next key support sits near the 148.80 level.

The main support could be 148.00. Any more losses could send the pair toward the 145.00 level. On the upside, the pair seems to be facing hurdles near the 150.50 level. The next major resistance is near the 151.20 level.

There is also a key bearish trend line forming with resistance at 151.25 on the same chart. The main resistance is now forming near the 151.50 zone.

A close above the 151.50 level could set the tone for another increase. In the stated case, the pair could even clear the 152.50 resistance.

Looking at EUR/USD, the pair remained stable above 1.0450 and might aim for more gains above the 1.0520 resistance.

Upcoming Economic Events:

Euro Zone Manufacturing PMI for Feb 2025 (Preliminary) – Forecast 47.0, versus 46.6 previous.

Euro Zone Services PMI for Feb 2025 (Preliminary) – Forecast 51.5, versus 51.3 previous.

US Manufacturing PMI for Feb 2025 (Preliminary) – Forecast 51.5, versus 51.2 previous.

US Services PMI for Feb 2025 (Preliminary) – Forecast 53.0, versus 52.9 previous.

Source: ACTIONFOREX

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Owen Li

Economic

Japan's core consumer inflation hit 3.2% in January for its fastest pace in 19 months, data showed on Friday, reinforcing expectations that the central bank will keep raising interest rates from levels still seen as low.

Bond yields rose on the data, as markets factor in the chance that the Bank of Japan (BOJ) could hike interest rates more aggressively than initially thought, as inflationary pressure mounts.

The year-on-year increase in the core consumer price index (CPI), which excludes fresh food prices, slightly exceeded a median market forecast for a gain of 3.1% and followed December's rise of 3.0%.

"While services inflation isn't accelerating that much, goods inflation isn't slowing either," said Ryosuke Katagi, market economist at Mizuho Securities.

"The BOJ will likely see scope to raise interest rates, on the view price conditions are moving in line with its forecast."

A separate index stripping out costs of both fresh food and fuel, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 2.5% in January from a year earlier, the data showed.

It was the fastest year-on-year pace since March 2024, when the index rose 2.9%.

The two-year Japanese government bond (JGB) yield rose 1.0 basis point (bps) from Wednesday to stand at 0.830% after the data, for its highest level since October 2008.

For nearly three years, inflation has exceeded the central bank's target of 2%, underlining rising inflationary pressure that has prompted hawkish remarks from BOJ policymakers, such as Wednesday's comments by board member Hajime Takata.

The BOJ raised its short-term interest rate to 0.5%, from 0.25% in January, reflecting its conviction that Japan was making progress in sustainably achieving its inflation target of 2%.

BOJ governor Kazuo Ueda has signalled his readiness to keep raising rates if wages continue to increase and underpin consumption, thereby allowing firms to keep hiking pay.

The BOJ has said solid wage growth will prod service-sector firms to pass on rising labour costs, and replace rising raw material prices as the key driver of inflation in Japan.

But stubbornly high prices of fuel and food throw into doubt the chance that cost-push pressure will dissipate. In January, households still battled soaring prices of rice, vegetables and other food, as well as a 10.8% hike in energy costs.

Headline consumer inflation, including fresh food prices, hit 4.0% in January, accelerating from 3.6% the previous month, and standing at their highest in two years.

By contrast, services inflation rose 1.4% in January from the previous year, slowing from a gain of 1.6% in December, the CPI data showed.

Japan's economy expanded an annualised 2.8% in the final quarter of last year on robust business expenditure and consumption, shoring up the BOJ's case for more rate hikes.

A majority of economists polled by Reuters expect the BOJ to hike rates once more this year, most probably during the third quarter, to 0.75%.