U.S. September PMI

Chicago Fed President Goolsbee:

Atlanta Fed President Bostic:

Minneapolis Fed President Kashkari:

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For nearly a year, one of President Joe Biden’s top priorities has been to prevent the Gaza war from spiraling into an all-out regional conflict.

Weeks ahead of an election — and just as Biden begins his farewell visit to the UN General Assembly — Israel is pounding Lebanon, highlighting the powerlessness of his warnings.

Biden, meeting the leader of the United Arab Emirates on Monday, insisted that his administration was still “working to de-escalate” in coordination with counterparts.

But events have quickly moved out of US control. Last week, when pagers exploded across Lebanon targeting the Iranian-backed Hezbollah militia, the United States said it had no foreknowledge of the operation widely attributed to Israel and appealed for calm.

Israel instead quickly stepped up its attacks, saying it has hit 1,000 Hezbollah sites over the past 24 hours. Lebanese authorities said 492 people died, including 35 children, on Monday.

Nearly a year after a Hamas attack traumatized Israel and prompted a relentless intervention into Gaza, Prime Minister Benjamin Netanyahu brushed aside warnings of dangers and said Israel’s goal was to change the “security balance” in its northern neighbor by preempting threats.

The operation came after weeks of painstaking US-led diplomacy to reach a Gaza ceasefire failed to seal a deal, with Netanyahu insisting on an Israeli troop presence on the Gaza-Egypt border, and a dispute with Hamas on the release of prisoners.

Michael Hanna, director of the US program at the International Crisis Group, which promotes conflict resolution, said that US diplomats had based efforts for calm in Lebanon on reaching a Gaza ceasefire.

The Gaza truce effort “looks like it’s at a dead-end, and efforts to decouple the two — to reach an agreement between Hezbollah and Israel while the war in Gaza continues, has also proven to be a dead-end,” he said.

Complicating matters is the US political calendar, with Biden’s heir Kamala Harris locked in a tough race against Donald Trump in November 5 elections.

While Biden and Harris would be eager to avoid all-out war and the impression of chaos, few believe that the US administration would take major steps against Israel, with the political risks involved, so close to the election.

“It is not particularly far-fetched to imagine that the US political calendar may have played into Israeli decision-making on when to expand” into Lebanon, Hanna said.

James Jeffrey, a former US ambassador to Iraq and Turkiye who takes a hard line on Iran, said that US policymakers instinctively promoted ceasefires but that Netanyahu, like Ukrainian President Volodymyr Zelensky, was more concerned about his country’s security.

“We are already in a regional war and have been for the past 20 years,” said Jeffrey, now at the Wilson Center in Washington.

“Iran is now being pushed back and has lost one of its major proxies at least for the moment — Hamas — and another, Hezbollah, is under stress,” he said.

Netanyahu “has prioritized restoring deterrence and regaining military superiority over anything like pleasing Washington and the international community,” he said.

Biden has repeatedly voiced concern to Netanyahu over the plight of civilians in Gaza but has mostly held off on using the ultimate US leverage — withholding the billions of dollars in US military aid to Israel.

The Pentagon on Monday said that the United States would send additional troops to the Middle East, a move taken by Israel as a sign of US commitment to its ally if the conflict escalates further.

Also potentially emboldening Israel has been Washington’s muted responses to actions attributed to Israel including the assassination of the Hamas political chief as he visited Tehran in July for the inauguration of the new president, Masoud Pezeshkian.

Pezeshkian, visiting the United Nations, accused Israel of seeking a wider conflict and said Iran had shown restraint due to Western confidence a truce could be secured in Gaza.

“They kept telling us we are within reach of peace, perhaps in a week or so,” Pezeshkian, considered a reformist within the theocracy, told reporters in New York.

“But we never reached that elusive peace.”

Source: ARAB

Federal Reserve Bank of Atlanta president Raphael Bostic said starting the central bank’s cutting cycle with a large move will help bring interest rates closer to neutral levels as the risks between inflation and employment become more balanced.

But officials should not commit to a cadence of outsize moves given uncertainty over where the so-called neutral rate is — where the Fed is neither stimulating nor slowing the economy — and out of concern that inflation could return, Bostic said.

“My residual concern about inflation might have led me to settle on a relatively small first move last week — say, 25 basis points. But such a move would belie growing uncertainty about the trajectory of the labour market,” Bostic said on Monday in remarks prepared for a virtual event organized by the European Economics and Financial Centre.

Bostic’s comments come after Fed officials lowered interest rates last week by a half point, starting their rate-cutting cycle with a larger move than most economists expected. Chair Jerome Powell said the outsize cut is meant to bolster a labour market that is “in solid condition.” He said the move was also a sign of policymakers’ “commitment not to get behind” as the labour market weakens and inflation cools.

In his remarks on Monday, Bostic said the Fed had made “substantial progress” on inflation while risks to the employment mandate have grown.

The Atlanta Fed chief said he was encouraged by data showing inflation is falling faster than he expected. At 2.5%, the Fed’s preferred inflation gauge, the personal consumption expenditures price index, is close to the central bank’s 2% target.

Price increases are narrowing and core PCE, which excludes volatile food and energy costs, rose at an annualised rate of 1.7% for the three months through July, he said. Core services prices excluding housing are also cooling, Bostic said.

Bostic, who specialised in housing-related research and policy in much of his career before joining the Fed, called housing prices, which have been a stubborn source of inflationary pressure, “something of a mystery.”

On the employment side, he said the labour market is weakening as the unemployment rate rises, hiring slows and job openings come down from the peaks seen in 2022. But it is not weak, he said.

“The labour market is not yet flashing red for me,” Bostic added.

The more balanced risks call for a shift in monetary policy, and the larger move made sense given that interest rates are “a fair distance above” neutral, Bostic said.

“In my view, the 50-basis-point adjustment at the meeting last week positions us well should the risks to our mandates turn out to be less balanced than I am thinking,” he said.

Because policy is still restrictive, officials can slow or pause the pace of their rate cuts if inflation stalls, he said. And “any further evidence of material weakening in the labour market” would change his view on how aggressive policy adjustment needs to be in the future, he said.

Answering questions after his remarks, Bostic said Fed officials would monitor the labour market “strongly.” He also said he thinks there is still a “sizable share” of US households that have extra cash on hand, something that could support consumer demand in the coming months.

Projections released at the conclusion of the Fed’s two-day meeting last week showed a slim majority of officials favoured cutting rates by an additional half-point over their two remaining sessions this year.

Bostic said earlier this month that the central bank’s two mandates — stable prices and maximum employment — had come into balance for the first time since 2021, but he was “not quite prepared” to declare victory over inflation.

Source: Theedgemarkets