Fed's Powell Says Economy On Firmer Footing, QT End In View

Federal Reserve Chair Jerome Powell said on Tuesday the end of the central bank’s long-running effort to shrink the size of its holdings, widely known as quantitative tightening, or QT, may be coming into view.

Given the central bank’s long-running goal of leaving enough liquidity in the financial system to allow for firm control of short-term rates and normal money market volatility, Powell said “we may approach that point in coming months, and we are closely monitoring a wide range of indicators” to know if that has happened.

His comments came from the text of a speech prepared for delivery before a gathering held by National Association for Business Economics in Philadelphia.

“Some signs have begun to emerge that liquidity conditions are gradually tightening, including a general firming of repo rates along with more noticeable but temporary pressures on selected dates,” Powell noted.

The QT process, which has been running since 2022, is designed to remove excessive amounts of liquidity the Fed added to financial markets during the COVID-19 pandemic. Large-scale purchases of Treasury and mortgage bonds were aimed at stabilizing markets and providing stimulus when the Fed’s short-term rate target was at near-zero levels.

The asset buying helped Fed holdings more than double to around $9 trillion. Since 2022, allowing a set amount of bonds to mature and not be replaced has helped take the Fed balance sheet down to $6.6 trillion.

It’s unclear how much farther the Fed can go with QT but some officials have said there remains plenty of liquidity in the financial system, suggesting they can press forward with QT without unsettling money markets.

Powell did not say how far the Fed would be able to shrink its holdings. But he did say that thus far, “the bottom line is that our ample reserves regime has proven remarkably effective for implementing monetary policy and supporting economic and financial stability.”

Powell also cautioned against removing the Fed’s interest-paying powers that enable its rate control toolkit to work effectively, noting that losing the power would lead to significant stress in financial markets.

Powell also said “our experience since 2020 does suggest that we can be more nimble in our use of the balance sheet” in the future.

Source: Yahoo Finance

Source: Reuters

Source: Bloomberg Europe

Source: cnbc

Euro zone government bond yields hit fresh multi-week lows on Tuesday, as concerns over U.S.-China trade tensions overshadowed France's ongoing political stalemate.

Investors fretted over the potential economic fallout from uncertainty linked to the trade disputes, which could cloud corporate decision-making and delay investment planning.

However, U.S. PresidentDonald Trumpappeared on track to meet Chinese leader Xi Jinping in South Korea in late October as both sides looked to ease tensions following fresh tariff threats and export controls.

German 10-year Bund yields, the bloc’s benchmark, fell 3 basis points (bps) to 2.60%, after hitting 2.588%, the lowest since July 23.

German investor morale rose less than expected in October, the ZEW economic research institute said on Tuesday.

"Our view remains that trade wars and tariffs do generate headlines and uncertainty, but we see the eventual impact as limited," said Mohit Kumar, an economist at Jefferies.

"Our view has been and remains that in the trade war between the U.S. and China, this is a battle that Trump cannot win as the pain threshold for China is far greater than that of the U.S.," he added.

RELIEF FOR NOW IN FRANCE

French bonds received an extra boost later on Tuesday after Prime Minister Sebastien Lecornu suspended implementation of a landmark 2023 pension reform until after the 2027 presidential election, bowing to pressure from leftist lawmakers who had demanded such a move to ensure his political survival.

Lecornu's gesture could end France's political stalemate and stave off, at least for now, the prospect of a snap parliamentary election.

Yields on the benchmark 10-year OAT, which move inversely to the price, fell 6 bps to 3.4%, set for their largest one-day decline since mid-August and at their lowest in just over a month.

The drop left the yield premium over Bunds - a measure of the extra return investors demand for holding French debt, rather than benchmark German paper - below 80 bps, under last week's nine-month high of around 88 bps.

Investors see no clear catalyst for further widening in French spreads, unless there is a snap election.

"We suggest using relief phases with 10y spreads vs. Bunds close to 80bp to reduce OAT risks," Commerzbank strategists said in a note earlier in the day.

The French government is scheduled to bring an estimated 11.5 billion euros ($13.33 billion) of debt to market on Thursday, which could serve as a test of investor demand.

At the shorter end of the curve, German 2-year yields (DE2YT=RR), which tend to be more sensitive to expectations for European Central Bank policy rates, were flat at 1.94% in late trading, up from around 1.92% earlier on.

Money markets were pricing in a roughly 70% chance of a 25-basis-point cut from the ECB by next July (EURESTECBM7X8=ICAP), up from around 65% the day before. The ECB depo rate is seen at 1.90% in February 2027 (EURESTECBM11X12=ICAP) from the current 2%.

($1 = 0.8628 euros)

Source: TradingView

In a world where an ever-growing portion of grains is grown from genetically modified seeds, India has sat on the sidelines — a major farming nation that has almost entirely blocked the cultivation of engineered food crops.Now that opposition, deeply held by some influential rural groups and environmentalists, is coming under increased pressure, in what could be positive news for trade talks between New Delhi and Washington. Those negotiations have stalled in part because of India’s reluctance to import agricultural goods from the US, where GM corn and soybeans are common.

During last month’s talks in Washington, concessions offered by the Indian team already included the possible easing of some restrictions on the import of GM corn. The government is cautiously considering other moves that would pave the way for a looser position, according to an official familiar with the matter.

While New Delhi has not explicitly opposed GM crops as an official position, legal and other blocks have effectively kept them out, with the exception of cotton, launched more than two decades ago. Vocal opponents among farmers and influential rural organizations mean there has been little political will to challenge that position.A spokesperson for India’s farm ministry did not immediately reply to a request for comment.

Among the pivotal moments due over the coming months is a Supreme Court ruling on the future of a locally developed rapeseed, engineered to produce more oil and to resist certain pests. The case stalled after a two-judge bench delivered conflicting opinions last year, requiring a three-judge bench to resolve the matter.A green light there would set a vital precedent in a nation that imports more than half of its consumption of edible oils, and potentially pave the way for other GM food crops.

“The case is pending in the Supreme Court. If the government of India wants, it can be taken up immediately,” said P. Chengal Reddy, chief adviser of the Consortium of Indian Farmers Associations, arguing officials have not done enough to educate a population that is already consuming cooking oils made from GM seeds. He has written two letters to the prime minister in recent weeks to urge approval and plans to press lawmakers to take up the issue during the coming parliamentary session.Last month, prominent scientists wrote to Prime Minister Narendra Modi to urge the government to allow GM rapeseed in order to improve yields and reduce the country’s reliance on edible oil imports.

Any change in India will take time, however. Opposition to GM crops is rooted in thorny cultural debates and supported by rural groups like Bharat Kisan Sangh, an affiliate of the Rashtriya Swayamsevak Sangh, a right-wing Hindu movement that propelled Modi’s rise to power.

Farmers are also a particularly noisy — and large — electoral constitutency. A year-long protest by hundreds of thousands of farmers during the pandemic marked one of the low points of the prime minister’s tenure, and ended with major concessions. Under the previous administration, an effort to introduce GM brinjal, or eggplant, faltered back in 2010 under similar opposition.“GM is a life and death issue for farmers, and if the government continues to push this, then farmers will again have to be on the road to protect their interests,” said Avik Saha, a member of the Samyukt Kisan Morcha, a farmers’ group.

As importantly, yielding to GM crops could be seen as a concession to Washington at a time when Modi has largely projected defiance.India will never compromise the interests of its farmers in trade talks with the US, Agriculture Minister Shivraj Singh Chouhan told reporters last week. He has previously said that permitting genetically modified crops would be “like playing with nature.”Change, however, could bring rewards for a country eager to boost productivity and rural incomes, proponents argue.

“Why should Indian farmers be left behind when technology exists to raise productivity and lower costs?” said R.S. Paroda, a former head of the state-run Indian Council of Agricultural Research and one of the scientists who wrote to Modi. “The technology has been accepted in India for a long time, with no evidence of health risks.”

Bayer AG, formerly Monsanto Co., launched Bt cotton in India in 2002. That remains the country’s only approved GM variety, though it has helped place India among the world’s top cotton producers.

Source: Bloomberg Europe