Tue, Feb 13, 2024 page6

• Economists most critical of tight Fed

  LENDING RATES: A NABE poll showed 21 percent of economists considered the US central bank’s current monetary policy stance too restrictive, the most since 2011

  • Bloomberg
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  Economists are starting to think the US Federal Reserve is keeping money a little too tight.

  That is the takeaway from results of a National Association for Business Economics (NABE) poll published yesterday, which showed 21 percent of respondents considered the US central bank’s current monetary policy stance to be “too restrictive” — the most since 2011.

  The results, published ahead of NABE’s annual economic policy conference this week in Washington, were collected between Jan. 23 and 30, just before the Fed’s most recent policy meeting on Jan. 30 and 31.

  

  Flags fly over the Federal Reserve headquarters on a windy day in Washington, May 26, 2017.

  Photo: Reuters

  Fed officials raised their benchmark interest rate by more than five percentage points between March 2022 and July last year, in the fastest tightening cycle since the early 1980s.

  Inflation receded quickly in the second half of last year, priming expectations in financial markets that the central bank would start reducing rates early this year.

  At last month’s policy-setting Federal Open Market Committee meeting, Fed Chair Jerome Powell and his colleagues voted to leave the benchmark unchanged and signal that the next gathering next month would be an unlikely starting point for rate cuts. Investors are currently betting that easing will begin in May.

  Powell cited robust economic growth and a strong job market as reasons why the Fed could take its time before beginning to undo the tightening measures. A monthly employment report published on Feb. 2 showed job creation was much higher than expected to start the year, and job growth last year was also revised higher.

  Meanwhile, credit risk indicators from Janus Henderson Investors have stopped flashing all red for the first time since central banks stepped up a fight against inflation, suggesting the Fed looks increasingly likely to achieve a coveted “soft landing.”

  Access to capital markets as well as cash flow and earnings are now amber on the asset manager’s traffic light system, having been red since the third quarter of 2022. A debt load and servicing indicator remains red.

  This easing of some risk signals comes as expectations of interest-rate cuts by major central banks this year have reduced the cost of company debt in recent months, making it easier to refinance old debt with new. That brings the policymaker goal of curbing inflation without triggering a major economic slump, known in the market as a soft landing, into sight.

  “The Fed has already signaled a pivot in policy rates,” Janus Henderson global head of fixed income Jim Cielinski said in a statement yesterday. “We are slightly overweight credit and see further spread tightening as likely if the consensus ‘soft landing’ narrative holds.”

  The cash flows indicator turned to amber after better-than-expected economic data in the US and “the bottoming” of purchasing managers’ index numbers in Europe, the firm said. Access to capital improved thanks to a slump in yields late last year and a continuing drop in corporate bond spreads in early this year.

  By contrast, credit fundamentals worsened slightly, with default rates picking up in US and European junk-rated firms, keeping the debt load and servicing indicator in the red.
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