New US Federal Reserve Chairwoman Janet Yellen is expected to stick to the game plan when she chairs her first monetary policy meeting this week, further cutting back economic stimulus.
Yet, six weeks after inheriting former Fed chairman Ben Bernanke’s mantle, she is also under the gun to make a pivot in the way the Fed has been signaling its intentions.
Handled well, that delicate shift in how the Fed foreshadows an eventual rate hike could assuage markets.
Communicated badly, it could result in volatile movements and leave the new Fed boss on the back foot.
WEATHER IMPACT
The first meeting under Yellen’s lead of the US Federal Open Market Committee (FOMC), tomorrow and Wednesday, is expected to conclude that unusually harsh winter storms were mainly behind the slowdown in economic activity in December last year to last month.
The Fed has cut the program by US$20 billion to US$65 billion a month since the beginning of the year, and another US$10 billion cut could be decided this week.
Yellen already showed her bias toward the weather explanation when she testified before the US Senate on Feb. 27.
Taking note of the poor data, she said she “wouldn’t want to jump to conclusions.”
However, she added: “It is clear that unseasonably cold weather has played some role.”
A week later, the US Fed Beige Book survey of regional economies, important content for the FOMC policy meeting, mentioned the weather 119 times in explaining sluggish activity in much of the country.
REBOUND
A modest rebound in retail sales data last month suggested that there is some pent-up demand, and analysts hope this month and next month will show a rebound in the economy.
“We expect catch-up in March, leading to good momentum heading in to the second quarter,” Jim O’Sullivan at High Frequency Economics said.
Yellen, who has always stayed behind the scenes during her three years as Bernanke’s deputy, will face the media on Wednesday when she announces the FOMC’s policy decision.
With the bond-buying taper expected to remain on track, the challenge will be to explain how the committee will adjust the communication of its expectations: essentially, how it signals to the market when it plans to begin raising its key interest rate, held at a rock-bottom zero to 0.25 percent since December 2008.
At the end of 2012, the FOMC set specific thresholds for when it could begin lifting the rate: 2 percent for inflation and a 6.5 percent unemployment rate.
Most policymakers did not think those levels would be breached until next year, and the current Fed outlook for a rate hike is later next year.
UNCERTAINTY: Investors remain worried that trade negotiations with Washington could go poorly, given Trump’s inconsistency on tariffs in his second term, experts said The consumer confidence index this month fell for a ninth consecutive month to its lowest level in 13 months, as global trade uncertainties and tariff risks cloud Taiwan’s economic outlook, a survey released yesterday by National Central University found. The biggest decline came from the timing for stock investments, which plunged 11.82 points to 26.82, underscoring bleak investor confidence, it said. “Although the TAIEX reclaimed the 21,000-point mark after the US and China agreed to bury the hatchet for 90 days, investors remain worried that the situation would turn sour later,” said Dachrahn Wu (吳大任), director of the university’s Research Center for
Alchip Technologies Ltd (世芯), an application-specific integrated circuit (ASIC) designer specializing in artificial-intelligence (AI) chips, yesterday said that small-volume production of 3-nanometer (nm) chips for a key customer is on track to start by the end of this year, dismissing speculation about delays in producing advanced chips. As Alchip is transitioning from 7-nanometer and 5-nanometer process technology to 3 nanometers, investors and shareholders have been closely monitoring whether the company is navigating through such transition smoothly. “We are proceeding well in [building] this generation [of chips]. It appears to me that no revision will be required. We have achieved success in designing
PROJECTION: KGI Financial said that based on its foreign exchange exposure, a NT$0.1 increase in the New Taiwan dollar would negatively impact it by about NT$1.7 billion KGI Financial Holding Co (凱基金控) yesterday said its life insurance arm has increased hedging and adopted other moves to curb the impact of the local currency’s appreciation on its profitability. “It is difficult to accurately depict the hedging costs, which might vary from 7 percent to 40 percent in a single day,” KGI Life Insurance Co (凱基人壽) told an investors’ conference in Taipei. KGI Life, which underpinned 66 percent of the group’s total net income last year, has elevated hedging to 55 to 60 percent, while using a basket of currencies to manage currency volatility, the insurer said. As different
Taiwanese insurers are facing difficult questions about the damage of recent swings in the New Taiwan dollar. Regulators might have a partial solution: letting firms change how they calculate the value of foreign currency assets. The Financial Supervisory Commission (FSC) is considering allowing insurers to use six-month average exchange rates when they calculate risk-based capital in their semiannual reports, a shift from the current system where insurers use exchange rates on the final day of reporting. The change could ease pressure on the US$1.2 trillion insurance sector, whose huge exposure to foreign assets came into the spotlight earlier this month after a
RSS