US central bankers are divided over how fast they will need to raise interest rates next year, given differences over the causes behind the low inflation and wage gains seen to date, a report released on Wednesday said.
The minutes of the Dec. 12 to 13 policy meeting, when the Federal Reserve raised the benchmark lending rate for the third time last year, also showed that officials believe the likely benefits of the recently adopted tax cut are highly uncertain.
While the tax cuts could boost spending, there are indications that companies are likely to use the windfall for mergers and share buybacks, the minutes said.
That is contrary to the arguments its supporters used to back the massive tax package.
The Fed’s policy-setting Federal Open Market Committee (FOMC) last month increased the key lending rate to 1.25 to 1.5 percent, an increase of a quarter-point on the rate that affects all types of credit from mortgages to car loans.
The Fed’s quarterly economic projections also released last month indicated that the central bank is likely to raise the federal funds rate three times this year and once next year.
However, that is a median forecast and the minutes show that there are conflicting views among the policymakers about the number of rate hikes that will be needed.
The disagreement centers on whether inflation has remained stubbornly below the Fed’s 2 percent target due to temporary or more enduring factors.
A few FOMC members said three rate increases, while still a gradual upward path, would be too fast and “might prove inconsistent with a sustained return of inflation to 2 percent.”
However, a few others found the pace of rate hikes should be “somewhat faster” than the three signaled in the forecast.
They said that “continued low interest rates risked financial instability in the future, or that the labor market was increasingly tight.”
With steady job creation in the past two years pushing the unemployment down to a 17-year low of 4.1 percent, Fed officials have been perplexed about why inflation has remained very low and wage gains have been sluggish so far, but largely attributed it to transitory factors.
The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index, remains below 2 percent and shows few signs that it will rise soon. The 12-month core PCE, which excludes volatile food and energy prices, has risen just 1.4 percent.
The central bank forecasts indicate that the unemployment rate is expected to continue to drop to 3.9 percent next year, although some economists see it falling further.
Two voting members of the FOMC, Charles Evans of Chicago and Neel Kashkari of Minneapolis, dissented from last month’s decision to raise rates, saying that the central bank should wait to see actual wage and inflation increases before raising rates.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to