Tag Archives: Inflation

Fed raises interest rates, signals more hikes ahead

A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank instead did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

U.S. stocks and bond yields fell hard. With the Fed signaling “some further gradual” rate hikes and no break from cutting its massive bond portfolio, traders fretted that policymakers could choke off economic growth.

“Maybe they have already committed their policy error,” said Fritz Folts, chief investment strategist at 3Edge Asset Management. “We would be in the camp that they have already raised rates too much.”

Interest rate futures show traders are currently betting the Fed won’t raise rates at all next year.

Wednesday’s rate increase, the fourth of the year, pushed the central bank’s key overnight lending rate to a range of 2.25 percent to 2.50 percent.

In a news conference after the release of the policy statement, Fed Chairman Jerome Powell said the central bank would continue trimming its balance sheet by $50 billion each month, and left open the possibility that continued strong data could force it to raise rates to the point where they start to brake the economy’s momentum.

Powell did bow to what he called recent “softening” in global growth, tighter financial conditions, and expectations the U.S. economy will slow next year, and said that with inflation expected to remain a touch below the Fed’s 2 percent target next year, policymakers can be “patient.”

Fresh economic forecasts showed officials at the median now see only two more rate hikes next year compared to the three projected in September.

But another message was clear in the statement issued after the Fed’s last policy meeting of the year as well as in Powell’s comments: The U.S. economy continues to perform well and no longer needs the Fed’s support either through lower-than-normal interest rates or by maintaining of a massive balance sheet.

“Policy does not need to be accommodative,” he said.

In its statement, the Fed said risks to the economy were “roughly balanced” but that it would “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”

The Fed also made a widely expected technical adjustment, raising the rate it pays on banks’ excess reserves by just 20 basis points to give it better control over the policy rate and keep it within the targeted range.

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

Federal Reserve Board Chairman Jerome Powell arrives at his news conference after a Federal Open Market Committee meeting in Washington, U.S., December 19, 2018. REUTERS/Yuri Gripas

CHOPPY WATERS

The decision to raise borrowing costs again is likely to anger Trump, who has repeatedly attacked the central bank’s tightening this year as damaging to the economy.

The Fed has been raising rates to reduce the boost that monetary policy gives to the economy, which is growing faster than what central bank policymakers view as a sustainable rate.

There are worries, however, that the economy could enter choppy waters next year as the fiscal boost from the Trump administration’s spending and $1.5 trillion tax cut package fades and the global economy slows.

“I think that markets were looking for more in terms of the pause,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

“It’s not as dovish as expected, but I do believe the Fed will ultimately back off even further as we move into the new year.”

The benchmark S&P 500 index <.SPX> tumbled to a 15-month low, extending a streak of volatility that has dogged the market since late September. The index is down nearly 15 percent from its record high.

Benchmark 10-year Treasury yields fell as low as 2.75 percent, the lowest since April 4.

ECONOMIC PROJECTIONS

Fed policymakers’ median forecast puts the federal funds rate at 3.1 percent at the end of 2020 and 2021, according to the projections.

That would leave borrowing costs just above policymakers’ newly downgraded median view of a 2.8 percent neutral rate that neither brakes nor boosts a healthy economy, but still within the 2.5 percent to 3.5 percent range of Fed estimates for that rate.

Powell parried three questions about whether the Fed intended to restrict the economy with its rate policy, but gave little away.

“There would be circumstances in which it would be appropriate for us to go past neutral, and there would be circumstances in which it would be wholly inappropriate to do so.”

Gross domestic product is forecast to grow 2.3 percent next year and 2.0 percent in 2020, slightly weaker than the Fed previously anticipated. The unemployment rate, currently at a 49-year low of 3.7 percent, is expected to fall to 3.5 percent next year and rise slightly in 2020 and 2021.

Inflation, which hit the central bank’s 2 percent target this year, is expected to be 1.9 percent next year, a bit lower than the 2.0 percent forecast three months ago.

There were no dissents in the Fed’s policy decision.

(Reporting by Ann Saphir and Howard Schneider; Additional reporting by Lewis Krauskopf in New York; Editing by Paul Simao and Dan Burns)

Fed’s Williams expects further U.S. rate increases into next year

President and Chief Executive Officer of the U.S. Federal Reserve Bank of San Francisco, John Williams, gestures as he addresses a news conference in Zurich, Switzerland September 22, 2017. REUTERS/Arnd Wiegmann

By Jonathan Spicer

NEW YORK (Reuters) – One of the most influential Federal Reserve policymakers said on Tuesday he expects further interest-rate hikes continuing next year since the U.S. economy is “in really good shape,” reinforcing the Fed’s upbeat tone in the face of growing doubts in financial markets.

Even as New York Fed President John Williams told reporters he expects the U.S. expansion to carry on and surpass its previous record around mid-2019, stock markets headed lower Tuesday morning while a potentially worrying trend of “inversion” continued to grip Treasury markets.

The Fed is expected to raise its policy rate another notch this month and, according to policymakers’ forecasts from September, aims to continue tightening monetary policy three more times next year. Futures markets, however, are betting a slowdown overseas and in sectors like U.S. housing will force the Fed to stop short.

Yet Williams, a permanent voter on policy and close ally of Fed Chair Jerome Powell, said lots of signs point to a “quite strong” and healthy labor market, and he predicted economic growth of around an above-potential 2.5 percent in 2019.

“Given this outlook I describe of strong growth, strong labor market and inflation near our goal – and taking into account all the various risks around the outlook – I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and a sustained achievement of our dual mandate,” Williams said at the New York Fed.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Venezuela teen’s political cartoons sketch his country’s downfall

Gabriel Moncada draws at his home in Caracas, Venezuela October 15, 2018. Picture taken October 15, 2018. REUTERS/Marco Bello

By Liamar Ramos

CARACAS (Reuters) – In one drawing, Lady Justice is seen fleeing Venezuela, a sword in her right hand and a suitcase in the left.

In another, a crying boy tells his father he does not want school to start again. His anguished father, gazing at a list of expensive school supplies, answers: “Me neither, my son.”

In a third drawing, a Venezuelan is seen running toward an alien spaceship, begging for help.

The creator of these evocative political cartoons is Gabriel Moncada, a 13-year-old Venezuelan schoolboy.

Gabriel Moncada looks at his drawings at his home in Caracas, Venezuela October 15, 2018. REUTERS/Marco Bello

Gabriel Moncada looks at his drawings at his home in Caracas, Venezuela October 15, 2018. REUTERS/Marco Bello

The mature, bespectacled teen always enjoyed drawing animals and cars, but a few years ago began sketching the despair of his compatriots in the face of hyperinflation, mass emigration, and shortages of food and medicine.

“Kids start to realize (what is happening), because they do not go to the movies as much, they realize they cannot stay in the street late, there is not as much food in the house or the same products,” said Moncada, sitting at the desk where he sketches.

“The drawings are a way to express myself. I think it is a creative, fun, and different way of showing the problems we experience daily,” he said.

His mother, 46-year old radio journalist Cecilia Gonzalez, started to publish her son’s cartoons on her Facebook page in late 2016. An impressed friend quickly asked to publish them on her online news site, TeLoCuentoNews, where every Friday for nearly two years they have appeared in a section called “This is how Gabo sees it,” referring to Moncada’s nickname.

Venezuela’s economic meltdown has forced almost 2 million people to flee since 2015, according to the United Nations migration and refugees agencies. President Nicolas Maduro disputes that tally, saying they have been exaggerated by political adversaries, and that those who have left are seeking to return.

Moncada’s mother said the family initially tried to shield him from the reality of the country’s decay but gave up as the problems became increasingly evident.

Gabriel Moncada looks at his drawings on the floor at his home in Caracas, Venezuela October 15, 2018. REUTERS/Marco Bello

Gabriel Moncada looks at his drawings on the floor at his home in Caracas, Venezuela October 15, 2018. REUTERS/Marco Bello

“Nothing is like it used to be, and they realize that,” said Gonzalez. “You bring your kids to school and there are three or four children eating out of the garbage on the corner.”

The increasingly common sight of people eating from the trash emerged in one of Moncada’s sketches, which shows two rats standing below a pile of garbage as human hands dig through it.

One rat asks “Where’s the food?” The other responds “They have taken it from us.”

(Additional reporting by Shaylim Valderrama and Vivian Sequera; Writing by Alexandra Ulmer and Brian Ellsworth; editing by Bill Berkrot)

A decade of U.S. economic sluggishness may have just snapped back to normal

FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

By Howard Schneider

WASHINGTON (Reuters) – For a solid decade after the collapse of Lehman Brothers touched off a global financial crisis, there was good reason to think the U.S. economy remained broken, from skepticism about the health of the labor market to tepid economic growth and the moribund rate of interest paid on U.S. Treasury bonds.

In a heartbeat, that seemed to change this week, adding facts on the ground to Federal Reserve Chairman Jerome Powell’s glowing portrait of a historically rosy and extended period of super-low unemployment, modest inflation, and steady growth.

It came through Amazon.com Inc’s move to a $15 minimum wage, possibly setting the bar for companies nationwide. It came through a jump in long-term bond yields that signaled faith the gears of growth will remain engaged for a record-long recovery.

On Friday, it came through the 3.7 percent unemployment rate, a 49-year low, continuing a run of employment growth that many analysts, including at the Fed, have long expected to slow.

“Wage inflation is creeping higher,” said Russell Price, senior economist at Ameriprise Financial Services Inc in Troy, Michigan.

“There’s no question the job market in the United States is possibly at its best in a generation. There’s no question or debate about that. The jobs report has become an inflation report.”

Treasury bond yields rose further on the payrolls report, with the benchmark 10-year note yield touching its highest level since 2011, and U.S. stocks slipped.

The week’s events were not just consistent with the good times scenario both Powell and U.S. President Donald Trump have laid out. They validated it, and in doing so pointed to a U.S. economy that may be starting to work more like it used to.

As an exercise in old-fashioned supply and demand, Amazon’s decision to raise starting wages across the board was perhaps the best example. Fed and other officials have been anticipating for a while, in fact, that the lack of available workers would prompt companies to raise wages.

“When productivity growth is faster, that is your opportunity to share some of your extra output with your workers. That’s what gets wages higher,” said Vincent Reinhart, Chief Economist at investment manager Standish, and former head of the Fed’s monetary affairs division.

Even former skeptics have become open to the idea that a recent rise in productivity may turn into a trend, drawing comparisons with the “Great Moderation” period of growth during the 1990s, which also featured low unemployment and solid wage growth

The rise in long-term bond rates also may herald a return to more normal conditions, giving cautious investors a reasonable return after years of lackluster outcomes, and easing concerns about a flat or “inverted” yield curve that would herald loss of faith in the future.

There is reason to think it may continue.

To pay for the Republican tax cuts and the bump in defense spending, the Treasury is flooding the market with bonds at a near-record pace, with gross issuance of bills, notes and bonds in August topping $1 trillion in a month for only the second time ever, according to federal SIFMA data.

To sell all those bonds, the Treasury may have to pay higher rates. Meanwhile, a major customer, the Fed, whose purchases of $3.5 trillion of assets during and after the crisis helped foster the recovery, has started shrinking its bond portfolio by $50 billion a month.

There are risks surrounding the week’s development, and a few anomalies.

The Fed, for example, is convinced that with its gradual continuing rate increases, inflation will remain controlled – even as unemployment dives for years to come below levels not seen since the 1960s. If inflation does kick in, as it might be expected to do with such a hot labor market and with Trump’s tariffs pushing up the cost of some imports, it would force the Fed to speed up rate hikes and possibly end the party.

Surging bond rates could also throw cold water on Powell’s positive thinking, and call the Fed’s whole strategy of gradual rate increases into question. High Treasury rates mean higher rates for mortgage lending, auto loans, and a host of other forms of credit that could slow the real economy more than the Fed would like.

“The tariffs, quotas, and trade threats are like shooting the starter’s pistol to say: let’s think about renegotiating” wages and salaries, said Reinhart. “It is possible that the limited influence of resource slack on wages and prices was because we were just stuck, (but) that could change.”

A “divergent” U.S. economy, as Cleveland Fed President Loretta Mester warned, could also mean a stronger dollar – and fewer exports and growth.

But as she noted, for a decade now the concern has been about persistent weakness – that the economy was stuck in a state of what prominent economists deemed “secular stagnation.”

The return of volatility, of reasonable returns for savers, of wage pressure benefiting workers, may all pose risks.

But they are the risks of a more normal world.

“The economy is performing extraordinarily well, at least relative to recent history,” said Joseph LaVorgna, chief Americas economics at Natixis. “It’s not the boom of the late ’90s, but it’s doing pretty well.”

(Reporting by Howard Schneider; additional reporting by Jonathan Spicer and Herbert Lash in New York; Editing by Dan Burns and Nick Zieminski)

Federal Reserve prepares for next crisis, bets it will begin like the last

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

By Jonathan Spicer and Howard Schneider

BOSTON (Reuters) – The Federal Reserve painted a picture of the U.S. economy that was almost too good to be true at its last meeting, with inflation seen contained in the near future despite the lowest unemployment rate in 20 years.

The Fed’s forecasts were labeled “out of this world” by one economist at the annual National Association for Business Economics (NABE) conference in Boston this week.

On the tenth anniversary of the 2008 financial crisis, which started with an unexpected panic in an under-appreciated corner of the financial sector, the emphasis in recent Fed speeches and research on avoiding excess leverage and financial market imbalances is understandable, but risks ignoring the possibility that the next recession may result from runaway inflation.

“There clearly has been a shift at the Fed toward more attention” to leverage ratios, financial buffers and other measures of financial market resilience, said Robert Gordon, economist and social sciences professor at Northwestern University and an expert on productivity and economic growth. “They have governors who are particularly appointed to be in charge of that now in a sense that they didn’t used to.”

Earlier, Gordon told the NABE conference that the Fed’s inflation forecasts were “unbelievable” and continued strong job creation will inevitably boost prices even though few see an immediate threat.

Global trade policy tensions, an emerging market debt crisis, or some other shock may happen, but would need to be large and sustained to undermine the 3.0 percent growth that the $20 trillion U.S. economy is currently enjoying.

Few believe the U.S. housing sector poses the same risk it did in the early 2000s, and while student loans and other consumer borrowing have grown, overall household credit and debt payment levels are manageable.

Still, if the Trump administration nominates the Fed’s former financial-stability guru, Nellie Liang, as a board governor, as expected, efforts to avoid another financial crisis could increase further.

In reports to Congress, the Fed has, for example, highlighted concerns about commercial real estate and the stock market where rising prices could reverse sharply as interest rates rise.

The likely choice of Liang comes after Fed chair Jerome Powell recently downplayed the relevance of traditional inflationary signals in setting interest rates and noted that in the last two recessions the trouble started in financial markets.

“Risk management suggests looking beyond inflation for signs of excesses,” he said in late August at the annual conference in Jackson Hole, Wyoming.

Yet Powell also said last month he sees only moderate risks across a dashboard of indicators, including household leverage and current bank capital levels.

TIME FOR A BUFFER?

A test may come in two months when Fed governors decide whether to raise the so-called countercyclical capital buffer for banks which would force them to set aside more capital to cushion a downturn.

Fed Governor Lael Brainard has argued the buffer should be raised from zero, citing the shot of fiscal stimulus from last year’s U.S. tax cuts and high asset prices in the context of a decade-long economic expansion.

Metrics analyzed by Liang as head of the Fed’s financial stability division are not yet cause for concern, but her research has made clear that tools like the countercyclical buffer could be used to limit credit growth before it becomes problematic.

CYCLE ENDINGS

Liang, a senior fellow at Brookings Institution, has also argued that tighter monetary policy and early intervention is best to ward off possible crises, so some expect her to oversee a broader financial stability file as a Fed governor.

Financial market imbalances could be sparked by spending from the 2017 tax cuts or further stock price gains, Goldman Sachs economists wrote recently.

Yet with unemployment at 3.9 percent, and U.S. banks stabilized by post-crisis regulations, many economists believe the end of this long business cycle will be marked by a traditional resurgence of inflation and corresponding Fed interest rate rises.

The Fed itself expects unemployment to hover between 3.5 and 3.7 percent through 2021, roughly a full percentage point below levels seen as consistent with a stable inflation rate.

“I think it’s inevitable it will be associated with higher rates of inflation,” said Harvard economics professor James Stock, a former member of President Barack Obama’s Council of Economic Advisers.

The Fed has been raising interest rates gradually since late 2015 to head off future problems but it is less clear how rising rates might affect risk-taking in the “shadow” banking sector, where hedge funds and other less-regulated firms extend credit to riskier companies. In July, the Fed warned that “borrowing among highly levered and lower-rated businesses remains elevated.”

In a recent paper presented at the Brookings Institution, former Fed Chair Ben Bernanke said one lesson from the crisis is that policymakers needed to include interactions between credit markets and the economy in their projections, in effect weaving financial stability concerns into models of how the economy responds to different shocks.

Asked how concerned he was about current financial market signals, Boston Fed President Eric Rosengren told the conference on Monday: “I don’t think there is an alarm going off. But I do think there are a lot of yellow lights.”

 

Erdogan says Turkey will boycott U.S. electronics, lira steadies

Businessmen holding U.S. dollars stand in front of a currency exchange office in response to the call of Turkish President Tayyip Erdogan on Turks to sell their dollar and euro savings to support the lira, in Ankara, Turkey August 14, 2018. REUTERS/Umit Bektas

By Daren Butler and Behiye Selin Taner

ISTANBUL (Reuters) – President Tayyip Erdogan said on Tuesday that Turkey would boycott electronic products from the United States, retaliating in a row with Washington that helped drive the lira to record lows.

The lira has lost more than 40 percent this year and crashed to an all-time low of 7.24 to the dollar on Monday, hit by worries over Erdogan’s calls for lower borrowing costs and worsening ties with the United States.

The lira’s weakness has rippled through global markets. Its drop of as much as 18 percent on Friday hit European and U.S. stocks as investors fretted about banks’ exposure to Turkey.

On Tuesday the lira recovered some ground, trading at 6.4000 to the dollar at 1751 GMT, up almost eight percent from the previous day’s close and having earlier touched 6.2995.

It was supported by news of a planned conference call in which the finance minister will seek to reassure investors concerned by Erdogan’s influence over the economy and his resistance to interest rate hikes to tackle double-digit inflation.

Erdogan says Turkey is the target of an economic war and has made repeated calls for Turks to sell their dollars and euros to shore up the national currency.

“Together with our people, we will stand decisively against the dollar, forex prices, inflation and interest rates. We will protect our economic independence by being tight-knit together,” he told members of his AK Party in a speech.

The United States has imposed sanctions on two Turkish ministers over the trial on terrorism charges of a U.S. evangelical pastor in Turkey, and last week Washington raised tariffs on Turkish metal exports.

It was unclear whether Erdogan’s call was widely heeded, but a Turkish news agency said traders in Istanbul’s historic Eminonu district converted $100,000 into lira on Tuesday.

Chanting “Damn America”, they unfurled a banner saying “we will win the economic war”, the Demiroren agency said. Amid calls to “burn” the dollars, the group headed to a bank branch where they converted the money, it said.

Erdogan also said Turkey was boycotting U.S. electronic products. “If they have iPhones, there is Samsung on the other side, and we have our own Vestel here,” he said, referring to the Turkish electronics company, whose shares rose 5 percent.

His call met a mixed response on Istanbul streets.

“We supported him with our lives on July 15,” shopkeeper Arif Simsek said, referring to a failed 2016 military coup. “And now we will support him with our goods. We will support him until the end.”

But shopkeeper Umit Yilmaz scoffed. “I have a 16-year-old daughter. See if you can take her iPhone away … All these people are supposed to not buy iPhones now? This can’t be.”

INVESTMENT INCENTIVES

Erdogan said his government would offer further incentives to companies planning to invest in Turkey and said firms should not be put off by economic uncertainty.

“If we postpone our investments, if we convert our currency to foreign exchange because there’s danger, then we will have given into the enemy,” he said.

Although the lira gained some respite on Tuesday, investors say measures taken by the Central Bank on Monday to ensure liquidity failed to address the root cause of lira weakness.

“What you want to see is tight monetary policy, a tight fiscal policy and a recognition that there might be some short-term economic pain — but without it there’s just no credibility of promises to restabilize things,” said Craig Botham, Emerging Markets Economist at Schroders.

Dollar-denominated bonds issued by selected Turkish banks continued to fall on Tuesday, although sovereign bonds steadied.

Relations between NATO allies Turkey and the United States are at a low point, hurt by a series of issues from diverging interests in Syria, Ankara’s plan to buy Russian defense systems and the detention of pastor Andrew Brunson.

U.S. national security adviser John Bolton on Monday met Turkey’s ambassador to the United States to discuss Brunson’s detention. Following the meeting, U.S. officials have given no indication that the United States has been prepared to give ground in the standoff between the two countries’ leaders.

Ankara has repeatedly said the case was up to the courts and a Turkish judge moved Brunson from jail to house arrest in July. Infuriated by the move, Trump placed sanctions on two Turkish ministers and doubled tariffs on metal imports, adding to the lira’s slide.

Brunson’s lawyer said on Tuesday he had launched a fresh appeal to a Turkish court for the pastor’s release.

(Additional reporting by Ece Toksabay and Ezgi Erkoyun, Writing by Humeyra Pamuk and Dominic Evans, Editing by William Maclean and Jon Boyle)

U.S. revives sanctions to further damage Iran’s economy

FILE PHOTO: A man walks past an anti-U.S. mural in Tehran, Iran October 13, 2017. Nazanin Tabatabaee Yazdi/TIMA via REUTERS

By Lesley Wroughton

WASHINGTON (Reuters) – The Trump administration expects economic sanctions that it is re-imposing on Iran this week to further cripple the Iranian economy and will aggressively enforce the measures, senior U.S. administration officials said on Monday.

The so-called snapback sanctions, due to come into force early on Tuesday, would target Iranian purchases of U.S. dollars, metals trading and other dealings, coal, industrial-related software and its auto sector.

Iran’s rial currency has lost half its value since April under the threat of revived U.S. sanctions. The plunge in the currency and soaring inflation have sparked sporadic demonstrations in Iran against profiteering and corruption, with many protesters chanting anti-government slogans.

President Donald Trump is aiming to cut off the Iranian leadership’s access to resources, the officials said. The United States also plans to re-introduce potentially more damaging sanctions on Iranian oil in November.

But the U.S. sanctions strategy has several weak spots, especially a reluctance by Europe and China to curtail business with Iran.

The European Union voiced regret on Monday at the looming U.S. sanctions.

Trump warned on Monday of “severe consequences” for people or entities that fail to wind down economic activities with Iran.

“The United States is fully committed to enforcing all of our sanctions, and we will work closely with nations conducting business with Iran to ensure complete compliance,” he said in a statement.

If Iran wants to avoid the reimposition of sanctions it should take up Trump’s offer to negotiate, White House national security adviser John Bolton said on Monday.

Asked on Fox News what Iran’s leaders could do, Bolton said: “They could take up the president’s offer to negotiate with them, to give up their ballistic missile and nuclear weapons programs fully and really verifiably not under the onerous terms of the Iran nuclear deal, which really are not satisfactory.”

“If Iran were really serious they’d come to the table. We’ll find out whether they are or not.”

The sanctions now being brought back were among those lifted under the 2015 deal between world powers and Tehran on curbing Iran’s nuclear program.

Foes for decades, the United States and Iran have been increasingly at odds over Iran’s growing political and military influence in the Middle East since Trump took office in January 2017.

Trump announced this May he would withdraw the United States from the Iran nuclear deal.

Iranian Foreign Minister Mohammad Javad Zarif said on Monday that Trump and U.S. allies Israel and Saudi Arabia have become isolated by their hostile policies toward Tehran, state TV reported.

“Their oppressive policies and violent measures have made them isolated … The world has distanced itself from their hostile policies against Iran,” Zarif was quoted as saying.

The sanctions aim to modify Iran’s behavior and not bring about a “regime change” targeting President Hassan Rouhani, the U.S. officials said. They said the Iranian government’s handling of social and labor protests was a concern.

EUROPE WORRIED

The European Union expressed concern at the new U.S. move.

“We deeply regret the re-imposition of sanctions by the U.S.,” the bloc said in a joint statement with the foreign ministers of France, Germany, and Britain.

One EU measure to mitigate the impact of U.S. sanctions, known as the blocking statute, will come into force on Tuesday.

One U.S. official said the administration was deeply concerned about reports of Iran’s violence against unarmed citizens. “The United States supports the Iranian people’s right to peacefully protest against corruption and oppression without fear of reprisal,” the official added.

The U.S. officials added that Trump was ready to meet with Iran’s leaders at any time to try to forge a new agreement.

Trump “will meet with the Iranian leadership at any time to discuss a real comprehensive deal that will contain their regional ambitions, will end their malign behavior and deny them any path to a nuclear weapon,” one official said.

Asked about possible exemptions to the sanctions, officials said they would examine any requests on a case-by-case basis.

(Reporting by Lesley Wroughton and Lisa Lambert in Washington and Robert-Jan Bartunek and Alissa de Carbonnel in Brussels; Writing by Alistair Bell; Editing by Howard Goller and James Dalgleish)

Fed set to hold rates steady, remain on track for more hikes

FILE PHOTO: The Federal Reserve Building stands in Washington, DC, U.S., April 3, 2012. REUTERS/Joshua Roberts/File Photo

By Lindsay Dunsmuir

WASHINGTON (Reuters) – The Federal Reserve is expected to keep interest rates unchanged on Wednesday, but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision at 2 p.m. EDT (1800 GMT) on Wednesday. No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation, but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation – the personal consumption expenditures (PCE) price index excluding food and energy components- increased at a 2.0 percent pace in the second quarter, the data also showed. The latest monthly figures released on Tuesday showed prices in June were 1.9 percent higher than a year earlier.

The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

U.S. labor costs, a key measure of how much slack is left in the market, posted their largest annual gain since 2008 in the second quarter, the Labor Department said on Tuesday.

TRUMP CRITICISM

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” – the sweet spot in which monetary policy is neither expansive nor restrictive – will be hit.

Rate-setters are closely watching for signs that inflation is accelerating and they are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chief, Janet Yellen, for keeping rates too low.

Trump appointed Powell and Fed Governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting U.S. Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, an economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci and Paul Simao)

IMF projects Venezuela inflation will hit 1,000,000 percent in 2018

A worker counts Venezuelan bolivar notes at a parking lot in Caracas, Venezuela May 29, 2018. REUTERS/Marco Bell

(Reuters) – Venezuela’s inflation rate is likely to top 1,000,000 percent in 2018, an International Monetary Fund official wrote on Monday, putting it on track to become one of the worst hyperinflationary crises in modern history.

The South American nation’s economy has been steadily collapsing since the crash of oil prices in 2014 left it unable to maintain a socialist system of subsidies and price controls.

“We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” Alejandro Werner, director of the IMF Western Hemisphere department, wrote in a post on the agency’s blog.

Venezuela’s Information Ministry did not immediately reply to a request for comment.

Consumer prices have risen 46,305 percent this year, according to the opposition-run legislature, which began publishing its own inflation data in 2017 because the nation’s central bank had halted the release of basic economic data.

President Nicolas Maduro says the country is victim of an “economic war” waged by opposition businesses with the support of Washington.

His government routinely dismisses the IMF as a pawn of Washington that puts the interests of wealthy financiers before those of developing nations.

Opposition critics have said Venezuela’s problems are the result of bad policy decisions, including unchecked expansion of the money supply and currency controls that leave businesses unable to import raw materials and machine parts.

(Reporting by Brian Ellsworth; Editing by Bill Berkrot)

Turkey’s Erdogan sworn in with new presidential powers

FILE PHOTO: Turkish President Tayyip Erdogan addresses his supporters during an election rally in Istanbul, Turkey, June 23, 2018. REUTERS/Alkis Konstantinidis/File Photo

By Ece Toksabay and Gulsen Solaker

ANKARA (Reuters) – Tayyip Erdogan was sworn in again as Turkey’s president on Monday, assuming sweeping powers he won in a referendum last year and sealed in a hard-fought re-election victory two weeks ago.

Erdogan, who has dominated Turkish politics for 15 years, says the powerful new executive presidency is vital to drive economic growth, ensure security after a failed 2016 military coup and safeguard the country from conflict in Syria and Iraq.

“As president, I swear upon my honor and integrity, before the great Turkish nation and history, to work with all my power to protect and exalt the glory and honor of the Republic of Turkey,” Erdogan told parliament as he took the oath of office.

The introduction of the new presidential system marks the biggest overhaul of governance since the Turkish republic was established on the ruins of the Ottoman Empire nearly a century ago.

The post of prime minister has been scrapped and the president will now be able to select his own cabinet, regulate ministries and remove civil servants, all without parliamentary approval.

Erdogan’s supporters see the changes as a just reward for a leader who has put Islamic values at the core of public life, championed the pious working classes and overseen years of strong economic growth.

Opponents say the move marks a lurch to authoritarianism, accusing Erdogan of eroding the secular institutions set up by modern Turkey’s founder, Mustafa Kemal Ataturk, and driving it further from Western values of democracy and free speech.

NEW CABINET TO BE NAMED

Erdogan is expected to name a streamlined cabinet of 16 ministers on Monday evening after a ceremony at the presidential palace for more than 7,000 guests, including Venezuelan President Nicolas Maduro, Russia’s Prime Minister Dmitry Medvedev and Hungarian Prime Minister Viktor Orban.

No major Western leader was included on a list of 50 presidents, prime ministers and other high-ranking guests published by state news agency Anadolu.

Investors were waiting to see whether cabinet appointees would include individuals seen as market-friendly, and particularly whether Mehmet Simsek, currently deputy prime minister, would continue to oversee the economy.

“For the cabinet appointments in the past several years, the most important issue has been the presence of the current deputy prime minister, Mehmet Simsek,” said Inan Demir, a senior economist at Nomura International.

The lira TRYTOM, which is down some 16 percent so far this year and has been battered by concern about Erdogan’s drive for lower interest rates, firmed to its highest level since mid-June before falling back to stand at 4.61 against the dollar at 1350 GMT.

Erdogan has described high interest rates as “the mother and father of all evil”, and said in May he would expect to wield greater economic control after the election.

“We will take our country much further by solving structural problems of our economy,” he said on Saturday, referring to high interest rates, inflation and the current account deficit.

Inflation surged last month above 15 percent, its highest level in more than a decade, despite interest rate hikes of 500 basis points by the central bank since April.

(Editing by Dominic Evans and Gareth Jones)