Economic conditions have softened since the beginning of last year, when growth was above trend and interest rates were still low.
At the beginning of 2018, "gradually raising interest rates was the obvious and necessary choice," he said.
"Twelve months later, the tailwinds have lost their gust, interest rates are closer to normal levels, and inflation is tame."
Still, higher interest rates may be appropriate "at some point" if growth continues "well above sustainable levels," he says.
He also says the Fed's willing to be flexible on shrinking its balance-sheet. "So far, this plan has worked very well. But it is important to stress that if circumstances change, I will reassess our choices regarding monetary policy, including the path of balance sheet normalization."
Responding to reports of a possible trade detente between the U.S. and China, stocks across the globe are continuing their climb higher.
On Thursday, the WSJ quoted Treasury Secretary Steven Mnuchin as saying Washington could ease tariffs on Beijing, although the suggestion faced pushback from U.S. Trade Representative Robert Lighthizer.
Earnings season remains in full swing, and investors today will also be watching figures on U.S. industrial production and consumer sentiment.
Asia: Nikkei +1.3%; Hang Seng +1.3%; Shanghai +1.4%; Sensex flat.
Europe: FTSE 100 +1%. CAC 30 +1.2%. DAX +1%.
U.S. futures: Dow +0.4%; S&P 500 +0.3%; Nasdaq +0.4%.
Oil is up 0.6% at $52.66/bbl, gold is 0.4% lower at $1288/ounce and the 10-year Treasury yield is up 2 bps to 2.77%.
"Out of consideration for the 800,000 great American workers not receiving pay and to ensure his team can assist as needed, President Trump has canceled his Delegation's trip to the World Economic Forum in Davos, Switzerland," Press Secretary Sarah Sanders said in a statement.
Trump had already scrapped his own trip, but Steven Mnuchin, Mike Pompeo, Wilbur Ross, Robert Lighthizer and Chris Liddell were supposed to attend the meeting.
Major U.S. stock averages spike in late afternoon trading after the Wall Street Journal reports that Treasury Secretary Steven Mnuchin is pushing a plan to lift tariffs on China imports as a way to strike a trade deal and calm the markets.
The Nasdaq, S&P, and Dow jumped to session highs but settled slightly above their previous levels. A Treasury spokesperson said neither Mnuchin nor U.S. Trade Representative Robert Lighthizer have "made any recommendations to anyone with respect to tariffs or other parts of the negotiation with the Chinese."
S&P is up +0.5%, Nasdaq +0.5%, and Dow +0.5%.
All 11 industry sectors are in the green, with industrials (+1.5%) and materials (+1.3%) sectors leading. The weakest gains are in communications services (+0.05) and consumer staples (+0.3%).
Oil up 2 cents to $52.33/bbl, and gold -0.2% to $1.291.40/ounce.
Dollar Index relatively flat at 96.06.
10-year Treasury slips, pushing yield up 2 basis points to 2.746%.
Treasury Secretary Steven Mnuchin is reportedly pushing a plan to pull back tariffs on Chinese imports in the hope Beijing will also soften its stance, according to the story.
Pushing back against Mnuchin is U.S. Trade Rep Robert Lighthizer.
The current deadline is March 1. Past that, tariffs on $200B of Chinese goods are set to jump to 25% from 10%.
Markets have moved modestly higher since the news hit a few minutes ago. S&P 500 (SPY +0.6%), Nasdaq (QQQ +0.6%), DJIA (DIA +0.7%). The iShares China Large Cap ETF (NYSEARCA:FXI) has erased an earlier loss, now just barely in the green. Other assets on the move include the Australian dollar (FXA +0.6%).
U.S. home-sale prices in December rose 1.2% Y/Y, its smallest increase since the number went positive in March 2012, says Redfin.
Also, the national number of completed home sales fell faster than has in two and a half year, down almost 11% from December 2017. Home sales fell in 69 of the 76 largest metro areas that Redfin tracks.
Meanwhile the number of homes newly listed for sale last month fell 4.1% from a year earlier. The number of homes for sale on the market, however, rose 4.8% in December, hitting a 42-month high.
The median sale price of homes sold in December fell since last year in nine of the 76 metro areas, including San Jose (-7.3%) and Boston (-1.0%).
According to Bloomberg, junk bonds have already returned 3.45% this month, which would be the best January in several years. Drilling down further, CCC paper has returned 4.575%, the finest performer in fixed income.
The rally has issuers feeling their oats, with BB-rated DCP recently boosting its price and more than doubling the offering size to $325M. Still, issuance is sluggish - this was only the 2nd deal that's priced this month.
"Many Districts reported that contacts had become less optimistic," goes the opening paragraph of the Fed Beige Book. At issue were financial market volatility, rising short-term rates, falling energy prices, and trade/politics.
Eight of 12 districts reported modest to moderate growth. Those reporting more sluggish activity: Cleveland, St. Louis, Kansas City, and Dallas.
Average real student debt load per capita for the age 24-to-32 demographic doubled to $10,000 in 2014 from $5,000 in 2005, according to the Federal Reserve's first issue of its Consumer & Community Context series.
That's affected their ability to take out mortgages to buy a home. The percentage of household heads in the 24-to-32 age group that own their own home fell to 36% in 2014 from 45% in 2005--a 9 percentage point drop.
"We estimate that roughly 20% of the decline in homeownership among young adults can be attributed to their increased student loan debts since 2005," according to the authors of the article, Alvaro Mezza, Daniel Ringo, Shane Sherlund and Kamilla Summer.
Tighter mortgage market conditions after the financial crisis may also have contributed, making it harder for people with student debt to get financing.
The cost of the partial government shutdown has essentially doubled, according to new White House estimates.
"The Trump administration had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks that employees were without pay, but updated figures suggest it is now costing 0.13 percentage points each week.
The Federal Reserve's series of interest-rate hikes aren't a "headwind" slowing economic momentum, Fed Vice Chairman Richard Clarida told Fox Business Network Monday.
The December rate hike was "appropriate," he said, adding that the federal funds rate is now only slightly higher than the inflation rate, which is historically a low level for interest rates.
Similar to Chairman Jerome Powell's comments last week, Clarida says the Fed can "afford to be very patient" on future hikes. Specifically, the central bank will be observing the slower global economy and says so far the impact from overseas hasn't severely affected the U.S. economy.
The Trump Administration reopens a program after the mortgage industry says its closure during the partial government shutdown could have forced lenders to delay or cancel loan closings, the Wall Street Journal reports.
The Internal Revenue Service program processes forms that lenders use to verify borrowers' incomes.
It closed because it's funded through the normal appropriations process. But now, the administration decided it could fund it through user fees the IRS charges each time a borrowers' income is verified.
Reopening the program allows about 400 IRS clerks to return to work. Each week those employees process forms of some 400,000 people considering a loan, according to an IRS spokesman.
The fourth quarter earnings season kicks off in earnest today, with Citigroup becoming the first of the big U.S. banks to put forward its results.
Firms in the S&P 500 were projected back in September to report Q4 earnings growth of 17% from the year earlier, according to FactSet, but dimmer expectations for global growth and disappointing holiday sales have forced many companies to slash their forecasts, pushing the estimated earnings-growth rate for the quarter closer to 11%.
A partial U.S. government shutdown over President Trump's demand for border funding entered its 22nd day on Saturday, making it the longest in U.S. history.
Unless the impasse is resolved before next Friday, the shutdown could slash job growth by as much as 500K in January and lift the unemployment rate above 4.0%, although federal workers would be considered employed if Congress decides to pay them retroactively.
Talks at the Federal Reserve are intensifying over how big the central bank's portfolio of bonds and other assets will be and what it will be in it when it's done shrinking its balance sheet, according to the Wall Street Journal.
It seems the Fed is leaning toward holding a larger portfolio than it was aiming for a few years ago, and that those holdings will be weighted toward short-term Treasury securities, according to the minutes of the Fed's December meeting. Some members of the FOMC wanted to start selling some mortgage securities gradually.
Fed Chair Jerome Powell has said while the Fed doesn't believe the portfolio runoff contributed to recent financial market volatility, it can adjust the portfolio runoff program if needed.
The Fed purchased bonds in several rounds after the financial crisis to push down long-term rates. In late 2017, it started to let some bonds mature without replacing them, reducing its holdings to about $4.1T last month.
On Thursday, Powell said it's too early to say what size it will be when the runoff program ends. "It will be smaller than it is now but nowhere near what it was before," he said.
Citing Fed signals suggesting a "pause in the hiking cycle," Barclays cuts its full-year 2019 forecast for 10-year Treasury yield to 2.75% from 3%, strategists led by Rajiv Setia write in a Jan. 10 note.
Refers to minutes from Fed's December FOMC meeting and recent comments from Fed members that they're "open to remaining on hold."
U.S. rates "now unlikely to challenge the highs of late 2018" and the team sees 3% as "an effective cap" for 10-year yields even if "recession risks diminish."
10-year Treasury yield currently ~2.72%; had been 3.25% in November.
U.S. stock index futures were mixed overnight after Jerome Powell reiterated the Fed would be patient about interest rate hikes, but said the central bank's balance sheet would be "substantially smaller." Dow +0.1%; S&P 500 flat; Nasdaq -0.1%.
Powell also said President Trump hasn't asked for a meeting despite months of attacks against him.
On the data front, investors today are likely to closely monitor the latest CPI figures as well as core CPI data for December at 8:30 a.m. ET.
Oil is up 0.7% at $52.98/bbl, gold is 0.4% higher at $1293/ounce and the 10-year Treasury yield is down 2 bps to 2.71%.
Major U.S. stock averages spend the day zigzagging with the latest leg in the green and pointing up, kind of.
Nasdaq, S&P, and Dow are all up ~0.2%.
By sector, utilities (+1.1%) and industrial goods (+1.0%) are the top gainers, while conglomerates (-0.3%) and basic materials (-0.2%) are declining.
Even Fed Chair Jerome Powell's comments earlier in the day seemed partly good, partly not, as he repeats the central bank's stance of watching, waiting, and being flexible. At the same time, he's worried about U.S. debt and is showing no signs of stopping the Fed's balance sheet runoff.
St. Louis Fed President Jim Bullard returns to the tape today, reiterating his concern that the central bank stands on the precipice of a policy mistake.
He calls December's rate hike an "overreach," and said he argued against it (he did not have a vote on the FOMC then; he does now). As for now, he says rates are where they should be, and the Fed should not be forecasting any more rate hikes.
He takes note of recent data showing a slowdown in China, that may (or may not) worsen.
30-year fixed-rate mortgage averages 4.45% for the week ending Jan. 10, down six basis points from the previous week, according to Freddie Mac's Primary Mortgage Survey.
"Lower mortgage rates combined with continued income growth and lower energy prices are all positive indicators for consumers that should lead to a firming of home sales,” says Freddie Mac chief economist Sam Khater.
A year ago, the 30-year FRM rate was 3.99%.
15-year FRM averages 3.89% vs. 3.99% in the previous week and 3.44% a year ago.
5-year Treasury-indexed hybrid adjustable-rate mortgage averages 3.83%, down from 3.98% in the prior week; compares with 3.46% a year ago.
Investors will be looking for new clues on interest rate policy today after minutes from the FOMC's December meeting indicated patience for upcoming rate hikes and possible changes to the central bank's balance sheet plan.
Fed Chairman Jerome Powell will speak this afternoon before the Economic Club of Washington, and other Fed officials, including Tom Barkin, James Bullard, Charles Evan, Neel Kashkari and Richard Clarida, are set to give presentations throughout the day.
Major U.S. stock averages lose steam as investors digest minutes from the Fed's December meeting.
S&P +0.4% down from the 0.7% gain earlier, while Nasdaq's rise moderated to 0.8% from 1.1%. Dow +0.5% compared with +0.7% at about the time the minutes were released.
Most participants said the FOMC can afford to be patient about further firming. However, in discussion about balance-sheet normalization, some participants suggested that agency MBS holdings could be reduced "somewhat more quickly than the passive approach."
The Dollar Index slips 0.8% to 95.17.
Oil gains 5.2% to $52.39/bbl and gold +0.6% to $1,293.80/ounce.
10-year Treasury yield loses 1 basis point to 2.72%.
A few participants at the meeting favored no change in the interest rate.
The lack of inflationary pressure gives the committee some leeway to "wait and see" how economic data develops amid the financial markets' volatility and increased uncertainty about global economic growth.
"Participants generally revised down their individual assessments of the appropriate path for monetary policy and indicated either no material change or only a modest downward revision in their assessment of the economic outlook."
At the Dec. 18-19 meeting the FOMC voted to raise the target range for the federal funds rate by 25 basis points to 2.25%-2.50%.
On balance sheet normalization: "Several participants commented on the possibility of reducing agency MBS holdings somewhat more quickly than the passive approach by implementing a program of very gradual MBS sales sometime after the size of the balance sheet had been normalized." They expect to continue talking about long-run implementation frameworks at future meetings.
U.S. stock average are near their session highs. The S&P +0.7%, Nasdaq +1.1%, and the Dow +0.7%.
10-year Treasury yield is little changed at 2.73%.
With two empty seats for the Federal Reserve board of governors and one of the nominees withdrawing her name, President Donald Trump is left in a quandary.
Trump, who's reportedly furious with the Fed and Chairman Jerome Powell for the central bank's path of raising interest rates, would face difficulties in getting an easy-money nominee approved by Senate Republicans, who have a majority on the banking committee, MarketWatch reports.
"A left-leaning dove is not the typecast of a nominee that Senate Republicans would confirm," says Sarah Binder, a senior fellow at the Brookings Institution.
Finding a nominee who will go easy on rules for banks and favor cheap money will be a problem, FTN Financial chief economist Chris Low says.
Nominating a libertarian would be another mess, since some have been in favor of ending the Fed.
Some economists say Trump's best option may be to leave the seat with no nominee open, since a new governor with a different viewpoint would not be influential enough to change the Fed's course.
Marvin Goodfriend of Carnegie Mellon University, the nominee for the other opening on the Fed's board, was approved by the banking committee last year, but the full Senate never acted on it.
It's unclear if Goodfriend will be renominated for the post.
The Federal Reserve's Jim Bullard, Raphael Bostic, and Charles Evans are all on the tape this morning more or less promising at least a pause in the central bank's rate-hike cycle.
Bullard and Evans have been among the more dovish on the Fed of late, so their remarks shouldn't be of too much surprise (both vote on the FOMC this year). Bostic (not a voter this year) leans more centrist. What he's saying: "I see little need to engage in restrictive monetary policy and push the federal funds rate above a neutral stance."
UUP -0.75%. Among overseas currencies on the move: Euro (FXE +0.8%), pound (FXB +0.5%), swissie (FXF +0.7%), yen (FXY +0.5%), aussie (FXA +0.6%)
"If this (government) shutdown continues to March 1 and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget... and whether all of that is consistent with triple-A," said James McCormack, Fitch's global head of sovereign ratings.
President Trump gave a national address last night pointing to a "humanitarian and security crisis" on the southern border and demanded billions of dollars in Congressional funding for a wall, which would be "indirectly paid for" via a trade deal with Mexico.
An extended shutdown can affect the economy in a number of ways - from delaying business permits and visas to reducing service hours at innumerable agencies.
Withheld or foregone pay from millions of federal employees can also hit consumer spending, which makes up about 70% of U.S. economic activity.
Stocks across the world are marching higher after U.S.-China trade talks were extended for an unscheduled third day, fueling optimism that the world's largest economies can avoid an all-out confrontation.
Progress was seen on issues including purchases of U.S. farm and energy commodities, as well as increased access to China's markets, but the two sides were still ways apart on Chinese structural reforms that would stop alleged theft and forced U.S. technology transfer.
Asia: Nikkei +1.1%; Hang Seng +2.3%; Shanghai +0.7%; Sensex +0.1%.
Europe: FTSE 100 +0.8%. CAC 30 +1.1%. DAX +1.1%.
U.S. futures: Dow +0.4%; S&P 500 +0.4%; Nasdaq +0.5%.
Oil is up 1.1% at $50.33/bbl, gold is 0.1% lower at $1284/ounce and the 10-year Treasury yield is up 1 bps to 2.72%.
Following three years of declines, U.S. carbon emissions rose 3.4% in 2018, as the effects of a strong economy, like diesel and jet-fuel use in transportation, outstripped a sharp decline in the number of power plants burning coal to generate electricity.
According to the Rhodium Group, the increase was the biggest jump since 2010, when the economy was rebounding from the Great Recession, and the second largest increase in two decades.
Stocks recover from session lows with the major U.S. averages solidly in the green at midday--S&P +0.5%, Nasdaq +0.5%, and Dow +0.7% as optimism over U.S.-China trade talks seem to prevail for the moment.
By sector, basic materials (+1.0%)--which includes energy--and consumer goods (+0.9%) are the strongest gainers.
Oil rises 2.6% to $49.80.
Laggard sectors are financials (flat) and healthcare (+0.2%).
The U.S. Dollar Index strengthens 0.3% to 95.91.
10-year Treasury yield rises 1 basis point to 2.71%.