Bloomberg
“Janet Yellen Says Low Inflation Still Major Source of Uncertainty.”
Federal Reserve Chair Janet Yellen said the U.S. economy should continue to expand over the next few years, allowing the central bank to keep raising interest rates, while also stressing the Fed is monitoring too-low inflation.
U.S. stocks opened higher while Treasury yields fell with the dollar after her testimony was released.
Yellen emphasized in her remarks that the central bank is on alert about prices remaining below the central bank’s 2 percent target. Other members of the Federal Open Market Committee have mentioned similar concerns in recent days. The FED chair said low readings on inflation are partly the result of “a few unusual reductions” in certain price categories which will hold 12-month inflation down until they drop out of the calculation. However, she also said there is uncertainty about inflation’s response to tightening resource use.
Reuters
“EU adopts plan to tackle bad loans, could push up capital buffers.”
European Union finance ministers on Tuesday called for speedier unloading of bad debt by EU banks and recommended more money be put aside by the banks to protect them from trouble. EU States asked the European Commission, which is responsible for proposing legislative changes at EU level, to consider tweaks to banking rules that would increase supervisors’ powers and force lenders to raise capital buffers against the risk that loans could turn sour.
EU officials said the price of bad loans depends on national conditions and recovery time and can vary widely among countries. The commission will set by the end of the year «asset valuation rules» for Asset Management Companies.
The Guardian
“Political upheaval will lead to UK economy slowing down, says Moody’s.”
Britain’s economy will lose momentum this year amid squeezed living standards and uncertainty over Brexit and the inconclusive election result, leading ratings agencies have predicted.
Moody’s said the UK government appeared to be pursuing objectives pointing towards a hard exit and said growth prospects over the medium term could be “materially weaker” if the UK fails to sign a trade deal allowing access to the single market. Weaker public finances could lead to a “further delay in reversing the rising trend of public debt”, the agency warned in a report. However, it said the Bank of England’s credibility should ensure financial stability, with exchange rate flexibility giving support for exports.
Another ratings agency, Standard & Poor’s, also predicted a fall in the UK’s growth rate – from 1.8% in 2016 to 1.4% in 2017 and 0.8% in 2018 – adding that the outlook might be even worse if the Brexit talks between Britain and the EU go badly. S&P said the better-than-predicted performance of the economy in 2016 had been the result of “extraordinarily robust consumer spending” but added that the pressure on households from prices rising more rapidly than wages was likely to persist for the rest of 2017 and into 2018.
SNL
“Bank of Canada raises interest rates for first time since 2010”
The Bank of Canada raised its interest rates for the first time since 2010, saying the current outlook warranted the withdrawal of some monetary policy stimulus.
The central bank’s overnight rate was raised to 0.75% from 0.50%. The bank’s deposit rate will be 0.50% and bank rate will be 1.0%.
The central bank said recent data bolstered confidence in its outlook for above-potential growth and absorption of excess capacity in the economy. It noted that CPI inflation has eased in recent months, but said the factors behind soft inflation are temporary, including heightened food price competition, electricity rebates in Ontario and changes in automobile pricing.
The bank expects inflation to return to close to 2% by the middle of 2018. Real GDP growth is expected to moderate further to 2.0% in 2018 and 1.6% in 2019 from 2.8% in 2017.