January jobs showed interest rates could stay higher for longer

The January jobs report was far stronger than expected and combined with the jump in retail sales and firm inflation data suggests that the economy is more resilient than thought. Comments from Fed officials became more hawkish in the wake of these reports and the market mindset firmly moved in the direction of interest rates needing to stay higher for longer.

We then shifted our view on the outlook for Federal Reserve monetary policy to be broadly in line with the market pricing of 25bp hikes at the March, May and June Federal Open Market Committee meetings. However, we continue to see the potential for interest rates cuts later in the year on the basis that the most aggressive series of interest rate increase for 40 years will increasingly weigh on activity and inflation. We also sense that that the data for January is not as strong as headlines suggest. This is particularly true of the jobs report. (ING - Continue Reading)

President Biden proposed a $6.9 trillion budget that calls for reducing deficits and raising taxes on wealthy people and large corporations, detailing a policy vision that isn’t expected to gain momentum in Congress, but is an opening salvo in spending talks with Republicans.

Mr. Biden’s fiscal year 2024 budget plan, released Thursday, calls for an increase over the roughly $6.4 trillion that the White House expects the federal government to spend this fiscal year. It would reduce federal budget deficits by nearly $3 trillion over the next decade, the White House said.

Mr. Biden’s proposed spending and tax increases will face an unfriendly reception in Congress, where the Republicans who control the House have called for unspecified spending cuts as a condition of raising the federal debt limit. The president has said he won’t negotiate over raising the debt ceiling. (WSJ - Continue Reading)

UK Chancellor of the Exchequer Jeremy Hunt will have almost £100 billion ($119 billion) for giveaways in next week’s budget, a top economic forecaster said in a uniquely optimistic outlook.

The projection by the National Institute of Economic and Social Research makes it a massive outlier, with most forecasters expecting Hunt to have little more than the £9 billion headroom in November’s autumn statement. The government has suggested there is no fiscal room for big giveaways.

The figures would give Hunt unexpected room to grant business tax cuts, public-sector pay rises and cost-of-living support, each of which could help revive the popularity of the ruling Conservative Party. The researcher says an inflation-linked windfall is likely to open opportunities for the Treasury.

Stephen Millard, NIESR’s deputy director for macroeconomics, said his outlook differed from others principally because he expects inflation to prove persistent and, despite higher prices, that neither the Bank of England nor markets will respond by driving up borrowing costs. (Bloomberg - Continue Reading)