SNB Introduces Stealth Negative Rate to Keep Money Markets Going
Swiss banks can hold up to an unchanged 18 times their minimum reserve requirement in sight deposits at the SNB for free. For anything over that they will be charged interest of -0.25% as the discount from the policy rate remains unchanged at 25 basis points, the institution said in a statement on Thursday.
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Yahoo
12 minutes ago
- Yahoo
3 Reasons You Should Care About the Jackson Hole Economic Symposium
Key Takeaways The Jackson Hole conference will serve as a forum for Federal Reserve officials to signal whether the central bank will start cutting interest rates in September. Fed Chair Jerome Powell may also discuss whether the Fed is changing its inflation-fighting strategy, moving away from a flexible approach that failed to stop inflation from surging after the pandemic. Powell may also defend the Fed's independence from political control amid increasing pressure from President Donald Trump. This year, the Jackson Hole conference in Wyoming is more than just a chance to see central bankers outside their natural annual economics symposium, which begins Thursday, brings together top monetary policy officials from around the world. This year, the central bankers discuss economic policies and research centered on the theme "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy." While that may sound dull, the conversations could affect your wallet. This year, there are at least three reasons the conference is worth paying attention to: Interest Rate Outlook Federal Reserve Chair Jerome Powell is scheduled to give a speech, during which he could provide some insight into whether the Fed is poised to lower borrowing costs in September. The Fed is currently caught in a dilemma about whether to lower the federal funds rate, driving down borrowing costs on all kinds of officials have held the fed funds rate at a range of 4.25% to 4.5% all year. They have kept it higher than usual in an effort to stifle the post-pandemic surge of high inflation, which is still running well above the Fed's goal of a 2% annual rate. Fed officials have also voiced concerns that President Donald Trump's tariffs could push up consumer prices even more and fuel an inflation more recently, tariffs and an immigration crackdown have slowed the economy, grinding down job growth and threatening to increase unemployment. Two members of the 12-person committee that votes on monetary policy have already called for lower rates, and financial markets are betting a rate cut is may use his speech to signal his position on the issue. If he casts doubt on rate cuts, he could shake up expectations and shock financial markets. The Federal Reserve's Decision-Making Framework Powell's speech is also set to cover the Fed's ongoing policy framework review, which could have longer-term implications for monetary policy. The framework is a set of strategies that guide the Fed's decisions on interest rates. Economists expect Powell to discuss whether the Fed is reconsidering its approach to targeting the Fed's strategy is to use monetary policy to keep inflation at an average rate of 2% a year over time. Controversially, in 2020, the Fed adopted a flexible average inflation targeting strategy, meaning that if inflation ran under 2% for a period of time, it would tolerate higher-than-2% inflation for a while. The policy was put to the test almost immediately when the pandemic hit. A surge of inflation in the pandemic's aftermath roiled an economy that had gotten used to over a decade of low inflation. That led some experts to question whether the Fed's new policy had been a little too flexible. It delayed the central bankers' cranking up interest rates to fight inflation and contributed to price increases getting out of hand in including Deutsche Bank economists, expect Powell to say the central bank is changing its flexible approach."While the adoption of the new framework in 2020 was not the primary factor behind the Fed's delay and the substantial inflation overshoot, it contributed to this outcome," Matthew Luzzetti, chief economist at Deutsche Bank, wrote in a commentary. "For this reason, we expect Powell's speech in Jackson Hole to highlight changes to the Fed's statement on longer-run goals that will reflect this reality." The Fed's Independence The high-profile conference is also a chance for Powell and other officials to assert the central bank's independence from direct control of the White House. As it's currently set up, the president does not control interest rates and has only limited authority to change the makeup of the committee in charge of recent months, President Donald Trump has challenged that status quo, demanding that the Fed lower interest rates and threatening to fire Powell. He has even threatened to take legal action against Powell and other fed officials, turning up the pressure on policymakers to either follow his lead or said the Fed's traditional independence from political influence is one reason for the relative stability of the U.S. economy. Countries where the central bank is more under the direct control of the president typically submit to pressure to lower interest rates, and according to several studies, they have higher rates of inflation and poor economic performance. Read the original article on Investopedia
New York Times
15 minutes ago
- New York Times
Fed Officials Split Over How to Read Economic Signals
Federal Reserve officials, meeting in Washington last month, concluded that the combination of low unemployment and still-elevated inflation meant they should delay cutting interest rates, at least for now. Not all of them agreed, underscoring the challenge for Jerome H. Powell, the Fed's chair, to forge a consensus across policymakers at forthcoming meetings. A record of the central bank's July 29-30 meeting, released on Wednesday, showed a divided Fed grappling with conflicting signals from the economic data, and how to respond to them. Policymakers 'generally expected inflation to increase in the near term,' the minutes showed, but they disagreed about whether that would be a short-term increase as companies passed along the cost of tariffs, or could morph into a more persistent problem. They agreed that job growth has slowed, but not about what that slowdown meant for the economy. Most important, they were divided about how to weigh the conflicting risks of higher inflation and rising joblessness. 'A majority of participants judged the upside risk to inflation as the greater of these two risks,' the minutes showed, 'while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk.' Ultimately, policymakers decided to hold rates steady for the fifth meeting in a row. But it was one of the most hotly contested monetary policy votes in decades, with two members of the Board of Governors officially opposing the decision to hold borrowing costs steady. It was the first double dissent on an interest rate vote from policymakers of that rank since 1993. The meeting took place amid intense pressure from President Trump to cut interest rates, despite laws that are meant to insulate the central bank from political influence. Mr. Trump has repeatedly threatened to fire Mr. Powell and has seized on cost overruns in the central bank's headquarters-renovation project as a potential pretext for doing so. On Wednesday, Mr. Trump started a new assault, this time targeting Lisa Cook, a Fed governor. He called on her to resign after Bill Pulte, the director of the Federal Housing Finance Agency, said on social media that his office had investigated Ms. Cook and found that she appeared to have falsified bank documents to obtain favorable loan terms. Mr. Powell and other Fed officials have tried to project an appearance of normalcy amid the attacks, emphasizing that their policy decisions will depend on the state of the economy, not political pressure. The minutes of the July meeting contain no reference to Mr. Trump's threats. Instead, the debate inside the central bank focused on questions related to inflation and the labor market. Most Fed officials are wary of cutting interest rates too soon because inflation remains above their long-run target of 2 percent, and it is likely to rise further as a result of Mr. Trump's tariffs. And they believe they can afford to wait because the unemployment rate remains low. The two dissenters, Christopher J. Waller and Michelle W. Bowman — both of whom were appointed by Mr. Trump in his first term — saw things differently. They argued that a fragile labor market called for the central bank to take pre-emptive action to support it and that inflationary pressures tied to tariffs would ultimately prove to be temporary. Just days later, their warnings about the labor market looked prescient. Data released on Aug. 1 showed much more lackluster monthly jobs growth this spring and summer than was previously reported despite the unemployment rate staying relatively stable around 4.2 percent. But the downbeat jobs report was followed shortly thereafter by new inflation data that showed a worrying acceleration in underlying inflation in July even as the tariff impact on consumer prices overall was less than initially feared. That combination presents a challenge for the Fed, which is tasked by Congress with keeping inflation low and stable and ensuring the labor market is robust. The recent signs of deterioration in the labor market appear to have made it more likely that officials will lower interest rates at their next meeting, in mid-September. But the pace of cuts beyond the first move will hinge in large part on how the economic data evolves. The minutes from the July meeting were released just days before Mr. Powell is expected to speak at the central bank's annual gathering of leading economic policymakers in Jackson, Wyo. His speech, which is scheduled for Friday morning, is his most closely-watched of the year and is typically used to send important signals about the economic outlook and the path forward for monetary policy. Mr. Powell is unlikely to explicitly commit to a September cut, given that there is another round of economic data between now and the next vote. But, he is expected to lay out the case for reducing borrowing costs in a bid to shift policy toward a more 'neutral' setting that neither stimulates growth nor slows it down.
New York Times
15 minutes ago
- New York Times
Why Claiming Two Primary Residences Is a Problem, Even if Prosecutions Are Rare
Mortgage lenders particularly like borrowers who live in their homes. This principle — which is why banks usually offer buyers of primary residences lower interest rates than those buying vacation homes or investment properties — sits at the center of President Trump's demand on Tuesday that a Federal Reserve governor, Lisa Cook, resign. According to Bill Pulte, the director of the Federal Housing Finance Agency, Ms. Cook obtained a $203,000 loan on a property in Ann Arbor, Mich., in 2021 and declared her intent to make it her primary residence. Two weeks later, according to a letter he posted on social media, she purchased an Atlanta condominium with a $540,000 mortgage and said that it would be her primary residence. The following year, the letter added, she listed the Atlanta condo for rent. Mortgage lenders want to know if you intend to use a property as your primary residence. Generally, the best interest rates and loan terms (say, a 30-year mortgage instead of a shorter one) go to those people. If it is your one and only home, you are likely to do everything you can to make the payment each month. Lenders will often charge a higher interest rate for a second home or a property you intend to use as a rental since the risks there are higher. If you run into financial trouble, after all, you will be more likely to stop making payments on the rental property than on the home where you live. To Mr. Pulte, it 'appears' that Ms. Cook has 'falsified bank documents and property records' to get a better deal. A spokeswoman for the Fed did not respond to a request for comment, nor did Ms. Cook. According to Rocket Mortgage, one of the biggest lenders in the United States, you can't have two primary residences. People's life circumstances can change quickly though, and it is fine to rent out your old home after purchasing a new one if the mortgage allows that. You are just supposed to make lenders aware of your plans and changing circumstances. It is not unusual for people in the public eye to find themselves the subject of real estate scrutiny. This year, documents emerged showing that Ken Paxton, the attorney general of Texas, declared three separate properties to be his and his wife's primary residences. The Trump administration has lobbed similar accusations at New York Attorney General Letitia James and Senator Adam Schiff, Democrat of California. Prosecutions of such matters tend to be rare, but it's not unprecedented. Last year, Baltimore City's former state's attorney was found guilty of making a false mortgage application. In that case, the conviction hinged on the origin of the down payment funds.
