US Federal Reserve governor Christopher Waller said inflation proved to be much higher and more persistent than he had thought. Bloomberg
US Federal Reserve governor Christopher Waller said inflation proved to be much higher and more persistent than he had thought. Bloomberg
US Federal Reserve governor Christopher Waller said inflation proved to be much higher and more persistent than he had thought. Bloomberg
US Federal Reserve governor Christopher Waller said inflation proved to be much higher and more persistent than he had thought. Bloomberg

Fed hawks Waller and Bullard defend policies and say forward guidance is working


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Two of the US Federal Reserve's most outspoken policy hawks on Friday pushed back on the view the US central bank missed the boat in the fight against high inflation, citing a tightening of financial conditions that started well before the Fed began raising interest rates in March.

"How far behind the curve could we have possibly been in terms of time if, using forward guidance, one views rate hikes effectively beginning in September 2021?" Fed governor Christopher Waller said, noting yields on the two-year Treasury note rose last autumn as the Fed began to signal the end of its super-easy policy.

The move reflected the equivalent of two Fed rate hikes through December, he said.

Speaking at the same Stanford University conference, titled "How monetary policy got behind the curve“, St Louis Fed president James Bullard argued the Fed is "not as far behind the curve as you might have thought".

Earlier this week the Fed raised its policy rate to a range of 0.75 per cent to 1 per cent. Critics say that is far too low to fight inflation running at three times the Fed's 2 per cent target.

Mr Bullard said he agrees, calling inflation "far too high", and called for rates to rise "expeditiously“, to perhaps 3.6 per cent, to bring inflation under control. But he noted markets are already pricing much of that increase in.

Traders of rate futures are currently pricing in a Fed funds rate of 3 per cent to 3.25 per cent by year-end.

"It's going in the right direction ... hopefully we'll be able to get away from this behind-the-curve characterisation soon," Mr Bullard said.

The two were among the first Fed policy makers last year to call for a rapid removal of easy monetary policy and a quicker start to raising interest rates.

Mr Bullard, in fact, dissented on the Fed's March quarter-point rate hike as too little.

But both joined their colleagues in approving the half-point rate hike delivered this week. Fed chairman Jerome Powell, speaking after the rate decision was announced, signalled further increases ahead, including half-point rate hikes in both June and July.

Mr Waller used his talk on Friday to trace how economic data first seemed to ratify, then challenge, his own view from last spring: that inflation would prove transitory as supply chains healed and one-time fiscal stimulus faded, and that the labour market was primed to roar back as Covid-19 receded.

Most of his colleagues shared in the first view; opinions were more divided on the second. In the end, Mr Waller said, inflation proved to be much higher and more persistent than he had thought.

At the same time he described the "punch in the gut" he felt as two weaker-than-expected monthly jobs reports in August and September seemed to undercut the thesis of labour market healing.

As it turned out, later data revisions showed the US labour market had been stronger than the real-time data suggested.

St Louis Federal Reserve president James Bullard argued that the US central bank is 'not as far behind the curve as you might have thought'. Reuters
St Louis Federal Reserve president James Bullard argued that the US central bank is 'not as far behind the curve as you might have thought'. Reuters

"If we knew then what we know now, I believe the [Fed] would have accelerated tapering and raised rates sooner," Mr Waller said. "But no one knew, and that’s the nature of making monetary policy in real time."

By early November, most policymakers had come around to the view that high and rising inflation would not drop quickly enough on its own, and business demand for workers was far outpacing a slow-to-recover labor market supply.

"It was at this point ... that the FOMC pivoted," Mr Waller said. The Federal Open Market Committee is the Fed's policy-setting body.

The conference featured several former Fed policymakers and economists who argued that the Fed had fallen so far behind the curve that it would almost surely end up causing a recession as it sought to catch up by raising rates faster.

Former Fed vice chairman of supervision Randal Quarles, who says he was the Fed's most hawkish member until Waller joined late last year, told the conference that in hindsight it's clear "it would have been better to start raising rates last September".

It wasn't a failure of nerve, or politics, or stupidity, he said on Friday. "It was a complicated situation with little precedent, and people make mistakes."

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UAE%20FIXTURES
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Company Profile

Company name: Fine Diner

Started: March, 2020

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Ruwais timeline

1971 Abu Dhabi National Oil Company established

1980 Ruwais Housing Complex built, located 10 kilometres away from industrial plants

1982 120,000 bpd capacity Ruwais refinery complex officially inaugurated by the founder of the UAE Sheikh Zayed

1984 Second phase of Ruwais Housing Complex built. Today the 7,000-unit complex houses some 24,000 people.  

1985 The refinery is expanded with the commissioning of a 27,000 b/d hydro cracker complex

2009 Plans announced to build $1.2 billion fertilizer plant in Ruwais, producing urea

2010 Adnoc awards $10bn contracts for expansion of Ruwais refinery, to double capacity from 415,000 bpd

2014 Ruwais 261-outlet shopping mall opens

2014 Production starts at newly expanded Ruwais refinery, providing jet fuel and diesel and allowing the UAE to be self-sufficient for petrol supplies

2014 Etihad Rail begins transportation of sulphur from Shah and Habshan to Ruwais for export

2017 Aldar Academies to operate Adnoc’s schools including in Ruwais from September. Eight schools operate in total within the housing complex.

2018 Adnoc announces plans to invest $3.1 billion on upgrading its Ruwais refinery 

2018 NMC Healthcare selected to manage operations of Ruwais Hospital

2018 Adnoc announces new downstream strategy at event in Abu Dhabi on May 13

Source: The National

How to register as a donor

1) Organ donors can register on the Hayat app, run by the Ministry of Health and Prevention

2) There are about 11,000 patients in the country in need of organ transplants

3) People must be over 21. Emiratis and residents can register. 

4) The campaign uses the hashtag  #donate_hope

Company%20profile
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Generational responses to the pandemic

Devesh Mamtani from Century Financial believes the cash-hoarding tendency of each generation is influenced by what stage of the employment cycle they are in. He offers the following insights:

Baby boomers (those born before 1964): Owing to market uncertainty and the need to survive amid competition, many in this generation are looking for options to hoard more cash and increase their overall savings/investments towards risk-free assets.

Generation X (born between 1965 and 1980): Gen X is currently in its prime working years. With their personal and family finances taking a hit, Generation X is looking at multiple options, including taking out short-term loan facilities with competitive interest rates instead of dipping into their savings account.

Millennials (born between 1981 and 1996): This market situation is giving them a valuable lesson about investing early. Many millennials who had previously not saved or invested are looking to start doing so now.

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Updated: May 07, 2022, 12:00 PM