US ECONOMY & POLITICS

Fed Signals Faster Pace of Rate Increases, Likely Bond Runoff – Wall Street Journal, 4/7/2022

• Federal Reserve officials signaled they could raise rates by a half-percentage point at their meeting early next month and begin reducing their $9 trillion asset portfolio as part of their most aggressive effort in more than two decades to curb price pressures.
• Minutes from the Fed’s March 15-16 meeting, released Wednesday, showed that many officials last month were prepared to raise rates by a half-point but opted for a smaller, quarter-point increase because of concern over the fallout from Russia’s invasion of Ukraine.
• “Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
• Officials neared agreement on a plan that, after a roughly three-month ramp-up, would allow up to $95 billion in securities to mature every month without being replaced.
• The minutes showed officials discussed allowing up to $60 billion in Treasurys and $35 billion in mortgage bonds to mature every month.
• That would allow the portfolio to run off considerably faster this time than last decade, when it shrank by up to $50 billion every month.
• Because higher mortgage rates are likely to lead to slower reductions in loan redemptions as refinancing plummets, officials also discussed plans to actively sell mortgage-backed securities at a later date to more quickly return their holdings to an all-Treasurys portfolio.

By One Measure, Rates May Still Need to Rise 300 Basis Points, Fed’s Bullard Says – Bloomberg, 4/7/2022

• Federal Reserve Bank of St. Louis President James Bullard said monetary policy benchmarks using “generous assumptions” suggest that the U.S. central bank may need to raise interest rates to about 3.5% to counter inflation that’s running far too high.
• “One concludes that the current policy rate is too low by about 300 basis points, according to this calculation,” Bullard said Thursday in prepared remarks at the University of Missouri. That could suggest, by that measure, the Fed is “behind the curve,” he said.
• Bullard cited a version of the Taylor Rule, a guideline developed by Stanford University’s John Taylor that uses inflation, the unemployment rate and an estimate of the neutral interest rate — a rate neither contractionary nor expansionary — to come up with his estimate for how high rates should go.
• Bullard said he expects growth of “a slower but still robust 2.8% pace in 2022,” despite a weak first quarter and impact from the Russian invasion of Ukraine. He said the unemployment rate may fall below 3% this year.

Mortgage Rates Continue to Rise – Wall Street Journal, 4/7/2022

• The average rate for a 30-year fixed-rate home loan edged higher to 4.72% from 4.67% a week earlier, mortgage-finance giant Freddie Mac said Thursday.
• That marked the weekly figure’s highest reading since December 2018.
• Over the past three months, the rate has increased by 1.5 percentage points, the quickest three-month increase since May 1994, Freddie Mac said.
• The average rate on America’s most popular home loan was 3.22% at the start of this year. It hit a record low of 2.65% in January 2021 and spent more than half of that year under 3%.

Senate Passes Bill Stripping Russia of Favored Trade Status – Wall Street Journal, 4/7/2022

• The Senate voted 100-0 to pass a bill Thursday stripping Russia of its most-favored-nation trade status and was set to next approve a ban on Russian oil imports to punish Moscow over its invasion of Ukraine, several weeks after the House cleared both pieces of legislation.
• The Suspending Normal Trade Relations with Russia and Belarus Act and the Suspending Energy Imports from Russia Act both overwhelmingly passed the House last month, but neither bill had moved in the Senate.
• The package of legislation would strip Russia and Belarus—a country closely aligned with Russia that has been used as a staging ground for its Ukraine invasion—of their most-favored-nation trade status, a step that would result in higher tariff rates on some imports from the countries.
• It would also ban Russian energy imports.
• The Senate also late Wednesday approved by voice vote legislation to more quickly enter into lend-lease agreements with Ukraine and Eastern European countries for military gear.
• GOP Sen. John Cornyn of Texas had been working to get that bill attached to the larger trade bill during negotiations.

Senate Set to Confirm Ketanji Brown Jackson to Supreme Court – Wall Street Journal, 4/7/2022

• The Senate was set to confirm Judge Ketanji Brown Jackson as the 116th Supreme Court justice on Thursday, making history in diversifying the bench while leaving unchanged the legal trajectory of a court where conservatives now dominate.
• Judge Jackson, 51 years old, will be the first Black woman to join the Supreme Court, fulfilling a campaign pledge by President Biden.
• Her expected confirmation has been celebrated as a groundbreaking moment by her backers and even some of her detractors, while the thin margin of the vote is set to underline how partisan the confirmation process has become.
• Mr. Schumer said that a procedural vote on the nomination will be held Thursday morning, followed by a final vote in the afternoon.
• Judge Jackson is set to take her seat on the high court after liberal Justice Stephen Breyer retires this summer.

U.S. Jobless Claims Fall to 166,000, Lowest Level Since 1968 – Wall Street Journal, 4/7/2022

• New applications for U.S. unemployment benefits fell last week to a near 54-year low as employers held on to workers in a tight labor market.
• Initial jobless claims, a proxy for layoffs, fell to 166,000 during the week that ended on April 2, compared with a revised 171,000 the prior week, the Labor Department said Thursday.
• The weekly total was the lowest since November 1968, when the labor force was less than half of its current size.
• Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, moved slightly up to 1,523,000 for the week ended March 26 from the previous week’s revised total.
• Continuing claims are reported with a one-week lag.

EUROPE & WORLD

Russia Sidesteps Sanctions to Supply Energy to Willing World – Bloomberg, 4/7/2022

• As Europe prepares to join the U.S. in hitting the Kremlin with tighter sanctions for its war on Ukraine, there are plenty of signs that Russia is finding ways to prop up its economy.
• Cargoes of Russian Sokol crude from the Far East have sold out for next month, and several Chinese firms used local currency to buy Russian coal in March. Gas flows from Russia to Europe have, if anything, increased since the invasion on Feb. 24. None of these are the subject of restrictions.
• Bloomberg Economics expects Russia will earn about $320 billion from energy exports this year, up by more than a third from 2021. The ruble has already rebounded to its pre-war price against the dollar.

Belarus Joins Russia Paying Rubles for Its Foreign Debts – Bloomberg, 4/7/2022

• Belarus will switch to servicing foreign debts from international aid banks in local currency after sanctions over its role in the invasion of Ukraine hampered payments.
• The government has been driven to using Belarusian rubles to service loans owed to the World Bank, the European Bank for Reconstruction and Development and the Nordic Investment Bank, it said in a statement on its official Telegram channel.
• The announcement follows President Alexander Lukashenko’s decree in March authorizing the use of the local currency for debt payments.
• The announcement comes a day after Russia’s Finance Ministry said it would process about $650 million of dollar payments on its bonds using Russian rubles after the U.S. Treasury this week halted dollar debt payments from the country’s accounts.

Shell Warns of Up to $5 Billion Hit From Russia Exit – Wall Street Journal, 4/7/2022

• Shell said it expects to book accounting charges of up to $5 billion in the first quarter related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC, in the wake of Russia’s invasion of Ukraine.
• Shell said on Feb. 28 that it would end its involvement in financing the Nord Stream 2 natural-gas pipeline project.
• Shell also said it would exit its 27.5% stake in a major offshore gas project in Russia’s Far East that is 50% owned by Gazprom and supplies around 4% of the world’s liquefied-natural-gas market.
• The company said at that time that the value of its noncurrent assets tied to its Russian ventures was about $3 billion.
• The range of expected charges Shell provided Thursday, of $4 billion to $5 billion, also includes other estimated knock-on impacts of quitting its Russian operations. Those include the possibility of unpaid contracts and other credit losses.

Egypt’s Foreign Reserves Fall as War Pressures Nation’s Finances – Bloomberg, 4/7/2022

• Egypt’s net international reserves dropped to $37.08 billion at the end of March from $40.99 billion the previous month, the central bank said Thursday, as the war in Ukraine pressures the North African nation’s finances.
• In a statement, Egypt’s central bank said the conflict between Russia and Ukraine had led it to temporarily mobilize its “excess foreign currency reserves to calm the markets during periods of exceptional stress.”
• The bank cited its mandate to maintain price stability, and said the move was similar to actions taken during the pandemic.
• The most populous Arab nation has requested discussions with the International Monetary Fund on new support that may include a loan.
• The central bank last month allowed the pound — which had been stable against the dollar for about two years — to weaken by more than 15%, and raised interest rates for the first time since 2017.

Yemen’s President Cedes Power Amid International Efforts to End Civil War – Wall Street Journal, 4/7/2022

• Yemen’s president handed over his powers to a leadership council on Thursday in a Saudi-backed move aimed at reviving negotiations with the Houthi rebels to end the country’s seven-year civil war.
• President Abed Rabbo Mansour Hadi also dismissed his vice president before leaving his own position. Both men were seen as obstacles by the Iran-allied Houthis and some of Saudi Arabia’s coalition partners to United Nations-led efforts to find a diplomatic solution to the conflict, which the international body says has caused the world’s worst humanitarian crisis.
• In a series of stage-managed moves early Thursday, Saudi Arabia endorsed Yemen’s new leadership, urged the start of peace talks and released a video of Crown Prince Mohammed bin Salman receiving the eight-man council at his palace in Riyadh.
• The country announced $3 billion of direct economic aid and $300 million for the U.N. humanitarian response.
• The fighting has devastated Yemen—sparking famine, a cholera outbreak and killing tens of thousands of civilians, including from errant coalition airstrikes.

Factmonster – TODAY in HISTORY

• Gen. Ulysses S. Grant defeated the Confederates at the battle of Shiloh. (1862)
• 5,000 suffragists march to the Capitol in Washington, D.C. , seeking the vote for women. (1913)
• U.S. secretary of commerce Herbert Hoover’s Washington speech was seen and heard in New York in the first long-distance television transmission. (1927)
• The World Health Organization, a UN agency, was founded. (1948)
• Hutu extremists in Rwanda began massacring ethnic Tutsis and politically moderate Hutus. In 100 days of killing, an estimated 800,000 are murdered. (1994)
• Vermont becomes the fourth U.S. state to legalize same-sex marriage, just days after Iowa becomes the third. (2009)