Fed Policymakers Signal Rate Cuts Ahead, But Not Because of Market Rout

The Federal Reserve Board building on Constitution Avenue is pictured in Washington, US, March 27, 2019. REUTERS/Brendan McDermid/File Phot
The Federal Reserve Board building on Constitution Avenue is pictured in Washington, US, March 27, 2019. REUTERS/Brendan McDermid/File Phot
TT

Fed Policymakers Signal Rate Cuts Ahead, But Not Because of Market Rout

The Federal Reserve Board building on Constitution Avenue is pictured in Washington, US, March 27, 2019. REUTERS/Brendan McDermid/File Phot
The Federal Reserve Board building on Constitution Avenue is pictured in Washington, US, March 27, 2019. REUTERS/Brendan McDermid/File Phot

Federal Reserve policymakers are increasingly confident that inflation is cooling enough to allow interest-rate cuts ahead, and they will take their cues on the size and timing of those rate cuts not from stock-market turmoil but from the economic data.
That was the shared message of three US central bankers speaking on Thursday who otherwise had slightly different takes on exactly where the economy stands a week and a day after they decided to hold the policy rate steady but signaled a reduction as soon as next month, Reuters said.
A jump in the July US unemployment rate reported on Friday helped spark a global stock market rout that continued into Monday before equities partially recovered, as investors and analysts worried the US was headed for a recession and the Fed would need to react aggressively.
"It's hard to make the case that something has just happened that is monumental on the equity side," Richmond Federal Reserve Bank President Thomas Barkin said on Thursday, noting major US stock-market indices are still up from the start of the year.
More to the point on policy, he said at a virtual event put on by the National Association for Business Economics, is "all the elements of inflation seem to be settling down (and) I'm relatively hopeful based on the conversations I'm having that that's going to continue."
Those same conversations with business leaders also suggest the cooling in the US labor market is coming from slower hiring rather than a rise in layoffs, he said.
"I think you've got some time in a healthy economy to figure out whether this is an economy that's gently moving into a normalizing state that will allow you to, in a steady deliberate way, normalize rates or ... is this one where you really do have to lean into it."
Kansas City Fed President Jeff Schmid, one of the US central bank's more hawkish policymakers, also took note of the recently roiled financial markets.
"Financial conditions can both reveal important information on the trajectory of the economy and can also spillover to impact the real economy," he said in remarks prepared for delivery to the Kansas Bankers Association's annual meeting in Colorado Springs, Colorado. "However, the Fed has to remain focused on achieving its dual mandate" of full employment and price stability.
On that score, he said, recent "encouraging" data showing inflation around 2.5% gives him more confidence inflation is headed to the Fed's 2% goal.
"If inflation continues to come in low, my confidence will grow that we are on track to meet the price stability part of our mandate, and it will be appropriate to adjust the stance of policy," he said.
Schmid described the economy as resilient, consumer demand as strong, and the labor market as noticeably cooling but still "quite healthy," and said he views the current policy stance as "not that restrictive."
"With the tremendous shocks that the economy has endured so far this decade, I would not want to assume any particular path or endpoint for the policy rate," he said.
Chicago Fed President Austan Goolsbee on Thursday reiterated his view the central bank's policy is tight, and that to leave borrowing costs where they are even as inflation falls is to make it even tighter, risking harm to the labor market.
But like his more hawkish counterparts, Goolsbee said the stock market, and the upcoming presidential election, would not determine Fed policy.
"The Fed's out of the election business. The Fed is in the economic business," Goolsbee said in an interview on Fox News. "We're not in the business of responding to the stock market. We're in the business of maximizing employment and stabilizing prices."



Three Factors Drive Record Profits for Saudi Banks

The National Commercial Bank (NCB) continued to hold the largest share of the total net profits among banks listed on the Tadawul (AFP)
The National Commercial Bank (NCB) continued to hold the largest share of the total net profits among banks listed on the Tadawul (AFP)
TT

Three Factors Drive Record Profits for Saudi Banks

The National Commercial Bank (NCB) continued to hold the largest share of the total net profits among banks listed on the Tadawul (AFP)
The National Commercial Bank (NCB) continued to hold the largest share of the total net profits among banks listed on the Tadawul (AFP)

Saudi banks posted their highest-ever quarterly profits in Q2 2024, with net earnings up 13% from the same period last year.

Analysts attribute this boost to three main factors: a rebound in lending and financing, increased deposits, and lower credit provisions. They expect this strong performance to continue in future quarters.

The ten listed Saudi banks reported a 13% rise in net profits, reaching SAR19.54 billion ($5.2 billion) for Q2 2024, up from SAR17.27 billion ($4.6 billion) in Q2 2023.

The National Commercial Bank (NCB) led with the highest share of profits, earning SAR5.23 billion, a 4.3% increase from the previous year. Al-Rajhi Bank came second with SAR4.69 billion, a 13.2% rise year-on-year.

Riyad Bank reported SAR 2.33 billion in profits for Q2 2024, a 17.93% increase from the same quarter last year. Alawwal Bank saw the highest growth rate, with profits up over 30% to SAR 2.02 billion.

Thamer Al-Saeed, Head of Asset Management at Rasana Financial, cited three key reasons for the record profits: The return of active lending, increased deposit volumes, and reduced credit provisions. He believes these trends will continue to boost bank profits in the coming quarters.

Mohamed Hamdy Omar, CEO of G-World, noted that the banking sector is likely to see further profit growth due to rising income from commissions and loans.

He highlighted the positive outlook for the sector, driven by ongoing projects and government initiatives to support business and infrastructure development in Saudi Arabia.