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."



Western Insurers Provide Cover for Russian Oil despite Price Cap Concerns

An aerial view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Picture taken with a drone. REUTERS/Tatiana Meel/File Photo Purchase Licensing Rights
An aerial view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Picture taken with a drone. REUTERS/Tatiana Meel/File Photo Purchase Licensing Rights
TT

Western Insurers Provide Cover for Russian Oil despite Price Cap Concerns

An aerial view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Picture taken with a drone. REUTERS/Tatiana Meel/File Photo Purchase Licensing Rights
An aerial view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia June 13, 2022. Picture taken with a drone. REUTERS/Tatiana Meel/File Photo Purchase Licensing Rights

A group of Western insurers have provided cover for tankers carrying Russian crude, keeping its oil flowing after many in the trade sector withdrew for fear of breaching the rules of a G7 price cap, data from traders and shippers shows.

The data seen by Reuters showed that five insurers, including American Club, Luxembourg-headquartered West of England and Norway's Gard, provided cover for 10 tankers that sailed from Russia to Asia this year.

American Club and West of England provided insurance for two vessels - the Gioiosa and the Orion I - that made similar voyages in early 2024.

Both vessels took on board crude from the state-owned Russian oil company Rosneft in Russia's Baltic and sailed to China, the data showed.

American Club said the ship, which flew the Panama flag, was on its cover list. West did not comment on specific tankers.

Norway's Gard, which data showed covered a separate vessel, also declined to comment on specific ships.

The three non-profit mutuals, who insure ships against oil pollution, injury and loss of life, say they are providing a service to their members.

The extent of the ongoing provision by Western insurers in covering specific Russian oil deals has not been previously reported since the cap was imposed in 2022 following the war in Ukraine.

The cap, imposed by the Group of Seven industrialised nations and their allies to curb Moscow's ability to finance the war, only allows Western insurers and ships to participate in Russian oil trade if the oil is sold below $60 a barrel.

Many of those who stopped trading such cargoes said they were doing so because they could not be certain about the price of the oil carried by the ships they were insuring.

Russia, which has banned its firms from complying with the price cap, sold its flagship Urals crude at Baltic ports for an average of $69.4 per barrel so far this year, well above the price cap, LSEG data shows.

Insurers and ship owners are not expected to investigate the price.

Instead, Western enforcement agencies including the U.S. Treasury require insurance companies to request so-called attestations from the parties that buy and sell the crude that the oil changed hands below the price cap.

- 'FLAWED' PROCESS

The International Group (IG) of P&I Clubs - which provides insurance for 90% of the world's fleet - said in April the attestation process was flawed and risked exposing its members to breaches of the price cap.

The IG did not respond to a request for comment on the risks for this story.

The insurers identified by Reuters said separately they rely on the attestation letters from the participants in the trade that all work was legal and complied with Western sanctions.

Reuters could not contact any of the parties as they were not named due to commercial confidentiality.

IG member American Club said it did not have direct access to price information when providing cover for the Gioiosa tanker.

Gard said it relied on price cap attestation and was also checking additional sources of data and information. Both companies referred further questions on the cap to the IG.

The other insurance providers for Russian oil included Maritime Mutual from New Zealand and IG member London P&I Club, Reuters research based on the shipping and trading data showed.

Maritime Mutual and London P&I did not respond to a request for comment on the potential risks.

However, Maritime Mutual, which is not part of the IG group, provided Reuters with a copy of its Russian oil insurance policy and a blank copy of an attestation letter which states that coverage will be withdrawn if a shipment violates the price cap.

The letter asks a company seeking cover – usually a charterer or a shipper - to tell its insurer the name of the vessel, its port and date of loading and discharge.

It asks the charterer to attest the shipment is in compliance with the price cap but does not require inclusion of the price paid anywhere in the attestation.

West also told Reuters the price cap regime treats ship owners and insurers as indirect participants of the transactions, known as tier three, hence they are not obliged to verify prices.

"The charterer/trader will never give away that (price) information and give away their margins," Tony Paulson, West's head of Asia and corporate director, told a Lloyd’s List podcast last month.

Gard, West P&I, American Club said they would end the cover if information emerged that the attestation was inaccurate and the price was above the cap.