Colby Smith
@colbyLsmith
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@nytimes correspondent writing about the Federal Reserve and the US economy. Previously @FT, @TheEconomist, @BloombergTV. [email protected]
New York, NY
Joined February 2013
.@SenWarren to Powell: "You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with million of people out of work. I hope you will reconsider that before you drive this economy off a cliff"
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New @FT big read with @valentinaromei & Will Crofton on why America’s economy is soaring ahead of its rivals. US labour productivity has grown by 30% since the 2008-09 financial crisis, more than three times the pace in the Eurozone and the UK and far outstripping that of other
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First day in a new role at the @FinancialTimes, covering all things US economy, Federal Reserve, IMF and World Bank. Get in touch: colby.smith@ft.com.
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"Democrats have defied history tonight," @BenLaBolt tells @JamesPoliti. "The story of Joe Biden’s political career is that people always count him out and he always defies expectation and these midterms are another example of that" @FinancialTimes.
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Nearly 70 market participants parked $756bn at the Fed via its reverse repurchase programme today, a $235bn increase from Wednesday @FT
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In an interview with @FinancialTimes, @GitaGopinath of @IMFNews says the sanctions imposed on Russia could lead to a more fragmented int'l monetary system w/ small currency blocs emerging based on trade btwn separate groups of countries @Jonthn_Wheatley.
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Speaking to reporters on Tuesday, Treasury secretary Janet Yellen said the US is "monitoring developments very closely” in the UK @JamesPoliti.
Biting criticism from @IMFNews of the UK's fiscal plan comes as international criticism grows @FinancialTimes.
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Mary Daly of the SF Fed tells @lisaabramowicz1 that the recent surge in US Treasury yields is equivalent to roughly a rate hike, suggesting that if sustained, it could dim the need for another increase by the central bank.
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Federal Reserve announces emergency lending facility "to help assure banks have the ability to meet the needs of all their depositors"
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APOLLO: Events this past week correspond to a 1.5% increase in the Fed funds rate. In other words, over the past week, monetary conditions have tightened to a degree where the risks of a sharper slowdown in the economy have increased.
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Asked about UST illiquidity, Waller says it's about prices and compares it to selling pumpkins post-Halloween: "On Oct 31, the liquidity for pumpkins is very high. But on Nov 1, the market liquidity for pumpkins goes to zero. I'm not going to step in and try to fix [that] market".
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Policymakers at Jackson Hole traded last year’s angst about inflation/central bank credibility for fears that the upheaval of the last three years has rewired the global economy. "You don’t have to throw out the old playbook, but you do need new models".
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Fed cuts rates by 50bps and signals more cuts to come. Dot plot shows the funds rate falling to 4.25-4.5% this year, suggesting one more 50bp move or two 25bp cuts at the two remaining meetings this year. Another 100bps of cuts projected for next year.
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The Fed raises rates by 50bps and officials signal fed funds to rise to 5.1% next year. Seven policymakers saw the rate eclipsing 5.25%. Cuts expected in '24/'25 plus most forecast the unemployment rate eventually reaching 4.6%
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The @FT @ChicagoBooth poll Harris cited on Wednesday found that 70% of the economists surveyed thought Trump’s economic platform, if enacted, would be more inflationary. The same proportion thought his plan would lead to larger deficits
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On that hawkish pause, Fed veteran Vincent Reinhart describes it as a "policy mistake wrapped in a communication error". "They can’t sell it as a prudential delay of policy to await more info when the info you got led you to revise up your forecast 50bps"
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The Fed holds its benchmark rate steady for the first time in over a year following 10 consecutive increases, but signals its intention to implement two more hikes in '23 to lift the funds rate to 5.5-5.75%. Officials also raised their core inflation/growth forecasts for year-end
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Fed raises rates by 75bps to a target range of 3-3.25%. Officials see fed funds reaching 4.4% at year-end, suggesting one more 75bp hike this year, before peaking at 4.6% in '23. Unemployment set to rise to 4.4% with growth slowing. Core inflation still not at 2% target in '25.
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New big read w/ @katie_martin_fx on the mystery of QT's impact on markets. One investor warns it's "not a given" it'll be absorbed easily: "It feels like we’re embarking on this in a rather casual way. We’re watching very carefully. It makes us nervous."
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Emerging economies cannot "afford" a redux of the 2013 taper tantrum, @GitaGopinath at @IMFNews tells the @FinancialTimes in an interview
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"In all likelihood, this is the beginning of an easing cycle that is going to go a long way," Alan Blinder tells @FT ahead of a "momentous" meeting for the Fed. “If Powell achieves [a soft landing], he will go down in the Federal Reserve hall of fame"
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"Janet Yellen’s appointment will be universally welcomed, and rightly so, including by economists, foreign officials and markets, all of whom regard her as a highly experienced policymaker who delivered years of stability," says @elerianm @JamesPoliti @FT.
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Powell's message today is that rates are heading higher and poised to stay at a restrictive level for "some time". Says a soft landing will be "very challenging" and that failure to restore price stability is not an option @FinancialTimes
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In March, cracks emerged in the biggest, deepest and most essential bond market on the planet. @RobinWigg and I unpack what went wrong and why it matters.
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"Shrinkage of the central bank balance sheet is not likely to be an entirely benign process," warns NYU's Viral Acharya during his Jackson Hole presentation. Full paper here:
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At Jackson Hole, officials grapple with a changed economic landscape that is poised to make the job of central bankers more difficult. @GitaGopinath tells @FinancialTimes, “there’s a lot of humility in the room [about] what we know and what we don’t know”
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Central banks take further action on Sunday to improve dollar liquidity. Weekly operations via dollar swap arrangements will now be daily "at least through the end of April"
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Democrats put up an unexpectedly strong fight as results rolled in from US midterm elections, report @JamesPoliti & @LaurenFedor @FinancialTimes.
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Persistent inflation/monetary policy tightening is the top risk market participants polled by the Federal Reserve flagged, according to the central bank's latest financial stability report @FinancialTimes
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The Federal Reserve will have to wind down its pandemic-era stimulus programme quickly and raise rates in 2022 in response to higher inflation, according to a new @FT poll conducted with @ChicagoBooth's Initiative on Global Markets w/ @christinezhang
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Powell responds with an emphatic "no" when asked if he would resign if Trump asked him to leave.
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"The events in March have, if anything, strengthened the international role of the dollar," says @HyunSongShin at @BIS_org . w/ @katie_martin_fx @eva_szalay.
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Thrilled to join the team! A big thank you to @EricGPlatt, @JARennison, @katie_martin_fx, @RobinWigg, @adamsamson and the rest of the Markets fam for a fun few years.
Very happy to say that @colbyLsmith will be joining the DC bureau of the @FT starting this week as US economics editor including coverage of the Fed ! Welcome to the team Colby !.
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The Fed faces a close call next week over whether to cut rates by 25 or 50bps. Going big allows them to more quickly remove restraint on the economy and protect the labour market, but the communications might be challenging @FT.
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Evercore: "While the UK situation is idiosyncratic in many respects we see a larger lesson here for govts and investors globally: for a period at least, the bond market vigilantes are back." Says UK example reduces the risk that Italy’s new govt will take similar "reckless steps".
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Chart by @sam_learner showing the disproportionate impact that housing-related costs are having on the overall inflation rate .
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Officially back from parental leave and covering Powell's congressional testimony today. In opening remarks, he hails the "considerable progress" made in beating back inflation, although signals the Fed needs more good data before cutting rates
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Wall Street and Washington welcome Donald Trump’s pick of Scott Bessent for Treasury secretary, but warn of a challenging job ahead. "When you look at what will be on Bessent’s plate — selling Congress on huge debt and deficit expansion, dealing with a Fed which might be under
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"The financial system is being tested by the stresses that are being triggered by monetary policy tightening," @TobiasAdrian1 at @IMFNews tells @FT. "The risk going forward is that the situation could create more stressors for the financial system"
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For the week ending Wed March 15, US banks tapped the Fed's emergency facilities to the tune of $160bn, with record usage of the discount window and $12bn in loans via the new lending facility announced Sunday
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"The nature of scandals like this is that the damage only increases with every day that the public doesn’t hear the full story and how the Fed plans to fix it," says @KalebNygaard of the new disclosures from vice-chair Clarida about his trading activity
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The Fed says its new lending facility is big enough to cover all US uninsured deposits and that it is "prepared to address any liquidity pressures that may arise" . @FinancialTimes.
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The main takeaway today is that the Fed may soon call time on its rate-rising campaign. Powell said there's vast uncertainty re the economic impact from ongoing banking stress and that a pause was even considered
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On the campaign trail, Trump said if re-elected "incomes will skyrocket, inflation will vanish completely, jobs will come roaring back, and the middle class will prosper like never before". US voters have bought into that pitch, but many economists do not
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"I don’t want to see the economy weaken. I want to maintain the strength that we see in the economy and in the labour market," John Williams of @NewYorkFed tells @FT after a "very good" jobs report. The SEP showing two 25bp cuts is a "very good base case"
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The cost of buying insurance against a US default has shot to its highest level in more than a decade, in an early sign of market concerns about the political impasse in Washington over the debt ceiling @kateduguid @LaurenFedor
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Biting criticism from @IMFNews of the UK's fiscal plan comes as international criticism grows @FinancialTimes.
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Goldman on the X-date: "While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June." Previously they forecast early August.
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SVB's failure stemmed from weakened regulations during the Trump admin and missteps by internal supervisors who were too slow to correct management's blunders, the Fed concludes in its long-awaited review w/ @brookeamasters @stephengandel @markvdvd
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Elevated inflation will compel the Federal Reserve to raise US interest rates at least twice by the end of 2023, according to a new @FT poll conducted with @ChicagoBooth's Initiative on Global Markets -- w/ @christinezhang & @brookefox91
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Spoke w/ John Williams at @NewYorkFed for the @FT Economists Exchange series. To get inflation to 2%, he forecasts "pretty slow growth" and the unemployment rate eventually peaking at 4.5%. Further tightening is needed, even though policy lags are in play
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Why the Fed opted to go big @FT . "It was taking out some insurance to prolong what is a very good place to be in the economy," Peter Hooper, who worked at the Fed for almost 30 years, says of the 50bp cut. "Powell wants to assure the soft landing".
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Fed minutes: "Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2 percent"
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Raphael Bostic of @AtlantaFed tells reporters his baseline is a 75bp rate rise in November and a 50bp hike in December: "I'm just going to have that as a starting point and let the data and the reality take me where they will".
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New @FT piece on buoyant US consumers again defying odds of a more substantive retrenchment to fuel explosive growth over the summer. But such a blistering pace will be difficult to sustain going forward, warn economists.
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As the SVB fallout continues, despite emergency measures announced yesterday by the US gov't, attention has turned to regulators who oversee the financial system and how the country’s 16th-biggest bank was allowed to become so vulnerable. w/ @stef_palma.
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Powell: My base case is that the economy can return to 2% inflation without a really significant downturn or a really big increase in unemployment.
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Fed trading scandal reignited as Atlanta's Bostic is found to have violated the rules. The Board's ethics officer said he filed "materially incomplete annual disclosures during all prior years in office". Transactions were also made during blackout periods
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Powell reiterates that the FOMC's baseline is that cuts will not be appropriate this year.
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A top concern raised at Jackson Hole was what to do about ballooning public debts. @pogourinchas of @IMFNews told @FT another shock requiring big fiscal aid could pose problems for US/Europe. "We don’t have an insurance policy anymore. We are at the edge".
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Powell uses his Jackson Hole speech to deliver his most hawkish message to date about the Fed's commitment to restore price stability. Harking back to the '70s, he hit back at concerns the Fed lacked the resolve to squeeze the economy to root out inflation
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Powell's message today is that there is still a ways to go in this policy tightening cycle. He warned there could be more upward revisions to the terminal rate forecast, which now points to the funds rate peaking at 5.1% next year @FinancialTimes
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"An argument can be made for 50bps but the communications around that are complicated and there isn’t a compelling reason to take on that challenge," fmr Cleveland Fed president Loretta Mester tells @FT.
The Fed faces a close call next week over whether to cut rates by 25 or 50bps. Going big allows them to more quickly remove restraint on the economy and protect the labour market, but the communications might be challenging @FT.
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Economists are anticipating what they say could be one of the worst jobs reports of Biden’s presidency this Friday, just ahead of the election. Storms/strikes are set to temporarily obscure what @marthagimbel says is an "incredibly healthy" labor market
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Excited to continue working with @JamesPoliti and the rest of the team! Any thoughts on the US economy, Federal Reserve, IMF or World Bank? Email me here: colby.smith@ft.com.
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Within the space of two months, JPMorgan turned from First Republic adviser to depositor to buyer. Our @FT piece on the race to resolve the second-largest bank failure in US history, with @JamesPoliti @JFK_America @brookeamasters @stephengandel .
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Jay Powell is set to speak next Friday at 10:05am ET in Jackson Hole. The Fed chair is expected to leave the door open to additional tightening even though some officials seem cautious about further hikes. He is also expected to tout a commitment to a higher for longer stance.
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Investors are trapped in what @elerianm calls a "massive tug of war" between pricing in the spectre of renewed economic pain and the "light shining brighter at the end of the Covid tunnel with the vaccine"
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Some 50 money market funds and banks parked $485.3bn at the Fed through its RRP facility, underlining the dearth of options for investors given the collapse in yields for the ultra-safe, short-term securities that they typically invest in @FT @EricGPlatt
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Pimco, BlackRock and Franklin Templeton are among firms snapping up US inflation-linked bonds, as the Fed embraces the idea of letting consumer price-rises run above target w/ @jennablan.
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SCOOP: Venezuela's opposition gov't plans to treat equally creditors ensnared in the country’s $150bn web of defaulted debt. No preferential treatment to creditors with court judgments. w/ @RobinWigg .
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"The ethics rules were not written for a moment like in the spring of 2020," says former Fed staffer @Claudia_Sahm. "It absolutely wasn’t enough when the Fed was doing emergency meetings and financial markets were in incredible distress" @FinancialTimes.
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New @FT big read with @senoj_erialc and @JamesPoliti on Trump's plan to reshape America's economy, featuring aggressive tariffs on imports from around the world, a draconian crackdown on immigration and tax cuts
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Hard to see how recent events helps the odds of a soft landing, Chair Powell says. "That pathway exists and we are certainly trying to find it".
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In prepared remarks, John Williams at @NewYorkFed says the unemployment rate could reach 5% next year as the Fed prioritizes its fight against inflation
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Powell's overarching message today is that even if the Fed slows the pace of rate rises, it is not backing down from its fight against inflation and its too premature to be thinking about a pause: "We've got some ground left to cover here, and cover it we will".
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New big read on the high stakes for the Fed as it charts the next phase of tightening. As @jc_econ put it: "It’s one thing to be starting from zero and playing catchup, its another to be in the territory where you're clearly closer to a restrictive stance"
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Speaking to @greg_ip, Janet Yellen says it would be a "mistake" for Trump to comment on Fed policy and take steps to compromise its independence. She warns it will "undermine the confidence of financial markets". Asked about the deficit, she said she is concerned about debt.
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Waller on the inflation forecast: "I got burned last year. We all did, and I'm cautious about getting burned again." Says if MoM inflation comes down to 0.3% and stays that way, "we're not making progress".
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The worst of the global inflation shock may be behind central bankers as they descend on Jackson Hole this week, but policymakers are wary of declaring victory. "They’re really in a place where they have to feel their way forward carefully".
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Zambia, Ecuador and Rwanda have announced recently they are struggling to repay their debts. Many other developing countries are not too far behind. But resolving these debt workouts will be harder than in the past. Big read w/ @RobinWigg @FT.
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Here’s the full @FinancialTimes write-up
The World Bank (!) warns that interest rate hikes by central banks in advanced economies are “ill-suited to address the supply-related inflationary pressures that are driving a significant portion of the recent inflation surge.“
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Ahead of Friday's jobs report, @TaylorNRogers, @evawxiao and I looked at the rebound in labor force participation among US mothers. "It’s not just that women are benefiting from a strong labor market, they’re also driving the strength of the labor market".
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The week central banks moved "from whatever it takes to whatever it breaks" w/ @katie_martin_fx @TomStub @MAmdorsky @FinancialTimes.
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Thrilled to have @senoj_erialc covering for me while I’m on parental leave! Reach out to her at claire.jones@ft.com for all things Fed, US economy, IMF and World Bank.
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Rising oil prices pose fresh headache for president Biden. "The danger for the White House is that rising gasoline prices have the power to reverse the sense that the situation is improving and inflation is coming down" w/ @OilSheppard @mylesmccormick_
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The IMF has now said Afghanistan cannot access the SDRs or other IMF resources.
The Biden administration has already blocked Taliban access to any Afghan central bank reserves held in US banks, and Republican lawmakers are now looking to stop some $460m of SDRs set to be disbursed by the IMF on Monday.@FinancialTimes.
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"You are gambling with people's lives", @SenWarren tells Powell as she highlights the costs of the Fed's hikes. Asked if Americans are just supposed to "bear it", Powell said: "Will working people be better off if we just walk away from our jobs and inflation remains above 6%?".
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The US will provide $20bn as part of a G7 loan to Ukraine using proceeds from frozen Russian assets, confirming @FT reporting last week. At least half (if not all) of the money will be provided this December
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Goldman changes its call to no hike at the March FOMC meeting (previously say a 25bp move). "In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March"
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Fed gov Chris Waller backs a 25bp hike at the next meeting and spells out a "case for cautious optimism" about the inflation outlook, even as he warns there's still a "considerable way to go" to get to the 2% target. "I expect to support continued tightening of monetary policy."
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"Everything points in the same direction when it comes to monetary policy, which is the need to cool down the economy to bring down inflation," @GitaGopinath of @IMFNews told @FT in an interview on the WEO update @ChrisGiles_.
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In an interview with the @FinancialTimes on Friday, Thomas Barkin of @RichmondFed says he is "open to any outcome" for the upcoming policy meeting. "Just because you’ve moved it 25 at one meeting doesn’t mean that is what you have to move at every meeting"
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Powell/Clarida cleared in probe investigating top officials' trading activities, but the gov't watchdog found that Clarida failed to report several trades and that a FA of a Powell family trust executed 5 trades during blackout before the Dec '19 meeting
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Kamala Harris is already embracing the most popular parts of Biden’s economic agenda and legislative wins while drawing a sharp contrast with Trump’s proposals — and hoping that she will be less tarnished than the president by high inflation.@JamesPoliti.
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