Powell: Balance between the risks of overheating and the need to maintain the growth

In one of his first speeches as the Fed leader, Jerome Paul talks about the need to balance between the risks of overheating the US economy and sustaining growth.
This confirmed that Powell would continue to pursue the Fed's policy of smooth interest rates hike, which was also led by Janet Yelan.
The rise in interest rates is expected to become a reality despite the addition of incentives resulting from tax cuts and government spending.
The Fed is expected to raise interest rates three times this year, as Powell made no further comments to drive investors and analysts the view that we can see more increases in interest rates.
The Fed will continue to look for a balance between avoiding overheating and bringing inflation to 2 per cent on an annual basis, Powell said in his first report to Congress as the head of the largest central bank in the world.
Powell commented on the good performance of the world and US economies in particular, as well as the fact that the level of inflation is still below 2%.
According to Powell, a gradual rise in interest rates in the future would be good for both Fed goals - to reduce the risk of overheating and to return inflation to target levels.
The Fed is expected to resort to the first interest rate rise under Powell over the next month.

Inflation expectations in the US have fallen

Inflation expectations in the US declined over the past month, according to a report by the New York Fed, published yesterday. Financial markets traditionally look at these reports as evidence of what inflation will be.
The survey of consumer expectations indicates a further gradual rise in interest rates. However, inflation is expected to be 2.71% next year compared to 2.82 the previous month.
The three-year value of expectations was 2.79% in January, which was also down from 2.89% previously. Both values ​​last month were the highest in a long time.
Data largely contradicts the government's January wage increase report, which raised inflationary expectations of the market as well as expectations for interest rate hikes from the Fed.
The Fed raised interest rates three times in the past year, despite the fall in inflation. At the same time, the reserve is expected to do so three more times this year.
In addition, the Fed is expected to begin gradually reducing its record balance, which will also exert an upward pressure on interest rates.

Inflation in the eurozone slows down

Inflation in the eurozone slowed down in the first month of the year, which reduced the expectations of a large part of the market for a more recent normalization of interest rate policy by the ECB.
The consumer price index rose 1.3% in the first month of the year, down from 1.4% a month earlier. This was the lowest level of inflation since July 2017, according to preliminary data from the euro area.
Inflation in the eurozone continues to be at levels below the target of the European Central Bank of 2%, which could be a serious challenge to Draghi's plans for normalizing interest rates and ending incentives soon.
Despite data, the euro continued to trade against the dollar at extremely high levels above 1.2450.
In fact, the euro is not strong, but the dollar is weak. Besides, shortly before the Fed's interest rate decision today. Analysts expect the reserve to keep interest rates unchanged, and their next increase to be left to the new Fed leader, Jerome Powell, who will replace Yellen next month.
A major role for low inflation in the eurozone for a month is energy prices. They rose in the first month of the year by 2.1%, following an increase of 2.9% in December.
A more robust rise of 1.9% was seen in food and tobacco products, which grew by more than 2% last month.

The ECB is still worried about low inflation

The European Central Bank is still worried about the low level of inflation in the eurozone despite the substantial improvement in its condition.
From the protocols of the bank meeting held on July 20, it is clear that, according to ECB officials, market participants are too aggressive in their expectations of the recent end of the stimulus.
This was affected the value of the euro, which in the last few weeks increased significantly compared to other major currencies.
Although inflation in the eurozone is growing at a good pace, with the latter accounting for 1.3%, this is still below the 2% target of the ECB, a level that is considered healthy for the economy.

Inflation in the euro zone accelerated in February

In February, inflation in the eurozone managed to exceed the target level of the ECB of just under 2 percent for the first time in four years thanks to a new rise in energy prices, showed final data from Eurostat, confirming preliminary assessment of European statistics.
The consumer price index (CPI) in the euro zone rose in February on a monthly basis by 0.4% and increased yoy by 2.0% after rising by 1.8% in January. This is the highest inflation in the region from January 2013 onwards, when it also increased by 2%.
Thus inflation in the euro zone managed to exceed, albeit small, medium-term target level of the ECB of just under 2 percent for the first time in four years.
Energy prices jumped in February by 9.3% annually, while prices of food, beverages and tobacco products rose by 2.5 percent from a year earlier, while prices of services increased by 1.3%. These data confirm that the sharp rise in inflation in recent months is due to the greatest extent of the solid growth of energy prices and a rise in food prices.
However, the main index of consumer prices (excluding prices of food, tobacco and energy) rose for the third consecutive month by 0.9%.

ECB expects a sharp rise in inflation

Inflation in the euro area will exceed 1% at the end of the year, reaching levels not seen since the end of 2013, while growth in the global economy will increase speed. It was said the European Central Bank's latest economic bulletin, released today.
In the medium term prospects for global business activity remain in favor of strengthening of economic growth, though at a pace that is below its pre-crisis levels. Overall growth in developed economies will be a little better and it seems that the economies of emerging markets will start to get away from the bottom, says ECB.
However, the global outlook remains overshadowed by the unfavorable impact of lower commodity prices on countries exporting goods. The rebalancing of the Chinese economy and uncertainty about future US policy after the inauguration of the new US president Donald Trump also will have their influence. It was underlined by the central bank, as today's economic bulletin is largely in line with bank's statement after the last annual meeting on 8 December.
The ECB reiterated that they stand ready to use all available financial instruments within itheir mandate and that if necessary they can make new changes both in size and in duration of the program for "quantitative easing".

S&P affirmed the ratings of the Russian Federation and improved the forecasts

International rating agency Standard&Poor's confirmed on Friday long-term sovereign rating of Russia at the level of "BB +" and improved its outlook to "stable" from "negative".
S&P said, that they are waiting for the growth of Russia's economy in the years 2017-19 by an average of 1.6 percent after an expected decline in GDP in the current year by 1%.
The agency expects that the economic growth in Russia is due to a slight recovery in oil prices and increased oil and gas sector in terms of volume as well as the rise outside of the oil sector, mainly related to household consumption.
S&P said that the outlook revision reflects the agency's opinion that the external risks for the Russian economy decreased significantly. It expects that the economy and the policy process in Russia will continue to adapt to the low oil prices.
According to S&P, the agency can raise the rating if the financial stability and the prospects for economic growth in Russia will improve more than it predicts, probably due to the softening of the sanctions against Russia because of countrys role in the Ukrainian conflict, or significantly stronger growth oil prices than currently expected.
Rating may be reduced if the geopolitical events will lead to a significant tightening of anti-Russian sanctions, and if GDP growth or the state budget or balance of payments seriously deteriorate compared to current forecasts.

Fed's rates raising back on the agenda

In response to the unexpectedly strong data on US labor market, dollar strengthened against most of its competitors. The release can be called truly impressive. In July, the employment rate for payrolls, excluding the agricultural sector, increased by 255 thousand, against the expected growth by 180 thousand. At the same time the previous two indicators were revised upward, bringing the average for the last three months amounted to an impressive 190 thousand.
No less noteworthy was the component of the average hourly and weekly earnings, which J. Yellen gives great importance. The indicator rose to 2.7% y/y, reaching a maximum of more than one year level. The increase in earnings gives hope for acceleration of inflation in the country, which is the second reference point for the Fed in determining the course of monetary policy. Thus, Friday's statistics unit immediately gives two arguments in favor of the fact that this year the regulator can still decide to raise borrowing costs.
As expected, the pair EUR/USD, which was trading near 1.1150, has responded to the report, falling under the mark of 1.11. Reaching the 8-day low at 1.1050, the euro has lost more than one figure. To improve the technical picture EUR/USD is now required to return above the mark of 1.11.

Zimbabwe will produce bank notes equal to US dollar

Zimbabwean authorities decided to issue banknotes, which will be equal to the US dollar at a ratio of 1:1, according to the British BBC Radio and Television.
This decision is due to a shortage of cash in the country of US dollars, which since 2009 in Zimbabwe are legal tender along with South African rand.
It is planned to print Zimbabwean own banknotes in denominations of two, five, 10 and 20 dollars, which will be equal to USD. Financial support for this idea of ​​the Zimbabwean authorities in the amount of $240 million came from the African Export-Import Bank.
Until 2009, the currency of Zimbabwe have been the Zimbabwean dollar, but due to the huge inflation, it was decided to abandon the national currency, to stop its release and move to settlements in US dollars and South African rands.