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Fed Chair Says Conditions Have Met Expectations

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Federal Reserve Chair Janet Yellen said she’s confident in the outlook for economic growth and warned that waiting too long to end the era of near-zero interest rates could force the central bank to tighten too quickly, which would risk disrupting financial markets and the six-year expansion.

“Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” Yellen told the Economic Club of Washington on Wednesday. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”

Her comments are the latest sign that the policy-setting Federal Open Market Committee is poised to raise interest rates for the first time since 2006 at its Dec. 15-16 meeting in Washington. Fed officials have been trying to gauge whether the economy is headed toward their goals and can sustain growth as rates increase.

“On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Yellen said Wednesday. That “helps strengthen confidence that inflation will move back to our 2 percent objective over the medium term.”

Yellen emphasized that policy makers will receive a range of data on the labor market, inflation and economic activity between now and the December meeting that will influence their decision.

‘Mind Is Set’

Even so, “you come away thinking that her mind is set on a rate hike in December,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities LLC in New York. “We got the sense from her that what she’s seen so far is that the economy can handle that initial rate hike.”

The Fed’s Beige Book economic survey, released later Wednesday, showed a “modest” pace of expansion across most of the U.S. in October and November amid rising consumer spending. Pay gains were described as “generally stable to increasing,” with most districts saying wage pressures were only building for skilled workers and employees in short supply.

The yield on 10-year Treasury notes climbed from a one-month low and the dollar hovered near the highest in more than a decade as investors reacted to Yellen’s remarks, which also pointed to recent improvements in the labor market and wages as positive signs.
“We have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector,” she said. “While it is too soon to conclude whether these more rapid rates of increase will continue, a sustained pickup would likely signal a diminution of labor market slack.”

Stronger Jobs

U.S. employers added 271,000 jobs in October, the most this year, and unemployment has dipped to 5 percent, half of its 2009 peak. The Labor Department’s gauge of average hourly earnings has shown early signs of picking up, with 2.5 percent year-over-year growth in October, the highest since 2009. The final employment report before the December meeting is scheduled for release on Friday in Washington.

Inflation remains subdued, though, and the Fed’s preferred gauge hasn’t hit policy makers’ 2 percent goal since 2012. Yellen signaled confidence that price pressures may be moving up, referencing core inflation rather than the headline index the Fed prefers.

“It appears that the underlying rate of inflation in the United States has been running in the vicinity of 1-1/2 to 1-3/4 percent,” Yellen said, once the core data are adjusted for downward pressure from low oil prices and a stronger dollar. She noted that policy makers are paying close attention to indicators of inflation expectations, some of which have shown deterioration recently.

The initial rate liftoff is expected to be small, just 25 basis points, and Fed speakers including Yellen have emphasized that the pace of tightening going forward is more important than the timing.

Below Normal

“The Committee anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” Yellen said Wednesday.

Yellen said the neutral interest rate — the one that neither stokes nor slows the economy — seems to have declined in the wake of the financial crisis, and its future path is uncertain. That could have implications for the pace of increases and ultimate level of the central bank’s main interest rate.

“If the Fed now thinks, as Yellen illustrated today and as the October FOMC minutes indicated, that the neutral real rate is close to zero, there is no way in the world the Fed will get even remotely close to 3.5 percent in this cycle,” Roberto Perli, a former Fed official who’s now a partner at Cornerstone Macro LLC in Washington, wrote in a note to clients. That number, 3.5 percent, is the median longer-run projection for the rate that Fed officials submitted in September.

Yellen sounded optimistic on the international outlook, saying China, which has seen growth slow this year, has taken actions to stimulate its economy and noting that other emerging-market economies are also easing monetary and fiscal policy. She said activity in those places has improved, and accommodative policy in advanced economies is also helping to support growth.

“A pickup in demand in many advanced economies and a stabilization in commodity prices should, in turn, boost the growth prospects of emerging market economies,” Yellen said.

Yellen will have another chance to elaborate on her outlook in testimony Thursday before Congress’s Joint Economic Committee.

Bloomberg

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

China and Brazil Move Away from US Dollar in New Trade Deal

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China and Brazil have struck a new trade deal that will allow them to trade in their own currencies, bypassing the need for the US dollar as an intermediary.

This agreement marks a significant move by China to reduce its reliance on the dollar and establishes the country as a formidable rival to the US in the global economy.

The deal was announced by the Brazilian government on Wednesday and will enable the two nations to conduct their financial transactions directly, using Chinese Yuan for Brazilian Real and vice versa.

Brazil’s biggest trading partner is China with bilateral trade worth a record USD 150.5 billion in 2022.

For Brazil, this deal represents a significant shift away from the traditional reliance on the US dollar as the world’s primary currency. According to the Brazilian Trade and Investment Promotion Agency, ApexBrasil, the agreement is expected to reduce costs and promote even greater bilateral trade.

The move away from the US dollar as an intermediary in international trade could have far-reaching implications for the global economy. Other countries may follow suit and start conducting their trade and financial transactions in their own currencies, potentially undermining the dollar’s position as the world’s primary currency.

This is not the first time that China has taken steps to reduce its dependence on the US dollar. In recent years, the country has been promoting the use of the yuan in international trade and investment, and has signed currency swap agreements with other countries to facilitate trade in their own currencies.

The shift away from the US dollar comes at a time of growing tensions between China and the US, with both countries engaged in a trade war and competing for global influence. As China seeks to establish itself as a major player in the global economy, this move is just one example of the country’s efforts to assert its economic power and challenge the dominance of the US.

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Economy

Nigeria’s External Reserves Receive $1 Billion Boost from Oil Sales and Exports

Nigeria’s external reserves grew by $1.063 billion within 24 hours on March 28, 2023 to $36.668 billion in a move suspected to be inflow from the proceed of crude oil and exports.

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Nigeria’s external reserves have received a significant boost of $1 billion from oil sales and exports, according to recent reports.

The increase resulted in a 0.11% appreciation in Naira value on Wednesday as the Naira to United States Dollar exchange rate moderated from N461.75 it closed on Tuesday to N451.24 at the Investors and Exporters (I&E) forex window.

However, despite the positive news, currency dealers maintained bids between N459.50 (low) and N462.13 (high) per dollar. At the parallel market, also known as the black market, the local currency traded at N744 per dollar on Wednesday.

Analysts at the FSDH research have predicted that the Nigerian Naira will continue to face pressure from high import costs and demand for foreign currency by businesses and individuals. However, they expect the Central Bank of Nigeria (CBN) to continue intervening in the FX market to contain the pace of depreciation.

Nigeria’s external reserves grew by $1.063 billion within 24 hours on March 28, 2023 to $36.668 billion in a move suspected to be inflow from the proceed of crude oil and exports.

The decline in external reserves from US$37.1 billion in January 2023 to US$36.1 billion on March 15, 2023, has been attributed to interventions in the FX markets and limited foreign exchange inflows. However, rising oil production in recent months raises the prospect of reserves accretion in the second half of 2023, according to analysts.

The scarcity of foreign currency in the official market coupled with a high exchange rate of N745/US$ in the parallel market continues to drive high input costs and imported inflation.

It remains to be seen how the country will navigate these challenges in the coming months.

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Economy

Rivers State Customs Service Generates Over N54 Billion in Q1 2023

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Nigeria Customs Service

The Nigeria Customs Service, Area 2 Command in Onne, Rivers State realised N54.992 billion in revenue in the first (Q1) of 2023. 

According to the Command Controller, Comptroller Baba Imam, this amount realised is part of the N336 billion revenue projected for 2023.

Imam revealed this information while addressing journalists in Onne, Eleme Local Government Area of Rivers State on Tuesday.

This represents an increase of N1.133 billion when compared to the amount generated in the first quarter of 2022.

Imam revealed that the command made several seizures, which he stated is a reflection of their commitment to facilitating only legitimate trade in accordance with extant laws.

The seizures included 24 containers carrying refined vegetable oil, two containers carrying 1,165 cartons of Analgin injection and fireworks, and one 20ft of machete that was detained on documentation grounds until an end-user certificate was provided.

The duty-paid value of the seized containers was N94,652,168.39 million, while the duty-paid value of the seized vegetable oil containers was N833,172,538.42.

Imam stated, “In revenue generation, the command was given a target of N336 billion as revenue target for 2023.

“As of today, the command has generated a total revenue of N54, 992,123, 687.15 billion which transits to 16.3 per cent of the target. When compared to the same period last year, the Command has an increase in revenue of N1,132, 925, 556.82bn.

“This figure was realized in spite of not having vessels berth in Onne Port for some time due to the election atmosphere. We look forward to a continuous rise in revenue generation in the coming months as we expect vessels to berth on our coastline within the next few weeks.”

Speaking further on the command’s anti-smuggling activities, he said within the past few weeks, there has been a lot of seizures.

“This is made visible with the display of a total number which comprises 26 seized containers and one detained container for violation or contraventions of various customs laws and breach of procedures as provided under the revised import prohibition guidelines Schedule 3 Article 4 of the Common External Tariff 2022-2026 as well as Section 46 paragraph (b), (d), (e), (f) and 169 of Customs and Excise Management.

“Twenty four containers laden with refined vegetable oil comprising a total of 24,860 gallons of 25 and 10 litres of La-Jonic vegetable oil. Also seized were other two containers laden with 1,165 cartons of Analgin injection and fireworks with other items.”

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