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With bond-buying ‘taper’ in the bag, Fed turns a wary eye to inflation



November 3, 2021

By Howard Schneider

WASHINGTON (Reuters) – The Federal Reserve on Wednesday is expected to detail plans to end its pandemic-era bond purchases by mid-2022 as policymakers shift their focus towards what, if anything, to do about a surge in inflation that is lasting longer than anticipated.

U.S. central bankers, in the minutes of their Sept. 21-22 meeting, signaled that a “taper” of the $120 billion in monthly asset purchases would be approved at this week’s gathering of the policy-setting Federal Open Market Committee.


What the minutes described as an “illustrative tapering path” would trim the purchases by $15 billion per month beginning in November or December, a pace and starting point that would end the program by June or July.

(For graphic on Fed balance sheet by era –

Of more note now is how the Fed changes other parts of its policy statement, and particularly its description of inflation as “largely reflecting transitory factors.”

Fed officials still largely hold that view. By some time in 2022 they anticipate that global supply bottlenecks will have eased, pandemic-fueled demand for goods among U.S. consumers will cool after massive spending on cars, motorcycles and appliances, and enough people will be pushing to return to jobs that the pace of wage and benefit increases will also subside.

But in recent weeks Fed officials have acknowledged the risks to that outlook. The jump in inflation this year has already lasted longer than anticipated; headline rates are running at twice the Fed’s 2% target; and rising rents, low business inventories, and large numbers of workers still waiting on the sidelines may mean the high pace of price increases will continue for now.


(For graphic on “Broad-based” or not? “Broad-based” or not? –

The dilemma facing the U.S. central bank is whether inflation eases before policymakers feel compelled to step in with interest rate increases to curb it. Investors are acting as if the Fed’s patience will run out soon.

The Fed cut its overnight benchmark federal funds interest rate to the near-zero level last year in a bid to stem the economic fallout of the pandemic. Trading in federal funds futures currently show investors expecting up to three quarter-percentage-point rate increases in 2022; Fed officials as of September were split over whether there would even be one.

“Will they hold on to the transitory description of inflation? My best guess is they will,” in order to keep their commitment to support the economic recovery until the economy is closer to full employment, said Aneta Markowska, an economist at Jefferies. “If they were being intellectually honest they would probably drop it, but given what is happening in the market the Fed has to tread carefully.”

Push back too hard on the current market expectations, by emphasizing the 5 million U.S. jobs still missing from before the pandemic, and it could “unhinge” the market outlook for inflation, she noted. Lean too hard on inflation risks, and it could push rate hike expectations even higher, begin to restrict credit and borrowing, and slow the recovery.



The Fed is due to release its policy statement at 2 p.m. EDT (1800 GMT). It will not issue new economic forecasts, so beyond the statement it will be up to Fed Chair Jerome Powell in his news conference half an hour later to strike a balance between the two sides of the central bank’s mandated goals of achieving maximum employment and stable prices.

This will be a critical communications moment for Powell whose term as Fed chief ends in February 2022. The White House has yet to announce whether the former investment banker will be reappointed to a second term.

Through much of the pandemic, Powell’s bias – and that of most other Fed policymakers – has been in favor of the job market, in line with the central bank’s new strategic approach to allow more risks with higher inflation in order to push job growth as high as possible.

The Fed currently says it will not raise rates until inflation has not just risen to its 2% target, but is on track to exceed it “for some time,” so that the 2% level is maintained on average following years in which it ran low.


That phrase has not been quantified in terms of how much or how long an overshoot of inflation is intended. While Fed policymakers have generally described achievement of the inflation benchmark as still “a ways off,” a few have noted that the averages are creeping higher already.

(For graphic on Inflation, on average Inflation, on average –

The labor market rebound has also taken on a different course than Fed officials expected. Despite near-record numbers of job openings, labor force participation is improving only slowly – with workers by choice or family necessity taking more time to return to jobs, and using savings elevated by pandemic benefit payments to cover the bills in the meantime.

The employment-to-population ratio is still 2.4 percentage points below where it was at the outset of the pandemic in February 2020, less than half the ground needed to be covered to return to the previous level.

(For graphic on The jobs hole facing Biden and the Fed –


The discussion over the taper of the Fed’s purchases of U.S. Treasuries and mortgage-backed securities will likely end on Wednesday with the central bank declaring that the economy has made “substantial further progress” in healing from the pandemic.

(For graphic on “Substantial further progress” for the Fed? –

The debate will then turn to how much more the job market can improve, how fast it can be done, and whether COVID-19 has changed the economy in ways that mean higher inflation with fewer people working.

“If the Fed projects that inflation will not revert to target within a reasonable amount of time, then the Fed could step up the tightening schedule even if employment is short of the mandate,” Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote ahead of the policy decision. “The Fed could tell this story after this week’s meeting. In practice, the Fed has made pretty clear it is waiting for more inflation data” to see if the “transitory” narrative holds.

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)


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Volkswagen exploring IPO of luxury carmaker Porsche -sources



December 7, 2021

BERLIN/HAMBURG (Reuters) -Volkswagen is still exploring a possible initial public offering of its luxury brand Porsche AG as a way to fund its costly shift towards software and electric vehicles, two people familiar with the matter told Reuters on Tuesday.

Speculation about a Porsche listing, which could be a record-breaking IPO, has surfaced over the year, but no decision has been made due to a complex stakeholder set-up, the sources said, adding it was unclear whether a listing would happen.

Reports about a possible listing of the unit have included estimates of a standalone Porsche AG valuation of between 45 billion and 90 billion euros ($101 billion).


Earlier, Handelsblatt reported that the Porsche and Piech families, who control Volkswagen’s largest shareholder Porsche SE, are considering selling part of their VW stake to fund a substantial stake purchase in a possible Porsche IPO.

The families, who own 31.4% of Volkswagen shares and have 53.3% of voting rights via Porsche SE, could sell enough shares to raise roughly 15 billion euros, the German newspaper said.

They would remain the largest shareholder in Volkswagen, Handelsblatt added, ahead of the state of Lower Saxony, which holds a 11.8% equity stake and 20% of voting rights.

Porsche SE called the report “pure speculation”, without giving further comment. Volkswagen declined to comment.

Volkswagen preference shares, which have fallen significantly in recent weeks due to a leadership tussle, closed up 8.6% at the top of Germany’s benchmark DAX index.


Porsche SE shares closed 8.5% higher.

People familiar with the matter told Reuters in May that the families were prepared to take a direct stake in Porsche AG should the luxury carmaker be separately listed.

Such a move would loosen the grip of the families on Europe’s largest carmaker Volkswagen, in favour of direct ownership of the sports car brand founded by their ancestor Ferdinand Porsche, which dates back to 1931.

Asked about a potential listing of Porsche in October, Chief Executive Herbert Diess said that Volkswagen was constantly reviewing its portfolio, but gave no further comment.

Diess will probably stay on as VW CEO although he will cede some responsibilities after a clash with labour leaders, two sources familiar with the matter told Reuters.


($1 = 0.8894 euros)

(Reporting by Victoria Waldersee, Ilona Wissenbach, Jan Schwartz, Pamela Barbaglia and Christoph Steitz; Editing by Madeline Chambers and Alexander Smith)

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American Airlines taps president Isom as next CEO



December 7, 2021

By Rajesh Kumar Singh and Abhijith Ganapavaram

(Reuters) – American Airlines Group Inc CEO Doug Parker will hand over the reins of the No. 1 U.S. airline to president Robert Isom on March 31, the company said on Tuesday, sending its shares up 2% in morning trade.

Parker will continue as chairman, while Isom will join the carrier’s board after he takes over as CEO.


Isom, a longtime airline industry executive, took over as president in 2016 and has overseen operations, planning, marketing and pricing.

The leadership change comes as the industry recovers from the lows hit during the pandemic but faces operational challenges due to the threat posed by the Omicron coronavirus variant.

Isom faces the challenge of repairing American’s balance sheet as the pandemic has left it with the largest debt stock in the U.S. airline industry. He will also have to work on improving relations with the company’s labor unions.

In an interview, Isom said American would focus on returning to profitability as soon as possible and delivering a reliable service. He also aims to pay down a lot of debt.

“We’re going to be really focused on making sure that we have an appropriate level of leverage,” Isom told Reuters.


Returning to profitability, however, is contingent upon a full recovery in travel demand. Isom said while the airline’s domestic business remained strong, new travel restrictions following the Omicron variant’s discovery had dampened demand in some international markets.

“If there’s anything, it just delays recovery,” he said.

Isom, 58, has been playing a key role in developing American’s strategy before and through the pandemic.

Analysts at Jefferies said he would bring broad experience to the job and the leadership change was unlikely to result in a deviation from the strategy, focused on fleet renewal and alliances, under Parker.

“Given Mr. Isom’s lengthy history with Mr. Parker, this transition was likely in place for a significant period of time,” they wrote in a note.



In a letter to employees, Parker said the transition was the result of a “thoughtful and well-planned multi-year process”, dating back to Isom’s elevation to president in 2016.

Parker, 60, said the transition would have happened sooner if it was not for the pandemic, which brought the airline industry to its knees.

“While we still have work to do, the recovery from the pandemic is underway and now is the right time to make the transition,” he said.

Parker, one of the longest-serving chief executives in the airline industry, is known for overseeing consolidation in the industry as well as leading it through crises.


He took the reins at America West Airlines just 10 days before the 9/11 attacks. When America West merged with US Airways in 2005, Parker continued as CEO of the combined company.

He was named chairman and CEO of American Airlines in 2013 after its merger with US Airways.

He was also instrumental in negotiating a COVID-19 relief package for the industry, which carriers say has saved thousands of jobs, prevented bankruptcy and put it in a position to support the economy’s recovery from the pandemic.

Under Parker, American expanded overseas and took on low-cost carriers at home, sparking a fare war. He formed strategic partnerships with Alaska Airlines and JetBlue Airways Corp to compete in markets where other carriers had an advantage.

The alliance with JetBlue, however, has invited lawsuits from the U.S. Justice Department and six states.


In June, Southwest Airlines Co named company veteran Robert Jordan as CEO in place of Gary Kelly, who will step down next year.

(Reporting by Rajesh Kumar Singh in Chicago and Abhijith Ganapavaram in Bengaluru Editing by Arun Koyyur, Jason Neely and Mark Potter)

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U.S. bank executives worried about sustained high inflation



December 7, 2021

By Matt Scuffham

NEW YORK (Reuters) -U.S. bank executives on Tuesday raised concerns about the impact of a sustained period of higher inflation, adding to pressure on the Federal Reserve to accelerate plans to wind down the pace of its asset purchases.

Senior bankers are increasingly concerned that higher inflation could impact borrowers’ ability to pay back loans, slow U.S. economic growth and destabilize stock markets.


Wells Fargo Chief Executive Charlie Scharf said at a conference that the U.S. central bank may need to move quicker to address inflation concerns. Goldman Sachs CEO David Solomon said he anticipated a period of higher inflation.

Bank of America CEO Brian Moynihan said his bank was running internal health checks to ensure its portfolios could withstand a return to 1970s-style inflation.

“We’ve been doing that for three or four quarters now figuring that we’d be at this place where inflation is real and out there,” Moynihan said at the Goldman Sachs Financial Services Conference.

Annual U.S. inflation increased from 1.4% to 13.3% from 1960 to 1979, while the country’s economic growth stagnated.

That had a marked impact on people’s lives, with the value of savings and the purchasing power of fixed incomes like pensions being undermined.


U.S. inflation is running at more than twice the Fed’s flexible 2% annual target.

The International Monetary Fund last week warned of intensifying inflationary pressures, especially in the United States, and said U.S. central bankers should focus more on inflation risks.

“There’s a case to be made that they (the Federal Reserve) should be moving faster than they’ve been moving,” Scharf said.

“Inflation is very, very real,” he said. “Prices are significantly higher for inputs across most industries. Labor shortages and wage increases are extremely real. Whether that continues for several years is not all that relevant, but it certainly will have an impact over the next year or so.”



The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Fed Chair Jerome Powell said last week.

“My guess is now that there will be a quicker path to appropriate actions,” Scharf said.

Goldman Sachs’ Solomon anticipates inflation will be higher for a period but doesn’t expect a repeat of the cost rises of the 1970s, he said in an interview with CNBC.

“There’s a reasonable chance that we’re going to have inflation above trend for a period of time, but that doesn’t mean it has to be like the 1970s,” he said. “You’ve got to be cautious and manage your risk appropriately.”

Solomon acknowledged “uncertainty” in global financial markets due to factors including the emergence of the Omicron COVID-19 variant and question marks over the pace at which the Fed and other central banks will reduce asset purchases.


The Fed has begun reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities on a pace that would put it on track to complete the wind-down in mid-2022. There is growing pressure on the central bank to accelerate the end of the bond-buying program, which was unveiled in 2020 to stem the economic fallout from the pandemic.

“We’re still not completely out of the pandemic. There’s uncertainty that comes from that and that uncertainty is going to affect economic activity,” Solomon said.

“On top of that, we have shifts going on in fiscal and monetary policy to try to balance that. There’s no question that this has been an unprecedented period, so it’s very hard to predict how we’re going to come out of this.”

(Reporting by Matt Scuffham, Editing by Louise Heavens, Emelia Sithole-Matarise and Paul Simao)

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