By Michael S. Derby

NEW YORK (Reuters) – The Federal Reserve Bank of New York released data Thursday that suggest it faces no imminent pressure to stop the process of shrinking the size of its balance sheet.

The bank said that its Reserve Demand Elasticity measure essentially held steady as of January 7 at a -0.04 reading.

Investing.com — Federal Reserve Governor Christopher Waller said in an interview with CNBC on Thursday that the December inflation data was very good and that if data persists along the same lines, we may see rate cuts in the first half.

“If inflation data comes in as it has, I’d expect a cut in the first half of the year,” he said.

Waller added that he doesn’t think a cut in March can be ruled out and that if inflation moves lower, there may be more cuts that the market currently sees, noting that three or four cuts could be possible this year “if the data cooperates.”

While cautioning that he may be more optimistic than his colleagues at the Fed, Waller said inflation was back to trend, and he believes it will come in towards the target. 

Assessing the recent jobs report, Waller said the strong data was a makeup from weaker earlier reads and that when assessing all of the indicators, the employment market is solid but not booming.

However, while Waller cautioned that future data could disrupt the outlook, he added that incoming President Trump’s potential tariffs may not lead to higher inflation. 

Furthermore, Waller does not see the tariffs as having a huge impact on inflation.

WASHINGTON (Reuters) – U.S. business inventories rose marginally in November, suggesting that restocking will probably not contribute to economic growth in the fourth quarter.

Inventories ticked up 0.1% after being unchanged in October, the Commerce Department’s Census Bureau said on Thursday. The slight rise in inventories, a key component of gross domestic product, was in line with economists’ expectations.

Inventories increased 2.6% on a year-on-year basis in November. The pace of inventory accumulation could pick up in the months ahead as businesses stockpile goods in anticipation of higher import tariffs. President-elect Donald Trump, who will be inaugurated next week, is planning broad tariffs on goods.  

Inventories and trade are the most volatile components of GDP. Private inventory investment was a small drag on GDP in the third quarter. The economy grew at a 3.1% annualized rate in the third quarter. The Atlanta Federal Reserve is forecasting GDP to have increased at a 2.7% rate in the fourth quarter.

Retail inventories gained 0.2% in November rather than 0.3%, as estimated in an advance report published last month. They also increased 0.2% in October. 

Motor vehicle inventories slipped 0.3% instead of the previously reported 0.4%. They were unchanged in October.

Retail inventories excluding autos, which go into the calculation of GDP, increased 0.5%, instead of the previously reported 0.6%. They advanced 0.3% in October.

Wholesale inventories fell 0.2% in November, while stocks at manufacturers increased 0.3%.

Business sales rose 0.5% in November after being unchanged in October. At November’s sales pace, it would take 1.37 months for businesses to clear shelves, unchanged from October.

By Mumal Rathore

BENGALURU (Reuters) – The Bank of Canada will cut interest rates by 25 basis points to 3.00% on Jan. 29, according to a Reuters poll of economists, but many were not confident about the outlook beyond that given uncertainty around threatened U.S. tariffs and possible Canada’s response.

The country’s central bank has been one of the world’s most aggressive in reducing rates. It has cut by a cumulative 1.75 percentage points since June 2024 and is already very close to a neutral rate that neither restricts nor stimulates the economy.

But with U.S. President-elect Donald Trump returning to the White House on Monday, his threat of slapping tariffs as high as 25% on Canadian imports looms over the economy, even as it has produced some better-than-expected data on inflation and jobs.

Several economists in the Jan. 10-16 Reuters poll said they have yet to factor in the effect of potential tariffs on their latest forecasts.

Next (LON:NXT) week could provide some more clarity after Trump takes office and Canada outlines its response, but most acknowledged it was difficult to forecast rates beyond the upcoming meeting.

“If Canada gets hit with large tariffs and we don’t retaliate then the disinflationary effects would likely prompt considerably more easing by the BoC,” said Derek Holt, head of capital markets economics at Scotiabank (TSX:BNS).

“If we do retaliate, then toeing the line on the policy rate or even hiking are possibilities. Our outlook at this point is highly uncertain and we may learn a lot more about the risks next week when Trump takes power.”

An 80% majority of economists, 25 of 31, expected a quarter- point rate cut on Jan. 29, a step down from December’s half percentage-point move. The rest expected a pause.

According to the poll’s median forecasts, another 25 bps cut will come in March, followed by one more next quarter, taking the overnight rate to 2.50%, below what interest rate futures are now pricing.

Whether 2.50% actually is the end-point for rates will depend on how relations with the United States develop after decades of free trade. 

“Tariffs are a clear, unambiguous negative for the Canadian economy and the Bank of Canada would likely be forced to react with lower rates if we do get tariffs,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets.

“I hope it’s all temporary or it doesn’t happen at all, but there’s no way of knowing where this goes,” he said.

Canadian inflation, which eased to 1.9% in November from October’s 2.0%, was expected to remain well within the BoC’s target of 1-3% over the coming quarters and average 2.1% this year and 2.0% next.

Asked about potential deviations from their forecasts this year, all 14 economists but one said inflation could come above rather than below their projections.

The economy was forecast to grow 1.8% this year and 1.9% next, faster than 1.3% in 2024. The outlook was largely unchanged from an October poll.

(Other stories from the Reuters global economic poll)

By Jamie McGeever

ORLANDO, Florida (Reuters) – Spiking Treasury yields and the ‘wrecking ball’ dollar are creating a negative feedback loop that monetary authorities around the globe may be helping to sustain.

   The U.S. bond market selloff that began after the Federal Reserve started cutting interest rates four months ago has been as powerful as it has been surprising, splitting expert opinion on what is driving it.

    Potential culprits include strong U.S. growth, sticky inflation, debt and deficit fears, as well as uncertainty surrounding incoming U.S. President Donald Trump’s trade, immigration and ‘America First’ economic agenda.

    What has garnered less attention, however, has been the role of foreign central banks, particularly in emerging economies.

    Rising U.S. yields have lifted the dollar and simultaneously pushed down many emerging currencies, sometimes to record lows, prompting many central banks to intervene in the foreign exchange market to support their currencies. This typically involves selling FX reserves, often U.S. Treasury bonds or bills, and buying local currency.

The latest New York Fed breakdown of U.S. Treasury ‘custody’ holdings on behalf of foreign central banks, is revealing.

    Custody holdings last week stood at $2.85 trillion, the lowest since April 2020. They have fallen almost $100 billion from the $2.94 trillion in mid-September when the Fed started cutting interest rates, and this decline has gathered pace since the U.S. presidential election in early November.

    Central bank selling has been a key component of the recent bond rout, according to research by Rashad Ahmed, senior economist at the Office of the Comptroller of the Currency, and Alessandro Rebucci, professor at Johns Hopkins University.

    They note that the decline in foreign FX dollar reserves beginning in September “aligns precisely” with the steep rise in 10-year yields. They estimate that foreign central banks’ dollar reserves have fallen by a combined $113 billion, including foreign repo deposits, just as yields have rocketed by more than 100 basis points.

    This selling has often been met with weak demand from counterparties, most notably domestic and foreign private investors, they argue.

    “It is possible for even a small reduction in the U.S. dollar share of foreign reserves to have a significant short-run impact on U.S. Treasury markets,” they wrote on Wednesday.

    ROCK & A HARD PLACE

Many central banks, especially in emerging economies, thus find themselves between a rock and a hard place. Selling dollar-denominated Treasuries helps shore up a deteriorating domestic currency, but all else being equal, also helps lift U.S. yields, which burnishes the dollar’s allure and sustains the negative feedback loop.

    Official data from India, Brazil and China, three of the biggest emerging economies and holders of FX reserves, show that all have reported notable declines in their FX reserves recently.

    India’s FX reserves topped $700 billion in September but have since fallen by $60 billion, or around 8.5%, as the central bank has fought to defend the rupee, which has fallen to record lows against the dollar.

    Brazil’s reserves tumbled $28 billion in December alone, a record nominal fall and the biggest monthly percentage decrease in almost two decades. This heavy central bank intervention occurred after a perfect storm of global and local issues pushed the real to an all-time low against the dollar.

    And China’s reserves, the most closely watched of all, fell $64 billion, or 2%, in December, the most since April 2022. Again, this decline was prompted by the central bank’s need to counter strong capital flight and a depreciating currency.

    One of the fears shrouding the global financial system in the 2000s was the threat of China dumping its vast holdings of Treasuries if U.S.-Sino relations deteriorated sharply.

    This ‘balance of financial terror’, as former U.S. Treasury Secretary Larry Summers labeled it, never tipped over the edge, and the threat today is probably not as severe. China’s nominal holdings of Treasuries are the lowest since 2009, the U.S. bond market has swelled to $28 trillion, and Beijing’s share of that market is the lowest since 2002.

    Still, if Ahmed and Rebucci are right, foreign central banks can wield meaningful power over the U.S. bond market even if they have no intention to push up yields. This vicious cycle may not lead to ‘financial destruction, but it could create a decent amount of financial pain in the months ahead.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Christina Fincher)

FRANKFURT (Reuters) – The European Central Bank’s President Christine Lagarde can move financial markets with a frown, while her predecessor, Mario Draghi, used a smile to reinforce his message, a new study has found.

Traders are known to hang on to central bankers’ every word for cues on the direction of interest rates.

But an academic paper entitled “The Emotions of Monetary Policy” has found that even a change in facial expression or tone can affect market prices.

Researchers from Giessen University in Germany used the latest technology to recognise and classify Draghi’s and Lagarde’s facial expressions and vocal emotions during the press conferences that follow the ECB’s interest rate decisions.

Professor Peter Tillmann and colleagues then ran a machine-learning model on the transcripts of those media conferences to gauge whether the message delivered in any given minute was dovish (hinting at lower rates ahead), hawkish (hinting at higher rates) or neutral.

They found that Draghi’s messages — be they dovish or hawkish — had a bigger impact on government bond yields, the euro and euro zone stocks if they was accompanied by a smile.

“It seems that Draghi ‘kills with kindness’ – his words have the intended effect if spoken with a happy face,” the six researchers wrote in their paper published this week.

Lagarde, by contrast, could boost her market impact with an angry expression.

“For President Lagarde… more anger on her face magnifies the hawkish impact on bond yields,” the study said.

Other results showed Lagarde showed more emotion than her predecessor but both were more likely to express anger the farther inflation in the euro zone strayed, in either direction, from the ECB’s 2% target.

The authors hope the results will make policymakers and traders more aware of the importance of non-verbal communication and emotional undertones.

In the last couple of years, similar studies found that stocks rose when the chair of the Federal Reserve used a positive tone of voice, or that asset prices fell when he or she expressed emotions such as anger, disgust or fear.

The findings will resonate with financial historians: in the early 20th century, Bank of England governors were said to have only needed a raised eyebrow to discipline a banker during private conversations.

(Reuters) – Fox Sports has signed a multi-year media rights agreement with LIV Golf to broadcast its league competition in the U.S. starting next month, the network announced on Thursday.

Nearly all of the LIV Golf league season will be shown live across Fox Sports platforms, the network said in a statement.

“LIV Golf is getting bigger and bolder, and this relationship signals the next phase of growth,” said Scott O’Neil, who replaced Greg Norman as LIV Golf CEO on Wednesday.

LIV Golf caused a major disruption in the golf world when it first launched, luring top players away from the PGA Tour with the promise of huge paydays and causing a bitter divide in the sport.

Ongoing negotiations between the PGA Tour and LIV Golf on a deal that would unify the professional game have yet to produce an agreement.

(Reuters) – A gauge of manufacturing activity in the U.S. Mid-Atlantic region shot up by the most in about four-and-a-half years in January, with new orders and shipments both surging, a potential indication that the factory sector’s long slump may be ending.

The Federal Reserve Bank of Philadelphia said on Thursday that its monthly manufacturing index rose to 44.3, its highest since April 2021, from a revised minus 10.9 in December. The net increase was the largest since June 2020 after factories began reopening from the initial wave of COVID-19 shutdowns and was the second largest increase on record.

The result far outstripped the median forecast among economists polled by Reuters, which was for a reading of minus 5.0. Negative readings indicate a contraction in activity.

The report’s new orders index rose to 42.9, its highest since November 2021, while the shipments index climbed to 41.0, its highest since October 2020. Employment levels also rose to a six-month high.

The U.S. manufacturing sector has been struggling for the better part of three years after the Federal Reserve began raising interest rates in early 2022 to beat back the stiffest inflation in a generation. The rise in borrowing costs cut into demand and investment.

January’s report, though, dovetails with a number of other surveys of business sentiment in the two months since Donald Trump was elected U.S. President. Trump takes office next week with promises to cut taxes and regulation, and also to crack down on immigration and impose a broad range of tariffs. A wider survey from the Fed released on Wednesday showed businesses were optimistic about the outlook but also concerned by the risks that tariffs and immigration restrictions posed to prices and labor availability.

Inflation is already proving harder than expected for the Fed to bring back to its 2% target, even before Trump formally unveils his plans, many of which are expected to be announced as early as his inauguration day, Jan. 20. Indeed, the Philly Fed’s prices paid index measuring production input costs rose to a two-year high in January.

Investing.com – The US economy has entered 2025 with a “strong head of steam” although uncertainty around President-elect Donald Trump’s policy plans has clouded the outlook for the year, according to analysts at Wells Fargo (NYSE:WFC).

In a note to clients on Thursday, the analysts estimated that the US economy grew at an annualized rate of 2.7% in the fourth quarter, slowing from a 3.1% in the third quarter. If accurate, then this would mean that real gross domestic product expanded 2.8% on an annual average basis in 2024, they added.

They argued that, considering real output increased at an average rate of 2.4% per year during a period of economic expansion from 2010-2019, “the American economy appears to be in solid shape at present.”

Meanwhile, most businesses are looking strong, they suggested, pointing to data indicating that even though the pace of hiring has eased in recent months, most firms neither need workers nor “want to cut staff.”

Progress has also been made on returning inflation to the Federal Reserve’s 2% target level, the analysts added.

So-called “core” consumer price growth, which strips out volatile items like food and fuel, edged up by 0.2% month-on-month and 3.2% year-over-year in December, data from the Labor Department’s Bureau of Labor Statistics showed on Wednesday. Economists had estimated the numbers would match November’s pace of 0.3% and 3.3%, respectively.

However, the deceleration in inflation may be halted if the incoming Trump administration follows through on a threat to impose sweeping new import tariffs on both allies and adversaries alike, the analysts said.

They added that “higher prices resulting from [the] tariffs” would subsequently weigh on real income growth, denting consumer spending activity.

“Higher tariffs, if imposed, would impart a modest stagflationary shock to the economy,” the analysts argued, predicting that the levies could lead to a downshift in economic growth in the second half of 2025.

But they still see activity accelerating in 2026 thanks to the impact of a possibly more business-friendly environment, including looser regulations and tax cuts, during Trump’s second term in the White House.

(Reuters) -Major brokerages stuck to their predictions on interest rate cuts in 2025, after U.S. inflation data came in line with expectations on Wednesday, easing investor nerves, following a surprisingly strong U.S. employment report last week.

Wells Fargo (NYSE:WFC), however, lowered its forecast to two rate cuts by the Federal Reserve from three after U.S. consumer price index (CPI) showed a marginal rise to 0.4% last month and advanced 2.9% on an annual basis. Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% from a year earlier.

Market participants are betting on a 34.5 basis point cut by the end of this year, as per data compiled by LSEG.

After cutting rates by a quarter of a percentage point at the Dec. 17-18 meeting, Fed Chair Jerome Powell said policymakers could now be “cautious” about further reductions.

Here are the forecasts from major brokerages after inflation data:

Rate cut estimates (in bps)

Brokerages Jan 2025 2025 Fed Funds Rate

No. of cuts

in 2025

BofA Global No rate cut No rate cut 4.25-4.50%(end of

Research 0 December)

Barclays (LON:BARC) No rate cut 25 (in June) 4.00-4.25% (end of

1 2025)

BNP Paribas (OTC:BNPQY) No rate cut No rate cut 4.25-4.50%(end of

0 December)

Goldman Sachs No rate cut 50 (June and 3.75-4.00% (through

December) 2 December)

J.P.Morgan No rate cut 50(June and 3.75-4.00% (through

September) – September 2025)

Morgan Stanley (NYSE:MS) No rate cut 50 (through 3.75-4.00% (through

June 2025) 2 June 2025)

Deutsche Bank (ETR:DBKGn) No rate cut No Rate Cuts 4.25-4.50% (end of

0 2025)

ING No rate cut 75 3.50-3.75%

3

UBS Global No rate cut 50 3.75-4.00% (end of

Wealth – 2025)

Management

Citigroup (NYSE:C) No rate cut 125 (starting 3.00-3.25% (end of

in May) 5 2025)

Macquarie No rate cut 25 4.00-4.25%

1

Berenberg No rate cut No rate cut 4.25-4.50% (end of

0 2025)

No 50

Wells Fargo rate cut (September and 2 3.75-4.00% (end of

December) 2025)

Nomura No rate cut – –

1

Here are the forecasts from major brokerages before inflation data:

Rate cut estimates (in bps)

Brokerages Jan 2025 2025 Fed Funds Rate

BofA Global No rate cut No rate cut 4.25-4.50%(end of

Research December)

Barclays No rate cut 25 (in 4.00-4.25% (end of

June) 2025)

Goldman Sachs No rate cut 50 (June 3.75-4.00% (through

and December)

December)

J.P.Morgan No rate cut 75(starting 3.50-3.75% (through

in June) September 2025)

Morgan Stanley No rate cut 50 (through 3.75-4.00% (through

June 2025) June 2025)

Deutsche Bank No rate cut No Rate 4.25-4.50% (end of

Cuts 2025)

ING No rate cut 75 3.50-3.75%

UBS Global No rate cut 50 3.75-4.00% (end of

Wealth 2025)

Management

Citigroup No rate cut 125 3.00-3.25% (end of

(starting 2025)

in May)

Macquarie No rate cut 25 4.00-4.25%

Berenberg No rate cut No rate cut 4.25-4.50% (end of

2025)

Scotiabank (TSX:BNS) No rate cut 50 3.75-4.00% (end of

2025)

Wells Fargo No rate cut – –

* UBS Global Research and UBS Global Wealth Management are distinct, independent divisions in UBS Group