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Fed signals higher-for-longer rates with hikes almost finished

Federal Reserve Chair Jerome Powell made clear on Wednesday that the central bank is close to done raising interest rates but his colleagues delivered the message that resonated: Borrowing costs must remain higher for longer amid renewed strength in the economy.

After a series of rapid rate hikes over the past 18 months, the Fed can now “proceed carefully”, Powell said — a sentiment he repeated at least a dozen times Wednesday during a press conference that followed the central bank’s decision to leave rates unchanged.

In quarterly economic projections released following a two-day policy meeting, 12 of 19 Fed officials said they still expect to raise rates once more this year. The bigger takeaway for investors was the revelation that policymakers see fewer rate cuts than previously anticipated in 2024, in part due to a stronger labour market.

The projections also showed they expect inflation to fall below 3% next year, and return to their 2% target by 2026. In other words, the “soft landing” for the US economy that looked more remote three months ago now seems within reach.

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“They’re basically saying that a soft landing scenario is going to be met with tighter policy,” said Brett Ryan, a senior US economist at Deutsche Bank AG. “That was the main takeaway”.

The US economy has so far been resilient against the Fed’s historic tightening campaign, which lifted the target range for the federal funds rate from nearly zero in March 2022 to 5.25% to 5.5% in July, a 22-year-high. Consumer spending remains strong and the labour market has been steady, though job growth is starting to moderate.

That strength bodes well for the Fed’s efforts to cool inflation without sending the economy into a recession, but it’s also raised concern at the central bank that the inflation fight could be prolonged.

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The new projections reflected that. Fed officials now expect their benchmark rate to be at 5.1% by the end of next year, according to their median estimate, up from 4.6% in the last projection round in June.

During the press conference, Powell stressed that policymakers are facing a high amount of uncertainty, and seemed determined not to give markets any reason to rally.

Treasuries sold off after the decision, with the yields on two-, five- and 10-year US government bonds all rising to the highest in more than a decade. Wednesday’s 0.9% drop for the S&P 500 was the second-worst this year on a Fed day, second only to the 1.7% decline registered in March.

“If you were really looking for the worst piece of news, it’s not necessarily that we’re going higher but that we’re staying longer — that’s the new narrative,” said Art Hogan, chief market strategist at B. Riley Wealth. “It’s not how high, but how long.”

The Fed chief also cautioned that a soft-landing scenario was not yet guaranteed, saying it was not the Fed’s baseline expectation — despite what the latest projections implied.

“Ultimately, this may be decided by factors that are outside our control,” Powell said, though he later added that a soft landing is “what we’ve been trying to achieve for all this time.”

With an array of potential economic headwinds on the horizon — including rising gas prices, a United Auto Workers strike and a looming government shutdown — investors remain sceptical that the Fed will follow through with another rate increase this year. Futures show roughly even odds of more tightening this year.

To stay ahead of Singapore and the region’s corporate and economic trends, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/section/latest?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Latest Section</a>

Lou Crandall, the chief economist at Wrightson ICAP LLC, said the economic picture may end up less favourable than what policymakers expect for the coming months.

“The odds are pretty good that unemployment in the fourth quarter will be higher than they project, and core inflation will be lower,” Crandall said. “The risk of another rate hike is pretty low.” — Bloomberg

Goldman raises Brent oil forecast to US$100 as rally builds

Goldman Sachs Group rejoined the US$100-a-barrel oil club, raising its forecast for crude back to triple digits as worldwide demand hits unprecedented levels and Opec+ supply curbs continue to tighten the market.

With prices advancing by more than 30% since mid-June to breach US$95 ($130) a barrel on Sept 19, the Wall Street bank nudged up its 12-month forecast for global benchmark Brent to US$100 a barrel from US$93. However, most of the rally in the vital commodity “is behind us”, the bank said in a note.

Oil has rallied strongly in recent months, hitting a 10-month high, thanks to the significant supply curbs from Opec+ linchpins Saudi Arabia and Russia. Brighter outlooks in the two biggest economies, the US and China, have also supported the advance, with stockpiles declining at a rapid clip. At present, most major economies remain on track for a soft landing, Goldman Sachs said.

“We believe that Opec will be able to sustain Brent in a US$80-to-US$105 range in 2024 by leveraging robust Asia-centric global demand growth,” analysts Daan Struyven, Callum Bruce and Yulia Zhestkova Grigsby said in the report dated Sept 20. At the same time, “Opec is unlikely to push prices to extreme levels, which would destroy its long-term residual demand,” they said.

The market will have a deficit estimated at 2 million barrels a day this quarter, followed by a shortfall of 1.1 million barrels a day in the final three months of 2023, Goldman said. Global consumption was at a record, it said.

Oil’s rally has rekindled talk of the possibility of US$100-a-barrel pricing. This week, Chevron Corp’s Mike Wirth said it was on the cards, citing tighter supplies and dwindling inventories. Amrita Sen, head of research at Energy Aspects, echoed that view, predicting prices could top US$100 “for a bit.”

Even one of the market’s stauncher bears, Citigroup Inc’s Ed Morse, said that geopolitics plus technical trading “could push oil over US$100 for a short while.” However, a well-supplied market — from producers outside Opec — should mean that “US$90 prices look unsustainable,” he added. — Bloomberg

Value of assets seized as part of money laundering probe increases to $2.4 billion

The value of assets seized or frozen in Singapore’s largest money laundering case has increased to more than $2.4 billion, according to the Singapore Police Force, which has been conducting further operations.

The haul is now more than double from the initial figure put at $1 billion when the case first burst into the open last month.

According to the police on Sept 20 the assets consist of properties, luxury cars, cash, fine wine and liquor, handbags and other assets.

Notably, there are now more than 110 properties and 62 vehicles worth $1.24 billion seized and issued with prohibition of disposal orders.

The list also includes bank accounts with more than $1.1 billion, up from $110 million initially, and cash of more than $76 million, up from $23 million earlier.

There are also 68 gold bars, 294 luxury bags, 164 luxury watches, 546 pieces of jewellery, up from more than 270 previously, as well as 204 electronic devices such as computers and mobile phones.

The 10 suspects have been arrested and denied bail. Investigations are ongoing. — The Edge Singapore

Former PM’s son charged with false trading

Dr Goh Jin Hian, the former CEO of New Silkroutes Group has been charged with false trading offences along with three other men who were also previously from the group.

Goh, who is the son of former prime minister Goh Chok Tong, was slapped with 39 charges under the Securities and Futures Act (SFA).

The other three men charged, Kelvyn Oo Cheong Kwan, William Teo Thiam Chuan and Huang Yiwen, received 31 similar charges each.

Oo was the executive director and chief corporate officer at New Silkroutes while Teo was the group’s finance director previously. Huang was a commercial market maker who was engaged by the group.

Under the SFA, Goh was charged with conspiring with Oo, Teo and Huang to create a “misleading appearance” in the price of shares in New Silkroutes Group on 31 trading days between February 2018 and August 2018.

This was done via share buybacks done through the group’s corporate trading account as well as orders and trades made via Goh’s own investment account with DBS Private Bank.

Between February 2018 to August 2018, Goh had increased his stake in the company, buying 850,200 shares for $256,454 — or 30.16 cents per share — on 12 occasions.

Goh was CEO of the group from June 2015 and became its chairman in October 2020. He had, however, resigned from his position on Oct 15, 2020 “to devote more time to his personal affairs”.

Teo had also stepped down from his role on Oct 15, 2020 to “focus on personal matters and to pursue other interests”.

That said, Goh and Teo’s resignation came after the group was asked to aid in investigations by the Commercial Affairs Department (CAD) on Sept 24, 2020.

If convicted, all four men face a jail term of up to seven years, a fine of $250,000 or both per charge. — Felicia Tan

Briefs: Fed signals higher-for-longer rates; Goldman raises Brent oil forecast to US$100 as rally builds

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