- Fed Officials Call For Asset Purchase Reduction
- Yellen Warns Congress Again On U.S. Debt Limit
- Oil Returns From Bottom Of Three Weeks
Fed Officials Call For Asset Purchase Reduction
After Fed Chairman Jerome Powell’s earlier statement that “debates on reducing asset purchases have officially started,” Fed officials’ evaluations on the issue continue on public platforms.
Following the robust U.S. non-farm payrolls data, the first messages from the Fed regarding the timing of tapering came from Atlanta Fed President Raphael Bostic and Boston Fed President Eric Rosengren.
Two Fed members noted that given the strength in the labor market, the Fed should start reducing its asset purchases in September at the earliest.
While Bostic stated that he favored a relatively rapid reduction, he said that the same amount of reduction should be made in purchasing mortgage-backed securities and government bonds.
Stating that the Fed should reduce asset purchases in the fall, Rosengren noted that asset purchases no longer help create jobs and drive home and automobile prices up.
To be mentioned, Bostic has the vote in the Fed this year, while Rosengren does not.
While there was a substantial increase in U.S. employment in July, analysts pointed out that the labor market would recover in the fall. Non-farm employment in the country increased by 943 thousand in July. The expectation of economists participating in the Bloomberg survey was at the level of 870 thousand.
Unemployment data was 5.4 % in July. Bloomberg economists’ expectation was recorded as 5.7 %.
Yellen Warns Congress Again On U.S. Debt Limit
Yellen, the U.S. Treasury Secretary, stated that not increasing the debt limit would harm the country’s economy and called on Congress to raise the debt limit with the support of both parties.
U.S. Treasury Secretary Janet Yellen reiterated that increasing or suspending the debt limit will not increase government spending or allow spending on future budget proposals.
Emphasizing that raising the debt limit only allows the Treasury to pay for previously enacted expenditures, Yellen said, “Failure to meet these obligations will irreparably damage the U.S. economy and the livelihoods of all Americans.”
Yellen stated that Congress should increase or suspend the debt limit with the support of both parties and noted that the majority of the debt subject to the debt limit occurred before the Biden administration took office.
“This is a shared responsibility, and I urge Congress to come together on a bipartisan basis, as in the past, to protect the credit of the United States,” Treasury Secretary Yellen said.
Yellen warned in a letter to Congress on July 23 that the Treasury Department would take “extraordinary measures” if the country’s debt limit was not raised.
The U.S. Treasury Department announced on August 2 that some borrowing activities were suspended by implementing extraordinary measures to prevent the country from defaulting as the debt limit expires.
Oil Returns From Bottom Of Three Weeks
Oil prices rose as markets focused on demand outlook on Tuesday after falling to a three-week low.
Futures rose more than 4 % in the previous two sessions in the New York market to around $67 a barrel. Despite the increase in delta variant cases, expectations are that global demand will strengthen and markets will tighten towards the end of the year.
Markets will closely follow the monthly market report of the International Energy Agency and OPEC, which will be released on Thursday.
The structure of oil markets also weakened with the rise in the delta variant. The price difference in different maturities of Brent oil is in the backwardation structure, which indicates that the market is suppressed. This suggests that near-term contracts are traded at a higher price than long-term contracts.
“In the short-term, oil market may be volatile with frequent pullback as crude prices are beginning to struggle,” said Avtar Sandu, senior manager, commodities at Phillip Futures in Singapore, adding any deep pullback in prices is a buying opportunity.
“There is a possibility of additional Iranian, United Arab Emirates, and Libyan barrels flooding the market, but we are expecting overall global GDP growth to hold up energy demand,” he said.
West Texas Oil for September delivery rose 0.7% to $66.94 a barrel on the Nymex market.
Brent oil for October delivery is up 0.5% at around $69.35 a barrel on the London ICE Futures Europe market, after falling 2.4% on Monday.