Federal Reserve Chair Janet Yellen acknowledged Tuesday that the Fed is puzzled by the persistence of unusually low inflation and that it might have to adjust the timing of its interest rate policies accordingly.

Speaking to a conference of economists, Yellen touched upon key questions the Fed is confronting as it tries to determine why inflation has remained chronically below its inflation target of 2 percent annually. The Fed chair said officials still expect the forces keeping inflation low to fade eventually. But she conceded that the Fed may need to adjust its assumptions.

In noting the persistence of low inflation, Yellen suggested that the Fed will take care not to raise rates too quickly. But she also said the central bank should avoid raising rates too slowly. Moving too gradually, she suggested, might eventually force the Fed to have to accelerate rate hikes and thereby elevate the risk of a recession.

Most analysts expect the central bank to raise rates in December, for a third time this year, in a reflection of economic improvement. But the Fed has said its rate hikes will depend on incoming data.

In her speech in Cleveland to the annual conference of the National Association for Business Economics, Yellen went further than she has before in suggesting that the Fed could be mistaken in the assumptions it is making about inflation.

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective or even the fundamental forces driving inflation,” Yellen said.

The Fed seeks to control interest rates to promote maximum employment and stable prices, which it defines as annual price increases of 2 percent. While the Fed has met its goal on employment, with the jobless rate at 4.4 percent, near a 16-year low, it has continued to miss its inflation target.

Chronically low inflation can depress economic growth because consumers typically delay purchases when they think prices will stay the same or even decline.

Inflation, which was nearing the 2 percent goal at the start of the year, has since then fallen further behind and is now rising at an annual rate of just 1.4 percent.

Yellen has previously attributed the miss on inflation this year to temporary factors, including a price war among mobile phone companies. She and other Fed officials have predicted that inflation would soon begin rising toward the Fed’s 2 percent inflation target, helped by tight labor markets that will drive up wage gains.

In her remarks Tuesday, Yellen said this outcome of a rebound in inflation is still likely. But she said the central bank needed to remain alert to the possibility that other forces not clearly understood might continue to keep inflation lower than the Fed’s 2 percent goal.

The Fed chair cautioned that if the central bank moved too slowly in raising rates, it could inadvertently allow the economy to become overheated and thus have to raise rates so quickly in the future that it could push the country into a recession.

“It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Yellen said.

During a question-and-answer session, Yellen said the Fed would be “looking at inflation very carefully” to determine the timing of upcoming rate hikes. But she said the data is likely to be difficult to assess, in part because of the effects of the recent devastating hurricanes, which have forced up gasoline prices.

Yellen’s remarks came a week after Fed officials left their benchmark rate unchanged but announced that they would start gradually shrinking their huge portfolio of Treasury and mortgage bonds. Those holdings had grown from purchases the Fed made over the past nine years to try to lower long-term borrowing rates and help the U.S. economy recover from the worst downturn since the 1930s.

The Fed did retain a forecast showing that officials expect to boost rates three times this year. So far, they have increased their benchmark lending rate twice, in March and June, leaving it at a still-low range of 1 percent to 1.25 percent.

Last week, the Fed said the reductions in its bond holdings would begin in October by initially allowing a modest $10 billion in maturing bonds to roll off the $4.5 trillion balance sheet each month.

Asked about how long-term loan rates might respond to reductions in the Fed’s bond portfolio, Yellen cited a study that estimated that the increase in its bond holdings had lowered such rates by about 1 percentage point.

But she said the reduction in the holdings wouldn’t likely raise rates by as much as a percentage point given that the Fed intended to keep the size of its balance sheet significantly higher than it was before the financial crisis. She said any upward pressure on rates would likely be gradual and take place over several years.

Crutsinger reported from Washington, Kang from Cleveland.
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Hackers breached the U.S. Securities and Exchange Commission’s computer system last year by taking advantage of companies that used authentic financial data when they were testing the agency’s corporate filing system, according to sources familiar with the matter.

The Federal Bureau of Investigation and the U.S. Secret Service have since launched an investigation into a 2016 hack into the SEC’S EDGAR system, several of those people said.

The sources spoke anonymously because it is not a public investigation.

The SEC’s EDGAR system is a crucial network used by companies to file earnings reports and other material information.

Spokesmen for the FBI, the Secret Service and the SEC all declined to comment, saying they could neither confirm nor deny the existence of an investigation.

The breach occurred in October 2016 and was detected that same month. The attack appeared to have been routed through a server in Eastern Europe, according to an internal government memo describing the incident, which was seen by Reuters.

There was no evidence at the time that data had been improperly retrieved, according to one source familiar with the matter, and the issue was handled internally by the SEC’s Office of Information Technology.

Only after the SEC’s Enforcement Division detected a pattern of suspicious trading ahead of company public disclosures did officials go back to the agency’s technology staff and ask if some companies were using authentic data when they were testing the EDGAR system, one of the people said.

The person said that “not many companies” had submitted real
data that is believed to have been hacked.

The test process is for people to submit test filings to ensure that they format correctly and don’t have submission errors,” the person said.

“They normally use that right before they file their normal reports. They are supposed to use dummy data,” the person said. “However, it is still supposed to be protected the same way in case they do something stupid. A couple companies did, and it wasn’t protected properly.”

SEC chair to confirm probe

SEC Chairman Jay Clayton will confirm the enforcement division’s ongoing investigation when he testifies Tuesday before the Senate Banking Committee, according to prepared testimony reviewed by Reuters.

He has also asked the SEC’s Office of Inspector General to investigate the intrusion itself, the scope of non-public information that was stolen and how the SEC responded to the incident, which he said was properly reported to the Department of Homeland Security’s Computer Emergency Readiness Team.

The FBI’s investigation, which is being led out of New Jersey, is focusing specifically on the trading activity in connection with the breach, according to several sources.

One possibility the FBI is considering is that the SEC breach was connected to a group of hackers that intercepted electronic corporate press releases in a previous case which the FBI in New Jersey helped investigate, several of the sources said.

In that case, federal prosecutors in the New York borough of Brooklyn and New Jersey, as well as the SEC, charged an alliance of stock traders and suspected computer hackers based in the United States and Ukraine.

Clayton, who was installed as chairman in May, only learned of the 2016 breach in August through the enforcement investigation. SEC Commissioners Kara Stein and Mike Piwowar, who are the only other two sitting members of the agency at the moment, also only learned of it recently.

Some SEC enforcement attorneys not involved in the matter learned about it when they read it in the newspaper, sources said.

The delay in disclosing the hack and the months-long gap between uncovering it and discovering the potential insider trading are particularly embarrassing for an agency that has pushed companies to bolster their cyber capabilities and which investigates companies for failing to disclose breaches to investors faster.

While no company has ever been charged for flawed disclosures, the SEC has previously brought charges against brokerage firms over poor cyber security practices.

The SEC has experienced other cyber incidents in recent months.

Between October 2016 and April 2017, the SEC documented a variety of various cyber security incidents, according to one source familiar with the matter.

Reuters was not immediately able to ascertain the nature of all of the incidents, though the source said several involved EDGAR.

In one other case that was not related to EDGAR, a server being set up for SEC use had not been updated to fix known vulnerabilities, one person familiar with the matter said.

The SEC detected unauthorized communications from it. The FBI watched the traffic, which was early signaling or “beaconing” rather than the export of important information, and the hole was closed. In that case, the signal from the beacon was sent to a server in Ukraine, the person added.

The SEC has been criticized for its cyber defenses. The U.S. Department of Homeland Security detected 5 “critical” vulnerabilities that needed to be fixed when it scanned a sample of the agency’s computers and devices the week of January 23.

Reporting by Sarah N. Lynch in Washington and Joseph Menn in San Francisco; Editing by Leslie Adler
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Equifax CEO Richard Smith announced his sudden retirement Tuesday following a massive data breach at the credit reporting company earlier this year.

Smith and Equifax says they learned of the hack in late July but waited until September 7 to inform its customers about the incident, which may have further compromised the personal information of about 143 million Americans.

The federal government is investigating the company’s response to the hack and Congress will hold a hearing on the matter next week.

Paulino do Rego Barros, Jr., an executive from the Asia Pacific division at Equifax, will serve as CEO while the company searches for a permanent replacement.

Equifax, one the largest credit reporting companies in the United States, said hackers were able to obtain names, Social Security numbers, birth dates and addresses of more than 40 percent of the U.S. population.

The company said credit card numbers were also compromised for 209,000 U.S. consumers, as were credit dispute accounts for 182,000 people.

Smith served as CEO from 2005 until this week. His departure follows the abrupt retirement of Equifax’s chief security officer Susan Mauldin and chief information officer Dave Webb.
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The United States has asked China not to implement its new cybersecurity law and is concerned it could damage global trade in services, a U.S. document published by the World Trade Organization showed on Tuesday.

China ushered in a tough new cybersecurity law in June, following years of fierce debate around the move that many foreign business groups fear will hit their ability to operate in the country.

The law requires local and overseas firms to submit to security checks and store user data within the country.

If China’s new rules enter into full force in their current form, as expected by the end of 2018, they could impact cross-border services supplied through a commercial presence abroad, said the U.S. document, submitted for debate at the WTO Services Council.

“China’s measures would disrupt, deter, and in many cases, prohibit cross-border transfers of information that are routine in the ordinary course of business,” it said. “The United States has been communicating these concerns directly to high level officials and relevant authorities in China,” the U.S. document said, adding it wanted to raise awareness among WTO members about the potential impact on trade.

“We request that China refrain from issuing or implementing final measures until such concerns are addressed.”

The two-page U.S. document said the measures causing concern included the Cybersecurity Law adopted in November 2016 and taking effect June 2017 and various implementing measures connected with that law and the July 2015 National Security Law.

The law obliges companies to store all data within China and pass security reviews, fitting China’s ethos of “cyber sovereignty” – the idea that states should be permitted to govern and monitor their own cyberspace, controlling incoming and outgoing data flows. “The impact of the measures would fall disproportionately on foreign service suppliers operating in China, as these suppliers must routinely transfer data back to headquarters and other affiliates,” the U.S. document said. “Companies located outside of China supplying services on a cross-border basis would be severely affected, as they must depend on access to data from their customers in China.”

China maintains a strict censorship regime, banning access to foreign news outlets, search engines and social media, including Google and Facebook.
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Global accountancy firm Deloitte has been hit by a sophisticated hack that resulted in breach of confidential information and plans from some of its biggest clients, Britain’s Guardian newspaper said on Monday.

Deloitte — one of the big four professional services providers — confirmed to the newspaper it had been hit by a hack, but it said only a small number of its clients had been impacted.

The firm discovered the hack in March, according to the Guardian, but the cyber attackers could have had breached its systems as long ago as October or November 2016.

The attack was believed to have been focused on the U.S. operations of the company, which provides auditing, tax advice and consultancy to multinationals and governments worldwide.

“In response to a cyber incident, Deloitte implemented its comprehensive security protocol and began an intensive and thorough review including mobilizing a team of cybersecurity and confidentiality experts inside and outside of Deloitte,” a spokesman told the newspaper.

“As part of the review, Deloitte has been in contact with the very few clients impacted and notified governmental authorities and regulators.”

A Deloitte spokeswoman declined immediate comment, saying that the firm would issue a statement shortly.
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Airbnb is launching local tours and other experiences in New York City this week with a special host.

Her listing promises an “unforgettable shoe-shopping experience'” and her bio describes her as an “actor, producer, businesswoman” and “proud New Yorker.”

She’s Sarah Jessica Parker of ‘Sex and the City’ fame and she’ll be taking four guests shoe-shopping at Bloomingdale’s, then sending them to the ballet.

Parker’s listing goes live Tuesday, with four spots at $400 each, first come, first served. The money will benefit the New York City Ballet, where Parker is a board member.

Airbnb is primarily known for vacation rentals around the world. Officials in many cities have criticized the company, saying its short-term rentals are reducing long-term housing options for residents and forcing prices up.

 
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Poised to reveal a tax plan that is a pillar of  his economic policy and delivering on a campaign pledge, President Donald Trump is promising “The largest tax cut in the history of our country.”

Trump’s declarations came as the health care legislation brought forward by Republicans teetered near failure. He said his “primary focus” is the tax overhaul plan, which would be the first major revamp of the tax system in three decades.

Trump has promised economic growth of 3 percent, and insists that slashing taxes for individuals and corporations is the way to achieve it. He said the tax plan that the White House and Capitol Hill Republicans have been working on for months is “totally finalized.” He was speaking on the tarmac at the Morristown Municipal Airport.

Trump’s details weren’t firm. He said “I hope” the top corporate tax rate will be cut to 15 percent from the current 35 percent. House Speaker Paul Ryan has said a 15 percent rate is impractically low, with a rate somewhere in the low- to mid-20 percent range more viable to avoid blowing out the deficit. The rate is “going to be substantially lower so we bring jobs back into our country,” Trump said.

Trump also said “We think we’re going to bring the individual rate to 10 percent or 12 percent, much lower than it is right now.” He did not say whether the tax rate for the wealthiest Americans, now at 39.6 percent would be cut, as some Republicans have advocated.

“This is a plan for the middle class and for companies, so they can bring back jobs,” he said.

The plan also is expected to reduce the number of tax brackets from seven to three.

Trump spoke as House Republicans on the tax-writing Ways and Means Committee huddled behind closed doors to discuss the plan. They have promised to reveal an outline and possible details of the plan later this week, after all Republican lawmakers in the House get a chance to discuss it and put questions to the chief architects, including Rep. Kevin Brady, R-Texas, who heads the Ways and Means panel.

“We’ll let the White House determine the timetable” of releasing the plan, Brady said following the meeting. He added it will “definitely” occur this week.

Republicans have been split on some core issues. They are divided over whether to add to the nation’s soaring $20 trillion debt with tax cuts. The GOP also is at odds over eliminating the federal deduction for state and local taxes.

Republican senators on opposing sides of the deficit debate have tentatively agreed on a plan for $1.5 trillion in tax cuts. That would add substantially to the debt and would enable deeper cuts to tax rates than would be allowed if Republicans followed through on earlier promises that their tax overhaul wouldn’t add to the budget deficit. That would mark an about-face for top congressional Republicans like Senate Majority Leader Mitch McConnell and Ryan, who had for months promised it wouldn’t add to the deficit.

Earlier Sunday, Treasury Secretary Steven Mnuchin said in a television interview the plan “creates a middle-income tax cut, it makes businesses competitive and it creates jobs.” He added that there are changes, too, for the “high end,” including “getting rid of lots of deductions.” He did not offer specifics.
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Iraq on Sunday urged foreign countries to stop importing crude directly from its autonomous Kurdistan region and to restrict oil trading to the central government.

The call, published in statement from Prime Minister Haider al-Abadi’s office, came in retaliation for the Kurdistan Regional Government’s plan to hold a referendum on independence on Monday.

The central government’s statement seems to be directed primarily at Turkey, the transit country for all the crude produced in Kurdistan. The crude is taken by pipeline to the Turkish Mediterranean coast for export.

Baghdad “asks the neighboring countries and the countries of the world to deal exclusively with the federal government of Iraq in regards to entry posts and oil,” the statement said.

The Iraqi government has always opposed independent sales of crude by the KRG, and tried on many occasions to block Kurdish oil shipments.

Long-standing disputes over land and oil resources are among the main reasons cited by the KRG to ask for independence.

Iraqi Kurdistan produces around 650,000 barrels per day of crude from its fields, including around 150,000 from the disputed areas of Kirkuk.

The region’s production volumes represent 15 percent of total Iraqi output and around 0.7 percent of global oil production. The KRG aspires to raise production to over 1 million barrels per day by the end of this decade.

Kurdish oil production has been dominated by mid-sized oil companies such as Genel, DNO, Gulf Keystone and Dana Gas. Major oil companies such as Chevron, Exxon Mobil and Rosneft also have projects in Kurdistan but they are mostly at an exploration stage.

However, Rosneft, Russia’s state oil major, has lent over $1 billion to the KRG guaranteed by oil sales and committed a total of $4 billion to various projects in Kurdistan.
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Swiss voters rejected raising women’s retirement age to 65 in a referendum on Sunday on shoring up the wealthy nation’s pension system as a wave of Baby Boomers stops working.

Authorities pushing the first serious reform of the pension system in two decades had warned that old-age benefits were increasingly at risk as life expectancy rises and interest rates remain exceptionally low, cutting investment yields.

But it fell by a margin of 53-47 percent, sending the government back to the drawing board on the thorny social issue.

The package turned down under the Swiss system of direct democracy included making retirement between the ages of 62 and 70 more flexible and raising the standard value-added tax (VAT) rate from 2021 to help finance the stretched pension system.

It sought to secure the level of pensions through 2030 by cutting costs and raising additional revenue.

Minimum pay-out rates would have gradually fallen and workers’ contributions would rise, while public pensions for all new recipients would go up by 70 Swiss francs ($72.25) a month.

The retirement age for women would have gradually risen by a year to 65, the same as for men.

“That is no life,” complained one 49-year-old kiosk cashier, who identified herself only as Angie. “You go straight from work to the graveyard.”

Some critics had complained that the higher retirement age for women and higher VAT rates were unfair, while others opposed expanding public benefits and said the reforms only postponed for a decade rather than solved the system’s financial woes.

Opinion polls had shown the reforms just squeaking by, but support had been waning.

The standard VAT rate would have gone up by 0.3 point from 2021 to 8.3 percent — helping generate 2.1 billion francs a year for pensions by 2030 — but the rejection means the standard VAT rate will now fall to 7.7 percent next year as a levy earmarked for disability insurance ends.

A 2014 OECD survey found Switzerland, where a worker earns over $91,000 on average, spends a relatively low 6.6 percent of economic output on public pensions. Life expectancy at birth was 82.5 years. More than 18 percent of the population was older than 65.

($1 = 0.9690 Swiss francs)
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Sunday’s national election in Germany will sound the starting gun for a renewed debate on fixing flaws in Europe’s shared currency to prevent future crises.

France’s new president Emmanuel Macron has made it clear he is willing to push for change to strengthen the euro and is expected to make proposals in a major speech Tuesday. He is pushing for, among other things, a finance minister for the eurozone to oversee a central fiscal pot of money that could even out recessions in individual members.

Even pro-euro policymakers concede their 19-nation currency union contains weaknesses that fed its debt crisis — and leave it exposed to new trouble. But action on fixes has slowed.

Macron’s ideas are not new but several of them have faced resistance from Germany, always allergic to the idea of being handed the bill for other members’ troubles. For example, German Chancellor Angela Merkel and her finance minister, Wolfgang Schaeuble, have pushed back against the idea of EU-wide insurance on bank deposits meant to keep bank troubles from hitting government finances.

Now there are signs that after its own elections are out of the way, Germany might be more open to change or at a minimum speeding up steps — like the deposit insurance idea — that have stalled. Polls suggest Merkel will win a fourth term. What’s not clear is which party her center right Christian Democratic Union will form a coalition.

“In several ways, the coming 12-18 months represent an exceptional opportunity for European reform,” says Nicolas Veron, senior fellow at the Bruegel think tank in Brussels and at the Peterson Institute for International Economics in Washington. Reasons for that, he said, include:

The two biggest EU countries, France and Germany, will now have new governments with fresh mandates from voters.
Europe’s banks are in better shape and the economy is growing, meaning leaders are not preoccupied with fighting a crisis.
 Anti-euro populists have been turned back at the polls this year in France and the Netherlands, giving pro-EU forces a fresh shot of confidence.
 Memories of the debt crisis that threatened to break up the eurozone at its peak in 2011-2012 may still be vivid enough to overcome complacency. 

Merkel has expressed cautious openness to tweaking the setup of the euro.

“I have made clear that I don’t have anything against the title of a European finance minister per se — we would just have to clear up, and we are not yet that far along in talks with France — what this finance minister could do,” she said in August.

“I could imagine an economy and finance minister … so that we achieve a higher degree of harmonization of competitiveness.”

The euro, currently worth about $1.20, was created in 1999, and 19 of the 28 EU members use it.

European officials concede that the debt crisis, which exploded when Greece revealed in October 2009 that it was bankrupt, exposed serious flaws. Once financial trouble hit, member countries such as Greece, Ireland and Portugal lacked typical crisis safety valves such as letting their national currency devalue, which can help a country’s exports and attract investment. Without their own currencies, this was no longer possible. The countries wound up needing bailouts from the other member countries led by Germany and from the International Monetary Fund.

Additionally, the cost of rescuing failing banks threatened to bankrupt entire eurozone governments. And the euro lacks a central fiscal budget that could even out recessions in member countries by investing more in economies in need.

German resistance will likely remain strong to the bolder ideas, such as a well-stocked central fiscal pot worth several percentage points of EU gross domestic product. Currently, the EU’s budget is 1 percent of GDP, spent on things like support for farmers and infrastructure to help development in the poorest members.

More modest, politically realistic steps could include:

Pushing ahead with EU-wide deposit insurance, to be implemented over a period of years.
Regulations limiting the widespread practice of European banks buying their own governments’ bonds. That would increase pressure on governments to shape up their economies and finances.
 A modest additional pot of money that could be used as targeted stimulus for eurozone countries that fall into serious recessions, with the condition that they implement economic reforms.

EU governments led by Germany, the bloc’s most influential member, have already taken some significant steps since the crisis days. They created a fund that can give bailout loans to states in need. They tightened banking oversight by moving it to the EU level at the European Central Bank, and they took steps to stick bank creditors — not taxpayers — with any losses in case of a rescue.

The new system proved its mettle in June, when the ECB pulled the plug on Spain’s troubled Banco Popular, the country’s sixth-largest bank, and then orchestrated a sale to Banco Santander for one euro. Shareholders and junior bondholders took the losses, while taxpayers and depositors were spared. It’s a step away from crisis times when the financial burden of rescuing banks drove Ireland and Spain to seek bailout help.

Carsten Brzeski, chief economist at ING Germany, says that reforms like a small central fund and deposit insurance are feasible.

“The opportunity in 2018 would be more a natural evolution of the process that has been ongoing now for the past couple of years, rather than being a revolution,” he said.
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