The Fed expects three interest rate rises for next year

This is an audio transcript of the FT News Briefing podcast episode: The Fed pencils in three interest rate rises for next year

Marc Filippino
Good morning from the Financial Times. Today is Thursday, December 16th, and this is your FT News Briefing.

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Marc Filippino
The Federal Reserve announced a much more aggressive approach to inflation yesterday, but investors are placing bets that inflation will be sticking around for a bit. Plus, we have a wild tale of garbage bags jammed with cash and bank tellers trying to get the attention of the authorities.

Jane Croft
Staff noticed that the banknotes would at times carry like a prominent, musty smell as if they’d be kind of stored underneath the floorboards rather than being used generally for business use.

Marc Filippino
But this week, in a rare move, one of Britain’s biggest banks was convicted of breaching money laundering laws. We’ll tell you more about it. I’m Marc Filippino and here’s the news you need to start your day.

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Marc Filippino
The Federal Reserve expects to raise interest rates three times in the coming year, and they planned five more rate increases in the following two years. The US central bank announced this more aggressive approach to controlling inflation yesterday at the end of a two-day policy meeting. The Fed also plans to double the pace at which it tapers its massive bond-buying programme. That means this pandemic stimulus measure will end several months earlier than expected. Investors seemed pretty happy with the Fed’s announcement though. The big US stock indices all ended the day higher.

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Marc Filippino
Despite the Fed’s tougher approach to inflation, investors are still betting that prices will still keep going up. And so they’re pouring money into assets linked to inflation.

Kate Duguid
Some of them, like Treasury bonds that are indexed to inflation, are being bought as a hedge against inflation. And then some like investments in energy and real estate funds are being bought to profit off of rising inflation.

Marc Filippino
That’s our US capital markets correspondent, Kate Duguid.

Kate Duguid
Energy-related funds or real estate investment trusts are popular during normal times, but higher energy costs drive inflation up and so are closely correlated. And then REITs benefit from rising rents, which move higher with inflation as well. So those are two specific assets that really benefit, really benefit from inflation.

Marc Filippino
OK, so Kate, investors are bracing for inflation, but the Fed just said yesterday that inflation, you know, won’t be around forever. It’s gonna get better in 2022, and the central bank is planning to raise interest rates several times over the next few years. How are investors going to adapt to this changing landscape?

Kate Duguid
So I think that people do see inflation cooling off next year, but we still have a couple of months until the Fed, the BOE actually raise interest rates. There’s a lot of quantitative easing to be wrapped up before then. So there’s still time for inflation to continue running hot before there’s a real like an actual policy intervention.

Marc Filippino
And when that policy intervention happens, what then? Where do they go from there?

Kate Duguid
I think that’s a great question with regards to Tips. Tips protect you from big surges or big drops in inflation. And so it’s likely that investors who are looking for a volatile inflationary environment next year will continue to stay in Tips. But investors who have piled into, let’s say, real estate investment trusts, into energy-related stocks and funds, may move back into funds that are exposed to the broader stock market.

Marc Filippino
Kate Duguid is the FT’s US capital markets correspondent.

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Marc Filippino
So if someone were to walk into a bank with a garbage bag filled with cash or filled with anything, really, you’d think that someone would call the police or at least, you know, flag a manager. But for years, a gold dealer in England would show up regularly to branches of the big British bank NatWest, with big black trash bags stuffed with cash and nothing happened. Finally, this week, NatWest was hit with a criminal conviction and more than £250m in fines. The FT’s law courts correspondent Jane Croft has been covering this story. Hi, Jane.

Jane Croft
Hello, how are you doing?

Marc Filippino
I’m doing well. So, Jane, how unusual is this conviction?

Jane Croft
It’s actually very unusual. It’s the first time the financial regulator, the Financial Conduct Authority, has used anti-money laundering laws to bring a criminal conviction against a bank for breaching money laundering regulations. Normally these sorts of cases, if they, you know, anti-money laundering cases, are normally dealt with via a regulatory route. So the regulators fine them or publish a statement or that sort of thing. It’s incredibly rare for the regulator to use the criminal courts to prosecute a bank.

Marc Filippino
Now I wanna ask you more about that. But first, I have some questions about this particular case. You know, it involves people walking through a shopping mall filled with trash bags. What was this gold dealer doing and who was laundering the money?

Jane Croft
Well, I mean, there’s a basically ongoing investigation and two trials next year. Basically, the incident you refer to is at the Walsall branch, which is in the West Midlands, where people walking through the shopping mall to the bank branches in the middle of the shopping mall with bin liners full of cash. And you know, the bank branch was so overwhelmed with the cash they’d have to transfer the banknotes to the stronger hessian sacks because the bin liners kept breaking. And such was the volume of the cash that it filled the banks to floor-to-ceiling safes. And even then, the cash was so much that it had to then be stored outside the safe behind the counter bank grilles. But basically, a lot of the details of the operation, as I say, are still unknown given these kind of ongoing investigation.

Marc Filippino
So we don’t yet know who was laundering the money or what the gold dealer’s role in it was?

Jane Croft
No.

Marc Filippino
OK, so do we know what bank workers were thinking or doing about this? Was it just business as usual?

Jane Croft
Well, I mean, basically, it came out in the court that lots of staff in branches and in cash centres did report suspicions to colleagues, but ultimately kind of no appropriate action was ever taken. So in total, like 11 internal alerts were raised, and the banks own automated anti-money laundering system was triggered like 10 times between November 2013 and June 2016. So there were lots of red flags. I mean in one centre in the North East, staff noticed that the banknotes would at times carry like a prominent, musty smell as if they’ve been kind of stored underneath the floorboards, rather than being used generally for business use. And these staff were also troubled by the unusual high volumes of Scottish banknotes in England, which, you know, miles from the Scottish border. So I mean, they did alert the National Crime Agency, who was investigating the use of Scottish banknotes in England, but ultimately no suspicious alert was raised.

Marc Filippino
Now what finally triggered the investigation, or I guess, the involvement of legal authorities?

Jane Croft
What happened was the West Yorkshire police alerted the bank that they were investigating this Yorkshire gold dealer. That’s kind of what triggered the whole process.

Marc Filippino
Now, you mentioned earlier in the conversation that this conviction is very unusual. Why are authorities cracking down now?

Jane Croft
There is a concern, I think that there’s not enough being done about anti-money laundering. London particularly is seen as a kind of centre for dirty money for various places in the world. So I think you know that there’s a sort of concern that not enough is being done. So it sounds like the FCA are absolutely making this a top priority to crack down on this sort of tide of dirty money, really.

Marc Filippino
Thanks, Jane. Jane Croft is the FT’s law courts correspondent.

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Marc Filippino
Before we go, British retailer Marks and Spencer is getting into the holiday spirit. That means taking a rival to court this time for allegedly copying its prized Christmas gin liqueur. Marks and Spencer says the German retailer Aldi is selling gin liqueurs that are way too similar to its Light-Up gin, which comes in a bell-shaped bottle that’s illuminated from the bottom and has edible little gold flakes that look like snow. And all these liqueur is £6 cheaper. Aldi wouldn’t respond to a request for comment. This is the latest intellectual property stand-off between the two retailers. Earlier this year, M&S went after Aldi for allegedly copying its classic Colin the Caterpillar chocolate cakes.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.