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US Federal Reserve chief Jay Powell today insisted there was no alternative to an aggressive tightening of monetary policy to bring down inflation, declaring the Fed “must keep at it until the job is done”.
Powell’s hotly anticipated speech at the Jackson Hole Economic Symposium (dubbed the “Glastonbury for central bankers” by FT Alphaville) was meant to dispel any doubts about the Fed’s resolve after financial markets in recent weeks had come to believe it might ease up on its new hawkish path. The remarks in Wyoming stood in stark contrast to his address at last year’s event, where he said surging consumer prices were a “transitory” phenomenon.
There was encouraging news for Powell shortly ahead of his speech as new data on personal consumption expenditure, the Fed’s preferred measure of inflation, showed the annual rate cooling to 6.3 per cent in July from 6.8 per cent in June, thanks to a drop in petrol prices. “Core” PCE, stripping out volatile items such as food and energy, hit a nine-month low of 4.6 per cent. The figures follow data yesterday showing the US economy shrank less than originally reported in the second quarter.
Among the attendees in Wyoming was Bank of England governor Andrew Bailey, who has also come under fire over his response to inflation. Markets are now betting that the BoE will have to more than double interest rates to 4 per cent by next May as one projection forecast UK inflation could top 18 per cent.
Political interference in central banks’ independence has become more of an issue as inflation continues to rise. The BoE’s mandate has been questioned by UK prime ministerial favourite Liz Truss, while the Australian government has launched a review into its “embarrassing” central bank.
The FT editorial board argues that central banks need to do some soul-searching if they are to guide economies back towards price stability and safeguard their own independence.
One way they can do this, writes US editor at large Gillian Tett, is through better use of storytelling. Unless policymakers such as Powell can present a convincing “causality narrative,” others will do it for them, she suggests.
But blaming policymakers wholly for the cost of living crisis would be unfair, says the FT editorial board, given an unprecedented pandemic followed by a war that led to surges in oil, gas and food prices.
“In hindsight,” the FT concludes, “the mistakes look more obvious than they did at the time. Central banking is at best an art, not a science.”
Check out our presentation on whether the Fed can tame inflation without causing a recession.
DT is taking a short holiday break on Monday and will be back on Wednesday August 31
Latest news
Europe gas prices hit record high as energy crisis deepens
US consumer sentiment improves in August from historic lows
Boris Johnson promises UK households ‘extra cash’ as energy prices soar
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Need to know: the economy
The energy price cap for UK households will rise by 80 per cent in October, making the typical gas and electricity bill £3,549 a year. The FT editorial board said the surge in prices was a “national emergency” while a former adviser said the government needed to move on to a “war footing”. Profits meanwhile are booming at Harbour Energy, the UK’s biggest oil and gas producer.
Latest for the UK and Europe
UK postal workers launched the “biggest strike of the summer” after talks over pay and conditions foundered. A bin strike in Scotland has attracted attention as international visitors gathered for the first full return of the Edinburgh festival after two years of Covid-19 restrictions.
Liz Truss, frontrunner to become the UK’s new prime minister, is considering immediately ripping up the Northern Ireland protocol on post-Brexit trade if she is victorious. The move could trigger a trade war with the EU as well as having wider repercussions.
A popular €9-a-month ticket initiative for local trains and other public transport has come to an end in Germany. Similar schemes are in operation in Spain and Austria.
Global latest
Global trade fell in June, according to a tracker of exports and imports, ahead of what is expected to be a sharper decline in the months ahead, with volumes sliding in China, eastern Europe and the UK.
China announced $44bn of new support for the economy, battered by a property crisis and tight zero-Covid restrictions.
The revival of the Iran nuclear deal — and with it the return of Iranian oil to the market — has not gone down well in Saudi Arabia, which is worried about further drops in the oil price and the implications for its security. Riyadh has long opposed US rapprochement with Iran.
The booming cocaine business is spreading across Latin America, leaving a trail of violence in its wake. “What we’re seeing now is the culmination of the globalisation of the drugs trade,” said one expert. “This is a trend which began five to 10 years ago but has been accelerating in the past couple of years.”
The pandemic exposed Africa’s dependence on overseas production of vaccines but local initiatives give hope for the future. Read this and more in our new special report: African Development.
Drug overdoses have played a large role in the widening gulf between the US and its peers over life expectancy, explains chief data reporter John Burn-Murdoch.
Need to know: business
The UK government ruled out further state support for CF Industries, the US fertiliser group which is the UK’s biggest carbon dioxide producer, after it announced the closure of its plant in north-east England. The company said the sharp rise in natural gas prices made the energy intensive process uneconomical, throwing the country’s meat and drinks sectors into turmoil.
British companies face a “cost of doing business crisis” with bills set to rise more than fourfold this autumn. The majority are due to renegotiate their electricity and gas rates in October, the month fixed prices for businesses have been set since energy markets were privatised.
Equinix and Digital Realty Trust, the world’s biggest two data centre operators, are stockpiling extra fuel for generators as a safeguard against winter energy blackouts.
Europe’s luxury retailers have been hit hard by the loss of Chinese tourists. In the decade before the pandemic, Chinese consumers became by far the world’s biggest spenders on upmarket goods, making one-third (€93bn) of global sales, according to consultancy Bain, but are now spending much more at home.
Citigroup is winding down its Russian operations after failing to find a buyer, with most potential suitors under western sanctions. The move will affect 2,300 staff and 15 local branches and will cost $170mn over the next 18 months.
Qantas said the rebound in leisure and business travel had been stronger than expected, even as it reported a loss for the third consecutive year, sending its shares soaring. EasyJet shook up its board after a summer of disruption and cancelled flights.
A wave of big budget blockbusters is being streamed this autumn as platforms try to entice subscribers while making record losses and losing the confidence of investors. The cinema industry meanwhile is still having problems recovering from its battering during the pandemic.
Science round up
Moderna said it would sue Pfizer and BioNTech for copying the “groundbreaking technology” behind its Covid-19 vaccine. It alleges infringement of patents on its messenger RNA technology, including one related to chemical modifications that enable mRNA to enter the human body without provoking undesirable immune responses.
Pfizer and BioNTech have asked US regulators for emergency authorisation of their Covid-19 vaccine targeting the fast spreading BA.4/BA.5 sub variants of coronavirus. The jab could be the first to get the go-ahead without human trials. Pfizer is also racing to develop a shot for respiratory syncytial virus.
GSK and Sanofi are attempting to end the dominance of BioNTech/Pfizer and Moderna vaccines, arguing their shot, which contains the protein of the virus’s spike, rather than genetic code for it, has fewer side effects and lasts longer.
North Korea reported four new cases of Covid (aka “the malignant epidemic”) just two weeks after leader Kim Jong Un declared “victory” over the virus. The country of 25mn people has reported about 4.8mn cases, but a death toll of just 74, a claim treated with extreme scepticism by health experts.
Rishi Sunak and Liz Truss, the two contenders to become the new UK PM, both hit out at their government’s handling of the pandemic, with Sunak arguing too much authority had been given to scientific advisers.
Experts warned that the slow response to the spreading monkeypox outbreak shows countries have not learned lessons from the coronavirus crisis, in particular the failure to quickly roll out vaccines.
Get the latest worldwide picture with our vaccine tracker
Some good news
Scientists have used stem cell technology to create “synthetic” mouse embryos with growing brains, beating hearts and precursors to other organs that could be used to grow replacements for humans with life-threatening illnesses. Science editor Clive Cookson has the details.
Source: Economy - ft.com
