Hot inflation data pushes back expectations for US rate cuts

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• Poorly targeted moves by wealthy governments to subsidise key industries are “self-defeating”, the IMF warned.

• A top European court annulled sanctions against Russian billionaires Mikhail Fridman and Petr Aven in a major blow to the EU’s sanctions regime against Moscow.

• UN climate chief Simon Stiell urged voters to “raise their voices” over global warming as more than half of the world goes to the polls in the months ahead.

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Good evening.

What next for US interest rates?

That’s the question facing policymakers and investors today after new data showed a bigger than expected jump in inflation from 3.2 per cent to 3.5 per cent in March. Core inflation, which excludes volatile food and energy costs, was also higher than expected, stuck at 3.8 per cent. 

Today’s CPI rise, hot on the heels of Friday’s bumper jobs report, piles extra pressure on the Federal Reserve as it decides how much longer to keep interest rates at their current 23-year high. US bond yields jumped and stock futures sunk on the news as traders bet on fewer rate cuts than had been expected and the process starting possibly as late as November.

Today’s data highlights the increasing divergence between the economies of the US and the EU, where cooling inflation is leading investors to buy European bonds over US Treasuries in the belief that the European Central Bank (which makes its next decision tomorrow) will begin cutting rates ahead of the Fed.

That view was given legs this morning by new data showing inflation in Germany, the eurozone’s biggest economy, falling to its lowest level in nearly three years.

Senior figures on Wall Street are coming to similar conclusions.

“The path for rate cuts in Europe is clearer than in the US,” said Bob Michele of JPMorgan Asset Management. “It is hard to find an economic reason for the Fed to cut rates.” 

Bob Prince of the Bridgewater Capital hedge fund told the FT yesterday that the Fed’s rate-cutting hopes were “off track,” while JPMorgan chief Jamie Dimon said government stimulus could mean rates and inflation staying higher than markets were expecting.

In his latest Central Banks newsletter (for Premium subscribers), Chris Giles says the most likely scenario is that policymakers in the US and beyond will keep interest rates restrictive for a while yet, even if they are reduced a little.

Or to use a motoring analogy, “their feet are still pressing on the car’s brakes, but not so hard”.

Need to know: UK and Europe economy

As you can see from our regularly updated poll tracker, the UK’s ruling Conservatives remain adrift. FT writers assess their chances of salvation from an improving economy.

A wider war in Europe is “no longer a fantasy” according to Josep Borrell, the EU’s chief diplomat, who warned of threats from Russia through the war in Ukraine and hybrid attacks on EU member states.

A European Central Bank survey showed eurozone banks have been hit by a “substantial” drop in loan demand from companies, reflecting lower investment plans. This has added to pressure on the ECB to start cutting interest rates.

German inflation may be falling but — according to the boss of RWE, one of the country’s leading energy companies — industry is unlikely to recover to pre-Ukraine war levels because of elevated energy prices.

Europe will need to invest €800bn by 2030 in energy infrastructure alone to meet climate goals and keep industry competitive, according to a new report. Brussels has launched a subsidy investigation into Chinese wind turbine companies as it ups efforts to protect its domestic industry from cheap competition.

A European court meanwhile ruled that a government failure to cut greenhouse gas emissions in Switzerland was a violation of citizens’ rights.

Italy has had 31 different prime ministers and 68 different governments since the second world war. Our Big Read explains current premier Giorgia Meloni’s plan to rewrite the constitution in a bid for stability.

Need to know: global economy

Fitch Ratings cut its outlook on China’s long-term credit rating to negative, citing uncertain prospects for the economy, following a similar downgrade from Moody’s in December.

China and Russia pledged to maintain “industrial supply chain stability” and work together against “hegemonism”, just days after US Treasury secretary Janet Yellen warned Beijing against supporting Moscow’s war effort.

Several large Taiwanese manufacturers are considering setting up a second headquarters overseas in case of a Chinese attack on their country. The plans highlight how global efforts to secure supply chains are forcing companies to make extensive changes.

Need to know: business

OpenAI and Meta are about to release new artificial intelligence models that they say will be capable of reasoning and planning, a step towards achieving superhuman cognition in machines. AI will overtake human intelligence next year, according to Tesla, X and SpaceX boss Elon Musk. The fast evolving technology meanwhile is stretching to breaking point traditional models that evaluate safety.

European airlines, airports and air traffic controllers are optimistic that operational changes in the aviation industry will avoid a repeat of last summer’s travel chaos.

European ports, however, are turning into car parks as imported cars — especially Chinese brand EVs — pile up awaiting haulage as they face logistical problems such as a lack of truck drivers.

How will WeightWatchers, global guardians of waistlines since 1963, cope now that weight loss comes in the form of a syringe?

Wall Street reporting season gets under way this week with the biggest US banks set for higher profits than expected from their lending businesses on the likelihood that the Federal Reserve will now make only modest interest rate cuts.

Monte Carlo-based CMB Monaco has become the first European bank to be sued under a 1970 US anti-mafia law as part of long-running dispute between two Russian businessmen over a property deal.

The World of Work

The Working It podcast examines the rise of supercommuters: the employees sticking with their longer working journeys post-Covid to enjoy their country homes.

Some good news

Only two northern white rhinos are left alive, but there are hopes the species may be able to recover from the brink of extinction using frozen skin cells from dead rhinos.