Aurelia Butler

When asked about the conditions for rate cuts in 2024, Kashkari said, “Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back.”The Fed official also didn’t rule out further rate hikes if inflation persists, saying that the central bank shouldn’t rule anything out at this point.U.S. inflation increased by 0.3% in April, slightly less than expected, offering some relief to policymakers, but it remained 3.4% higher compared to the previous year.Kashkari remains confident that the Fed will eventually reach its 2% inflation target but stressed the importance of patience.“I’m not seeing the need to hurry and do rate cuts, I think we should take our time and get it right,” he told CNBC.He also mentioned that while the central bank might consider adjusting its target rate in the future, it was premature to “move the goal posts” at this time.Earlier this month, Kashkari suggested that the Fed might need to keep interest rates steady for “an extended period”—potentially all year—to achieve its inflation goal.Recently, there has been a growing divergence among major central banks on interest rate policies.The Fed, which has historically been quick to adjust rates, is becoming more cautious amid persistent inflation.In contrast, the European Central Bank is expected to lower rates ahead of the Fed, with key ECB officials supporting a June cut. Similarly, the Bank of England is anticipated to reduce rates this summer. More

“Many more months of positive inflation data, I think, to give me confidence that it’s appropriate to dial back,” Kashkari told CNBC in an interview when asked about the conditions that are needed for the Federal Reserve to cut rates once or twice this year.Kashkari told CNBC that the central bank could potentially even hike rates if inflation fails to come down further.In April, Kashkari said he had penciled in two interest rate cuts this year at the U.S. central bank’s March meeting but if inflation continues to stall, none may be required by year end.U.S. consumer prices increased less than expected in April, suggesting that inflation resumed its downward trend at the start of the second quarter. More

COLOMBO (Reuters) -Sri Lanka’s central bank held interest rates steady on Tuesday to ensure inflation pressures remain in check as authorities look to foster economic stability and lift growth following the South Asian nation’s worst financial crisis in decades. The Central Bank of Sri Lanka (CBSL) kept the Standing Deposit Facility Rate at 8.50% and the Standing Lending Facility Rate at 9.50%, it said in a statement.The decision surprised some in the market as eight out of 15 economists and analysts polled by Reuters had projected rates to be cut by 50 basis points.Sri Lanka’s key annual inflation rate was at 1.5% in April, down from 6.4% at the start of the year, and prices appear well anchored, the central bank said in a statement.”Incoming data suggests that headline inflation is likely to be below the targeted level of 5 per cent in the upcoming months due to the combined impact of the administered price adjustments and eased food prices, although some upside risks remain,” the central bank said. CBSL reduced rates by 50 bps in March as it continued an easing cycle that has seen rates drop by 700 bps since June, partially reversing the 1,050 bps in increases made since April 2022 when the economy plunged into crisis.Space remains for market lending interest rates to decline further given the prevailing accommodative monetary policy stance, CBSL Chief P. Weerasinghe told reporters at a post-policy press conference. The governor reiterated the need for lenders to pass on the benefits of lower rates to borrowers without further delay and support the pick up of private sector credit to boost overall growth. “There could be space for rates to be adjusted lower later on when the economy has stabilised more but we will make those decisions based on data,” Weerasinghe said. Economists say private sector credit growth remains key to shoring up the economy.”The weighted average lending rate need to adjust more. That is what will assist people to borrow. It’s clear the central bank wants private sector credit to expand to boost growth,” said Udeeshan Jonas, chief strategist at equity research firm CAL Group. Sri Lanka’s economy is expected to grow 3% in 2024 after Colombo secured a $2.9 billion lending programme from the International Monetary Fund (IMF) last March. The island’s economy shrank 7.3% in 2022 and 2.3% last year after a record shortfall of dollar reserves and huge debt sparked a severe financial crisis. Sri Lanka now faces a June deadline for a deal with its bilateral creditors and to secure an agreement with bondholders to renegotiate its foreign debt and release a third tranche of $337 million from the IMF. “Negotiations with both bilateral creditors and bondholders are progressing in parallel and we are hopeful the review will be completed in June,” Weerasinghe said. More

1. Futures tick higherU.S. stock futures edged into the green on Tuesday, with investors looking ahead to key inflation data during this holiday-shortened trading week.By 03:26 ET (07:26 GMT), the S&P 500 futures contract had added 9 points or 0.2%, Nasdaq 100 futures had gained 58 points or 0.3%, and Dow futures had climbed by 40 points or 0.1%.Stock markets on Wall Street were closed for Memorial Day on Monday.Highlighting the economic calendar this week is May’s personal consumption expenditures price index on Friday, widely known as the Federal Reserve’s preferred measure of inflation. Fed officials have recently suggested that they would like to see more proof that price gains in the U.S. are sustainably cooling toward the central bank’s stated 2% target before rolling out any potential interest rate cuts this year.2. Consumer confidence data aheadA relatively light schedule of economic releases Tuesday will feature the latest reading of the Conference Board’s consumer confidence survey.Analysts expect the May figure, which is viewed as a potential leading indicator of consumer spending, to fall slightly to a mark of 96.0, down from 97.0 in the previous month.The number sank to its lowest level more than 1-1/2 years in April as Americans fretted over elevated prices for essentials like food and gas, as well as income and the availability of jobs.”Confidence retreated further in April [….] as consumers became less positive about the current labor market situation,” Dana Peterson, Chief Economist at the Conference Board, said in a statement.3. Earnings season ebbsThe quarterly parade of earnings continues to slow, although several companies are still gearing up to their unveil their latest returns in the coming days.Among them is Salesforce (NYSE:CRM), who will report following the close of markets on Wednesday. Analysts at Goldman Sachs have said that they expect the business software group to roughly meet Wall Street expectations thanks in part to a recovery in spending by small- and medium-sized businesses.Elsewhere, members-only retailer Costco Wholesale Corp (NASDAQ:COST) and beauty store chain Ulta Beauty (NASDAQ:ULTA) are tipped to provide a further glimpse into the state of the U.S. shopper when they report after the bell on Thursday. Consumers have recently showed signs that they are paring back expenditures on nonessential items in response to sticky inflation and higher interest rates.4. Alibaba Health surgesHong Kong-listed shares of Alibaba Health Information Technology (HK:0241) spiked on Tuesday after the firm clocked a jump in its annual earnings on improved margins and strong demand for healthcare services and pharmaceuticals on its platforms.The company, which was acquired by e-commerce giant Alibaba Group (NYSE:BABA) in 2014, posted a nearly 91% surge in adjusted net profit to 1.44 billion yuan ($200 million) for the year to March 31.Revenue rose about 1% to 27.03 billion yuan, as sales appeared to be stagnating after COVID-led demand sparked stellar sales growth over the past three years. But Alibaba Health benefited from improved margins, especially on its online healthcare services, as well as pharmaceutical sales.5. Oil mutedCrude prices hovered around the flatline, rebounding from recent losses ahead of a meeting by major producers to decide future output levels.By 03:23 ET, the U.S. crude futures (WTI) inched up 0.2% to $78.72 a barrel, while the Brent contract traded down by 0.1% at $82.83 per barrel. Oil prices rose over 1% on Monday in muted trade owing to public holidays in the U.K. and the U.S., after sinking to the lowest levels since early-February last week.All eyes are now on the next meeting of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, which is set to take place online on June 2. Much of the focus will be on whether the cartel will extend its current voluntary production cuts of 2.2 million barrels per day into the second half of the year. More

Sunak’s Conservative Party said it would introduce a new age-related allowance and deliver a tax cut of around 100 pounds ($128) for each of 8 million pensioners in 2025, rising to almost 300 pounds a year by the end of the next parliament.”This bold action demonstrates we are on the side of pensioners. The alternative is Labour dragging everyone in receipt of the full state pension into income tax for the first time in history,” Sunak, who last week called a general election for July 4, said in the statement.The number of pensioners in Britain rose by 140,000 to 12.6 million in the year to February 2023. Close to 50 million Britons will be eligible to vote in the election, which opinion polls predict is likely to end 14 years of Conservative rule in the country.The Conservative Party said the proposal comes alongside the its commitment to the so-called triple lock, which guarantees increases to publicly funded pensions by the level of earnings, inflation or 2.5%, whichever is highest. Labour has also committed to retain the policy, which was introduced by a Conservative government in 2011 to prevent pensioners from falling into poverty.However, costs associated with it have come under increased scrutiny in recent years after British inflation soared, pushing up the government bill for state pensions by an additional 11 billion pounds last year. The new proposal, which the party termed “triple lock plus,” will cost 2.4 billion pounds a year by 2029/30 and be funded through the government’s previously announced plan to raise an extra 6 billion pounds a year by clamping down on tax avoidance and evasion, the party said. “This is just another desperate move from a chaotic Tory party torching any remaining facade of its claims to economic credibility,” Labour shadow paymaster general Jonathan Ashworth said in a statement on the plans. The paymaster general falls under the Treasury and acts as a banker for most government departments.($1 = 0.7831 pound) More

Michael Pettis is a Beijing-based associate of the Carnegie Endowment for International Peace.In a New York Times essay in the wake of Biden’s recent trade restrictions, former Obama administration official Steven Rattner made a plea for the return of the US to a global system of comparative advantage. Tariffs and other trade policies, he argued, violate the principle of comparative advantage, and anyway Americans are better off if they can buy the cheapest foreign products available. As Rattner writes:Every student in an introductory economics course learns about David Ricardo’s 200-year-old theory of comparative advantage: the idea that by specialising in the products that they can produce most efficiently and then trading with others, nations can be better off.. . . Tariffs can be used to temporarily shelter nascent domestic industries — much as Alexander Hamilton proposed when he served as our first Treasury secretary. They can be used judiciously to address unfair trading practices. And they can be used when national security is genuinely at risk.However, we also need to resume removing trade barriers, not increase them. Among other things, we need the World Trade Organization to function, but the Trump and Biden administrations have blocked all candidates for its appellate body and chosen to act unilaterally, rather than through the W.T.O.I’m hoping that when the election dust settles, we can get back to what David Ricardo explained so clearly two centuries ago.While many other economists and officials have made similar arguments, this only shows how poorly trade is understood. The global trading system has long diverged from one in which countries specialise in comparative advantage.You can see this in the highly unbalanced trading environment of the past several decades. The theory of comparative advantage proposes that the global economy benefits when different countries specialise in products they can produce comparatively more efficiently, exchanging them in the global markets for products that other countries can produce more efficiently.But “exchange” is the key word. To illustrate, let’s assume a world of two products, textiles and glass, and of two countries, Germany and Spain. In this world, even if Germany can produce both textiles and glass more cheaply than Spain, Germany wouldn’t have a comparative advantage in both.If Germany’s price advantage in textiles is greater than it is in glass, this would mean that Germany’s comparative advantage will be in textiles and Spain’s in glass. In that case, if Germany produces textiles, and Spain glass, and each sells what it produces to obtain what it doesn’t produce, both countries will collectively produce more and be better off. David Ricardo famously showed why in his 1817 book, On the Principles of Political Economy and Taxation.It’s often forgotten (even by economists) that the global benefits of trade under comparative advantage can’t be realised in their production. Only an balanced exchange of goods will express it.So is it possible for Germany to sell both textiles and glass to Spain while running trade surpluses? Yes, but it turns out that this has nothing to do with comparative advantage, and everything to do with the domestic distribution of income.If German workers receive a low enough share of what they produce — in the form of direct and indirect wages — German businesses will be able to produce both textiles and glass even more cheaply than Spanish businesses, but German households will not be able to consume or import in line with what they produce.In that case, while Germany can expand production of both textiles and glass, and sell the part it cannot consume to Spain, its expansion will come at Spain’s expense. In other words, Germany will use its exports not to pay for imports from Spain, but rather to force the consequence of its weak domestic demand on to the Spanish economy. While this would leave German businesses better off, it would leave German and Spanish workers and Spanish businesses worse off.Economists who argue that in this example Germany has a comparative advantage in both textiles and glass are confusing comparative advantage with weak domestic demand. To move to a system of comparative advantage would require enough of a rise in German wages that German demand would rise in line with and match German production. In that case Germany would still export, but its imports would increase relative to exports, and the problem of weak demand would be resolved.In the discussion about Biden’s recent tariffs on Chinese goods, we have to make the same distinction between low Chinese prices associated with comparative advantage and low Chinese prices associated with weak domestic demand. Chinese workers are much less productive than American workers, so it’s to be expected that they earn lower wages. The problem is that even adjusting for differences in productivity, Chinese wages are low.It is these relatively low wages — not comparative advantage — that explain China’s weak domestic demand as well as its low export prices across the board. This would change if China were to raise its wages in line with its productivity, as it has been promising to do for nearly two decades. In that case it would still export products in which it had a comparative advantage, like electric vehicles, but because Chinese households would be able to consume more, it would import just as much as it exported, and so would contribute as much demand to the world economy as it absorbs. Americans would pay for their Chinese imports with exports to the world.This isn’t what is happening. China exports far more than its population can afford to import. And so while most economists support free trade under comparative advantage because this maximises the value of goods and services produced by the economy, excess savings and persistent trade surpluses are not signs of comparative advantage.This has important political implications. In a famous 1936 essay, Joan Robinson warned about a global trading system in which countries use trade to export weak domestic demand and domestic unemployment. This led to an explosion of trade conflict in the 1930s. No one should be surprised that it is leading to the same today. More