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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.As China became an economic superpower, its banks and companies planted five-star red flags all over the world. But nowhere has booming Chinese business caused Washington as much concern as in Latin America. “They are on the 20-yard line to our homeland,” said General Laura Richardson, commander of US Southern Command, last year.Latin America possesses plenty of what the world needs most: lithium and copper for electrification, fresh water and fertile land to grow food, and prime locations for generating solar and wind power.Keen to dominate these sectors, Beijing has invested accordingly. Trade between China and Latin America exploded from $12.5bn in 2000 to more than $480bn in 2022. Chinese firms are building ports, roads, railways and hydro dams across the region. Beijing’s state-backed banks loaned more than $136bn to Latin American nations from 2005-22.Many Latin Americans have welcomed China’s arrival. It adds a third investment string to a bow previously limited to Europe and the US, plus a giant market for meat, soy and minerals. Chinese companies have delivered some infrastructure cost-effectively. Beijing’s tech firms offer advanced gear at keen prices.Initially distracted elsewhere, the US has awoken to what it regards as an alarming incursion by its strategic rival into home turf. Washington has lobbied Latin American governments against the supposed security dangers of Huawei’s 5G mobile equipment, warned of the perils of Chinese debt-trap diplomacy and lectured on the risks of over-dependence on a single market.Latin Americans were not overly impressed. Many grew up in economies that relied too heavily on one market: the US. Lectures about China’s fondness for authoritarianism sounded rich coming from a nation that backed anti-communist coups across the region in the last century. And where are the concessional US loans or the American 5G suppliers?Yet it would be naive to dismiss American concerns. At a time of heightened geopolitical tension, it cannot be wise for any one nation to control supplies of critical minerals or key technologies. Not all China’s projects are benign: the giant antenna of a deep space listening station in Argentine Patagonia run by the People’s Liberation Army operates on wavebands that can be used for missile guidance and weapons tracking. Supplies of Chinese coronavirus vaccines depended partly on Latin American nations’ willingness to toe Beijing’s line.An obvious US response would be to resurrect the 1990s vision of a single free trade area across the Americas, but bipartisan hostility to big new pacts makes that impossible. However, there is an alternative. In a rare show of collaboration, Republicans and Democrats in both houses of Congress joined forces last month to introduce legislation that could give a useful boost to US trade and investment in Latin America. The Americas Act would put muscle into the Biden administration’s hitherto flabby economic partnership initiatives. It could allow Latin American nations that meet standards on democracy, trade and the rule of law to eventually join the US-Mexico-Canada free trade agreement. It would expand US concessional lending and offer up to $70bn to promote the nearshoring of production from China. A biennial presidential summit would track progress.Latin American nations like the idea. The White House is said to be supportive. Yet the bill will struggle to win attention from legislators in an election year. Congressional leaders should get it passed. If the US misses the opportunity in Latin America, China certainly will not. More

TOKYO/WASHINGTON (Reuters) -President Joe Biden is seeking to revive interest in a plan to build the first high-speed rail in the U. S. using Japanese bullet trains, with sources saying he is likely to discuss the project with Japan’s prime minister in Washington this week.The leaders may publicly voice support for the multi-billion-dollar Texas project after Wednesday’s talks, which have been partly overshadowed by U.S. opposition to another Japanese investment, Nippon Steel’s planned purchase of U.S. Steel. Prime Minister Fumio Kishida’s state visit to Washington, the first by a Japanese leader in nine years, aims to showcase closer security and economic ties between the allies.The project linking Dallas and Houston will be on the agenda for the talks, said three sources familiar with summit preparations, who sought anonymity as they were not allowed to speak to the media.It is likely to be mentioned in joint statements following the talks, two of the sources said.However, a senior Biden administration official said the project did not appear to have matured to the point where the leaders would announce progress publicly.All the sources cautioned that the details of the final agreements could change before the visit.Japan’s foreign ministry declined to comment, saying the governments were still coordinating joint statements from the talks. The White House declined to comment.Support from the leaders could unlock new cash from the Federal Railroad Administration and other Department of Transportation funds.But the project, estimated to cost between $25 billion and $30 billion, still faces potential hurdles in Texas and the U.S. Congress.Biden’s Transportation Secretary Pete Buttigieg has voiced support for the plan. “We believe in this,” he said in an interview with NBC 5 on Sunday. “Obviously it has to turn into a more specific design and vision but everything I’ve seen makes me very excited.”With its vast distances between major cities, huge commuter population, and dearth of public transport the United States has attracted multiple high-speed rail proposals.But none have ever been built, blocked by political wrangling, land ownership riddles and skyrocketing costs. A train linking Houston and Dallas, the U.S.’s fourth and fifth biggest metropolitan areas by population, has been discussed since the 1980s. Previous efforts were stymied by the objections of private landowners along its route.Biden and Kishida’s support, say the project’s advocates, will help attract money from private investors for a “shovel ready” plan.The 240-mile (380-km)-long rail link, which will be built and operated by Texas Central Partners and Amtrak, is expected to cut travel times between the cities to about 90 minutes, from 3-1/2 hours by car. Japanese state lenders, including the Japan Bank for International Corporation, have provided loans to help develop the project, which is procuring shinkansen bullet train technology from Central Japan Railways Company.Progress with the project would be a win for the Biden administration, which has pushed climate-friendly policies and rail investment. But it is likely to draw criticism, particularly from hardline Republican lawmakers in the U.S. House of Representatives who have opposed using public funds for rail projects in the past, and oppose using them now to rebuild Baltimore’ Francis Scott Key Bridge, which was destroyed by a cargo ship last month.Plans for a possible nod of support from leaders follow Biden’s opposition to Nippon Steel’s plan to buy U.S. Steel Corp, saying it must remain in U.S. hands.Biden, who signed a $1-trillion infrastructure bill in 2021 that includes $66 billion for rail projects, will face Donald Trump in November’s presidential election rematch.With voters rating the economy at the top of their concerns, Democratic president Biden has pushed government-backed building projects that his aides argue could create jobs and relieve inflation pressures. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Eurozone banks reported a “substantial” drop in loan demand from companies, prompting calls for the European Central Bank to signal it will cut interest rates soon when it meets this week.The ECB said on Tuesday its quarterly survey of lenders showed “demand for loans from firms declined substantially, contrary to banks’ expectations of a recovery”. Economists said the fall in borrowing, which reflected lower investment plans, meant the region’s economy was likely to continue stagnating. However, there were also signs of banks starting to stabilise the availability of credit to the economy in the first three months of this year, following a four-year tightening period, as they cut the cost of mortgages for the first time in more than two years.The survey results will feed into the discussion among ECB rate-setters when they meet this week about the extent to which tight financing conditions are squeezing activity and cooling inflationary pressures. While investors are convinced the ECB will start cutting its benchmark deposit rate from its record high level of 4 per cent in June, there is more doubt over the pace and total amount of policy loosening that will follow — especially if the US Federal Reserve does not follow suit. Some analysts think falling loan demand from companies will increase the chances of rate cuts in June and at most of the four other remaining ECB meetings this year.“This is a clear indicator that monetary policy remains too tight in the euro area,” said Tomasz Wieladek, an economist at investor T Rowe Price. “The ECB will take this into account when deciding to ease policy in June,” he said. “I believe that the survey data today and the implications for investment make four to five sequential rate cuts in 2024 much more likely.”Felix Schmidt, an economist at German bank Berenberg, said the survey results meant “monetary policy remains restrictive and, together with the fragile economic situation and falling inflation, this increases the pressure on the ECB to start cutting rates in June”.Banks forecast there would be a further “moderate net tightening” of credit availability but an increase in loan demand in the second quarter. They predicted corporate loan demand would keep falling but said mortgage demand was set to rebound in a positive signal for house prices in the eurozone, which fell last year for the first time in over a decade.Some economists pointed to the fact that banks reported the least amount of extra tightening of credit standards for over two years along with the fall in mortgage lending rates to argue that the tightening of financing conditions may have peaked.Martin Wolburg, an economist at Generali Investments, said the latest data, including separate figures showing a slight rebound in lending to companies at the start of this year, signalled that “the hiking-induced tightening has largely run its course”.He forecast the ECB would cut rates by a quarter percentage point at least three times this year. But he added it could cut borrowing costs “even more as the further postponement of the first Fed rate cut might offset some easing of financing conditions in the euro area”. More

This article is an onsite version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThere was a time not long ago when central bankers liked to say it was too early even to think about cutting rates. Now financial markets have responded and no longer expect a huge monetary easing in 2024, their language has changed. The most important revision, common to all the leading central banks, is to acknowledge that the level of interest rates will still be restrictive even if they are reduced a little. Or, to use the inevitable motoring analogy, their feet are still pressing on the car’s brakes, but not so hard. Jay Powell, chair of the Federal Reserve, likes to say:“It will likely be appropriate to begin dialling back policy restraint at some point this year.”European Central Bank president Christine Lagarde has adopted the same language:“What we have done is that we have just begun discussing the dialling back of our restrictive stance.”In its new mood for effective communication, the Bank of England’s Monetary Policy Committee was even more explicit in the minutes of its March meeting:“The committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level.”However they like to phrase it, there is no doubt that this lowers the bar to rate cuts. Correctly so. If policy committees kept slowing economic activity until they were 100 per cent sure rate cuts were warranted and inflation was definitively beaten, they would also know they had made a mistake, since monetary policy takes time to have an effect. A concern that the Swiss National Bank had waited too long was evident in its statement after cutting rates to 1.5 per cent last month. Although the SNB said all the expected things about having fought an “effective” battle against inflation, its latest inflation forecast was “significantly lower than that of December” and it said unemployment was likely to rise further. That is not the ideal forecast.In addition to the common theme of easing pressure on the economic brakes, there are area-specific additional reasons given for lowering rates soon. Powell last week articulated the US reason that supply capacity might be rising even faster than demand. In a characteristically optimistic US take, the Fed chair said rapid growth and employment creation “reflects significant improvements in supply that offset to some extent the effects on demand of tighter financial conditions”. It is likely that this sunny outlook will survive the latest strong US jobs figures, but would be challenged by further bad consumer price index inflation figures tomorrow.In Europe, there are more voices recognising that the terms of trade shock of 2022, which raised import prices making people poorer, reversed and this will allow real wages to grow without being inflationary. As the new ECB executive board member Piero Cipollone said last month, “there is scope for wages to rebound in the short term” with the European economy “switch[ing] to a faster lane without endangering the disinflation process”.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Of course, there are also reasons to wait, especially in the US where the economic conditions remain strong. Fed governor Chris Waller was clear last month that he would need to see “at least a couple [of] months of better inflation data before I have enough confidence that beginning to cut rates will keep the economy on a path to 2 per cent inflation”. Other Fed governors have been making similar noises. These caveats are important. But they do not alter the big picture. The bar to cutting rates is now lower. Feet will still be pressing on the brakes. And preparations are in place for rate cuts this quarter as long as the data behaves itself. A troubling reason for cautionBack in December, I examined a lot of research on public attitudes to inflation. People overestimate inflation, do not think in neat annual chunks of time, worry when prices rise above quite low thresholds, overestimate their knowledge, want prices to come down but wages to stay high and blame others for a rising cost of living, I said. Much of the research evidence was quite old, but I concluded that the public was objectively clueless about inflation.I was delighted, therefore, that Harvard professor Stephanie Stantcheva has produced a new paper on public attitudes to inflation in the US. It strongly confirms the old research evidence and you should read it here, or watch her presenting the paper here. Again, the naivety among the public is both important and relatively shocking for economists and policymakers. Most important is that even though almost half the people she surveyed could not even articulate a reasonably accurate definition of inflation, they knew they hated it.Asked what the positive benefits of rising prices were, people did not respond that it was an appropriately hot-running economy with real wage rises or the ability to allow smooth price changes without nominal wage or price reductions. Instead, 51 per cent said there were no benefits of rising prices at all. As Stantcheva told me: “One single reason [people hate inflation] is that [they perceive] it decreases their purchasing power and don’t believe that wages keep up with prices.” For people in power the results are almost all bad. As the chart below shows, most blamed “[Joe] Biden and the administration” for high inflation and even with a partisan response from Republican voters, the president was seen as the main culprit by almost as many Democrat voters as those wanting to blame corporate greed. Certainly, inflation was a burden imposed on them from the outside, they thought. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The most difficult finding for economists was that the public could not tie together subjects that were clearly linked. Of those who received an increase in their wages, around 80 per cent thought this was a result of their job performance or a mix of that and inflation. This was especially true of those who moved jobs and those on high incomes. We really are a narcissistic species. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Economic reasoning, for example that pay rose because companies needed to remain competitive with their rivals, was rejected. You might reasonably ask why people were not happier with inflation if it gave them reasons to pat themselves on the back. Of course, this comes back to their view that wage rises did not compensate them for price rises. Also, don’t ask for consistency from the public. So, what does this mean for the Fed? I do not like word cloud analysis and think it’s a bit of a gimmick, but want to show this one from the Stantcheva paper because you struggle to see the Fed mentioned as an institution to be angry with. People might well be lumping the Fed in with “government”, but at face value, the Fed truly has power without responsibility.Luckily, officials do not see it this way and are constantly worried about their legitimacy. The paper gives them reason to be cautious about cutting rates given how much the public hate inflation, but does not shed much more light on policy than that. People also hate deflation and any other bad macroeconomic situations.As Stantcheva said, it is “tricky to extrapolate” the survey results into actions for the Fed, but still vital to understand the way that people really think. What I’ve been reading and watchingAlthough Powell was still seeing the sunny side of things, and is by far the most important official, regional Fed presidents are beginning to worry about the persistence of inflation. In Chicago, Austan Goolsbee worried that housing inflation was remaining too strong; in Dallas, Lorie Logan was “increasingly concerned about upside risk to the inflation outlook”; and Atlanta’s Fed president Raphael Bostic maintained his view that only one interest rate cut was warranted this year because inflation’s decline would be bumpy If the short term is vexing regional Fed presidents, so is the longer term. Loretta Mester argues that the Fed’s median estimate of neutral long-term interest rates is too low at 2.6 per cent and has raised her estimate to 3 per cent. Many other Fed officials are with her on that but are shy about changing their inputs into the quarterly summary of economic projections so far, although in a speech on Friday, Logan indicated she would soon alter hers In a lovely piece of reporting, Martin Arnold tells the story of how the southern Europe former laggards, Portugal, Italy, Greece and Spain, are eclipsing the economies of Germany and France. Time to put the rude Pigs acronym — which has been banned by the FT style guide for years — to bed. The BoE is preparing to ditch its forecast fan charts, says Sam Fleming. In my view this is at least a decade too late. But the issue is not the charts, it is making the UK’s forecasting process clear, consistent, accountable and humble. This requires more than a new central forecast and some scenarios as I have laid out here and here. A chart that mattersEurozone flash inflation figures came out last Wednesday and were better than expected, meeting one of the three criteria for rate cuts set out by the ECB’s governing council. The data was not perfect, however, with the annual rise in services prices stuck at 4 per cent. More evidence is therefore needed that hefty start-of-year price rises will not continue and that the (rising) six-month and three-month annualised rates are reversing again. Nothing to get worried about in the latest figures, but still disinflation is not quite in the bag.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. 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