Aurelia Butler

The European Union in December reached a provisional deal for artificial intelligence rules to establish a regulatory framework for the development of AI, but it has to be agreed by members and the European Parliament.”Without the use of artificial intelligence, there will be no competitiveness in the future,” said German Digital Minister Volker Wissing, of the pro-business Free Democrats who are strong advocates of protecting civil liberties.”The wrangling over the German position on the AI Act came to an end today with an acceptable compromise,” he added.Wissing said he had campaigned for more innovation-friendly rules and achieved improvements for small and medium-sized businesses to avoid disproportionate requirements but gave no further details.”The negotiated compromise lays the foundations for the development of trustworthy AI,” he said.Earlier, four sources had told Reuters that the FDP, junior partners in Social Democrat Olaf Scholz’s awkward three-way coalition with the Greens, had dropped their objections. More

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and ThursdayGood morning and welcome back to Energy Source, coming to you this week from London and Mexico City.In London, we have woken up to the news that Saudi Arabia has ditched a plan to increase its oil production in a major policy reversal for the kingdom. Stay with the Financial Times for the latest updates on that developing story.I have spent the past few months investigating a little-known oil terminal in south-eastern Turkey. The site has become a staging post for disguised Russian fuels that have been shipped onwards to European buyers in contravention of the EU embargo, ship tracking data shows.In the FT investigation, published this morning, I show how seaborne flows of Russian refined products into the Dörtyol terminal have soared since the first western restrictions on Russian trade began to take effect in the middle of 2022. The terminal has no capacity to further refine fuels on site and does not import oil into Turkey. Instead it functions as a trans-shipment hub, storing the oil before it is shipped to buyers in other countries, mostly in Europe.Turkey has not banned its companies from dealing with Russian oil, so the terminal operator is not breaking any rules by receiving the cargoes. However, evidence of the facility’s role in the movement of Russian oil into Europe is another example of how Russia’s full-scale invasion of Ukraine has redrawn global energy flows, creating opportunities for countries and companies still able to trade with Moscow. It also comes at a time when Turkey’s western allies have grown increasingly frustrated over its continued economic ties with Moscow.Do take the time to check out the full investigation, including some excellent graphics by the FT’s head of visual and data journalism, Alan Smith.Now from Turkey to Mexico, where our Mexico and Central America correspondent Christine Murray has been investigating the country’s fragile energy dependence on imports of natural gas from the US.Thanks for reading — TomVulnerable US-Mexico gas flows face election year testMexico’s next government will face high-stakes decisions about the future of natural gas in the country after years of under-investment have left it dependent on the US and lacking essential infrastructure to broaden benefits from “nearshoring”, analysts say.Almost half of Mexico’s energy mix comes from natural gas, with about 70 per cent of that demand met by the US. The Latin American country is one of the world’s largest importers of the fossil fuel, bringing in almost 60bn cubic metres a year from its northern neighbour, while its own domestic production has been declining for a decade.That makes Mexico highly vulnerable to snowstorms and extreme weather in Texas, a problem exacerbated by critically low storage capacity. Gaps in its pipeline network also aggravate existing inequalities between the better-connected industrial north near the Texas border and less-developed southern states.“It’s split into this very natural dependency because Texas is so competitive with its natural gas, and it makes so much more sense for Mexico to import . . . than it does for it to actually harness its own resources,” said Ryan Berg, director of the Americas programme at the Center for Strategic and International Studies think-tank. “What that means is you have distortions across the market.”The US and Mexican economies have become increasingly intertwined since the North American Free Trade Agreement came into effect in 1994, with deep links spanning everything from agriculture to cars to labour. Washington’s trade war with China has only intensified the connections, with Mexico last year becoming the US’s biggest trading partner, benefiting from billions of new investments from companies shifting capacity closer to the American border in a process known as nearshoring.The reliance creates vulnerabilities though, such as during Winter Storm Uri in 2021, when electricity outages in Texas cut gas flows and caused power cuts across big Mexican industrial cities such as Monterrey. The US-Mexico relationship also contains myriad points of tension, from immigration to the northward flow of drugs, including fentanyl. This year, both countries hold presidential elections, and the rhetoric is escalating as Republican candidates promise to use military force to take out drug cartels.“Countless scenarios could be created where either the US or Mexican government uses gas flows as a political weapon,” researchers at Columbia University’s Center on Global Energy Policy wrote last year. “In the US, both sides of the aisle in Congress could begin to question why the US is even sending gas to Mexico.”Mexico’s energy policy has also swung like a pendulum, with populist President Andrés Manuel López Obrador moving to reverse the historic opening of the oil sector to foreign investment in 2013. His party passed electricity legislation to favour state energy companies over private renewables, and although it was held up in the courts, his administration in effect froze regulatory permits, leading to a collapse in private investment in the sector.Presidential frontrunner Claudia Sheinbaum, a former climate scientist and protégé of the president, has said she will speed up the transition to clean energy and signalled some openness to private investment. But achieving that while balancing her party’s commitment to control by state-run companies CFE and Pemex won’t be easy.“My sense is that Claudia is . . . more open to evidence-based policymaking. She’s not nearly as populist as [López Obrador],” Berg said. “That said, there’s this huge question hanging over the entire campaign, as well as a potential Sheinbaum administration, which is just how independent is she going to be?”The political backdrop for the US natural gas sector, which has been criticised by environmental groups, is also in flux. Last week, President Joe Biden paused the permitting process for new liquefied natural gas terminals in a nod to climate-focused voters ahead of the November election.In Mexico, the sector is less politically fraught, and even López Obrador has approved joint venture pipelines such as a $4.5bn one between state group CFE and Canada’s TC Energy. He has also approved multiple LNG export projects in the country, which will bring in US gas to be liquefied and exported to Europe, further increasing Mexican demand.But building more pipelines, storage and possibly reviving the domestic natural gas industry would require quick work from the next government, said Oscar Ocampo, Coordinator for Energy at the Mexican Institute for Competitiveness.“I think nearshoring is a structural change that isn’t short term,” Ocampo said. “[But] if you want to detonate growth, you have to do it in your first year . . . to be able to see the results as the term comes to an end.” (Christine Murray)Power PointsActivist investor Bluebell Capital Partners has called on BP to ditch its commitment to cut oil and gas output. Read this FT scoop for the full details.In an exclusive interview, Mongolia’s prime minister told the FT he was no longer certain construction will start this year on Russia’s long-planned mega-pipeline from its western gasfields to China.In the US, Myles McCormick probes the link between President Joe Biden’s decision to freeze approvals for new LNG export terminals and the cost of household energy.Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.Recommended newsletters for youMoral Money — Our unmissable newsletter on socially responsible business, sustainable finance and more. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up here More

WASHINGTON (Reuters) – In economic projections issued after their December meeting U.S. Federal Reserve officials on balance saw a measure of underlying inflation ending 2024 at 2.4%, with the lowest of individual estimates at 2.3%.Economists note that would require inflation to reaccelerate from its current six-month trend of just 1.9%, something many consider unlikely given the underlying math is already leaning towards at least a few more months of slowing.If central bankers have penciled in three-quarters-of-a-percentage-point in interest rate cuts on the basis of December’s outlook, what happens in their next projections in March when they may well have to reduce inflation estimates another notch?”Every member of the Federal Open Market Committee envisions and expects a reacceleration relative to the past six months,” said Luke Tilley, chief economist at Wilmington Trust. “I don’t think it is likely…The baseline is too high.”That suddenly improved outlook for inflation has upped the possibility of a rate cut sooner than later, with Fed officials aware that by not reducing borrowing costs as inflation declines they would effectively increase the inflation-adjusted, or “real” cost of money.But they must first convince themselves that inflation is headed back to normal.THE LONG VIEWThe Fed meets Tuesday and Wednesday, and officials are expected to maintain rates at between 5.25% and 5.5%, where they have been since July.They must also take stock of inflation that ended 2023 in much better shape than anticipated at the start of the year, the main reason why lower interest rates are now under consideration.Coming into 2023, the median policymaker projection saw overall inflation as measured by the Personal Consumption Expenditures price index at 3.1% at year’s end, and the core rate excluding food and energy costs was seen at 3.5%. In reality the two came in at 2.7% and 3.2%, respectively, in the last quarter of the year. But even that masks a weakening trend: Core inflation for seven months running has been below 2% on an annualized basis, and that has been marching progressively lower. The Fed does not want that to reverse, which is why policymakers have been reluctant to declare their inflation fight over and still consider some risk to cutting rates too early. But they also don’t want inflation to get too low and again become lodged below their 2% target, a level central bankers globally feel doesn’t interfere with economic decisionmaking and guards against a deflationary drop in prices and wages that can be damaging and difficult to reverse.The Fed struggled to hit its target until the pandemic. While the run up in prices then was fast and painful, looked at over the long-term PCE is now only about 2.1% higher than it would have been if officials had met their inflation goal consistently since adopting it in 2012.PERSISTENCEThe challenge is determining if the world is returning to pre-pandemic norms when 2% inflation, or even a touch lower, seemed baked in, a sign of the Fed’s success in “anchoring” the pace of price increases.Reasons exist to think things might have changed, including labor markets rendered perpetually tight by population aging, large government deficits, and new global trade and supply frictions.Those issues have put a premium on watching for inflation’s possible persistence. Though policymakers have discounted arguments of a difficult “last mile” on inflation, they simply reframe the issue as a matter of time: If inflation for some goods and services is proving difficult to tame, the solution they feel is maintaining the current rate for longer and lowering it more slowly, rather than hiking again. While some alternate inflation measures also have fallen, they tend to show less progress than the headline numbers. An Atlanta Fed database shows comparatively high inflation for many consumer goods: The share of items for which prices are rising more than 5% annually remains above the pre-pandemic level.That alone isn’t necessarily a problem. Policymakers distinguish inflation – a generalized increase in what they call the “price level” – from changes in relative prices that can reflect temporary gluts or shortages, innovations or product changes, or other factors that aren’t necessarily “inflationary.”But when large enough shares of the economy experience rising prices, without offsetting low inflation or even price declines elsewhere, policymakers remain concerned.That’s kind of the situation the Fed faces now, with overall inflation in decline but enough persistence on some fronts that they are not ready to declare victory.STICKY SPOTSThe biggest disappointment is housing.Many policymakers see inflation there as likely to slow in coming months. Yet other things like insurance have kept the overall pace of price increases from falling more rapidly. How the Fed characterizes it all this week could give a clue as to when rate cuts might begin.One ex-policymaker who advocated early on for aggressive rate hikes to tame inflation now contends the balance has shifted towards making cuts earlier rather than waiting for more evidence and potentially having to move faster.”Based on the data today I think you can rationalize a quarter-point reduction, and the art is to get the communication right that it is a technical adjustment” made not to stimulate a troubled economy but to account for falling inflation in an economy that is doing well, said former St. Louis Fed President James Bullard, now dean of Purdue University’s business school. “Waiting too long might get you into a situation where the committee has to move too quickly.” More

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The ECB last week kept interest rates unchanged but sounded increasingly upbeat on inflation, boosting markets bets that it will start cutting rates sooner rather than later. “April or June doesn’t really make much of a difference for the economy,” Vujcic told reporters on the sidelines of a conference. “I think it’s more important that we achieve a kind of smooth transition.”Markets see 140 basis points worth of cuts this year and an initial step in April is now almost fully priced in, despite some pushback from conservatives on the ECB’s 26-member Governing Council. “I think that 25 basis point moves are preferable to larger (steps),” Vujcic, Croatia’s central bank chief, said. “It doesn’t have to be continuous … there will some be pauses.”One concern has been that economic growth is so weak, it could accelerate disinflation and price growth may fall below the ECB’s 2% target as soon as this year, ahead of the bank’s own projection for 2025.But the bloc escaped recession last quarter as output stabilised, even if it is now in its sixth quarter of broadly steady economic performance.”The risk of a recession in the euro zone is getting smaller and smaller,” Vujcic said. “We do expect that the economy will pick up this year, so we’re going to a modest rate of growth coupled with a further disinflation.” More

NEW YORK (Reuters) – If you are a proud parent whose child has grown up and gone off to college, congratulations!Now stop reading this and call your auto insurer. Ask what major discounts you qualify for with your kid away for most of the year.Catherine Valega, a Boston financial planner with four daughters, has saved big bucks whenever each of her three older girls went off to McGill University in Montreal. She either got little-known “student away” discounts or dropped her children off the policy when they got their own car and coverage abroad.Saving a few hundred dollars per child per year can add up to thousands.”It’s a lot of money, so it is 100% worth having the conversation,” said Valega. “No one really knows about this unless they find out from their neighbor – or read this article.”Parents of teenage drivers in particular experience sticker shock when it comes to car insurance.Full coverage averages $2,014 a year, a 2023 survey by financial services provider Bankrate showed. Add a 16-year-old driver along with two adults, and that shoots up to $4,392 a year – or $2,378 more.Savings become even more critical as rates for drivers of all ages keep going up. Average car insurance rates jumped 13.72% between 2022 and 2023, Bankrate said.Parents can expect to save 10-15% on premiums with such discounts, said Greg Smolan, vice president of insurance operations for AAA Northeast in Providence, Rhode Island.Insurance policies are highly specific to your personal situation and provider, but here are a few factors to keep in mind.DISTANCE MATTERSIf little Johnny is going to college down the road, “student away” savings will not apply. Typically, students must live more than 100 miles away from home and they cannot bring their parents’ insured vehicle with them for the school year.”The magic number is 100 miles,” said Smolan. “I have two teenage boys – one of them is over 100 miles away, and the other one isn’t, so I only get the discount for one of them.”ASK ABOUT OTHER DISCOUNTS Parents whose teenagers keep their grades up can see their premiums go down.”A high GPA and driver’s ed courses can help,” said Christopher Giambrone, a financial planner in New Hartford, New York.Depending on your insurer, you may be able to apply only one discount, or “stack” deals to enjoy multiple breaks, AAA’s Smolan said.SHOP AROUND – SMARTLYIf your car insurance is just too pricey even with a “student away” discount, you can always check out other providers. Just be wary of what you might lose with a switch. “It’s always good to price-check, but I would caution against leaving solely for a cheaper rate,” Smolan said. “You might be losing all your longevity discounts – plus any grace and goodwill from being a longtime customer, if you ever have an accident.”CHANGE POLICIES CAREFULLYAn obvious way to save is to take your child off your insurance policy. Be careful, though, because presumably your kid will occasionally visit during the school year. With the “student away” option, they can still drive your car with coverage when they return on weekends or for holidays or summer break.That coverage could also prove useful if they borrow someone else’s car while away at college.The “student away” discount is so under the radar that even your insurer’s customer service reps may be unaware of it. If so, just ask for a supervisor, Valega said.”I don’t think people pay attention to this at all, but this is something every parent should consider.” More

(Reuters) – Decision time is close at hand for the Federal Reserve to plan the mechanics of how it ends the winddown of a balance sheet that remains swollen by historic standards.A readout of the U.S. central bank’s final meeting of 2023 showed “several” policymakers were ready to kick off discussion about how to stop the quantitative tightening (QT) process that has seen roughly $1.3 trillion of bonds roll off a balance sheet that topped out at around $9 trillion in mid-2022. Moreover, market participants reckon a swift removal of cash from a key Fed liquidity facility and rising money market volatility mean central bankers will need to change gears soon to ensure the remainder of QT goes smoothly. The change in outlook echoes fast-shifting expectations for Fed rate cuts amid quickly cooling inflation pressures. Minutes from December’s meeting “make it clear that the FOMC is ready to begin discussing the slowing of QT, likely at the January meeting,” said Nathaniel Wuerffel, a former top New York Fed staffer now head of market structure at Bank of New York Mellon (NYSE:BK).  “The scars from September 2019 – the last time the Fed ran off its balance sheet – run deep for a number of policymakers,” and they’ll want to take steps to avoid a replay. Officials gather in Washington on Tuesday and Wednesday for their first policy meeting of 2024. While considerable uncertainty remains over specifics of the QT endgame, there’s broad agreement it’s time to set the stage for it. To avoid disturbing markets, Evercore ISI, Barclays Capital, J.P. Morgan, Jefferies and TD Securities look for the Fed to announce a plan to slow QT at its March meeting and to begin implementing it quickly, likely at the May meeting. They see the first stage likely marked by slowing the run-off of Treasuries alone. Some estimate QT could be over by summer. Some expect the Fed will continue to let mortgage bonds mature from the balance sheet even after the main part of QT ends given its long-standing desire to get its holdings back to government bonds exclusively. Preliminary details of the conversation will likely be revealed when minutes from this week’s meeting are released in February, analysts say.AMBLING TOWARD AMPLE The Fed currently allows up to $95 billion per month in Treasury and mortgage bonds to mature and not be replaced. Begun in 2022, this effort rolls back some of the roughly $4.6 trillion of bond purchases that kicked off when the COVID-19 pandemic erupted in early 2020.Designed to provide stimulus and promote smooth market functioning in the health crisis, that ultimately doubled the size of Fed holdings to a record $9 trillion by the summer of 2022. Since then, QT has shrunk Fed holdings to $7.7 trillion.The Fed is aiming to have enough liquidity in the financial system to cushion shocks and afford it firm control over short-term rates, something it deems an “ample” reserves system. Fed officials don’t want to push things as they did in the last QT process, lest they repeat the turbulence that struck markets just over four years ago, which forced the central bank to intervene by borrowing and buying Treasuries to rebuild liquidity. The urgency faced by the Fed owes in part to a very swift rundown in the its Reverse Repo Facility. This proxy of excessive liquidity hit a peak of $2.6 trillion at the end of 2022 and has been falling due to QT. It stood at $581.4 billion on Monday, and Curvature Securities said in a recent note the trend of cash moving out of the facility will leave it at zero by the end of March.Some Fed officials, like Dallas Fed chief Lorie Logan, have suggested reserve repo usage would likely fall to zero or thereabouts before a decision on ending QT would be needed. Some market participants believe a higher number will prevail. Meanwhile, the other piece of the puzzle, bank reserves, have remained fairly steady at around $3.5 trillion since December. Reserves will “run off at a fast clip” if QT continues with an expended reverse repo facility, Wuerffel said, adding “This could create some funding frictions for some banks, particularly those that aren’t the largest money center banks.” Fed officials so far have given few signals that QT is up for a near-term change. Speaking earlier this month, New York Fed leader John Williams said rising money market rate volatility is a return to normal. The Fed should start “thinking about and planning about slowing, eventually slowing and stopping the reduction” in the balance sheet, he said, adding reserve levels remain high, suggesting he saw little near-term reason to alter QT. Fed Governor Christopher Waller, speaking on Jan. 16, flagged one key way the Fed will know a shift in QT might be needed. “If we start seeing reserves getting tighter and tighter, we may start seeing a lot of activity coming to the Standing Repo Facility, and that’ll be a good signal for us that, hey, we’re getting to that point,” Waller said. So far, the Standing Repo Facility has seen no real use beyond small tests, so notable action there would signal large banks need liquidity. More

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