Aurelia Butler

Should the Federal Reserve cut policy rates in March? If you look at the so-called Taylor rule — named after the legendary American economist John B Taylor — the answer is a definite “yes”.After all, this formula — which projects the optimal rate using variables such as price levels, unemployment and real income — currently implies that “the fed funds rate today should not be 5.5 per cent but 4.5 per cent”, as Torsten Sløk, chief economist at Apollo, notes.That is a big gap. No wonder markets have moved in a way that implies there will be half a dozen US rate cuts this year, with a 70 per cent probability that this starts in March.But if you listened to the chatter that emanated from the World Economic Forum last week, the answer would be very different. “It’s too early to declare victory [over inflation],” François Villeroy de Galhau, the governor of France’s central bank, told participants in Davos. “The job is not yet done.”Or as Philipp Hildebrand, former head of the Swiss central bank and now at BlackRock, echoed: “At some point we’re going to realise that it’s not that easy to stabilise to the 2 per cent inflation targets that central banks are looking for, and so the optimism in rates in the US in particular is probably overdone.” One could deduce from such statements that some think the Taylor rule is wrong, and/or best ignored. Does this matter? A cynic might say not. Central bankers always dislike the idea of being front-run by markets, and many economists consider the once-hallowed rule to be excessively crude. But to my mind this dissonance points to a much bigger question that investors need to ponder: will political factors dominate economic fundamentals in 2024, or vice versa? Or, to put this in monetary policy terms: will inflation be shaped primarily by demand cycles and economic fundamentals this year? Or will supply-side issues, often linked to politics, rule?Until recently, the working assumption for most central banks and economists was that demand cycles mattered most. Hence the widespread use of neat models — like the Taylor rule — that forecast the future by using past data about economic fundamentals. But Covid overturned this sunny confidence, since inflation surged due to supply chain shocks in 2021, then tumbled in 2023 when the shocks eased. To be fair, demand mattered too: as recent blogs from the White House Council of Economic Advisers note, a Covid fiscal stimulus boosted demand in a way that contributed to price growth. Last year’s rate rises did the reverse.However, the CEA calculates, using research by Janet Yellen before she became Treasury secretary, that 80 per cent of recent disinflation was due to supply swings. Which, of course, lie outside the Fed’s control — and its models.This is humbling for central bankers. So, too, for business leaders. Back in January 2023, for example, I asked a group of top executives to predict US inflation trends. Most forecast a figure above 6 per cent in 2024, way above the current 3.4 per cent.The good news is that some economists are trying to change their models in response. Elisa Rubbo of Chicago Booth, for example, has developed a “Divine Coincidence index” that tracks supply shocks alongside demand swings in inflation forecasts.The bad news, however, is that this work is in its infancy and has not been officially incorporated into central bank models. Hence the key question: how will these supply and demand patterns play out in 2024, in the US and elsewhere?If you are an optimist focused on economic fundamentals — as many in Davos were — you will assume that demand cycles rule. After all, the Covid lockdowns have ended and companies are now more adept at managing supply chain shocks, be they a loss of Russian gas or shipping disruptions. Indeed, a poll by Bank of America shows that a large majority of global investors expect a “soft” landing or better in 2024 — the most optimistic reading for almost two years.But if you are a pessimist, political issues cannot be ignored. Geopolitical conflict is already raising transport prices. Just look at the latest attacks by Houthis in the Red Sea. And while the immediate impact of that has been mitigated by the fact that shipping usually declines in January anyway, the World Bank recently warned that its index of global supply chain stress is rising, and could repeat patterns last seen during the pandemic if the Red Sea disruption continues. Other conflicts also pose threats, as do domestic politics. Greg Jensen of Bridgewater, for example, thinks investors are “under-discount[ing]” the inflationary threats that could arise from any putative Donald Trump presidential victory, since Trump would probably appoint a compliant Federal Reserve governor, impose high trade tariffs and unleash expansionary fiscal policy. Of course, central bankers themselves are not allowed to factor in such risks in their models, or at least not officially. But risks of this sort explain why the Davos mood music was at odds with the market pricing. And it points to two key lessons: first, economists of all stripes urgently need to study supply-side issues, not just demand cycles; and second, it is smart for CEOs and investors to hedge this year. The potential range of outcomes is extremely wide. [email protected] More

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This article is an on-site version of our Britain after Brexit newsletter. Sign up here to get the newsletter sent straight to your inbox every weekGood afternoon. Another busy week in Brexitland where London mayor Sadiq Khan upset Brexit purists for suggesting that a youth mobility deal with the EU might be good for London.Conservative party chair Richard Holden told GB News that Khan was “plotting to rip up our new relationship with the EU” and “drag us back” by “stealth” — I wonder if anyone sent him the memo about the British government trying to negotiate exactly such deals with EU countries such as Spain, Netherlands and Germany?We also heard trade secretary Kemi Badenoch having to confess that the government had missed its manifesto target of signing trade deals that account for 80 per cent of trade by the end of 2022 — she blamed Joe Biden.More substantively, the government produced an update on its plans to “review or revoke” all the retained EU law (REUL) that was sucked on to the statute book when the UK left the bloc to preserve legal certainty at the point of exit.You’ll recall this caused a significant kerfuffle last year when the government pledged to complete this mammoth task by the end of 2023, with any law that wasn’t reviewed by the deadline simply falling off the statute book by virtue of an automatic “sunset clause”. This was obviously a bad idea given the sheer amount of law involved and Prime Minister Rishi Sunak was inevitably forced to ditch the guillotine idea, much to everyone’s relief. (Although, lest we forget, Sunak had promised to do it in 100 days during the Tory leadership contest against Liz Truss.)So where are we at with this project? The business department published an update this week on the progress, which has been handily summarised by Simon Usherwood, professor of politics at the Open University.As his charts show, the vast bulk (67 per cent) of what we must now call “assimilated law” is at present unchanged, but that is partly because the amount of REUL being discovered by government departments has continued to grow. Usherwood calculates that on the planned trajectory for reviewing the REUL to 2026, the UK still ends up “with more pieces of unchanged (if assimilated) REUL at the end than we originally thought existed” thanks to the rate of new discoveries. Amazing.The material question is whether this great stocktake of EU regulation is going to yield the promised Brexit benefits in a way that will make a difference to the UK economy.I was talking this week to a British company in the food technology space that does want a piece of EU law repealed (which sets a mandatory time limit on approvals for novel technology), arguing that it was a function of the need to consult 27 other countries.Go-it-alone Britain shouldn’t need such long lead times, the food company bosses argued — and said the regulator privately agreed — but it still hadn’t found the bureaucratic capacity to get the law changed. That is itself a story of Brexit in miniature.Realistically, it is too early to say how much benefit will be accrued by this process, although on past performance the size of the task and gravitational pull of the EU suggests the wins will be hard-fought.This week, the UK in a Changing Europe published the latest version of its Divergence Tracker which logs some important changes to EU-era law, namely on bankers’ bonuses, some elements of GDPR data protection rules and the banning of live animal exports for fattening and slaughter.The accompanying briefing from Joël Reland finds, however, that while politically totemic, the changes will have “limited impact in practice” since they are “watered down versions” of previously more ambitious proposals.On the other side of the ledger, the EU is piling up its own new rules on areas including products made with forced labour, corporate sustainability, due diligence, carbon border taxes, plastic packaging and sustainable product design.These will land on UK companies that trade with the EU or are indirectly part of EU supply chains because they supply larger companies that do trade with Europe. Swings and roundabouts.The overall picture is one of complexity, combined with inertia. This was neatly summed up this week by the deepening retreat over the use of the “UKCA” conformity assessment mark, with another announcement slipped out by the business department.The UKCA mark was initially envisaged as a British rival to the EU’s own “CE” mark but has slowly been ditched under pressure from business. Per the latest announcement, a “fast-track provision” now allows you to slap a UKCA label on your product if it conforms to EU standards. Truly, a paper tiger.But what’s symbolic of the broader regulatory Balkanisation caused by Brexit is that the business department announcement only covers those industrial products that fall under its remit. Some products, such as medical devices and construction products, have different rules because they’re covered by different departments, such as health and housing.Overall, the impact of these changes will take time to play out, for good or ill, or most likely a bit of both.What’s interesting is that even where the government has tried to create certainty in the REUL process, lawyers warn that uncertainty is created simply by removing the EU as the reference point for pre-existing laws.One vital area is employment law, according to Louise Mason, a senior associate at Linklaters, because it is a body of law that has essentially grown up during the lifetime of UK membership.As part of the REUL process, the government took steps to codify the case law governing working-time regulations covering areas including holiday pay and equality rights, such as protections for pregnant women, in order to avoid such core employment rights being lost.So far, so good. But Mason warns that condensing a large body of case law into written principles has itself thrown up questions about how to interpret that codification, which will lead in time to further litigation.And as Mason observes: “All the codification is doing is trying to solve a problem that was created by passing the act in the first place.”It’s not yet clear how that will play out in the courts in areas such as holiday rights and the rules that trigger consultation for collective redundancy (UK and EU law differ on this point) and only as new cases pass through the UK courts will we find out. But as Christophe Humpe, a competition and regulatory legal specialist at Macfarlanes, puts it, the removal of the old EU foundation of the law created that uncertainty. “Effectively it gives you a new set of tools and you await to see if an opportunity arises to use those rules.”As ever, the lawyers never lose.Brexit in numbersThis week’s chart is a newsletter exclusive and comes courtesy of John Springford, at the Centre for European Reform. It addresses one of the conundrums of post-Brexit trade patterns that have perplexed researchers and economists.Here’s the question Springford poses: “The UK’s goods exports to the EU have not performed any worse than to the rest of the world, and its services exports have grown strongly. How come?”On goods trade, the answer — set out beautifully in this short paper — is that the superficially strong headline numbers conceal the fact that when markets reopened after Covid-19 lockdowns the UK got left behind.What the numbers show is that while trade between EU member states boomed during the bounceback, the UK didn’t get in on the action — and the obvious reason for that, Springford argues, is the barriers to trade erected by the Trade and Cooperation Agreement (TCA).If Britain’s total exports to the EU had grown in line with those of EU member-states, they would have been 27 per cent higher than they were in August 2023 (the last month for which we have comparable data). Since exports to the EU make up around half of Britain’s total, this suggests its total goods exports are around 13.5 per cent down, or £13.4bn on a quarterly basis.So, on the basis of that analysis, as Springford observes, “the fact that EU and non-EU [goods] exports moved together is a sign of weakness, not robustness” because really UK exports to the EU should have been booming.On services, where the UK has continued to perform strongly — contrary to the pre-Brexit consensus of many economists — Springford also uses a counterfactual analysis that again paints a less rosy picture than the headlines suggest.Although UK services exports growth has outperformed the average of advanced economies in some categories — such as business services (consulting), insurance and pensions — in two important sectors that are both exposed to the barriers created by the TCA — financial services and transportation — the UK performance is below par. If the UK’s exports in these two sectors had performed in line with the global average of advanced economies from single market exit to the second quarter of 2023, then Britain’s total services exports would be 11 per cent, or £10bn higher in that quarter. Again, that’s broadly in line with the 4-5 per cent hit to GDP.Taken together, the “hit” against the counterfactual is about £23bn, which Springford notes is consistent with the counterfactual modelling that predicts a 4 to 5 per cent hit to gross domestic product from Brexit, predicated on a 10 to 15 per cent hit to trade in both goods and services.Counterfactuals are always contentious, but while imperfect, logically they have to be the best way to assess the impact of Brexit — even if we’ll never definitively find out because no one actually lives in the UK that didn’t Brexit.It will be fascinating to see how other trade economists respond.Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.Recommended newsletters for youInside Politics — Follow what you need to know in UK politics. 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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank president Christine Lagarde said rapid wage growth was already showing signs of slowing in the eurozone, striking a dovish note on the potential for interest rate cuts even as the central bank kept monetary policy on hold.“The disinflation process is at work,” the central banker said at a press conference after the ECB kept its key interest rate on hold at a record high of 4 per cent and signalled inflation was falling in line with its expectations.Lagarde said a pick-up in inflation in December had been “weaker than expected” and forecast that price pressures would “ease further over the course of the year”. While rapid wage growth and lower productivity were “keeping price pressures high”, she said there had already been a slight decline in wage growth that was “directionally good from our perspective”. Lower profit margins suggested companies were absorbing increased labour costs rather than passing them on to consumers by raising prices.Lagarde outlined both upside and downside risks to inflation, but said it could “decline more quickly in the near term” if energy prices continued to drop in line with lower market expectations for oil and gas prices.The ECB was observing the supply chain disruption caused by the conflict in the Middle East “very carefully”, Lagarde said, adding: “Shipping costs are increasing and delivery delays are increasing.” The euro fell after Lagarde spoke, slipping 0.5 per cent against the dollar to $1.0833, as investors judged her comments to have opened the door to a potential rate cut in April. Germany’s two-year bond yield fell 0.09 percentage points to 2.62 per cent.Investors have been watching for clues from central bankers on how fast inflation is likely to fall and when borrowing costs could start to be lowered.Dirk Schumacher, a former ECB economist now at French bank Natixis, said her comments were “slightly more dovish than expected” but he still thought the ECB was unlikely to cut rates before June.“Given the focus on wages and how they have put this so prominently in the shop window, I don’t think they can cut without evidence of at least a moderation of wage growth, which they won’t have before June.” Lagarde said there had been a consensus among ECB rate-setters that it was “premature to discuss rate cuts”. But she also stuck to her comments last week that such a move was “likely” in or by the summer, saying: “We need to be further along in the disinflation process” before being confident inflation will fall to the ECB’s 2 per cent target. Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said another “downside surprise” to core inflation could push the ECB to cut rates before the summer. Western central banks are becoming more confident they could soon start cutting interest rates as inflation falls closer to their targets. But they are weighing the risk of a resurgence in price pressures if they lower borrowing costs too early against the danger of doing unnecessary damage to growth and jobs by waiting longer than needed.Rate-setters in Japan, Canada and Norway also left policy unchanged this week, with similar outcomes expected from the US Federal Reserve and the Bank of England next week.Economists have already cut their forecasts for eurozone growth and inflation this year after weak data on industrial production, producer prices, business orders and retail sales pointed to a slowing economy. Lagarde said the bloc’s economy was “likely to have stagnated” in the fourth quarter and recent data “signal weakness” at the start of this year.Yet some still worry high wage growth and supply chain disruption caused by attacks on ships in the Red Sea may keep inflation high. Eurozone inflation is expected to fall from 2.9 per cent in December to 2.7 per cent in January when updated price data is released next week, according to Barclays’ forecasts.The gloomy outlook for the eurozone economy was underlined by the Ifo Institute’s closely watched survey of German companies. Its business climate index unexpectedly fell 1.1 points to 85.2, its lowest level since shortly after the pandemic hit in May 2020. Economists polled by Reuters had forecast an increase to 86.7.Additional reporting by Mary McDougall More

“The declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions,” the ECB said.With Thursday’s decision, the ECB left the rate it pays on bank deposits, the benchmark for borrowing costs in the euro zone, at 4.0% – its highest level since the ECB was created – and repeated it would stay there for some time.”The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner,” the ECB said. “Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”Before the announcement, investors were betting on the ECB to start cutting that rate as soon as April and to continue doing so at each meeting until the end of the year to leave it at 2.50%-2.75% in December. But most ECB policymakers have been trying to cool the market’s enthusiasm, saying more data was needed, particularly about wage growth.The ECB’s two other rates were also left unchanged. Banks will be charged 4.50% to borrow at the ECB’s weekly auctions and 4.75% at daily ones.Attention will now turn to ECB President Christine Lagarde’s 1345 GMT news conference. More

Analysts at Stifel said the call was “reassuring” following recent warnings from peers like Nike (NYSE:NKE) and JD (NASDAQ:JD) Sports, adding that “the likelihood of a warning looks lower” for Adidas (OTC:ADDYY). On Wednesday, Puma fell around 6% after announcing worse-than-expected guidance for 2024.Adidas declined to comment on the share price move. It will report full-year results on March 13.By 1141 GMT, the shares were up 4.8%, leading gainers on Frankfurt’s DAX equity benchmark index. More

(Reuters) – The new year has brought some new math for anyone running their retirement planning numbers.Social Security checks are a bit higher this month, thanks to the annual cost-of-living adjustment (COLA) – but higher Medicare Part B premiums will take a bite out of the increase. Meanwhile, new protections from high prescription drug out-of-pocket costs are in place, along with some new rules governing required minimum distributions from retirement accounts. And we have reached a milestone on the age when you can claim your full Social Security benefit.Let’s take a look at five important retirement changes that take effect this month.THE COLA KICKS INThe annual Social Security COLA is landing in bank accounts this month. The inflation adjustment is pegged to changes in consumer prices in the broad economy. With inflation cooling off, the 2024 COLA is 3.2%, much lower than the historic 8.7% 2023 adjustment, but still ahead of the historical average of 2.6%.Inflation is an ever-present concern for retirees – not so much because of year-to-year fluctuations like we have just experienced, but due to the way higher prices compound and erode spending power over the course of retirement. The Social Security COLA provides critical protection, although it is most meaningful for middle- and lower-income retirees. The program replaces a higher share of their pre-retirement income than it does for more affluent retirees. That means a greater share of their retirement income will be protected by the COLA. MEDICARE PREMIUMS JUMPThe standard monthly premium for Medicare Part B (which covers outpatient services) has been volatile over the past few years, reflecting the impact of the pandemic and the growing cost of expensive drugs administered by healthcare providers.This year, the Part B premium jumped by a hefty 5.9%, to $174.70. If you receive both Medicare and Social Security benefits, the Part B premium is deducted from your check, so the dollar amount of the increase impacts your net COLA. This year’s premium increase amounts to $9.80 per month, and the impact is felt most sharply by people who have modest or low benefits. For example, for someone with a monthly benefit of $1,000, the net COLA this year is just 2.2%. But if your benefit is $3,500, you will hardly notice the reduction – your net increase is 2.9%NEW PRESCRIPTION DRUG COST PROTECTIONSFor the first time, seniors with Medicare Part D prescription drug coverage will be protected by a cap on total out-of-pocket costs. Provisions of the Inflation Reduction Act (IRA), signed into law in 2022 by President Joe Biden, will effectively act as an out-of-pocket cap of $3,300 this year. In 2025, an across-the-board $2,000 annual cap on out-of-pocket costs for drugs under Medicare Part D will take effect.These protections will immediately help patients taking expensive drugs for conditions such as cancer. Last year, patients taking drugs such as Lynparza, Ibrance and Xtandi faced annual out-of-pocket costs around $12,000, according to KFF, a nonprofit organization focused on health policy. NEW RULES FOR REQUIRED MINIMUM DISTRIBUTIONSHave you reached the age yet when you must start drawing down funds from your tax-deferred savings? Required Minimum Distributions (RMDs) have been a moving target lately. The U.S. Congress bumped up the starting age for RMDs in 2020 to 72 from 70, and raised it again last year, to 73. And the minimum age will continue to rise, gradually, to 75 by 2033. The requirement dates vary according to your age, so consult this IRS page to understand your personal RMD deadlines.Most financial services firms can calculate RMDs for you, but the penalty for failing to take them is ultimately yours. The penalty for failing to take an RMD on time is 25% of the amount by which your withdrawal fell short of the required minimum. The exceptions for RMDs include 401(k) accounts at a firm where you still work, and Roth IRAs. New for this year: Roth(k) accounts held within a workplace plan also are exempted from RMDs.THE HIGHER RETIREMENT AGE: WE’RE ALMOST THEREThe Full Retirement Age (FRA) is the point when you can claim Social Security and receive 100% of the benefit you have earned. It is a critical feature of the program, since you can claim a retirement benefit as early as 62, or wait as late as age 70; your monthly benefit amount will be higher – or lower – depending on your timing. Reforms signed into law back in 1983 have been gradually increasing the FRA from 65 to 67. The idea was to lift the FRA over time in order to avoid any sudden impact on people close to retirement. But the change is now nearly complete; the FRA is 67 for workers born during or after 1960. For them, the higher FRA is equivalent to an across-the-board benefit cut of roughly 13%.Are you turning 65 this year? Happy birthday – your FRA is 66 and 10 months. The opinions expressed here are those of the author, a columnist for Reuters. More

NEW YORK (Reuters) -Comcast’s quarterly revenue topped Wall Street estimates on Thursday, as growth in its streaming and theme parks businesses, including a widely watched NFL playoff game, more than offset further losses of broadband subscribers. Revenue rose 2.3% to $31.25 billion in the fourth quarter, beating analysts’ estimates of $30.51 billion, according to LSEG data.Shares of the media giant rose more than 4% in trading before the bell.Comcast (NASDAQ:CMCSA) lost 34,000 broadband customers in the quarter, less than the loss of 61,000 customers that had been forecast, according to FactSet but exceeding the 18,000 broadband customers it lost in the previous quarter. During the company’s October call with investors, finance chief Jason Armstrong had said it expected “somewhat higher” broadband subscriber losses in the fourth quarter.The company has faced pressure from wireless carriers such as Verizon (NYSE:VZ) and T-Mobile, which offer broadband services that target lower-income customers. Revenue at the company’s Peacock streaming service rose 56.5% from a year earlier, surpassing $1 billion in quarterly revenue for the first time to $1.03 billion. Paid subscribers increased by 3 million in the fourth quarter, to 31 million.The company has been investing in live programming in an effort to draw more viewers to Peacock. This month, Peacock was the first streaming service to exclusively air an NFL playoff game. The Kansas City Chiefs and the Miami Dolphins game averaged 23 million viewers and became the most-streamed event in U.S. history.Comcast reported a 5.7% rise in revenue in its content and experiences segment, which includes NBCUniversal, to $11.5 billion.Hits like “Oppenheimer”, “Super Mario Bros. Movie” and “Fast X” drove Comcast’s Universal Pictures to the number 1 spot at the worldwide box office for 2023 – the first time since 2015 that Walt Disney (NYSE:DIS) was not the leader. Revenue in its theme parks business rose 12.2%, to $2.37 billion, boosted by attendance at the Osaka, Japan and Hollywood, California parks.The company raised its dividend by $0.08, to $1.24 per share on an annualized basis for 2024. More