Aurelia Butler

NEW YORK (Reuters) – Some Federal Reserve officials are ready to talk about what it would take for the central bank to stop the ongoing shrinkage of its massive holdings of cash and bonds, opening the door to a notable shift in central bank monetary policy, according to meeting minutes for the Fed’s Dec. 12-13 policy meeting, released on Wednesday. At the gathering last month, “several participants remarked that the Committee’s balance sheet plans indicated that it would slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level judged consistent with ample reserves,” the minutes said. “These participants suggested that it would be appropriate for the Committee to begin to discuss the technical factors that would guide a decision to slow the pace of runoff well before such a decision was reached in order to provide appropriate advance notice to the public,” the Fed document said. The policymakers were taking on a process that has complemented the Fed’s aggressive rate hike cycle, and that is its ongoing contraction of just shy of $100 billion per month in the overall size of its balance sheet. The Fed is allowing Treasury and mortgage bonds it owns to mature and not be replaced, and in doing so, it has reduced its balance sheet by just over $1 trillion, to $7.764 trillion on Dec. 27. The Fed bought bonds aggressively through the start of the coronavirus pandemic to help stabilize financial markets and stimulate growth, causing its balance sheet to surge from $4.3 trillion at the start of March 2020 to a peak of just shy of $9 trillion in the summer of 2022. Taking liquidity back out is part of its process of returning monetary policy to a normal footing.Fed officials are trying to reduce liquidity to a level that will still allow them to retain firm control over short-term rates, but they have thus far provided little guidance about timetables and desired levels of liquidity. But with Fed rate hikes almost certainly over and rate cuts on the market’s mind, the minutes show at least some Fed officials are also ready to talk about ending the balance sheet drawdown many refer to as quantitative tightening, or QT. Many in markets have been eying the second or third quarter this year as an end point for the wind down. More

The Fed will hold its next policy meeting on Jan. 30-31, and while the central bank is expected to maintain its policy rate in the current 5.25%-5.50% range, data in the meantime could bring the prospects of rate cuts into better focus. This year begins with a rush of major readings on the jobs market, consumer spending and inflation. Here is a guide to some of the numbers shaping the policy debate:JOB OPENINGS (Released Jan. 3, next release Jan. 30):Fed Chair Jerome Powell keeps a close eye on the U.S. Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but in November remained close to 1.4-to-1, still above the 1.2-to-1 level seen before the health crisis. Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels. INFLATION (PCE released Dec. 22; next release CPI, Jan. 11):Annual inflation by the Fed’s preferred personal consumption expenditures price index fell to 2.6% in November and prices on a monthly basis declined for the first time since April 2020. The “core” index excluding food and energy prices also declined to 3.2%, the lowest that key gauge of trend inflation has been since April 2021.Fed officials at their final policy meeting of 2023 forecast continued improvement in both measures this year. Another measure, the consumer price index (CPI), declined to 3.1% on a year-on-year basis in November while the core rate held steady at 4.0%. Annualized measures of the monthly rate over the last few months, however, show these gauges continuing to decline.RETAIL SALES (Released Dec. 14; next release Jan. 17):Retail sales rose 0.3% in November, another in the series of “upside surprises” the economy delivered over the course of 2023. The “core” sales reading, which strips out gasoline, autos, building materials and food services, and more closely aligns with estimates of economic growth, also outpaced forecasts to come in at 0.4%, in the latest sign of the resilience of the U.S. consumer. On a trend basis, consumer spending rates are slowing in a way the Fed is hoping to see as it watches for signs the aggressive rate hikes it has delivered have begun to trim overall demand for goods and services.EMPLOYMENT (Released Dec. 8, next release Jan. 5):Job growth in November jumped to 199,000 from 150,000 in the prior month and the unemployment rate fell to 3.7% from 3.9%. Even with the end of labor strikes involving about 40,000 workers, the latest employment report showed continued steady job gains. Alongside improved labor supply, with the number of available workers up more than half a million for the month, the report is consistent with the Fed’s view of an economy that can continue growing while inflation also ebbs.The pace of annual wage growth also continued a slow decline, though the reported 4.0% annual pace remains higher than many Fed officials feel is consistent with price stability. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Over two years have passed since more than 135 countries signed up to the idea of a global minimum corporate tax rate for big multinationals. This week, a critical mass of several dozen countries, including many of the world’s largest economies, has begun to apply the new rules. Even though the US and China are not among them, this is a big step forward in ending the “race to the bottom” on corporate taxation, and the disruption to fair global commerce caused by tax havens. It also provides a potential model for other initiatives to be adopted by coalitions of the willing.From January 1, countries including all of the EU, the UK, Australia, South Korea, Japan, Canada and Norway are applying an effective tax rate of at least 15 per cent on profits of multinational companies with annual revenues exceeding €750mn. Several countries long viewed as havens by international business are taking part, including Ireland, Luxembourg, the Netherlands, Switzerland and Barbados.A series of interlocking rules, expanding over time, means that if a big company is taxed below the global minimum in one country, other countries can charge a top-up tax levy — so neither the tax haven nor the company benefits from the lower rate. That creates a robust incentive for non-participating nations to join up, or watch other countries collect tax at their expense. The OECD, the driving force behind the initiative, estimates it will increase global annual tax revenues by up to $220bn, or 9 per cent — vital extra proceeds for governments struggling to fund ever-expanding needs from public services to defence.It is highly regrettable that the world’s two largest economies have not introduced legislation to implement a deal that both backed in 2021. The Biden administration, whose treasury secretary Janet Yellen was a vocal proponent, has not been able to get the plan through Congress. Many Republicans are staunchly opposed. Some business lobbies warn that the way some important US tax credits, such as for R&D, operate could reduce companies’ effective tax rate under the international rules and make them liable to top-up demands abroad. But many tax experts believe even a future Republican administration would ultimately be more likely to adapt US rules to the reality of the global convention — in a broader review of tax legislation due in the next couple of years — than to completely blow it up.The initiative’s smart design also lessens the impact of America and China’s absence. It shows it is possible to incentivise good behaviour without unanimous agreement. That suggests similar coalitions may be able to make progress in other areas, such as carbon border adjustments, where global consensus is hard to secure.There are wrinkles. Previously low-tax jurisdictions such as Ireland that raise their rate will initially receive revenue windfalls — though offset, over time, by the loss of their tax advantage. Such countries may be tempted to lure multinationals in other ways, such as through permitted tax breaks or subsidies, which will require clear and careful policing.Most of the gains from the initiative, moreover, will go to advanced economies. The other half of what was a two-pillar deal — getting multinationals to pay more tax in countries where they have sales and profits but little physical presence — would benefit the developing world more. Although the OECD published a text of the multilateral convention in October, progress here has been slower — and since many of the multinationals in question are western, it would need to be ratified by EU countries and the US Congress to be fully effective. But if the global corporate taxation system is to become fit for the 21st century then this initiative, too, needs to move from agreement in principle to finally being implemented. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Widespread untracked fishing is hindering global efforts to protect depleted fish stocks and marine environments, according to a study that maps undisclosed activities at sea for the first time.About 75 per cent of the world’s industrial fishing vessels are not publicly tracked, according to research by conservation organisation Global Fishing Watch (GFW), threatening food security, livelihoods and marine ecosystems.While the footprint of land-based extractive industries such as agriculture is plotted almost down to the last square metre, oceans were “still the wild west”, said David Kroodsma, one of the study’s lead authors and GFW’s director of research and innovation.This discrepancy leaves governments and organisations operating in the dark, hindering efforts to achieve a global commitment made at the 2022 COP15 biodiversity summit to protect at least 30 per cent of land and sea by 2030, he said.GFW’s study, published in the journal Nature on Wednesday, used GPS positions from hundreds of thousands of ocean-going vessels as well as satellite radar imagery and artificial intelligence to track activity in the sea between 2017 and 2021. It found that on average 63,000 vessels were detected at any given time. About half were industrial fishing vessels, three-quarters of which were off-radar, including many around Africa and south Asia. 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 the remainder, including container ships and fuel tankers as well as passenger and supply vessels, a quarter were untracked.Kroodsma said some of these so-called ghost ships lacked automatic identification system (AIS) transponders, which broadcast their location and identity to coastal authorities and other vessels. Others turned off the devices, often because they were engaged in illicit activities such as unregulated or illegal fishing or forced labour, he added.As much as 20 per cent of fishing was potentially unregulated or conducted illegally, he estimated, “but the truth is, we don’t actually know because the data is so poor”.The study also found that the global distribution of industrial fishing differs from the generally understood pattern. According to AIS data, Europe and Asia have similar levels of activity in terms of fishing hours. But with non-broadcasting ships factored in, Asia accounted for 70 per cent of global fishing activity, compared with 12 per cent for Europe. North America and Africa’s total tracked and untracked fishing was 7 per cent of the global total each, while in South America and Australia it was 4 and 2 per cent respectively.Another key finding was that untracked fishing vessels routinely entered marine protected areas, with an average of five operating in the Galápagos Marine Reserve and 20 in the Great Barrier Reef each week.To protect such areas and safeguard fish stocks, governments should mandate that all vessels are publicly trackable, according to campaign group Oceana. “If you’re fishing on the ocean, you’re fishing on a public resource and you should be required to prove that you are doing so legally,” said chief executive Andrew Sharpless.According to UN Food and Agriculture Organization estimates, a third of the world’s fish stocks are overexploited, meaning fish are being caught faster than they can reproduce. Critical marine habitats are also being depleted, with between 30 and 50 per cent lost because of human activity.Fishing activity decreased globally by 12 per cent during the Covid-19 pandemic and has not yet fully recovered, but previous overfishing meant many stocks were nonetheless at their limit, according to GFW. “We are already catching all the fish we can possibly catch,” Kroodsma said.Overfishing represents a risk not only for marine ecosystems but also for the 500mn people around the world who rely on the fishing sector for their livelihoods, he warned. Fish stocks are also crucial for global food security.The oceans face further pressure as other industrial activities in the sea increase, according to the study. The number of container ships, fuel tankers and offshore energy installations rose during the research period, with offshore wind turbines surpassing oil platforms for the first time, excluding infrastructure in Venezuela’s Lake Maracaibo.GFW predicts that as demand for renewable energy grows, the seas will see more development. This could create conflict over space, which would need to be managed, Kroodsma said.“The bigger picture here is that the ocean economy is growing faster than the global economy,” he said, adding that the study would help prevent this happening “entirely unmapped”.Cartography by Steven Bernard More