Aurelia Butler

Goolsbee emphasized the importance of vigilant monitoring by the central bank to prevent an unexpected economic downturn in 2024. This comes as the rise in longer-term borrowing costs becomes increasingly significant due to the central bank’s evolving focus.Goolsbee further accentuated the central bank’s critical role in controlling the rise of long-term bond yields. During this additional interview, he underlined the “very substantial effect” these yields have on the economy, more than short rates. He pointed out that they recently exceeded 5% before declining, cautioning about potential economic overtightening. This statement marks an important shift in understanding and managing the implications of longer-term borrowing costs within the current economic climate.The Federal Reserve Bank of Chicago’s attention has moved from setting interest rate hike levels to determining how long these elevated rates should be maintained. These changes come amidst a backdrop of rising longer-term bond yields, which are now gaining more significance.The head of the Chicago Fed stressed that careful monitoring by the central bank is crucial in avoiding unforeseen economic difficulties in the coming year. This warning underscores the growing importance of understanding and managing longer-term borrowing costs and their potential effects on economic stability.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

CARACAS (Reuters) – The Venezuelan government will be in a strong position to increase social spending to woo voters in 2024 as relief from some U.S. sanctions allows more oil income to flow into government coffers, analysts say. The United States in October temporarily rolled back some oil industry sanctions and lifted a ban on bond trading sanctions in exchange for an electoral deal between the government of President Nicolas Maduro and Venezuela’s opposition.Washington has conditioned an extension of the relief on the release of political prisoners and what it says are “wrongfully detained” Americans, as well as the lifting of public office bans on people including the winner of the opposition’s primary nominating contest.The relaxed sanctions could lead to $1.4 billion in additional income for Venezuela over the next six months, analyst firm Sintesis Financiera said in a report.The additional oil income is expected to arrive gradually, partly though the redirection of exports. One oil industry source told Reuters they expect export income to grow by 40% per month.Under the previous sanctions, state-run oil company PDVSA had to sell to Asian markets via intermediaries, a strategy that cut into government profits. “The increase in income will be gradual,” said Jose Vielma, a ruling party lawmaker and member of the finance committee for the government-allied national assembly. “The contribution will go to social spending and services.”The communications ministry and ruling party PSUV did not respond to requests for further comment on spending plans.The increased income will almost certainly lead to greater financial laxity “given the need to improve popular support for the government ahead of elections in the second half of 2024,” said Sintesis Financiera. The government has traditionally increased social spending, public sector salaries, food distribution and housing construction projects ahead of elections, though national income has been limited over the last five years because of the sanctions and problems at PDVSA.SALARY INCREASES?If the sanctions relaxations continue next year and oil production goes up, the additional income could reach $7 billion in 2024, consulting firm Ecoanalitica said.”In electoral periods clientelist spending increases, and it’s possible we’ll see workers getting bonuses or improvements in the distribution of food,” said Venezuelan political consultant and analyst Oswaldo Ramirez. “The challenge for the government is to convert that into votes… The ruling party has lost votes in part because of delays in salary increases and pensions,” he said.The government has already this year launched new social programs – which it calls “missions” – for young people and women, the first since 2017.Such social programs distribute food, houses and even goods like motorcycle parts, cellphones and computer tablets.Opposition figures have criticized the missions for more than a decade, saying they are a poor response to the destruction of Venezuela’s economy by the ruling party, amount to “extortion by hunger,” and that public funds could be better employed raising public sector salaries and pensions.Economist Jose Guerra, a former opposition lawmaker and head of the non-governmental Venezuelan Finance Observatory, said public sector raises may still be too costly a prospect.”The government will spend but not at the levels it did before,” he said.More income may also allow Maduro to revisit orthodox but insufficient inflation-fighting policies that have led to lower spending and less availability of credit, even as annual inflation reaches more than 300%. Public spending has fallen to 15% of gross domestic product from 40% a decade ago, according to economic analysts. That has led teachers, nurses and other public workers to march for higher salaries as their wages shrink.Some 2 million public workers earn between $45 and $60 per month, while private sector salaries are often more than $200, according to the Venezuelan Finance Observatory.The central bank should mint fewer bolivares if there is higher oil income, several analysts said, estimating prices could fall in what remains of the year and take inflation down to 250% year-on-year. More

This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every ThursdayWe have an artificial intelligence summit behind us, which produced some celebrity photoshoots at Bletchley Park but also some useful outcomes. One was simply having many of the world’s main policymakers and business leaders in the same room focusing on the challenges and opportunities of AI. Having them spend limited political bandwidth on the next technological upheaval at all, let alone doing so together, amounts to a degree of foresight that is all too rare in our politics. If it becomes the first of a regular series of meetings, and it matters that Chinese representatives participated, so much the better.Another result is that it may have prompted the White House to get its own first stab at regulating AI over the line, with a US executive order published before the Bletchley gathering. For all this, UK prime minister Rishi Sunak deserves thanks; we are even ready to forgive him for the tech bro talk with Elon Musk.The Bletchley Park summit suggests that the policy conversation has shifted in a constructive direction since the release of ChatGPT led to a wave of panic about humanity’s end. Last time I wrote about AI, I argued that warnings of existential risks were identical to those triggered by previous technological breakthroughs — from books (the supposedly suicide-inducing The Sorrows of Young Werther) to the nuclear bomb (see Dr Strangelove). As I said then:I have found myself unable to get caught up in much of the excitement . . . I struggle to see how even the worst-case scenarios the experts warn us against are qualitatively different from the big problems humanity has already managed to cause and had to try to solve all by ourselves . . . [L]ying and manipulation, especially in our democratic processes, are problems we humans have been perfectly capable of causing without the need for AI . . . So I think that the whiff of existential terror the latest AI breakthroughs have whipped up is a distraction. We should instead be thinking on a much more mundane level.And as far as I can tell, the thinking has taken a good turn for the mundane. The risks of wiping out humanity (the “terminator” challenge) are no longer centre stage. Nor are those of one great power wiping out another (the “robot army” challenge). Instead, we are thinking about just what we should: how AI could cause harm to humanity today and how state power can be used to address that. Tim Wu puts it nicely in a New York Times op-ed: “Actual harm, not imagined risk, is a far better guide to how and when the state should intervene.” I also agree with him that the US executive order mostly, and rightly, focuses on actual harms.And the fact is that these more mundane problems are much the same as the actual harms we already face. The difference made by AI is that it will be easier to cause them at greater scale and perhaps with less scrutiny. But the problems are qualitatively the same and we can do well by applying solutions that are qualitatively the same as the ones we know, albeit perhaps with greater technological sophistication and speed (no doubt regulators will have to fight AI with AI, at least in part). One type of problem has to do with fraud and impersonation, as highlighted by both Wu and the White House. Nothing new about this: such abuses go back as early as humans gathered in big enough groups not to know everyone personally. Of course, AI provides new methods, such as voice impersonation or deep fake video, particularly suited to a society where much interaction is remote and digital. The solutions are partly legal — defining accountability for communication and requirements for honest dealing — and partly technological — such as the “watermarking” the EU and US are now regulating for. But there is nothing profoundly different from how we have dealt with fraud and counterfeits in the past.My colleague Rana Foroohar has highlighted another challenge: the manipulative monetisation of personal data and online behaviour. This is the core “production model” of the digital business idea known as surveillance capitalism and Rana is, of course, right to warn that AI will turbo-charge the kind of abuses already being committed. Stopping this does not require a whole lot of new tools but that we use the ones we have in earnest. While we have let the Facebooks of this world target us based on our personal data for many years, all it really takes is for governments to ban the practice. This has just happened, on a narrow scale: Norway prohibited Meta from using behavioural advertising in the country a few months ago, and has now persuaded the collective of EU privacy regulators to follow suit.Now, that wasn’t so hard, was it? Admittedly, this is a limited prohibition: only for one company, only for one country or perhaps region, and only for behavioural advertising rather than using private data more broadly or even collecting it. And it is, of course, being contested. But the point is clear: if a practice is harmful or unfair, you can actually ban it. And — to today’s point — you can ban it when carried out by an AI as well.Then there are risks related not to intentional harm but significant unforeseen effects. US Securities and Exchange Commission chair Gary Gensler has warned that the use of AI by financial companies could lead to financial instability if many market participants unwittingly rely on the same model. I am sure analogous risks can emerge in other sectors. Here, I think, the Wu remark I quote above falls short: in cases such as the ones Gensler worries about, we absolutely have to imagine risks. The reason is that we know from experience that there are sectors and activities where previously unsuspected risks have a way of creeping up on us. In all these cases, in other words, there is work to be done but no need to reinvent the wheel. Update legislation, empower rule-setters, strengthen enforcement — and, above all, give strong political backing to all this work. There is really no excuse for letting AI lead to a flowering of old abuses, like some vampire given access to new blood.But there is one area that still seems to be missing in these laudably technocratic debates: AI’s effect on incomes, wealth and inequality. There is some concern about the displacement of jobs, another challenge we have a lot of (poor) experience of — and I should know because I have written an entire book about how we mishandled the last big job disruption. But apart from labour markets, the impact of AI on the distribution of prosperity could be massive.Successful AI innovation will no doubt create new fortunes. (The FT has reported forecasts that the market for generative AI will grow from $6bn today to $59bn in five years’ time, and that is surely lowballing it. OpenAI has announced it will open a ChatGPT app store — I suppose the plan is to eat Apple’s bacon by usurping its gatekeeping platform.) But how big these fortunes are, who gets them and how fairly they are distributed depends not on the AI itself but on the economic and regulatory structure they emerge in — in particular the regulation of rights of ownership. By far the most thought-provoking discussion of this I have seen since last week’s summit comes courtesy of Björn Ulvaeus of Abba. Please don’t miss the pop superstar’s op-ed for the FT (kudos to my colleagues on the opinion desk who came up with the headline “Take a chance on AI”), where he sets out a case for balanced rights between creators using AI and those whose work the AI has been trained on. The key insight is that using AI to create new music is not so different from how he and Benny Andersson took inspiration from The Beatles’ White Album, which they listened to over and over.The economic point, however, is that property rights — including intellectual property rights — have to be defined. That goes for the “products” of AI, which in large part will be intangible ideas and their application, so we are talking about use rights, royalties, the ability to license and on what terms, and, of course, how AI builders are allowed to use data generated by others in the first place. But it must also go for the ownership of AIs themselves and the rights to control and profit from them. This, I think, could be the most consequential aspect of how to govern AI — at least in economic terms. How concentrated the control of AI is allowed to get, and how tilted towards profits the economic gains (and how concentrated those profits) are, could change our societies more profoundly than the potential applications of the technology that have us riveted. And so could the neglect of these questions. Other readablesBehind the legal arguments, it is mostly fear of the economic consequences that has kept western governments from seizing Russia’s $300bn-plus foreign exchange reserves to help Ukraine. But this fear is misguided, as I explain in my FT column this week.Michael Pettis sets out the merciless arithmetic of how China can only sustain high growth rates with “a major restructuring of its economy in which a much greater role for domestic consumption replaces its over-reliance on investment and manufacturing”.Colby Smith interviews Claudia Sahm, one of the smartest thinkers on US macroeconomic policy.“Death has few virtues except, perhaps, for clarifying the important things in life.” My colleague Emma Jacobs is on top form.Numbers newsTorsten Slok of Apollo Global Management highlights in an email that foreigners’ share of outstanding US government debt has fallen from a peak of 33 per cent a decade ago to 23 per cent today. The shift from foreign to domestic holders is just as big even if you remove the Treasuries bought by the Federal Reserve.A poll that puts Donald Trump ahead of Joe Biden in most US battleground states has made Democrats tear their hair out in panic. In the same week, however, state election results in places such as Kentucky, Virginia and Ohio look much more favourable for Democrats. Something to confirm everyone’s prior beliefs! Recommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If trade and economics really are all about politics these days, the horrific Hamas attacks and Israel’s deadly bombing of Gaza will surely open up a new global fissure between rich and poor nations. The US has dutifully supported Israel, its long-term client, and low and middle-income countries have generally sided with the Palestinians. Could the Gaza conflict be the moment when the soi-disant “global south” finally asserts itself as a geoeconomic force?Answer: probably not. On a superficial reading, America’s isolation will damage its global standing, both among the misnamed “western” alliance of rich democracies it leads and the emerging markets it wants to join its China-sceptic geoeconomic gang. Closer examination suggests that’s heavily overstating it. The episode doesn’t show the “west” or the “global south” (the east and the north apparently don’t get their own grouping, sorry) coalescing into firm blocs. In any case, a foreign policy issue without a big global economic impact is unlikely to do much to change patterns of trade.In the UN general assembly vote on October 26 calling for a ceasefire in Gaza, the US was in a small minority joining Israel to oppose it. Only 14 countries voted against, compared with 45 abstaining and 120 in favour. But the EU, far from slavishly following the US lead, was all over the place. Four EU member states opposed the motion, 15 abstained and the rest — including Nato members France and Spain — supported it. Most developing countries were in favour, but India, self-styled leader of the “global south”, has been tacking closer to Israel in recent years and abstained.The US also retains foreign policy heft in some quarters that might be expected to sympathise with the Palestinian side. The United Arab Emirates, which signed a trade deal with Israel last year after normalising diplomatic relations in 2020, voted at the UN in favour of a ceasefire but may in fact move closer to the US, its traditional security guarantor, in case the conflict spreads through the Middle East.At any rate, history suggests that even when the US is more squarely blamed for mass deaths through its foreign policy adventurism, it doesn’t affect its ability to trade or negotiate. Global opinion of the US took a huge dive after George W Bush’s Iraq war in 2003, dropping by 30 or 40 percentage points in some European countries and falling sharply in middle-income Muslim nations. But that didn’t make the US a trade pariah. Exports as a share of US gross domestic product rode a recovery in global trade to rise from 9 per cent of GDP in 2003 to more than 12 per cent in 2008, Bush’s last year in office.And the US managed to launch talks for the Trans-Pacific Partnership trade deal of 11 nations in 2008, including those such as Singapore that tilt economically towards China. Similarly, this week the US is leading negotiations with 13 Asia-Pacific countries in its Indo-Pacific Economic Framework programme. There’s not much substance in the initiative, but it is a political signal for countries wanting to remain on good trade terms with the US, and there’s no sign of IPEF countries walking off in protest against US support for Israel.Rhetorical support for the Palestinians is an easy way for emerging markets (and some Europeans) to pose as sceptics of a US-dominated political order, but in economic terms their reaction to events in Gaza is likely to be pragmatic. Although the conflict is causing damage to Middle Eastern economies, it’s unlikely to be noticeable much outside the region unless a wider conflagration drives up oil prices.After Russia’s invasion of Ukraine, the rich democracies formed a pretty solid geopolitical bloc to oppose Moscow, but developing countries have mainly remained determinedly (and sensibly) opportunistic on trade and economics rather than taking sides. Sometimes explicitly emphasising their non-aligned status, emerging markets have pursued trade relations with both the US and China, playing one off against another.True, if the Gaza conflict weakens Joe Biden domestically to the point that Donald Trump is elected US president next November, or if China is emboldened to invade Taiwan, the catalytic impact on the global economy will be severe. But short of that, although trade is certainly more politicised than 20 years ago, most governments probably won’t let conflict in a faraway territory affect their pursuit of economic self-interest. The Gaza conflict may be a turning point for US activity in the Middle East, especially given the domestic resistance Biden is encountering to his pro-Israel line. But absent a rapid escalation or knock-on effects in the US and China, it’s failing so far to provoke a widespread realignment in geoeconomic relations. The “global south” and the “west” are no more coherent blocs now than they were before the conflict began. [email protected] More

Philip Lane, a member of the ECB, stated at a conference that central bank reserves should be higher and more volatile compared to levels before the global financial crisis. Lane underscored the importance of maintaining a balance of reserves that minimizes risks associated with either scarcity or abundance.Lane suggested a ‘middle path’ strategy to encourage commercial banks to lend despite risks associated with illiquid assets in an environment increasingly susceptible to macro-financial shocks. He proposed that these reserves be supplied through a structural bond portfolio and longer-term refinancing operations, in addition to standard short-term ones.This strategy is designed to provide extended liquidity to the banking system and create a flexible supply, thereby reducing the need for banks to accumulate precautionary reserves. The new framework aims to ensure stability in the financial sector while encouraging lending activities from commercial banks.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of Japan will proceed carefully with raising interest rates to avoid bond market volatility and any adverse impact on financial institutions, its governor has said, warning that unwinding the central bank’s ultra-loose monetary policy will be a “serious challenge”.Kazuo Ueda told the Financial Times Global Boardroom conference that the central bank was making progress towards hitting its 2 per cent inflation target but cautioned that it was still “too early” to determine the sequence of its policy normalisation.“When we normalise short-term interest rates, we will have to be careful about what will happen to financial institutions, what will happen to borrowers of money in general and what will happen to aggregate demand,” Ueda said. “It is going to be a serious challenge for us.”Since becoming the first academic to take the helm of the BoJ in April, Ueda has begun to gradually loosen the central bank’s tight grip on the bond market as it comes under pressure from a weakening yen, rising yields and persistent inflation.The BoJ is the only major central bank in the world to maintain negative interest rates. Its exit from decades of unprecedented easing measures could have major ramifications for international bond markets, as Japanese investors own trillions of dollars of overseas debt.The BoJ last month decided to allow yields on the 10-year Japanese government bond to rise above 1 per cent, a step towards ending its seven-year policy of capping long-term interest rates.Japan’s core inflation rate, which excludes volatile fresh food prices, retreated to 2.8 per cent in September after hitting a peak of 4.2 per cent in January, but has remained above the BoJ’s target for 18 months.Ueda said underlying inflation, stripping out temporary factors, remained below the BoJ’s target despite signs that wage-setting behaviour by Japanese companies was starting to change following the initial shock from rising global commodities prices.“We are making progress towards achieving this same goal, but there’s still some distance to cover before we can scrap the forward guidance,” Ueda said, referring to the BoJ’s commitment to continuing its quantitative and qualitative monetary easing until its inflation target can be sustainably achieved.“It’s quite uncertain how long this distance will be. It’s too early to determine what specifically we will be doing when we seriously normalise our policy stance.”Ueda said Japan’s banking system was robust enough to withstand some increase in short-term interest rates. But he also warned that the BoJ would need to monitor the situation carefully since financial institutions and the country as a whole had become accustomed to the ultra-low rates that had been in place for such a long period.“I think they have enough capital to weather some increase in interest rates. But it’s a matter of degree so we’ll have to be careful,” Ueda said.The governor also cited risks to the economic outlook in the US and China. “The economy of China is facing . . . many challenges in the midst of increasing geopolitical tensions,” he said. “There could be some more serious spillover of what’s happening in the property sector to the rest of the economy.” 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.Jeremy Hunt has been warned by senior Conservative MPs not to create space for tax cuts by announcing “perverse” real-terms reductions to the benefits paid to the poorest in society.The UK chancellor is under fierce pressure to use the Autumn Statement to lay the groundwork for later tax cuts and his allies have confirmed he is considering saving money by squeezing the benefits bill.But several influential Conservative MPs told the Financial Times that Hunt should not target the vulnerable for cuts during a cost of living crisis by failing to increase benefits in line with inflation.Sir Bob Neill, chair of the Commons justice committee, said such a decision would be “perverse”, adding: “It would be counter to the government’s own strategy to protect the weakest in society while we get the cost of living under control.”Sir Robert Buckland, former cabinet minister, said: “At a time when the cost of living continues to bite, then uprating benefits in line with inflation is both sensible and essential.”Working age benefits are usually increased in line with rising living costs in April each year using September’s official figure for inflation, which was 6.7 per cent this year.Hunt has warned he would have to take “difficult decisions” at the Autumn Statement and his aides said that uprating benefits at less than 6.7 per cent was “still very much a live option”.The row highlights the dilemma facing Hunt, as some of his colleagues want him to cut taxes at a time of very tight public finances, while others oppose inflicting painful cuts on voters ahead of an election.Ministers have discretion over benefit uprating decisions, but many Tory MPs warned that to break with the norm of taking the previous September’s inflation figure would anger voters.“We would oppose it,” said one former cabinet minister. “It would be a very strange thing to do at this stage of the political cycle. Some 40 per cent of people on universal credit are in work.”Another former minister said it would be “the best way to get more tents on the street”, while a rightwing Tory MP representing a largely working class seat said: “Low-income households are having a terrible time. Pressure on food banks is mounting.”Liz Truss, the former Tory prime minister, toyed with the idea of cutting benefits in real terms last year but ultimately the government was forced to uprate them by more than 10 per cent following a rebellion.Some Conservatives believe a revolt is less likely this year. One Tory official said that the backlash against Truss’s plan was partly a function of her unpopularity.Hunt and Mel Stride, work and pensions secretary, will await further forecasts from the Office for Budget Responsibility in the coming days before reaching their decision on whether to uprate by 6.7 per cent, according to government officials.The Resolution Foundation think-tank this week said Hunt could have higher-than-expected fiscal “headroom” of about £13bn in his Autumn Statement, allowing him to deliver better news.James Smith, the think-tank’s research director, said freezing working age benefits in cash terms — the most extreme option — could raise £4.2bn but it would “deepen an already damaging cost of living crisis” for 9mn families.Hunt could save a smaller amount by “under-uprating” benefits, for example increasing them by 5 per cent, in line with the expected latest inflation data when he delivers his Autumn Statement on November 22.Inflation is expected to fall towards 5 per cent next week and the Bank of England expects it to reach about 4 per cent in the first half of next year.The Treasury directed inquiries to the Department for Work and Pensions, which said: “We increased benefits by over 10 per cent this year in order to protect the most vulnerable from the impact of high inflation.“As is the usual process, the secretary of state will conduct his statutory annual review of benefits and state pensions using the most recent data available.”Hunt and Stride are also considering saving money by trimming “triple lock” increases in the state pension, which this year will be linked to average earnings. They could use earnings data that excludes bonus payments; the relevant figure would be 7.8 per cent. This would save an estimated £900mn compared with using the usual measure of total earnings growth, which stood at 8.5 per cent in the same period.  More