Aurelia Butler

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This is part of a series, “Economists Exchange”, featuring conversations between top FT commentators and leading economistsIf you want to understand how Joe Biden’s “build back better” domestic industrial policies will connect to a new foreign policy, talk to Jennifer Harris. She was, until recently, a special adviser to the President and senior director for international economics at the National Security Council, reporting to both its head, Jake Sullivan, and former head of the National Economic Council, Brian Deese. A former Clinton State Department alumnus and former founding head of the William & Flora Hewlett Foundation’s economy and society initiative — where she funded many of the most influential policy thinkers in areas like antitrust and corporate governance — Harris’s job was to figure out how to best balance the interests of the President’s two favourite interest groups: American workers and diplomatic allies. She is behind much of the structure of the administration’s signature Inflation Reduction Act, and is currently overseeing BuildUS, a philanthropic fund to support the Act’s implementation across the United States. Harris is also one of the key reasons that the White House has a new willingness to use economic tools of statecraft to forward its foreign policy aims, something she advocated in her 2016 book, War By Other Means, co-authored with Robert Blackwill. Here, she discusses the opportunities and the challenges of a post-neoliberal world. Rana Foroohar: How did you first become interested in economics as a tool of statecraft? Jennifer Harris: During my time at the State Department, I was thinking about economics really through the lens of the US’s relationship with China. This was back in the early days after China’s WTO membership when the George W Bush administration was telling us that this was really a geopolitical necessity, that we would be changing China more than China would be changing the system. Obviously, I had scepticism at the time, but didn’t quite know how vindicated I would be some 20 years on.And it wasn’t until I left the State Department and wrote a book (War By Other Means) that I traced how we used to be pretty good at flexing economic muscle for geopolitical rather than economic ends, as a country. It’s what explains the success of the US in foreign policy from, really, the founding, on through to the middle of the cold war. With the rise of the Chicago School, you saw a more neoliberal market order which said that the market should be placed above all national aims. And so began the logic of trade for trade’s sake and market liberalisation as an end unto itself. It took on normative weight, and that meant that there was a whole lot that became unseemly about using economics for a set of foreign policy ends. And when you’re talking about questions of war and peace, I think that that’s just really dangerous, sloppy logic that really needed to be better interrogated. So, I came full circle when I went to the Hewlett Foundation after the 2016 election and started a programme there, really squarely focused on replacing the neoliberal economic ideas with something that worked a little better, that was better suited to our times. Something that took on the [neoliberal] orthodoxy across the political spectrum, and really understood how deeply those ideas were constraining all of our policy, domestic, foreign or otherwise. RF: You’re a lawyer by training, and I’ve always thought it was easier to see the flaws in the economic paradigm when you come from outside the profession. Was there a particularly telling “aha” moment for you on that score?JH: Yes. It was right around 2012, the fever pitch of the Iran nuclear sanctions episodes, back when Benjamin Netanyahu had his nuclear risk charts that he was trotting out to whoever would listen to him. And it was clear that the West’s sanctions had created a bit of a currency crisis in Iran. Shipping insurance was needed to underwrite the buyers who, under the US-led sanctions regime, were legally allowed to buy some threshold of oil from Iran. It was clear that it would not be hard for a set of countries to do some dance moves in the currency markets to make that kind of shipping insurance four times more expensive overnight. And that was exactly the kind of force multiplication of pressure that we could capitalise on, the underlying currency crisis, to really put the squeeze on Iran. And that was somehow seen as a third rail. The idea that we would make some calls to see whether countries were interested in really pushing on this point of leverage through some well-executed moves in the currency markets was just perceived as totally unseemly. And I was like, am I wrong to think that we are within spitting distance of nuclear war? Is this really the equivalence that we’re going to have? And that was really the moment for me where the whole thing just felt, if it weren’t so dangerous, laughably silly. RF: For years now, you’ve been more hawkish on China than many others in policy circles. Was there a point where your views on the risks crystallised?JH: I was looking at their economic model and just appreciating how it seemed incredibly adept at disentangling the liberalisation-cum-democracy story that we were all sold. That, in fact, there was a lot of twisting of market mechanisms as points of leverage that, in geopolitical terms, could make it seem as though China would meaningfully integrate themselves into the liberal order, when in fact that wasn’t going to happen.  That’s when there was a debate about whether China’s Treasury holdings were more of a point of leverage for them or for us. And my point there, going back to the Iran example, was, the reason often given why it would be unthinkable for China to dump their holdings in a way that would cause the US a lot of pain and instability was that it would be really costly for China to do this.To which I said, yes, everything costs something in foreign policy terms. There are no free lunches here either. Certainly, war costs something, by my count. Sending a signal of this sort to the Americans over something that was really valuable — like Taiwan or Hong Kong — would have been pretty cheap, as geopolitical signals go. RF: When you were at the Hewlett Foundation, before you entered the White House under Biden, how were you thinking about grant-making and philanthropy as a way to push your post-neoliberal world narrative forward?JH: The deeply pragmatic starting point is, essentially, to note that society is always living in these intellectual boxes, from, really, going back to the beginning of modernity and the advent of classical liberal laissez-faire ideas and, in some ways, mercantilism before that. Those philosophies were in service of a set of national prerogatives. Mercantilism was the reigning orthodoxy because it worked pretty well for a lot of the empires of note, like the British empire. And actually, once you had hegemony comfortably established, and this is in the Anti-Corn Law League, mid-1800s, you see this brief moment of flirting with more liberal economic ideas because there was no competition. That lasts for about five years or something before Germany seems like it’s catching up in ways that feel a little uncomfortable, and then you see a slip back closer to mercantilism. In the US context, at the beginning of the country, there’s a push back against mercantilism, married with an interesting Hamiltonian set of ideas about industrial policy as a national security imperative. As you get closer to the industrial revolution, and I think that gets you to another set of issues that then need dealing with, and you align that with the Great Depression, there’s a sense that perhaps our economic ideas were falling down on the job. So, along comes Keynesianism. These ideas seem to work better with the blocking and tackling of the problems of the day. And when they don’t, it creates room for Milton Friedman and his team to come along. So, it is really just about respecting the evolution of history and the ways in which there’s always a need for the next turn of the intellectual screw, based on the problems of the day. I think that’s the first point. The second point is that I really looked around for concrete domains of policy that had been colonised, really overtaken, by neoliberal ideas. So, areas like antitrust, corporate governance, and industrial policy were three big bets that Hewlett put down. I think two of them paid off really, really well — antitrust and industrial policy. RF: So, who brought you into the White House? JH: I’ve been fortunate to have a close intellectual collaboration and professional relationship with Jake Sullivan for probably 15 years, going back to our time together at the State Department. When I was saying all these heretical things, he was one person that would at least hear me out more times than not. And he’s somebody who was a close student of all that went wrong in 2016 and all that wasn’t seen in Donald Trump’s rise. He was asking a lot of critical questions about the failings of the Democratic party and the bankruptcy of a lot of those [neoliberal] ideas. And I had been on the Clinton Campaign, really pushing, often alone, against things like Trans-Pacific Partnership and for harder lines on China earlier. So, we came up with a portfolio that would involve running offence on all of these ideas, including the narrative component of really telling a different story about what US foreign policy should be trying to do, and the important stitching together with our domestic economic agenda. That was probably the piece of the job that sold it for me. I would be reporting to both Brian Deese at NEC, as well as to Jake, and I’d be the person responsible for that stitching across our domestic economic and our foreign policy agendas. RF: Let’s talk about the Inflation Reduction Act. It represents a very powerful turning away from the ‘market knows best’ approach and towards the idea that climate is a national emergency, a war that we need to wage. Talk a little bit about that evolution and what the conversation was around the way the IRA would be structured. JH: Climate change was a problem that did not lend itself well to the neoliberal policymaking recipe. And I think the largest indictment there is the attempt and failure and reattempt to put a price on carbon, running at that brick wall again and again and again and having it just get more and more politically toxic. We needed to create a different story about the relationship between state and market and the responsibility of government to really shape markets and pivot them towards a set of national or, in this case, global needs that are, I think, much larger than the outcomes that markets left to their own devices would provide. People also tend to be a fan of good jobs, and if this is the vehicle to get there, I think that it’s load-bearing as a multilateral idea. RF: You’ve written about the need for multilateral purchasing agreements to underwrite the supply of rare earth minerals needed for the green transition. What are some of the other ways in which you think the rubber is meeting the road in a post-neoliberal world right now? What do we need to be paying attention to?JH: What’s the balance of foreign and domestic needs? How can we square Biden’s two favourite things — made in America and allies — and why does the moment demand it? This is really the project, I think, of the next decade of US foreign policy.What might this look like practically? It’s a threefold agenda. One is to open up that fiscal space for the rest of the world, mindful that that’s where the meaningful differences are between America and everybody else. That looks like a global minimum corporate tax deal that would be generating a lot more revenue. It looks like emerging market debt forgiveness. It looks like a really sleeves-up agenda on multilateral development bank reform. It looks like getting serious about global infrastructure finance machinery that works a whole lot better than it does now.RF: What are the challenges to getting all this done?JH: I think there’s a double standard between the way the US foreign policy establishment tends to expend political capital on what I like to call kinetic issues of the day, Ukraine, and Iran before that. These kinds of questions have always sat on the high table of US foreign policy, and that’s really where the senior time and attention is. We need to be willing to expend a lot more political capital on things like a global minimum corporate tax deal, which involves getting Europe to do what’s needed with some unhelpful actors like Poland, like Hungary, to get them back in the box so that they could do the political implementation that people like Senator Joe Manchin would have needed to see for the US to have implemented the agreement on our part. We needed to create a different story about the relationship between state and market and the responsibility of government to really shape marketsAnd it’s the same deal on emerging market debt forgiveness. That might involve lending into official arrears for a country like Sri Lanka, or any country experiencing high debt distress, really created by irresponsible lending on the part of the Chinese. And there are ways to push through IMF packages that would allow those countries to default just on the predatory Chinese stuff and get the package of support from the rest of the IMF creditor nations in the face of that non-payment. We could be coupling that with a most favoured creditor clause that makes sure that once the country gets the benefit of an IMF package, and they get back to a little better fiscal health, they’re not going to go start repaying the Chinese as a first order of business. Coupling that twofold policy solution, I think, would have the US really earning support from a lot of the emerging markets, not condemning them to another generation of austerity. RF: One of the advantages of the neoliberal system was its simplicity. It may have been false in its not taking into account negative externalities, but it was simple. As long as the share price is up and consumer price is down, you’re all good. That simplicity is hard now, in this new world. How do you think about communicating around a post-neoliberal world? JH: I’m clearly biased here, but I feel like we’re not far off from a fairly simple story, which is that we’re going to get back to the business of actually building things again and do a lot of the things that are necessary to that task. And I think that gives you a framework for thinking about stuff like permitting reform. It gives you a framework for thinking about why we need to come up with a new global critical minerals arrangement, rather than go back and bear hug TPP, so as to make the world safe for more multilateral pharmaceutical companies. RF: You talked about historical paradigm shifts earlier, and historical paradigm shifts play out over generations, often encompassing more than one leader, more than one administration in the case of the US. Let’s say, we were to get Trump, or let’s say, something were to happen to Biden, even, and you have a different Democratic president. How much of this paradigm shift is going to just stick because that’s what the moment requires?JH: There are some promising green shoots to suggest this shift will stick. Look at the historic and increasingly bipartisan support for labour unions in the US, and a lot of the new asks that the United Auto Workers leadership is making at the bargaining table. Most striking about those asks is how they are not simply just trying to carve out a private security net for UAW workers, but reaching to the core of the Big Three’s business models, going after things like corporate buybacks (by requiring additional worker pay tethered to buybacks). Antitrust is a thing again. And not only is industrial policy back — it seems like the US’s public investment might deserve credit for the immaculate cooling we’re seeing on inflation. It adds up to a reckoning with how political power moves through the economy; how economic power can warp our political system; and the necessary — not exclusive but necessary — role of both government and public investment in solving the big problems of the day, starting with a clean energy buildout that doesn’t simply trade energy dependence on the Middle East for supply chain dependence on China.  RF: Yes, the US economy right now feels like a repudiation of the economics of trickle down and tax cuts. The stimulus effect has just been so much more powerful and so much longer lasting. Now, maybe there will be some reckoning in the future. JH: Right, and some people are saying, well, it’s really just supply chains healing themselves. Well, yes, but they are, I think, correcting, in part, on some of the early fruits of the investments we’re making. Certainly, at least, there’s the confidence that these investments are giving those portions of the markets, and this looks a lot like what we always described as the necessary solution for secular stagnation, which never really went away. There are two problems that keep economists up at night. There’s those of us who worried about secular stagnation in ways that predated the pandemic, and then those of us who worry about supply chain kinks. The right answer for both of those is to push the productive muscle of the economy rightward, and that’s exactly what these investments are doing. RF: So now that you’ve left government, what are you up to, and what’s next?JH: I’m keeping busy really with two projects right now. I’ve just launched a philanthropic fund called BuildUS. I’ve been incubating it since I left the administration. That is a purely domestically focused effort, on green implementation, and we’re getting quite deep into some states, like South Carolina, Louisiana, Tennessee, where the private investment’s going, where the jobs are going. And we need to make sure that they’re good jobs and that we get things like direct pay right. I think direct pay is a great example of a tool that will allow for public ownership, community wealth building. But people have to know about it. They have to know how to use it, so that’s what this fund is really focused on doing. And then thinking a lot about this basic question of how you take the logic of the IRA global and create more IRAs in more places, from Brazil to Europe to east Asia and right now, these are just informal conversations I’m having with some old friends in philanthropy.The above transcript has been edited for brevity and clarity  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is an FT contributing editor and executive director of American CompassIn the ongoing battle to define the future of American conservatism, the tax-cutting, free-trading, union-busting Republicans who dominated the party before Donald Trump’s rise are eager to present themselves as the authentic choice. But GOP voters have become deeply sceptical of globalisation, big business and Wall Street. They identify more closely with workers’ interests. A corporate-friendly agenda formulated more than 40 years ago holds little appeal. Thus the Old Right, searching for favourable ground on which to confront what it perceives as a noxiously “populist” New Right, is fervently claiming the mantle of “fiscal discipline”. Writing recently in the Wall Street Journal, former US senator John Danforth warned that, “populists are now attempting to uproot policies deeply planted in Republican conservatism. We are the party of fiscal discipline, but the national debt rose nearly 40 per cent during Mr Trump’s presidency.” Robert Doar, president of the business-friendly American Enterprise Institute, cited approvingly Danforth’s “case for traditional conservative principles against the caterwauling of the populist New Right” and warned that “the statist policies populists embrace have far more in common with Democrats’ progressivism than limited-government conservatism.” In his analysis of the GOP’s struggle to elect a Speaker of the House in January, former Speaker Paul Ryan declared Trump was “fading fast” and applauded “Republicans . . . reacquiring their moorings [as] the party of fiscal responsibility.” On the campaign trail, Republican presidential hopeful Nikki Haley has criticised Trump on similar grounds, lamenting that he “didn’t do anything on fiscal policy and really spent a lot of money, and we’re all paying the price for it.” Which Republican party are they thinking of? Surely not the American one, which has reliably expanded deficits at every turn for more than four decades. Danforth is correct that the national debt rose nearly 40 per cent during Trump’s presidency, but that performance was downright miserly by the standard of his predecessors.The national debt rose by 72 per cent during president Ronald Reagan’s first term, another 66 per cent during his second, and then 54 per cent during George H.W. Bush’s time in office. George W Bush saw increases of 31 per cent and 36 per cent in his two terms as president.On the one hand, percentage growth may not be the right measure. A 40 per cent increase in the $20tn debt that Trump inherited is much larger in absolute terms than a 72 per cent increase in the $1tn of debt at the start of Reagan’s presidency. The increase in debt as a share of GDP tells a more useful story and, by that standard, Trump’s 22-percentage-point increase is much larger than the addition by other recent Republicans.On the other hand, the final year of Trump’s term included the onset of an unprecedented global pandemic, which prompted large one-time expenditures and accounted for more than 90 per cent of his debt-to-GDP growth. In Trump’s first three years, the US debt-to-GDP ratio increased by 2 percentage points — less than in the early years of prior Republican presidencies.Perhaps more importantly, the source of the Trump-era deficits bears scrutiny. In 2016, US government revenues were 17.6 per cent of GDP while expenditures were 20.8 per cent, yielding a deficit equal to 3.2 per cent of GDP. In 2019, the Trump administration’s last pre-pandemic year, the deficit had risen from 3.2 per cent to 4.6 per cent of GDP, but spending had risen by only 0.2 percentage points while revenue had fallen by six times more, thanks to the budget-busting tax cuts advanced by then-Speaker Paul Ryan and vocally supported by the Old Right caucus now demanding a return from Trump’s profligacy to fiscal discipline.That tax cut not only failed to “pay for itself”, it failed to generate significant economic gains. Indeed, by the measure preferred by the Trump White House’s Council of Economic Advisers, business investment contributed no more to growth after the tax cuts than before. Growth itself slowed. The story should sound familiar, seeing as it repeats precisely the experience of George W Bush’s tax cuts 15 years earlier, which likewise caused tax revenue to plummet and deficits to rise.Still the lesson has not been learnt. If conservatism is to regain its footing, the New Right will need better solutions than what Trump has offered. But a return to what came before him is no solution at all.  More

The shipping industry is stepping up efforts to build steel containers outside China, lining up the spare capacity needed to shield a key component of global trade from supply chain pressures and geopolitical rifts.Manufacturers and government bodies are developing factories across Asia and the US to mitigate an over-reliance on China that some blame for trade disruption during the coronavirus pandemic. Owners of new factories in Vietnam said they could eventually build around a sixth of the steel boxes typically produced in a year, while sizeable capacity is also expected to be added in India. At present, more than 95 per cent of containers are made in the world’s second-largest economy, according to maritime consultancy Drewry, with the market dominated by three state-owned enterprises. The plans come as companies and policymakers reconsider their dependence on Chinese manufacturers more broadly amid diplomatic tensions and the country’s increasing threats towards Taiwan. Carl Bentzel, one of five commissioners who head the Federal Maritime Commission, the independent US regulator of the shipping industry, told the Financial Times that China’s dominance of container production was a “monopoly” of “an essential product”. His report, published last year, found that Chinese businesses were slow to increase production during the pandemic. That exacerbated a shortage of containers when many were trapped on ships and at congested ports, disrupting trade and driving up costs. While the industry now has an oversupply of containers due to falling demand for exports, businesses and officials are keen to ensure that they are better protected against future geopolitical or trade disruptions.Shipping “is out of sight, out of mind for the most part”, Bentzel said. “[But] if there are increasing tensions in Taiwan, people will start to look at that supply chain.”John Fossey, head of container equipment and leasing research at Drewry, said demand would most likely flow to Vietnam. Like China, the south-east Asian economy is a low-cost manufacturing hub. In recent years it has been increasing volumes of exports to countries like the US as multinationals relocate production away from China. In August, Vietnamese steel group Hoa Phat announced the first delivery of containers from its new manufacturing plant in the south of the country. It said the 3tn dong ($122mn) facility can manufacture about 200,000 20-foot equivalent units a year. It will eventually be able to produce 500,000 TEUs a year, Hoa Phat said.Manufacturers produced an average of about 3.2mn TEUs of new containers each year in the decade up to 2020, according to freight booking platform Freightos. In 2021, with so many containers trapped in ships and ports, global container production increased to 7.1mn TEUs, before dropping to about 3.8mn TEU in 2022, Drewry said.The global pool of containers is about 50mn TEUs, Freightos added. The launch of Hoa Phat’s factory followed plans announced by South Korea’s state-owned Korea Ocean Business Corporation to boost production at another container factory in Vietnam, which opened last year. KOBC said the site would produce up to 100,000 TEUs a year.In a statement to the FT, KOBC accused Chinese producers of “using their dominant market position” to “collude on prices and output”, adding it “felt the need to diversify our supply sources” during the pandemic.Beyond Vietnam, container manufacturers had also recently been setting up in India, said Joyce Tai, Asia Pacific managing director at Freightos.Meanwhile in the US, the government is seeking to support the development of higher-margin “smart containers”, which are fitted with tracking technology.“The next issues will be in smart containers [and] the ability to monitor [trade]. You will see national security concerns because the Chinese are also looking at this market,” said Bentzel. He pointed to progress made by Maine-based business Global Secure Shipping, which in September broke ground on a 15,000-square-foot factory to produce traceable containers, developed with funding from the US department of homeland security.Washington has also wielded its regulatory powers in a bid to stop China strengthening its grip on container production.Last year Danish group AP Møller-Maersk said the $987mn acquisition of its refrigerated container business by state-owned China International Marine Containers (CIMC) had been scrapped. After a probe into the deal, the US justice department said it would have consolidated control of more than 90 per cent of global insulated and refrigerated container production in Chinese state entities.However, some in the shipping industry are sceptical as to how much capacity will shift to other markets. Tai said any market could compete with China “if their steel and labour costs were lower than China’s, if they received more government support and subsidies . . . and if their [production rates] were faster than China’s”.But she added: “On a practical level, this means that no market can beat China.”Within China, CIMC had a 52 per cent share in container production as of June this year, Dong Fang International Containers 11 per cent and CXIC Group Containers 7 per cent, according to Drewry.State-backed COSCO Shipping Development, which controls DFIC, acknowledged that production was spreading abroad but brushed aside concerns over the country’s command of container production.“The market will become more competitive to some extent given the growing manufacturing capacity from Vietnam among other regions,” a spokesperson said. “Chinese container manufacturers will face global competition according to market rules.” More

Since the Federal Reserve started raising interest rates in its battle against inflation 18 months ago, the US central bank has made one thing clear: all policy options must be kept on the table at all times.From jumbo interest rate rises — it has implemented several — to the repeated warnings that they could remain elevated for an extended period, chair Jay Powell has refused to rule out anything that will enable the Fed to get a grip on price pressures that have proved far more persistent than most economists and policymakers ever expected.He stuck to that line on Wednesday, after the central bank’s latest decision to hold its benchmark federal funds rate at a 22-year high of between 5.25 per cent and 5.5 per cent, for the second gathering in succession. Powell used a press conference afterwards to stress that additional rate rises would very much remain an option if the economic conditions warranted it.“The question we’re asking is, should we hike more?” he said.It was a prompt that lingered over an hour-long media conference, and yet Powell made little effort to suggest the Fed was readying further tightening. The conclusion of leading economists afterwards was plain: the central bank at this stage is likely done with the rate-rising phase of its historic monetary policy campaign. Its focus from now on is not how high rates should go, but how long they should stay at elevated levels.“The overall message is that the Fed wants to say ‘we are done’ and the bar has really risen for further tightening,” said Yelena Shulyatyeva, a senior US economist at BNP Paribas.Underpinning this view was Powell’s repeated emphasis that the central bank would continue proceeding “carefully” with future interest rate decisions, given not only how much it has raised rates since March 2022, but also amid signs that all that monetary tightening is starting to have an effect.“We’ve come very far with this rate-hiking cycle,” Powell said. “We’re proceeding carefully because we can proceed carefully at this time. Monetary policy is restrictive [and] we see its effects.”Powell drew that conclusion despite a recent spate of surprisingly strong data that showed the staying power of American consumers and businesses’ unexpectedly robust demand for workers — a demonstration of the economy’s resilience that has prompted concern among economists that the recent fall in inflation could stall or even reverse.But Powell on Wednesday largely dismissed those fears, emphasising instead that inflation was coming down even if further progress could “come in lumps and be bumpy”. Even the recent acceleration in jobs growth had been driven primarily by increased labour supply, he noted — a welcome, not alarming, development.The improved backdrop had left the Fed in a much less reactive mood, said analysts.“Last year, because inflation was so far from target, they didn’t have the luxury of even letting one strong data print go by. They almost had to respond each time,” said Priya Misra, a portfolio manager at JPMorgan Asset Management. “Now, they’re able to buy time because inflation is lower.”The sharp tightening of financial conditions over the past two months, following a surge in long-term interest rates, has also bolstered the view that the Fed can take a less hawkish stance on rates. The Federal Open Market Committee’s statement on Wednesday said as much, stressing that tighter financial and credit conditions “are likely to weigh on economic activity, hiring, and inflation”.Powell said monetary policy would depend in large part on the duration of the market moves, which have seen government bond yields hit multiyear highs. Torsten Slok, chief economist at Apollo Global Management, said the implications of higher borrowing costs should not be underestimated.“Ultimately, Fed hikes and tighter financial conditions will continue to increase delinquency rates for consumers, increase default rates for companies and put downward pressure on loan growth,” he said. Slok’s worry is a “sudden stop” in consumer spending and business activity that snowballs into a painful economic contraction. Misra and Shulyatyeva are also bracing themselves for a so-called hard landing next year.So far, staffers at the Fed are not forecasting a recession. But Powell did acknowledge that the risks of doing too little to tackle inflation versus doing too much had become more “two-sided”.Even if the Fed appears to be in a more comfortable place in its battle against inflation, economists warn that the coast is not entirely clear. As Powell spoke on Wednesday, equity markets rallied and US government bond yields edged lower, delivering slightly looser financial conditions on the day. That could prove problematic if the economic data remains strong, warned Richard Clarida, who previously served as the Fed’s vice-chair and is now at bond manager Pimco.“They need financial conditions to tighten to help them reduce inflation,” he said. “The trade-off is that the more relaxed they seem about relying on financial conditions, the easier they may become.”Getting inflation all the way back to the Fed’s 2 per cent target is poised to be far more difficult than the initial retreat from last year’s peak in rates, Clarida warned, saying that he would opt for another rate rise in December if he were still at the central bank. More

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida said on Thursday the government will spend over 17 trillion yen ($113 billion) in a package of measures to cushion the economic blow from rising inflation, which will include tax cuts.To fund part of the spending, the government will compile a supplementary budget for the current fiscal year of 13.1 trillion yen, Kishida told reporters.Reuters reported on Wednesday the government is considering spending over 17 trillion yen for the package, which will include temporary cuts to income and residential taxes as well as subsidies to curb gasoline and utility bills.Inflation, fuelled by rising costs of raw materials, has kept above the central bank’s target of 2% for more than a year, weighing on consumption and clouding the outlook for an economy making a delayed recovery from scars left by COVID-19.The rising cost of living is partly blamed for pushing down Kishida’s approval ratings, piling pressure on the prime minister to take steps to ease the pain on households.With increases in wages proving too slow to offset rising prices, Kishida had said the government will cushion the blow by returning to households some of the expected increase in tax revenues generated by solid economic growth.($1 = 150.5100 yen) More

SINGAPORE (Reuters) – The dollar fell broadly on Thursday, tracking a slide in U.S. Treasury yields as markets grew more convinced the Federal Reserve was done with its aggressive monetary policy tightening cycle after it left rates unchanged.The Fed on Wednesday held interest rates steady as widely expected, as policymakers struggled to determine whether financial conditions may be sufficiently tight to control inflation.However, Fed Chair Jerome Powell acknowledged that a recent market-driven rise in Treasury bond yields, home mortgage rates and other financing costs could have their own impact on the economy as long as they persist.The decision lifted sentiment in Wall Street, which spilled over into the Asia day, giving a small boost to the risk-sensitive Australian and New Zealand dollars.The Aussie rose 0.5% to a three-week high of $0.6426, while the kiwi similarly jumped more than 0.5% to hit a two-week top of $0.58825.The dollar edged broadly lower alongside U.S. Treasury yields which touched multi-week lows in early Asia trade. [US/]”It seems to us that the FOMC is now in hold mode, albeit in a hawkish way, rather than simply on pause,” said Wells Fargo chief economist Jay Bryson. “That is, we think the bar to further rate increases is higher now than it was a few months ago.”The two-year U.S. Treasury yield, which typically reflects near-term interest rate expectations, slid to a nearly two-month low of 4.9250% on Thursday, while the benchmark 10-year yield fell to an over two-week low of 4.7070%.Against the dollar, the euro rose 0.18% to $1.0589.The U.S. dollar index fell 0.11% to 106.34.Traders also drew further conviction that U.S. rates could have peaked after data showed U.S. manufacturing contracted sharply in October, though separate data pointed to a still-resilient labour market, which is likely to see the Fed keeping rates at restrictive levels for longer.”We will likely need to see some labour market weakness before target inflation is reached,” said Lon Erickson, portfolio manager at Thornburg Investment Management.”This could take some time to develop and is one reason we are likely to see higher rates for longer.”Market pricing shows a nearly 15% chance that the Fed could begin cutting rates as early as next March, according to the CME FedWatch tool, compared with a roughly 10% chance a week ago.The move lower in the dollar brought some respite for the yen, though it remained on the weaker side of 150 per dollar.The Japanese currency last stood at 150.44 per dollar, having slid to a one-year low of 151.74 per dollar earlier in the week in the wake of the Bank of Japan’s (BOJ) monetary policy decision.Investors were still struggling to digest the implications of the central bank’s piecemeal tweak to its controversial bond yield control policy – a move that has sent Japan’s bond market and currency reacting in divergence.”This almost feels like the end of the line for YCC, but the extent to which the BOJ will intervene in the JGB market should 10-year yields rise above 1% is as yet unclear,” said Tom Kenny, senior international economist at ANZ.”We think the BOJ will be content to let longer duration yields move higher in an orderly manner and that intervention is likely to occur if moves are volatile.”Elsewhere, sterling rose 0.35% to $1.2192 ahead of the Bank of England’s rate decision later on Thursday, where expectations are for the central bank to keep rates on hold. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China’s biggest memory-chip maker has had to raise billions of dollars in fresh capital, after burning through $7bn in funding over the past year trying to adapt to tough US restrictions on its business.Yangtze Memory Technologies Corp, which last December was added to a trade blacklist and prohibited from procuring US equipment to manufacture chips, exceeded its target for a new round, according to four people familiar with the situation.They could not confirm the exact figure raised, but said it was equivalent to billions of dollars.As China’s largest producer of Nand memory chips, the Wuhan-based company holds a crucial position in the country’s efforts to become self-reliant in semiconductors. But since last October, it has been hit by a series of US actions that restricted China’s access to advanced chip technology.Last year, YMTC received a Rmb50bn ($7bn) capital increase from shareholders, including the China Integrated Circuit Industry Investment Fund, known as “the Big Fund”, for its major role in backing China’s chip industry.Two people said high expenditure on finding replacement equipment and the development of new components and core chipmaking tools had already accounted for most of YMTC’s cash, necessitating a fresh financing campaign within less than a year.The round was oversubscribed by domestic investors, according to another two people close to the company.YMTC’s latest financing had concluded before Washington announced even stricter export controls last month, but the strong investor backing is being seen as a sign of solidarity in the face of the US restrictions.YMTC chair Chen Nanxiang was elected as the new head of the China Semiconductor Industry Association last week and called for unity in countering an “unprecedented upheaval” in the global supply chain.“YMTC is following in Huawei’s footsteps in bringing together the Chinese semiconductor industry to cope with the challenges of US pressure,” said a government official close to the company.The company was expected to procure more equipment from Chinese suppliers while “tapping” some Japanese, South Korean and European vendors that the Chinese ones could not easily replace, said two company investors.“If Chinese companies have equipment that can be used, [YMTC] will use it. If not, it will see if countries other than the US can sell to it,” said one of the investors. “If that doesn’t work, YMTC will develop it together with the supplier.”The company had been working closely with Chinese etching equipment makers Naura and Advanced Micro-Fabrication Equipment (AMEC) to upgrade their technology, said two people close to YMTC. Etching equipment plays a key role in determining how many layers can be successfully stacked on a chip to achieve better storage performance at a lower cost.Chinese companies won almost half of all equipment tenders from local chipmakers from January to August this year, according to an analysis by Huatai Securities last month.“The ones that can be quickly replaced by Chinese equipment are less technically challenging tools,” said an executive at one Chinese chipmaker, who did not wish to be named. “The real challenge is to make the advanced ones.”YMTC, Naura and AMEC did not respond to a request for comment.Video: The race for semiconductor supremacy | FT Film More