Aurelia Butler

The Federal Reserve will need to implement two more quarter-point rate rises this year to bring inflation under control, a top official at the US central bank said on Thursday. In an intervention that pushed back against market pricing suggesting the Fed will conclude its monetary tightening after just one more increase, Christopher Waller backed a rise this month and another before the end of 2023. Waller, a governor who is one of the most hawkish members of the central bank’s rate-setting committee, said he could push for a second increase in September or later this year depending on incoming economic data. “If inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future,” he said an event hosted by New York University.In the question-and-answer session that followed the event, Waller stressed that the Fed was not conducting policy in a “mechanical way” and that the September meeting was a “live” one. Two more encouraging inflation reports, like the one released this week, could suggest the need for stopping after the July move, he said.His remarks will be one of the last public utterances from a Fed official before the “blackout” period ahead of the next two-day policy meeting starting on July 25. The central bank is widely expected to resume its aggressive monetary tightening campaign later this month after forgoing an interest rate increase in June, lifting the benchmark rate to a new target range of 5.25-5.5 per cent.Waller said a June rate rise would have been justified, but that forgoing an increase reflected “prudent risk management” at a time of uncertainty over the extent of the credit crunch stemming from the Fed’s existing tightening and the regional banking crisis earlier this year.He was speaking following a string of better than expected economic data, which suggests that the most stubborn price pressures are starting to more noticeably fade.The latest consumer price index report released on Wednesday indicated that “core” inflation, which strips out volatile food and energy prices, grew at a more subdued pace than expected, a trend that many economists reckon will continue in the coming months. Waller on Thursday said the data was “welcome news, but one data point does not make a trend”.He added: “I am going to need to see this improvement sustained before I am confident that inflation has decelerated.” Wall Street economists and traders are for the most part betting that the rate rise at the end of the month will be the last of this cycle.In his speech, Waller pushed back on the idea floated by many of his colleagues that the net effect of the Fed’s tightening so far had yet to feed through fully to the economy.In an interview with the Financial Times this week, John Williams, president of the New York Fed, said: “We are not getting the full effects of the restrictive policy that we put in place yet.”

But Waller said the “bulk of the effects from last year’s tightening have passed through the economy already”.“To me, this means that the policy tightening we have conducted this year has been appropriate and also that more policy tightening will be needed to bring inflation back to our 2 per cent target,” he said.Waller on Thursday lost an important hawkish ally after James Bullard said he would step down from his post as president of the St Louis Federal Reserve Bank to join Purdue university’s business school as its inaugural dean. Bullard, who has been at the Fed for 33 years, established himself as an advocate for the US central bank to act aggressively to quell what has become one of the most acute inflation problems it has faced in decades. He was among the first to urge the Fed to scale back its ultra-loose monetary policy in the aftermath of the pandemic and a vocal proponent of the central bank’s extended string of large interest rate increases last year. As a voting member on the Federal Open Market Committee last year, Bullard periodically dissented on various policy decisions, most recently in March 2022, when he argued that the US central bank should raise rates by a half-point rather than the quarter-point it settled on. He has recused himself from any monetary policy matters until his departure, including the upcoming meeting at the end of the month.Kathleen O’Neill Paese, who served as first vice-president of the St Louis Fed will step in as interim president. More

WASHINGTON (Reuters) – A bipartisan group of U.S. lawmakers on Thursday pushed to include a provision allowing medical research of psychedelic drugs as part of a sweeping annual defense policy bill, saying it could help treat post-traumatic stress disorder and other ailments despite possible concerns.”These are powerful substances, I don’t want to give that short shrift,” Democratic Representative Alexandria Ocasio-Cortez, who first sponsored a bill on the topic in 2019, told a Capitol Hill press conference. “But they also have powerful potential as well.”Veterans’ groups have for years been pushing for research into the potential medical benefits of psychedelics – including LSD and magic mushrooms – for their ability to alleviate the effects of PTSD and depression.Because the U.S. government currently classifies these drugs as Schedule 1 – meaning they have a high potential for abuse and no accepted medical use – they are effectively impossible for scientists to study.Republican Representative Dan Crenshaw, a former Navy SEAL and co-sponsor of the amendment, pointed to potential uses for survivors of sexual trauma and law enforcement officers.The measure would direct the Secretary of Defense to conduct a clinical report on the uses of psychedelics in military treatment facilities.Crenshaw said he had spoken to Republican Speaker Kevin McCarthy and had the House leader’s support for including the language of the amendment in the final National Defense Authorization Act.”I still can’t find one member of Congress that is actually opposed to this,” Crenshaw said.The Republican-controlled House is expected to pass its version of the NDAA as soon as Friday, then the Democratic-majority Senate will pass its version. Following that, lawmakers from both chambers must negotiate on a compromise before the bill can be sent to President Joe Biden to sign into law or veto. More

NFTC President Jake Colvin said he welcomed news from the OECD that most countries with digital services taxes had agreed to extend the moratorium on implementation. He also said the move would allow countries to keep working a global tax deal in good faith. “Canada joined Belarus, Russia and a small handful of others in not joining because they seem to want to move forward quickly with their digital services tax,” Colvin said. “We’re disappointed and confused by Canada’s refusal to join the agreement. This puts them way outside consensus. It’s troubling and it invites retaliation.”Canadian Finance Minister Chrystia Freeland on Wednesday said the agreement to freeze pillar one implementation by another year put Canada at a disadvantage relative to countries that have been collecting revenue under their pre-existing digital services taxes.Colvin said Washington could retaliate under the U.S.-Mexico-Canada trade agreement if Canada went ahead and implemented the new tax.The U.S. government has repeatedly objected to the planned Canadian tax, including through a written statement last year, and as recently as last week, when U.S. Trade Representative Katherine Tai raised the issue during a meeting with Canadian Trade Minister Mary Ng.”Our position has not changed,” a USTR spokesperson said on Thursday. The person had no immediate comment on the issue of potential retaliation.More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinationals that are widely considered to be outdated as digital giants like Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) can book profits in low-tax countries.Because the process has dragged on, the more than 30 governments that have or plan national digital services taxes had agreed to put them on ice until the end of this year, or drop them altogether once the first pillar of the tax deal takes shape.Amid concerns among some countries, the plan now calls for governments to sign off before the end of the year with a goal of having the treaty enter force in 2025, instead of in 2024 as previously planned.Out of the 143 countries that are party to the deal, only five countries – Belarus, Canada, Pakistan, Russia and Sri Lanka – were not in a position at the meeting to offer their support, an OECD official said. More

Good morning. The risks posed by artificially intelligent chatbots are being officially investigated by US regulators for the first time after the Federal Trade Commission launched a wide-ranging probe into ChatGPT maker OpenAI.In a letter sent to the Microsoft-backed company, the FTC said it would look at whether people have been harmed by the AI chatbot’s creation of false information about them, as well as whether OpenAI has engaged in “unfair or deceptive” privacy and data security practices.Generative AI products are in the crosshairs of regulators around the world, as AI experts and ethicists warn over the enormous amount of personal data consumed by the technology, as well as its potentially harmful outputs, ranging from misinformation to sexist and racist comments. In its letter, the US regulator asked OpenAI to share internal material ranging from how the group retains user information to steps the company has taken to address the risk of its model producing statements that are “false, misleading or disparaging”.The FTC declined to comment on the letter, which was first reported by the Washington Post. OpenAI declined to comment.More AI news: Meta is poised to release a commercial version of its AI model, allowing start-ups and businesses to build custom software on top of the technology.AI doctors?: Healthcare needs a productivity revolution but not at the expense of patient privacy and safety, writes John ThornhillHere’s what else I’m keeping tabs on today and over the weekend: Results: JPMorgan Chase, Citigroup and Wells Fargo report second-quarter earnings, as does BlackRock. Narendra Modi in France: The Indian prime minister will be French president Emmanuel Macron’s guest of honour at the Bastille Day celebrations in Paris. India and France agreed to two big defence contracts ahead of the visit, which is aimed at deepening trade and diplomatic ties to counter a rising China.Trade deals: The UK is set to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on Sunday, becoming the first new member since the framework went into effect. China is next on the list of applicants seeking to join the group, which was once seen as a way of balancing Beijing’s growing influence in Asia-Pacific region. (Bloomberg) Sport: Wimbledon women’s and men’s singles final on Sunday. Put your SW19 Grand Slam knowledge to the test in this FT Globetrotter quiz. Five more top stories1. Thailand’s national assembly has rejected election winner Pita Limjaroenrat’s bid to become prime minister, risking prolonged political turmoil in south-east Asia’s second-largest economy. Unelected senators chosen by the former military junta refused to vote for Pita — a Harvard-educated businessman — citing his desire to reform strict lèse majesté laws against criticism of Thailand’s monarchy. Read the full story.2. Germany warned its companies to reduce their dependence on Beijing as it unveiled its first China strategy, emphasising the need to “de-risk” economic relations with Beijing. Foreign minister Annalena Baerbock told companies overly-dependent on China that they would “have to bear more of the financial risk themselves” in future. Here’s more on the milestone strategy. UK report on Chinese spying: The government’s response to China’s “increasingly sophisticated” spying operation targeting the UK and its interests has been “completely inadequate”, according to a scathing parliamentary report.3. Chinese tech stocks are rallying after top government officials signalled a shift from reining in the companies’ influence to helping them grow and strengthen China’s position on the world stage. Read more on the apparent end to the crackdown on Chinese tech giants.4. Alex Mashinsky, the founder of bankrupt cryptocurrency lender Celsius Network, has been arrested by US authorities and charged with fraud and market manipulation. Prosecutors allege that Mashinsky misled investors into ploughing billions of dollars into Celsius, portraying it “as a modern day bank, where customers could safely deposit crypto assets and earn interest”. 5. One of Tesla’s biggest challengers in China has called on the US government to offer Chinese electric vehicles equal access to the American market. William Li, founder and chief executive of Shanghai-based Nio, said carmakers should not be enmeshed in political tensions between the superpowers. Read the interview. Opinion: As Chinese cars speed into global markets, tensions will only escalate, writes ‘Chip War’ author Chris Miller.How well did you keep up with the news this week? Take our quiz. Explainer

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While central banks in developed countries wrestle with stubbornly high inflation, China has the opposite problem — the world’s second-largest economy is flirting with deflation. With Beijing poised to unveil second-quarter gross domestic product figures on Monday, here’s why China is bucking the global inflationary trend, and what policymakers might do to keep the economy’s post-Covid recovery on track.We’re also reading . . . The Big Read: Washington’s allies in Europe and Asia were initially outraged by its new industrial policy. Now they are scrambling for ways to catch up. Disney extends Bob Iger: A new contract puts the Disney chief’s reputation as one of entertainment industry’s most successful leaders on the line. Extreme wildfires: Almost everywhere, fires are burning bigger, hotter, longer. Can human beings really fight them? Chart of the day

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China’s exports have suffered their biggest year-on-year decline since the start of the coronavirus pandemic. June exports declined 12.4 per cent year on year in dollar terms, official data showed on Thursday, the biggest drop since February 2020. Imports fell 6.8 per cent, also exceeding expectations. The data added to concerns over the growth trajectory of China’s economy.Take a break from the news. . . and pick up a loaf of shokupan. The Japanese sandwich bread is sweet, fluffy and lovely — with a cultural history that will make your head hurt.

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Additional contributions by Tee Zhuo and Gordon Smith More

Two of Europe’s leading economies, Germany and the UK, on Thursday signalled a markedly chillier stance towards China. Together, they show the impact of China’s growing authoritarianism, its ruptured relationship with the US, its sabre-rattling towards Taiwan and European misgivings over Beijing’s close ties with Moscow.Germany’s first ever China strategy reflects how the world has changed. China is its largest trading partner, and a crucial market for its industrial powerhouses. Yet Berlin flagged that it had decided to “de-risk” its ties, ignoring a warning by Qin Gang, China’s foreign minister, that de-risking could mean “de-opportunity, de-co-operation, destabilising and de-development”. At the same time in Britain, a scathing parliamentary report found that London’s response to China’s “increasingly sophisticated” spying operations have been “completely inadequate”. It added that the UK was “singularly failing to deploy a ‘whole-of-government’ approach” to the problem of China.Berlin’s adoption of a comprehensive policy shows the importance it now attaches to diversifying its supply chains and export markets away from the country, so reducing its exposure to external shocks. Its strategy aims to identify vulnerabilities, make German companies more aware of the risks of doing business in China, and make clear Berlin will not bail them out if they get into trouble. The 64-page document is worthwhile reading for those in other EU capitals. It could also point a way forward for the UK.Both the UK and Germany are keen to maintain access to a Chinese market that is home to an estimated 550mn middle-class consumers. Their goal should be to establish what the Biden administration has called a “small yard, high fence” — tight restrictions on investment and trade in a small number of technologies linked to national security, but permitting other forms of commerce. In practice, there will be a sizeable grey area, as many technologies are dual-use. But as Janet Yellen, US Treasury secretary, told China’s premier Li Qiang last week, though the US would sometimes need to pursue targeted actions to protect national security, this should not “needlessly worsen our bilateral economic and financial relationship”.Germany is wary of becoming overly dependent both on a Chinese supply chain of industrial components and on the Chinese market itself. The UK’s concerns are more related to espionage. The UK has begun to systematically vet Chinese inward investment deals under the 2021 National Security and Investment Act. Last year, it used its powers to “call in” eight transactions involving Chinese-linked investments into British companies — weeding out at least some perceived security threats.Nevertheless, like Germany, the UK needs to be clearer about the parameters that should govern its future engagement with China, describing in which sensitive technology areas commerce should be prohibited or subject to regulatory review. This applies mainly to Chinese acquisitions of UK companies and Chinese corporations investing in areas of UK critical infrastructure. But it should also cover UK companies transferring technology to Chinese counterparts in China.Security tensions between China and Europe have deepened considerably since Xi Jinping, China’s leader, has infused Beijing’s world view with suspicion for the US-led west. It may not be possible to insulate every sector and every industry in Europe from Chinese security concerns. Germany and the UK have to strike a balance between protecting vital sectors and infrastructure and keeping trade and commercial relations flowing. More