Aurelia Butler

Federal Reserve officials concluded the need to further lift interest rates had become “less certain” as economic risks had increased, although the US central bank remained open to additional rate rises if warranted by the data, according to an account of their latest meeting.Minutes from the May meeting, when the Federal Open Market Committee delivered its 10th consecutive rate rise in just over a year, confirmed that the US central bank is considering whether to pause to its aggressive monetary tightening campaign as it assesses how much more it needs to squeeze the economy to control inflation.Citing both the “lagged effects” of the Fed’s previous rate rises, as well as the spectre of tighter credit conditions stemming from the recent bank failures, participants “generally agreed” that “the extent to which additional increases in the target range may be appropriate after this meeting had become less certain”.The quarter-point increase in May lifted the federal funds rate to a target range of 5-5.25 per cent, the highest since mid-2007. The rate is in line with the peak level most officials forecast when projections were last released in March.The Fed said in March that additional rate rises “may be appropriate” to tame inflation. But in guidance this month it said officials would take into account incoming data and how much its increases had already affected the economy as they determined how much higher rates would have to rise. Fed chair Jay Powell described that change as “meaningful”. The minutes showed differences among committee members over further rate increases. Many participants stressed the need for the Fed to “retain optionality after this meeting”, with some believing further action would be warranted if inflation continued to decelerate slowly, according to the minutes.Several officials, however, emphasised that if the economic outlook evolved as expected, additional rate rises “may not be necessary”, the minutes said. Staffers at the Fed continue to predict the economy will tip into a mild recession this year before staging a recovery — even as they saw a greater risk that inflation would remain stubbornly high for longer than expected. The minutes also indicated that almost all officials saw greater odds of lower growth and higher unemployment in the aftermath of the recent bank failures. Still, the Fed has maintained it does not plan to cut its policy rate this year.Since the May meeting, officials have been locked in an intense debate about whether pausing rate rises next month will be warranted.

Christopher Waller, a Fed governor, on Wednesday said that economic data had not yet provided “sufficient clarity” about what officials should do at June’s policy meeting. He said the decision was likely to come down to either raising the benchmark policy rate again or pausing for a meeting and considering an increase in July. A number of policymakers, including Lorie Logan of the Dallas Fed and Fed governor Michelle Bowman, appear to agree, recently arguing that the data did not show enough of a decline in inflation to hit pause. James Bullard, president of the St Louis Fed, also told the Financial Times recently that higher interest rates are likely to be needed as “insurance” against price pressures becoming further entrenched.But Powell last week hinted that he supports forgoing another rate rise in June. Governor Philip Jefferson, who was recently tapped by the Biden administration to serve as the Fed’s next vice-chair, has also emphasised that the effects of the central bank’s efforts to slow the economy were “still likely ahead of us”.Before the next two-day FOMC meeting, which begins on June 13, the Fed will receive even more economic data including monthly jobs figures as well as the latest read on inflation. According to the minutes, officials said they would also be closely monitoring how banking stress would affect business activity and inflation. Officials also discussed the potential fallout from a failure by Congress to raise the debt ceiling before the government ran out of cash. Some warned of “significant disruptions to the financial system and tighter financial conditions that weaken the economy”. More

The writer is director of the National Institute of Economic and Social Research Since it was granted operational independence, the Bank of England has had an honourable record in controlling inflation. Its Monetary Policy Committee met its inflation target in the quarter century from May 1997 to May 2022. But as has been well documented in the past year, it seems to have blotted its copybook.Inflation has peaked in double digits and the figures just announced for this April fell much less than the BoE had forecast. It seems likely to stay above target for the rest of this year and the next, raising the strong possibility of monetary policy having to induce a recession to attain price stability for the first time since the early 1990s.No doubt some mistakes have been made, but what is just as important are the lessons we need to learn in setting a path for an independent central bank in the second quarter of the 21st century.First, we need to focus BoE resources on understanding inflation, perhaps even renaming the worthy quarterly Monetary Policy Report the Inflation Report once again. And we must reiterate that inflation is neither temporary nor permanent; it is controlled by the central bank, which responds to the shocks given the structure of the economy and the instruments at its disposal. That does not mean that we should become inflation zealots; the MPC can choose to move gradually in response to an inflation shock if it judges that output or employment would be too violently affected by an immediate return to price stability.Second, we desperately need the right narrative to communicate clearly to market participants and to households, who have been shocked by the rapid increase in the bank rate. The UK is a small open economy with a supply side hampered by the effects of Brexit and labour and supply chain shortages that have, in turn, been exacerbated by food and energy price shocks. We neither emphasised the size of these shocks nor their specificity to the UK. As a result, we were not sufficiently clear about the need to signal an early start to the normalisation of monetary policy, which was too often conflated with tightening. The situation in the US, for example, a large producer of oil and food, was quite different and our rates need not have followed the same path. Third, we need to move away from one model, one forecast and one interest rate choice. Models are nearly always wrong but they have their uses. And, by and large, that is to help us think about risks. It is the central bank’s job to explain and manage those risks on society’s behalf. The risks of higher and lower inflation include assessments of the transmission of policy and the response to a decisive shift of regime, which would mean permanently higher interest rates. It is reductive to translate that task of risk management into a single interest rate choice every few weeks. Rather, the central bank needs to spell out the path of rates required to manage those different risks. Or at the very least allow external members of the MPC to set out their thinking at press conferences. That so many of these risks are financial in nature strengthens the case to merge the MPC with the BoE’s Financial Policy Committee.Fourth, there is a perception that the BoE has been taken over by the Treasury since the financial crisis. External and internal MPC members have been appointed by the Treasury, with the bank increasingly providing a kind of retirement home for former Treasury officials. At a time when excessive levels of quantitative easing have been blurring the boundary between monetary and fiscal policy, this is unfortunate. Although it is highly desirable to have a co-operative relationship between the Treasury and the BoE, the political antennae of the former should not be transmitting a signal to the latter.The BoE needs to focus on the plumbing of monetary and financial markets without any suggestion of interference from the other side of town. And so the government and the Treasury should have been warned not to be tempted to take credit for any fall in inflation.Unfortunately, it is also clear that the level of public understanding of inflation, interest rates and debt is not where it ought to be. Some 30 years ago, the BoE did a sterling job in explaining the case for price stability. The MPC and central bank can do more now by holding their policy meetings as set-piece events around the country. This would not only support regional economies but also promote a national focal point for the BoE’s vital work. More

Today’s top storiesRon DeSantis is set to announce he is running for US president in a conversation with Elon Musk on Twitter later today, ending months of speculation about the Republican governor of Florida’s 2024 ambitions.Moscow claims it has ‘fully liquidated’ pro-Kyiv militias who crossed the border into Russian territory.The head of Nvidia, the world’s most valuable semiconductor company, told the FT the US tech industry was at risk of “enormous damage” from the battle over chips between Washington and Beijing. Japanese curbs on exports of chipmaking equipment to China could potentially be more disruptive than measures from the US. South Korea, however, warned the US against “overburdening” its chipmakers with new restrictions.For up-to-the-minute news updates, visit our live blogGood evening.A smaller-than-expected drop in UK headline inflation has left financial markets pencilling in higher interest rates, while spiralling food prices are piling on the agony for families struggling with the cost of living crisis.CPI fell from 10.1 per cent to 8.7 per cent in April as last year’s energy price rises fell out of the annual comparison, according to official data this morning. Core inflation, however, which strips out volatile elements, actually rose from 6.2 per cent to 6.8 per cent. The outlook tallies with the latest thinking from the IMF, which warned yesterday that inflation was likely to stay above the Bank of England’s 2 per cent target until mid-2025, six months longer than it had forecast last month, even as the fund revised up its forecast for growth and said the UK would now avoid recession this year.The higher than expected CPI numbers have put the BoE back in the spotlight after governor Andrew Bailey told a parliamentary committee yesterday that the central bank had “very big lessons to learn” over its forecast failures.

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Food prices, meanwhile, remain close to 45-year highs, dipping only slightly from 19.2 per cent to 19.1 per cent. Now that energy price rises are slowing, the issue is becoming the biggest element of the cost of living crisis.Chancellor Jeremy Hunt this week stepped up pressure on the grocery sector to address the problem and yesterday met food manufacturers and competition regulators. The government has rejected the idea of price controls along the lines of European rivals.It comes then as little surprise that Britons are second only to the Swedish in the league of gloom, with little confidence that inflation will be back at normal levels any time soon. Other pressures include a record rise in residential rents as higher borrowing costs and a shortage of properties push up prices. The despondency is shared by financial markets. The FTSE dropped and UK bond markets sold off on the inflation news, with traders now expecting interest rates to peak at about 5.3 per cent by the end of the year. The yield on two-year gilts hit 4.34 per cent, its highest level since the turmoil created by then-chancellor Kwasi Kwarteng’s “mini Budget”.The BoE has admitted the country is in a wage-price spiral and is looking to the lessons of the 1970s and 1980s but talk of the country becoming once again “the sick man of Europe” is perhaps overblown. But while the UK inflation rate stays at double the equivalent in the US and significantly higher than the eurozone, criticism of the government and the BoE’s strategy is likely to linger for a while yet.Browse our global inflation tracker to see how your country compares.Need to know: UK and Europe economyThe UK’s opposition Labour party said it was willing to force pension plans to invest in a new £50bn growth fund to boost the availability of capital to fast-growing companies. The European Central Bank warned that rising risks at “shadow banks” such as hedge funds, pension funds and insurers meant an increasing possibility of financial market shocks triggering a wider crisis. The German coalition government of the SPD, Green and FDP parties is in crisis over proposals to ban gas boilers. The plan, one of the Greens’ pet projects and a cornerstone of their climate agenda, has been held up by the FDP.The EU single market is 30 years old this week. Former European commissioner and Italian politician Mario Monti says the foundation stone of EU integration must not be neglected in the dash for strategic autonomy and economic security. Need to know: Global economyUS investors are betting the Federal Reserve will keep interest rates higher and for longer than originally expected. Minutes from the Fed’s last policy meeting are due at 2pm ET/7pm London time today and should reveal the reasoning behind the further quarter-point rise earlier this month.The rush to gold by the wealthy is being mirrored by emerging market central banks, leaving the price close to its nominal all-time high of $2,072 per troy ounce.Global production of shipping containers has plunged as demand for goods declines following the easing of pandemic restrictions. The surplus of containers threatens to overwhelm ports in China, where up to 95 per cent of the world’s boxes are stored.Need to know: BusinessUK banks, tech companies and telecoms providers are joining forces in a new body to tackle scams, the most common type of crime in England and Wales. The launch of Stop Scams UK follows criticism that the government’s new fraud strategy was too weak to meet the scale of the challenge.Private equity groups are selling stakes in portfolio companies at a discount, in a sign they do not expect stock market valuations to regain their previous highs anytime soon.TikTok has restructured its ecommerce business to refocus on markets such as the UK and the US as it struggles to export its livestream shopping model outside China.The head of Boeing poured cold water on hopes for new climate-friendly biofuels, saying they would “never achieve the price of jet fuel”. Sustainable aviation fuels currently account for less than 1 per cent of global consumption. Big asset management groups are piling back into fixed-income investments offering higher yields after a “cataclysmic” period for bonds last year. A steep rise in US interest rates had sent bond prices tumbling but has now left yields on Treasury notes higher than they have been for most of the past decade.The World of WorkPeople with sight loss can struggle in the workplace because of misconceptions of their ability, inaccessible recruitment practices and insufficient support. Read more in our special report: Health at Work.You can’t pin all workforce problems on Gen Z, writes US business editor Andrew Edgecliffe-Johnson, after some concerns that a cohort scarred by Covid has entered the workforce without the usual social skills.How are mass lay-offs shaping the workforce of the future? And are there any upsides to getting the push? Columnist Pilita Clark delves into some interesting research. The narrative that declares some workers will become “losers” from AI and that governments must deal with the consequences is a dangerous one, writes columnist Sarah O’Connor. AI creates opportunities and dangers: how they play out, and to whom, is up to us, she argues.Catch up on the latest thinking on business courses and browse the business school rankings in our new executive education report. FT readers are invited to take part in our survey to determine the UK’s leading recruiters. If you are in HR or a manager responsible for hiring, work for a recruitment company or have insights as a candidate, please click here to take part. Some good newsA wireless “digital bridge” between brain and spinal cord has enabled a paraplegic patient to walk naturally, just by thinking about moving his previously paralysed legs.Gerd-Jan Oskam, the first patient fitted with the ‘digital bridge’, in the laboratory in Lausanne, Switzerland © Jimmy Ravier More

Lidl’s latest boost to hourly pay for its 24,500 UK employees underlines the big challenge facing the Bank of England: wage growth shows little sign of slowing and is a key part of why inflation is still high.The discount supermarket said on Wednesday it would increase its basic rate of pay to £11.40 for staff outside London in September, and to £11.95 for those working in and around the capital, respectively 12.9 per cent and 13.7 per cent higher than a year earlier.Its move will put pressure on other retailers to follow suit in a tight labour market where many employers are still struggling to fill vacancies, even as the economy remains weak. Wages are far from the biggest factor in the 19.1 per cent rise in UK food prices last year. Many retailers have cut bonus payments or found other ways to offset increases in hourly pay, and official data suggests total pay growth for the sector as a whole has been much lower. But Stuart Machin, chief executive of retailer Marks and Spencer, said on Wednesday wages were one of the main drivers “still impacting inflation”. “There are significant issues still,” he added. “Wages is one, and our suppliers still have significant headwinds like we do on wage costs.”The retailer, which employs around 65,000 staff, has raised hourly pay by more than 20 per cent since the start of 2021. It is also accelerating a shift from manned tills to self-checkout to limit labour costs, which it estimates will rise by £100mn in this financial year. “Most people would be surprised by how much of their food bill is labour in stores and the supply chain — around 25 per cent,” Justin King, the former Sainsbury’s boss and a non-executive director at M&S, told the Financial Times last month. Lidl’s announcement fits with other recent data showing wage growth remains stubbornly strong across the UK economy, even though labour shortages have eased to an extent as recent graduates and newly arrived immigrants bolster the workforce. Official data last week showed private sector wage growth was steady at 7 per cent in the three months to March, a blow to workers as living costs have risen much faster. The figure is far higher than the rate the BoE thinks is compatible with its 2 per cent inflation target.More recent business surveys suggest there has been little change since March. Wage settlement data published on Wednesday by the research group XpertHR showed the median pay award remained at 6 per cent in the three months to April, when many pay settlements take effect. “While inflation is forecast to fall through the second half of this year, our research suggests pay awards may well hold at their current levels,” said Sheila Attwood, senior content manager at XpertHR. She noted that almost half of employers expected to make awards at the same level in 2024. The BoE has repeatedly warned that wage pressures could prolong the UK’s bout of high inflation, if workers seek higher pay to cope with rising living costs and companies prove able to raise prices to protect their margins, rather than absorbing the cost. Policymakers and economists believe this scenario is now playing out, and could force the central bank to raise interest rates above their current level of 4.5 per cent and keep them high for longer. The IMF warned on Tuesday that the UK could be stuck with persistently high inflation unless monetary policy remained tight. It urged the BoE to “focus on underlying measures of inflation, such as wage growth and services inflation”. Official data released on Wednesday showed services inflation, which is heavily influenced by labour costs, accelerated in April even though the headline rate of consumer price inflation had fallen to 8.7 per cent. Neil Shearing, chief economist at the consultancy Capital Economics, said the data made it clear “inflation is being driven increasingly by rapid wage growth”. He added that policymakers would need to “bear down on demand in order to cool the labour market”. More