Aurelia Butler

The Treasury said Yellen raised the issue during meetings with IMF Managing Director Kristalina Georgieva and Spanish Economy Minister Nadia Calviño, who heads the IMF’s steering committee, ahead of next week’s IMF and World Bank spring meetings of the IMF and World Bank.”Secretary Yellen urged the IMF to deepen its efforts to support low- and middle-income countries facing debt distress, including by continuing to press all bilateral official creditors to finalize outstanding debt restructuring cases,” the IMF said in a statement.It added that Yellen discussed with Georgieva and Calviño priorities for the IMF and World Bank meetings, recent developments in the global economy and financial system, and the need to continue support for low-income and vulnerable countries.Yellen’s meetings also included discussions of the IMF’s $15.6 billion loan program for Ukraine approved on Friday and the Biden administration’s request for Congress to approve U.S. lending of up to $21 billion to the IMF’s Poverty Reduction and Growth Trust and the new Resilience and Sustainability Trust, the Treasury said. More

The Bank of England’s chief economist hinted at a further interest rate rise in May when he said the central bank needed to “see the job through” in its battle to eradicate high inflation.Huw Pill, however, stressed that the Monetary Policy Committee faced a tight decision on whether to raise interest rates again from 4.25 per cent, especially at a time of financial market fragility. “On balance, the onus remains on ensuring enough monetary tightening is delivered to see the job through and sustainably return inflation to [the 2 per cent] target,” he said in a speech to the Graduate Institute in Geneva. “Nonetheless, those of us on the MPC need to remain vigilant to signs of tightening financial conditions and be prepared to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation.”Since joining the central bank in September 2021, Pill has always voted with the majority on the committee that sets borrowing costs. His nuanced remarks on interest rates are also shared by financial markets, which expect interest rates to peak at 4.5 per cent, but are split close to 50:50 on whether the rate rise will come at the next meeting in early May. Pill stressed that he was examining most closely the danger that high inflation becomes persistent in the UK with companies raising prices and workers demanding higher pay increases to prevent a loss of income. There were no signs in UK data of either excess profiteering driving inflation or excess wage rises, he said.His accompanying slides showed he considered the biggest risks were a buoyant labour market combined with greater corporate pricing power generating a simultaneous inflationary “push” from higher wages along with a “shove” from companies raising prices to defend profit margins. To combat this process, higher interest rates were both a “powerful” tool to curb spending, but also a “blunt” one, he added. He said it was hard to know what the right level was for interest rates to start cooling the economy — inflation rose month on month in February to 10.4 per cent after falling at the start of the year — because there were questions over how much the BoE could “trust” its economic models. He suggested their accuracy was impaired by inflation running at its highest levels in 30 years.

Pill pushed back against suggestions that the improved outlook for the UK economy since the start of the year increased inflationary pressures. Lower wholesale natural gas prices would both improve the outlook for economic performance and lower inflation risks, he said. In a separate speech, Silvana Tenreyro, an independent MPC member, disagreed with Pill’s view that rapid price increases were now a persistent feature of the UK economy.She predicted that inflation would drop rapidly with little persistence and said monetary policy had been too tight. “I expect that the high current level of bank rate will require an earlier and faster reversal, to avoid a significant inflation undershoot.” Having voted against every interest rate rise since September, Tenreyro is not a swing voter on the committee and is leaving the MPC after the meeting in June. More

We are living in a dividing world. These divisions have many ramifications. But not the least important of these are for global commerce. The slowdown in world trade, the shift towards economic nationalism and the growing demands in the west, and especially in the US, for decoupling from China are reshaping the global economy. It is, as yet, unclear how far this decoupling will go. It is unclear how far the inward-looking interventionism will go either. But there is no doubt this is a significant turning point, with unpredictable and, in all probability, damaging outcomes.As an important recent paper from the Peterson Institute for International Economics by Alan Wolff, Robert Lawrence and Gary Hufbauer brings out, the hostility to trade that has increasingly seized the US risks reversing nine decades of hugely successful policy. Ever since the protectionist disaster of the early 1930s, the thrust of US policy has been towards creating an open and rules-governed trading system. These policies created a more prosperous world economy, which became the foundation of western economic (and so political) success in the cold war. They facilitated a staggering reduction in global poverty. They are the most important credential for the US claim to have been a benign hegemon.

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Today, however, Donald Trump and Joe Biden, who disagree on almost everything, both agree that this has been a mistake — a swindle on American working people. Moreover, it is not just policies at the border that are changing. The US is also embracing aggressive industrial policy, backed by generous subsidies. Behind this and strengthening it, is the great power conflict with China. We are indeed entering a new world.Two broad explanations can be given for this fundamental shift in US policy.

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One is the rejection of “neoliberalism” — a pejorative label for market-oriented policies. But, contrary to the widespread view, it is untrue that liberal trade is a dominant or even significant cause of the woes of the working classes of western societies. The principal driver of the decline of industrial employment has been rising productivity. Between 2000 and 2020, 6mn manufacturing jobs were lost in the US. But only some 1mn of that loss (now long past) was due to imports from China. The failure was not to provide any cushion for those who lost jobs and for the places in which they lived, as well as to ignore rising economic inequality.The other explanation is the rise of a peer competitor that operates so successfully within the open world economy. That has linked up with the growing suspicion of free markets to justify decoupling from China, “reshoring” or “friendshoring” of supply chains, and interventionist and protectionist trade and industrial policies. Moreover, these new policies are not just addressed at China. “Buy America” policies are taking aim at both friend and foe.This shift of policy in the world’s hegemonic power raises three big questions,First, will these policies work in their own terms? There is good reason to doubt this. Adam Posen of the PIIE has recently argued that the “self-dealing” of the current US approach will prove counterproductive, self-sufficiency is a foolish goal, competitive subsidisation is a negative-sum game, and politicisation of trade is sure to lead to wasteful outcomes. Moreover, he asserts, the focus on production is misguided; it is adoption of new technologies that matters. Not least, in deciding its policies, the US must understand that it is setting an example others will follow. Interventionists abroad will feel legitimised, making the world economy less open.

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Second, what will be the impact of this shift on the world economy? Eswar Prasad of Cornell warns that “all countries, both rich and poor, will one day come to rue their inward turn”. In support, a new book from the World Bank stresses that the longer-term prospects for global economic growth are deteriorating. One of the reasons for this is the slowdown in the growth of world trade since the global financial crisis of 2007-09, worsened by post-Covid shocks and rising protectionism. Among other things, as the book notes, trade “is one of the primary channels of diffusion of new technology”. Furthermore, one should note, a more protectionist world will be one with lower elasticities of supply and so a greater propensity towards inflationary shocks.Last but not least, how is this shift to be contained in a world of great power conflict? The obvious and rational answer is to define the exceptions to the general rules of liberal trade precisely and clearly. So, on supply chains and technology, the US and other powers should define where exactly they think the market will fail to provide them with the security they need and adjust their policies accordingly. There would need to be ongoing monitoring of relevant economic and security risks and adjustment of associated policies. At the same time, security-oriented interventionism should be as precise and non-protectionist as possible, with a view to continuing to gain from the economies of scale granted by cross-border trade.Now suppose this is impossible and that China and the US become increasingly inward-looking. What should other countries seek to do? One answer is to create a free trade agreement built upon World Trade Organization principles, but going beyond them. The kernel of such an agreement exists: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This was born from the Trans-Pacific Partnership, created by Barack Obama, to be repudiated by Trump. So add in the Atlantic and Indian oceans. But also leave the superpowers outside. The rest of the world can still [email protected] Martin Wolf with myFT and on Twitter More

US job openings dropped sharply in February, in a sign that the red-hot labour market continues to cool as the Federal Reserve raises interest rates. There were 9.9mn vacancies in February, down from 10.5mn in January, according to the US Department of Labor’s Job Openings and Labor Turnover Survey released on Tuesday. It was the first time job openings have fallen below 10mn since May 2021. Economists polled by Reuters had forecast 10.4mn openings.“As job openings stayed relatively high over the past few months, doubts were emerging that perhaps demand for workers wasn’t moderating as expected in the face of broader efforts to cool the overall economy,” said Nick Bunker, an economist at jobs site Indeed. “But today’s data offers some needed clarity — the US labour market is definitively cooling off.“At this rate, we’d return to a pre-pandemic level of openings by this summer.”The Fed has quickly raised interest rates in an attempt to tame inflation, as businesses are forced to raise wages in a competitive labour market and often pass those costs on to customers. But the jobs market had proven resistant to the Fed’s efforts. Employers added 311,000 jobs in February, more than economists expected, even as wage growth slowed.The drop in job openings, which are widely considered to be a proxy for labour demand, was led by the sectors that added the most jobs during the coronavirus pandemic recovery. Employers in professional services, healthcare, transportation and utilities, and food services each cut more than 120,000 openings in February.The ratio of open jobs to unemployed people, one of the data points most closely tracked by Fed officials, fell to 1.7 from 1.9.

Still, workers seem to have sustained confidence in the labour market. The number of workers who quit their jobs voluntarily rose by 146,000 to 4mn in February, indicating that a substantial number of workers are still able to find new roles.Lay-offs fell by 215,000 to 1.5mn, with an aggregate rate still below pre-pandemic levels, despite reports of mass job cuts at prominent tech companies including Meta and Amazon. Economists had feared that the Fed’s rate increases could lead to a jump in job reductions.The labour department will give a more up to date picture of the jobs market when it releases its monthly payrolls report on Friday. Economists surveyed by Bloomberg forecast that employers added 240,000 jobs in March. More

KARACHI, Pakistan (Reuters) -Pakistan’s central bank raised its key interest rate to a record 21% on Tuesday as the cash-strapped country bid to curb crippling food inflation and maintain the confidence of foreign creditors.The 100 basis-point (bp) increase by the State Bank of Pakistan (SBP) was less than the 200 forecast by a Reuters poll of analysts as the country grapples with record annual consumer inflation of over 35%.Global factors have compounded consumer inflation already buoyed by Pakistan’s weakening currency, energy tariff increases and hikes in food prices due to Ramadan.Food, beverage, and transportation prices have all surged more than 45%, putting pressure on household budgets and leaving many desperate. At least 16 people were killed in stampedes for food aid last week. “The MPC considers the current monetary policy stance appropriate and stresses that today’s decision, along with previous accumulated monetary tightening, will help achieve the medium-term inflation target over the next eight quarters,” the SBP said in a statement. The SBP has hiked its key rate by a cumulative 1025 bps since January 2022.The rupee closed at 287.29 against the dollar, its lowest ever level, after depreciating over 1% during the day. The currency has lost more than 20% of its value since the start of the year.The SBP may have held back from a more aggressive rate hike due to indications that a broad economic slowdown is already likely, said Tahir Abbas, head of research at Arif Habib limited. “A majority of the high frequency indicators already depict negative growth and a massive slowdown in the economy,” Abbas said. “An aggressive rate hike won’t be of much help.”EXTERNAL FRONT Pakistan is in talks with the International Monetary Fund to unlock its next loan tranche worth around $1.1 billion as part of a $6.5 billion bailout agreement reached in 2019.In early March, the central bank raised its key rate by 300 basis points to 20%, exceeding market expectations, in what many saw as a bid to ensure the release of bailout funds. In its statement, the SBP said an early conclusion of the ninth review of the IMF program was critical to rebuilding foreign exchange reserve buffers.Analysts said the governor of the SBP stated in a private briefing that principal repayments of $4.5 billion remained due during the last quarter of the fiscal year, which ends on June 30. Of that, $2.3 billion will be rolled over, while repayments of $2.2 billion are payable, the analysts said. Most of the repayments are multilateral and bilateral with $100 million in commercial loans. As Pakistan bids to avoid a possible default on foreign obligations, the only help so far has come from longtime ally Beijing, through a $1.8 billion refinancing and a rollover of $2 billion in March. More

The release of the research comes a week before the IMF and World Bank convene a semi-annual gathering of central bankers and finance ministers in Washington, amid the fallout from last month’s failures of American and European banks.In the years since the 2008 Wall Street meltdown, governments have promoted economic growth by keeping interest rates low while beefing up oversight of traditional banks.According to the IMF paper, this has driven trillions of dollars of financial assets into the hands of hedge funds, insurance companies, pension plans and others outside the banking sector that may make riskier investments in search of profits but with fewer safeguards and scant publicly available data of the sort needed for oversight.”Policy makers need appropriate tools to tackle turmoil” among non-bank financial intermediaries, senior IMF officials said in a blog post released simultaneously. “Robust surveillance, regulation, and supervision are essential pre-requisites.”The authors, Fabio Natalucci, Antonio Garcia Pascual and Thomas Piontek, pointed in particular to last year’s bond crisis in Britain, when an ill-fated government stimulus plan set off a vicious cycle.The increase in government borrowing drove up bond yields, causing eye-watering losses for pension funds with leveraged fixed-income investments, which resulted in margin calls that forced the funds to sell and drove yields even higher – until the Bank of England stepped in.In times of high inflation, market stress like this can leave central banks facing hard choices between contradictory aims: on one hand needing to tighten monetary policy to keep prices under control, while on the other feeling pressure to stabilize failing institutions or markets with cash injectons, according to the research paper.As a result, non-bank financial intermediaries “need to be regulated and supervised from a myriad of different angles”, it said, including with data disclosure and governance requirements to manage risk and rules for capital and liquidity management.Central banks may still face crises, but their interventions should be temporary, targeting specific areas that pose the greatest threat, providing access to special loan facilities or acting as lenders of last resort under strict conditions with close oversight from regulators, the IMF paper said. More