Aurelia Butler

The writer is a former central banker and a professor of finance at the University of Chicago’s Booth School of BusinessIn his testimony to Congress earlier this week, Federal Reserve chair Jay Powell indicated “the ultimate level of interest rates is likely to be higher than previously anticipated” and “restoring price stability will probably require that we maintain a restrictive stance for some time”. This was the tough Fed on display, and markets accordingly tanked. Yet a few weeks earlier, Powell had set the financial markets off to the races when he said, “We can now say, for the first time, the disinflationary process has started.” Financial markets, used to years of easy money, celebrate at the slightest indication that the Fed will soften policy, making its task harder. Yet they are not the only market that is not currently co-operating.Labour markets have, if anything, become even tighter, despite the Fed raising interest rates by 450 basis points since last March, and Friday’s strong jobs numbers did not alleviate concerns. While goods production is slowing after the pandemic increased consumption significantly, services, which are more labour-intensive, are now picking up strongly. Workers are hard to find, especially when it comes to hospitality and leisure. One reason is that the labour force is missing 3.5mn workers relative to pre-Covid projections. Older workers understandably quit during the pandemic, and many did not return. Retirements still continue at an accelerated pace. And tragically, as Powell pointed out, Covid-19 also ended the lives of half a million workers in the US, while a slower rate of immigration has led to about a million fewer workers than expected.In addition, given the difficult nature of jobs in leisure and hospitality, workers have sought opportunities elsewhere in the economy. And perhaps as importantly, companies have been holding on to their staff precisely because hiring has been so hard. Until they are confident that the economy will slow down and they will not need these workers, and also perhaps until they see enough unemployment around them to signal that hiring will not be difficult in the future, labour hoarding may continue. Other markets are also treading water. For instance, US house sales have slowed considerably, but property prices have generally held up, probably because there is not much supply entering the market. With mortgage rates having risen by so much over the past year, a homeowner with a 30-year mortgage at 4 per cent will have to shell out much more in monthly payments if she upgrades to a slightly better house with a new mortgage at 7 per cent. Because she cannot afford to buy, she does not sell. And because this is limiting the supply of homes on the market, there is only modest downward pressure on prices. Finally, inflation has been trending down because pandemic-induced supply chain disruptions and war-induced commodity supply disruptions are now being sorted out. Beliefs in a painless “immaculate disinflation” and soft landing lead to a self-reinforcing equilibrium, in which few believe the Fed will have to do much more. As a result workers are not being laid off, financial asset prices and housing are holding up, and households have the jobs and wealth to keep spending. But without some slack in the labour market, the Fed cannot feel comfortable pausing its efforts.To get the job done, therefore, the Fed has to force markets to abandon their belief that disinflation will involve only mild job losses. Indeed a recent study by Stephen Cecchetti and others suggests that every disinflation since the 1950s has involved a significant rise in unemployment.There are dangers in the Fed taking a soft landing with mild job losses off the menu of possible outcomes. The first, evidenced by the questioning Powell underwent during his Congressional testimony, is that politicians will be irate if the Fed torpedoes a recovery they have just bought with trillions of dollars in fiscal spending. The central bank is not immune from Congressional wrath.Second, the benign equilibrium may turn into a vicious one. The markets could have their Wile E. Coyote moment. Lay-offs may spur more lay-offs now that businesses are confident they can hire back if necessary. In turn, laid-off employees may be forced to sell their houses, depressing property prices and reducing household wealth. Unemployment and lower wealth may hurt household spending, which will in turn depress corporate profits. That will lead to more lay-offs, falling financial markets and financial sector stress, and yet more muted spending . . . We may end up with a deeper recession than currently anticipated because it is hard to get just a little unemployment.Of course, the Fed could then revive the economy by cutting rates, but it will need to be wary of doing so until it sees enough slack build up in the labour market. If it turns too fast, markets will celebrate and the job will be left unfinished. But if it waits until there is sufficient slack, lay-offs could develop a momentum of their own.The temptation then is for the Fed to be more ambiguous, keep a soft landing on the menu and pray for an immaculate disinflation. If so, the Cecchetti study warns that the eventual unemployment needed to rein in inflation could be much higher. The Fed’s only realistic options may be a hard landing and a harder landing. It may be time for it to choose. More

The UK’s leading supermarkets have formed a task force that will fund independent audits on British farms after investors called on food retailers to eliminate the risk of worker exploitation in their supply chains.The move from grocers including Tesco, Sainsbury’s, Ocado and Waitrose, follows widespread reports that Asian agricultural workers had come to the UK after paying exorbitant fees to hiring agencies in their home countries, leaving them effectively working to pay off debts. The grocers told suppliers last week that they will fund audits of the UK-based recruitment companies licensed to hire seasonal labourers, which will involve surveys of workers on farms, according to a letter seen by the Financial Times.Stronger Together, the ethical recruitment group leading the audit process, confirmed that the aim is to assess the recruitment process by UK agencies and their counterparts abroad, rather than conditions on the farms themselves.The supermarkets, which also include Aldi, Co-op, Asda and Morrisons, said in their letter that “the task force is working to develop and implement tangible actions to help mitigate risks of worker exploitation” and “to improve worker welfare”.The controversy surrounding migrant farm workers has added to pressure on UK businesses and the government as they face a shortage of foreign workers. Growers, which in the past relied on temporary workers from Europe, have been forced to look farther east post-Brexit and since Ukraine was invaded by Russia. Campaigners have warned that labourers from Nepal and Indonesia, who made up 18 per cent of seasonal workers in 2022 up to August, would struggle to pay back loans that they took out after being charged thousands of pounds by recruiters in their home countries. As a result, British recruiters for the seasonal worker scheme have now ruled out hiring from these Asian countries, deepening the risk of labour shortages this year.In December, investors with £800bn in assets, including shareholders in big supermarkets, called on retailers to eliminate the risk of exploitation and ensure workers are repaid the millions that they are estimated to have collectively spent to secure jobs. This followed a report by the Independent Chief Inspector of Borders and Immigration that found the government “did not act promptly or seriously” when workers reported “serious concerns”. Debt bondage is recognised by the International Labour Organization as an indicator of forced labour, and the charging of recruitment fees is opposed by UN principles backed by the UK.The efforts by the supermarkets “cannot and shouldn’t replace the government’s role”, said Andy Hall, an independent activist who has campaigned on issues around the seasonal worker scheme. “The fact [that the private sector is arranging audits] is a good thing in response to the government’s lack of action.” He added, however, that his focus was “the remediation [of former workers]”.

Sophie De Salis, sustainability policy adviser at the British Retail Consortium, which represents the supermarkets, said that retailers are “committed to upholding high standards of welfare for all people who work in their supply chains”.But she said that supermarkets needed an intervention from the government and licensed recruiters to address the “systemic challenges within the design, operation and enforcement of the seasonal worker scheme” and to “better protect workers vulnerable to illicit recruitment fees”.A government spokesperson said that the welfare of workers “is always of paramount importance for us”. They added that the government works closely with the licensed recruiters “who have responsibility for ensuring the welfare of migrant workers, preventing zero hour contracts and managing the recruitment process overseas”. They said the government “will always take decisive action” if these recruiters do not meet its conditions. More

Today’s top storiesThe UK economy bounced back a better than expected 0.3 per cent in January, fuelled by growth in the services sector. The UK is still the only G7 economy that has not yet recovered to pre-pandemic levels but Prime Minister Rishi Sunak said confidence was returning. European Commission chief Ursula von der Leyen and US president Joe Biden are meeting today for talks on the critical minerals used in electric batteries. Brussels yesterday cleared the way for a subsidy race with the US over crucial technologies, allowing EU member states to “match” its multibillion-dollar incentives. US energy secretary Jennifer Granholm used an FT interview to try to ease tensions. A sell-off in US bank shares spread to Europe, with Deutsche Bank, Société Générale and HSBC all falling. Investors dumped shares in the biggest US banks on Thursday as investors fretted about the value of banks’ bond portfolios and falling deposits after difficulties were highlighted at Silicon Valley Bank, a small, technology-focused lender.For up-to-the-minute news updates, visit our live blogGood evening.US jobs growth in February was higher than expected, even as wage growth cooled, complicating the way forward for the Federal Reserve and its programme of interest rate rises.The 311,000 new posts were fewer than January’s 504,000 but higher than the anticipated 220,000, while the unemployment rate of 3.6 per cent remains close to a multi-decade low. Wage growth was up 0.2 per cent from January and on a year-by-year basis by 4.6 per cent.

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Fed chief Jay Powell suggested this week bigger rate rises might be necessary to cool the economy, telling Congress he would be watching today’s jobs figures closely, alongside inflation and retail sales figures due next week.Today’s data follows President Joe Biden’s unveiling of budget proposals yesterday, outlining tax increases to fund Democratic priorities such as healthcare spending, with a goal of shaving $3tn off the US deficit. Biden’s wishlist includes a 25 per cent minimum tax on billionaires, a 28 per cent corporate tax rate, and a doubling of the tax rate on US multinationals’ foreign earnings, as well as a quadrupling of the tax rate on corporate share buybacks.Republicans are likely to block the plans, calling instead for cuts in government spending ahead of a looming battle over the debt ceiling. The Congressional Budget Office warned last month that the government risked defaulting on its debt as soon as July.The budget hoo-ha comes at a critical point for the US economy as it struggles to contain the surge in inflation. Biden and the White House increasingly see the battle of economic ideologies as central to the 2025 presidential race but, as inflation proves harder to root out than expected, polls showing Americans disapprove of his handling of the economy are only likely to get worse.Need to know: UK and Europe economyThe UK is planning to fill some of the country’s 1.2mn vacancies by opening the doors to more foreign workers, starting with the construction industry. A new survey found the UK’s estate agents at their most gloomy since 2009, with many houses being sold for below their asking price.The head of L&G, one of Britain’s largest insurers, bemoaned the “perpetual drift” of companies away from London’s stock market and described the country as a “low-productivity, low-growth, low-wage economy fraught by political infighting”. Higher CEO pay is one reason companies are opting to list in New York, notes the Lex column.The European Central Bank told major lenders in the eurozone to run cyber stress tests after a “significant increase” in hacker attacks since the outbreak of the war in Ukraine. German states are rethinking their use of software from US data group Palantir over privacy concerns.Need to know: Global economyXi Jinping was confirmed for an unprecedented third time as China’s president. The announcement of a third term completes a process Xi started in 2018 by abolishing two-term limits, allowing him to rule for life if he chooses.Saudi Arabia and Iran ended their seven-year rift and restored diplomatic ties as part of a Chinese-mediated deal to ease tensions in the oil-rich region. The war in Ukraine and the pandemic have together achieved what decades of Japanese central bankers have struggled to do: boost prices in a stagnant economy. Here’s Japan’s inflation story characterised by the price growth of three everyday items.Tunisian president Kais Saied said he would dissolve local authorities in a new power grab, just as doubts over a critical $1.9bn IMF loan deal deepened its economic crisis. Need to know: businessApple and its manufacturing partner Foxconn were among the companies behind an important liberalisation of labour laws in the Indian state of Karnataka last month. The reforms enable two-shift production, similar to the two companies’ practices in China. TikTok and Meta content moderators in Germany have joined forces to demand better working rights through a set of conditions to be presented to social media networks next week. The partnership is the first of its kind on the continent and could lead to other social media tie-ups. The US has privately reassured some of the world’s largest commodity traders that they are OK to ship price-capped Russian oil to keep supplies stable and regain some oversight of Moscow’s exports.Chinese AI groups are skirting export controls to access high-end US chips through intermediaries, revealing potential loopholes in Washington’s blockade of cutting-edge technology to the country. Gamblers are returning to Macau, the only part of China where punters can bet in casinos, now Beijing has ditched its zero-Covid policy. Exhibition group Informa warned that events in China would not recover until 2024.Science round-upScientists warned a global conference on human genome editing that urgent action was needed to cut the cost of gene treatments for once incurable diseases.Biotechnology has quietly become Americans’ latest national security concern, writes Chris Miller, author of Chip War, as the ability to apply huge computing power to DNA raises fears of biological warfare. Science commentator Anjana Ahuja says changing human DNA brings hope for treating diseases but raises concerns such as equitable access.Leading medical and scientific bodies in the US have joined together to fight “an infodemic of misinformation and disinformation” on health, spread mainly through social media and worsened by the coronavirus pandemic.Lengthy security checks for international students and staff are dissuading top scientific talent from coming to the UK and jeopardising research projects, universities warned. Investment is pouring into “neurotechnology”, which can record and analyse electrical impulses from the nervous system. But who has access to our brain data, and what they’re doing with it, should concern us all, writes columnist Camilla Cavendish.Our Tech Tonic podcast discusses Q-Day, when a quantum computer will be built that can break the encryption of the internet.Some good newsSome timely research in the week of International Women’s Day. A new study adds to existing evidence that advances in women’s rights benefit everyone. Something for the weekendThe FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not try today’s cryptic crossword? More

NEW DELHI (Reuters) – India’s industrial output rose a bigger than expected 5.2% in January compared with the same month last year as strong domestic urban demand boosted electricity generation and manufacturing, despite weakening exports.Analysts in a Reuters poll had predicted an increase of 5% in industrial output for the month. The rise followed upwardly revised annual growth of 4.7% in December, according to the Ministry of Statistics data.Some economists expect industrial output growth to remain strong following a recovery in rural demand as reflected in rising sales of autos including motor-bikes and scooters.India’s industrial output, comprising production by factories, electricity generation and mining, has been impacted by slowing global demand and rising interest rates in recent months. India’s industrial output on the rise https://www.reuters.com/graphics/INDIA-ECONOMY/INDUSTRIALOUTPUT/zdvxdxzjbvx/chart.png Manufacturing, which accounts for about 15% of the Indian economy, has also been hit by a fall in exports but rose 3.7% year-on-year overall in January. India’s merchandise exports in January fell 6.6% year-on-year to $32.91 billion.The Reserve Bank of India has raised its benchmark interest rate by 250 basis points since last May to contain inflation, pushing up borrowing costs for consumers and businesses.Capital goods production, a proxy for factory activity, rose 11% year on year, accelerating from a 7.6% rise the previous month, while consumer durables’ production contracted 7.5% year-on-year after a 10.4% contraction the previous month, the data showed, reflecting a continuing slowdown in consumer demand.Production of textile garments, tobacco products, basic metals and chemicals contracted between 7% and 30% in January from a year earlier, data showed, while mining output rose 8.8%, slower than 9.8% growth the previous month.India’s total passenger vehicle sales grew 11% in February from a year earlier, separate data released by the Society of Indian Automobile Manufacturers (SIAM) on Friday showed.India’s economy, the world’s fifth-largest, grew 4.4% year-on-year in the fourth quarter, down from 6.3% the previous quarter, and the government expects the economy to post annual growth of 7% for fiscal 2022/23 ending this month. More

De Croo said the Belgian national security council had warned of the risks associated with the large amounts of data collected by TikTok, which is owned by Chinese firm ByteDance, and the fact that the company is required to cooperate with Chinese intelligence services.”That is the reality,” the prime minister said in a statement.”That’s why it is logical to forbid the use of TikTok on phones provided by the federal government. The safety of our information must prevail.” The European Commission and the European Parliament last month banned TikTok from staff phones due to growing concerns about the company, and whether China’s government could harvest users’ data or advance its interests.Beijing has regularly denied having any such intentions.Belgium’s Flemish regional government on Thursday announced it would restrict the access to TikTok on its staff’s phones, and other regional governments were urged by De Croo to apply the same rules. More

The stock was trading at $63.99 before the bell and was on course to open at its lowest in more than a decade, if current losses held.The startup-focused bank’s shares slumped 60% on Thursday, its biggest loss ever, after disclosing plans to raise over $2 billion from investors to counter losses from the sale of its bond portfolio. That plan failed to calm investors who worried if the capital raise would be enough to stem a decline in deposits.  SVB said its deposits were dropping faster than it had expected due to increased spending by its clients, largely technology and healthcare startups. Venture capital investments, a crucial source of funding for the bank’s clients, were also expected to be constrained in the near term as the U.S. Federal Reserve hikes rates, offering little hopes of a quick turnaround.The fund-raise plans also came against the backdrop of Federal Reserve Chair Jerome Powell’s testimony this week, where he said the central bank would likely need to raise interest rates more than expected in response to recent strong data.The rout at SVB, which does business as Silicon Valley Bank, spilled over into other U.S. and European banks. The S&P 500 bank index dropped 6.6% on Thursday, while a selloff in major European lenders on Friday weighed on the region’s main indexes.”Fears about unrealised losses in banks’ bond portfolios, catalysed by sharp falls in U.S. banks’ share prices yesterday, presents a buying opportunity for European banks in our view,” Credit Suisse analysts wrote in a note. More