Aurelia Butler

LONDON (Reuters) – Britain is not immediately prioritising talks on a free trade deal with the United States, a spokeswoman for Prime Minister Liz Truss said before a meeting on Wednesday between the new leader and U.S. President Joe Biden.”We’re not prioritising negotiating a free trade deal with the U.S. in the short to medium term. However, the United States is already our largest trade partner and we’re continuing to grow our economic relationship,” Truss’s spokeswoman told reporters on Tuesday. More

The US central bank will release its latest quarterly projections Wednesday following a two-day policy meeting in Washington, where officials are expected to raise their benchmark rate by three-quarters of a percentage point for the third time in a row. Such a move would lift rates to levels not seen since before the 2008 financial crisis. The next phase of the tightening cycle carries greater risks, which will probably be reflected in their revised projections.Inflation has moderated little since the last forecast round in June, and that has pushed policy makers into a more aggressive stance. They’re also increasingly doubting old estimates of the relationship between unemployment and inflation, which may be part of the reason why they’re now inclined to aim for a bigger slowdown in economic activity.“The higher trajectory for interest rates is going to have a bigger impact, certainly, on unemployment. We see the unemployment rate coming up closer to 4.5% in the Fed’s new forecast,” said Brett Ryan, senior US economist at Deutsche Bank AG in New York. “They still are going to peddle the ‘soft landing’ scenario, but it’s going to imply a high risk of recession within that.”In June, the median policy maker’s projection for the unemployment rate called for a half-point increase, to 4.1%, by the end of 2024. Since then, monthly data on consumer prices have been disappointing: The latest report, published by the Labor Department on Sept. 13, showed inflation over the last year was still 8.3%.Chair Jerome Powell and other officials meanwhile have stepped up public warnings about rising rates. In a key speech at Jackson Hole on Aug. 26, Powell suggested they would “bring some pain to households and businesses,” representing “the unfortunate costs of reducing inflation.”What Bloomberg Economics Says…“The overarching theme of the forecasts will be: Prepare for higher unemployment, as it will take more rate hikes and a longer period of restrictive rates before inflation comes under control. Current market pricing for the terminal fed funds rate is at 4.4%, and policy makers likely will see that as fairly priced.”– Anna Wong, Andrew Husby and Eliza Winger (economists)– For the full report click hereCharles Evans, the Chicago Fed president who during his 15-year tenure has often been seen as one of the central bank’s more dovish policy makers, said Sept. 8 that he was “optimistic that we’re going to be able to navigate this and keep unemployment to about 4.5% by the time we’re done,” adding that such a scenario “would still be a pretty good outcome, although it will be costly for some.”But lingering inflation isn’t the only data point leading to rising pessimism at the Fed toward the way forward. Record numbers of job postings are contributing as well. And an increasingly public debate about them since June may portend higher estimates for the unemployment rate Fed officials see as consistent with low and stable inflation in the longer run.Their median estimate for that number has been stable at about 4% since before the pandemic, so an upgrade would mark a significant shift in the committee’s thinking. Powell, in a July 27 press conference, hinted at the possibility when he said “it must have moved up materially,” citing reduced rates at which job openings are being filled.The idea is that, with approximately two openings for every unemployed person searching for work — versus a ratio of about 1.2 in the years before the pandemic — the unemployment rate will have to go higher now than it would have had to then to bring labor supply more in line with labor demand and reduce upward pressure on wages.At 3.7% in August, the unemployment rate counted 6 million Americans out of work and actively searching for a job. A rise to 4.5%, assuming no change in the size of the labor force, would amount to job losses of about 1.3 million.But the pain won’t be distributed evenly, according to Michelle Holder, an economics professor at the John Jay College of Criminal Justice in New York.Holder noted that unemployment for Black and Hispanic Americans tends to rise faster than that for White Americans in economic downturns. There’s also the risk of increased homelessness and hunger among lower-income households due to job loss, as well as the long-term impact on earnings and employability from being out of work.“I’m fearful that if these projections have a large margin of error, we are talking about really rolling back substantive gains in terms of Black employment in this country,” Holder said. “What I think the Fed is missing is that the pain is not a sort of modest pain for everyone.”©2022 Bloomberg L.P. More

WASHINGTON (Reuters) – The Biden administration on Tuesday named a team of senior advisers to oversee $52.7 billion in government funding to boost semiconductor manufacturing and research.Commerce Department chief economist Aaron “Ronnie” Chatterji will serve as White House Coordinator for CHIPS Implementation at the National Economic Council (NEC) and will manage the work of the CHIPS Implementation Steering Council created by President Biden’s chips executive order signed last month.In August, Congress approved $52.7 billion for semiconductor manufacturing and research and a 25% investment tax credit for chip plants that is estimated to be worth $24 billion.NEC Director Brian Deese said Chatterji “will help coordinate a unified approach to our key implementation priorities while ensuring that we have guardrails and oversight in place to responsibly spend taxpayer dollars.”The legislation championed by Biden aims to boost efforts to make the United States more competitive with China and alleviate a persistent chips shortage that has affected everything from cars to washing machines to video games and weapons.At Commerce, Treasury official Michael Schmidt will serve as CHIPS Program Office director. Schmidt previously served as New York State Department of Taxation and Finance commissioner.Eric Lin, director of the government’s Material Measurement Laboratory (NYSE:LH), will be interim director of the CHIPS Research and Development Office. The chips law includes $11 billion for research spending.Commerce Secretary Gina Raimondo said the chips team would consist of about 50 people.”These leaders bring decades of experience in government, industry and the R&D space, with a special emphasis on standing up and implementing large-scale programs,” Raimondo said.Also named Tuesday is Todd Fisher, a Commerce Department economic official who will serve as CHIPS Program office interim senior advisor in the CHIPS Program Office. Former Palm Computing CEO Donna Dubinsky is Raimondo’s senior counselor for CHIPS implementation and Commerce official J.D. Grom will serve as senior advisor on CHIPS implementation.Commerce hopes by February to begin seeking applications for $39 billion in semiconductor chips subsidies to build new facilities and expand existing U.S. production. More

STOCKHOLM (Reuters) -Sweden’s central bank raised interest rates on Tuesday by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months as it sought to get to grips with surging inflation.Inflation hit 9% – a 30-year high – in August as the effects of soaring energy prices spread through the economy, and has overshot the Riksbank’s forecasts.The rate hike was the biggest since the inflation target was adopted in 1993, equalling the full percentage point hike of November 1992 during Sweden’s domestic financial crisis when the main rate hit 500% for a short period.”When rates go up, obviously, interest costs go up for many households, but the costs of high inflation – persistently high inflation – those are, in fact, even bigger,” Governor Stefan Ingves told reporters.”By raising rates now and by continuing to hike rates we reduce the risk that inflation is going to park itself at a high level.”A majority of analysts in a Reuters poll had forecast a 75 basis point hike on Tuesday, with only two expecting a full percentage point. The Swedish crown was flat after initially rising on the rate announcement.There is little the central bank can do about the current level of inflation. But rate-setters do not want surging prices to spill over into higher wage demands, which would make the job of returning to the 2% inflation target much harder in the longer term.Rate rises will continue despite forecasts Sweden’s economy is heading for a sharp downturn – possibly even a recession.The Riksbank forecast GDP would shrink 0.7% next year.Rate-setters now see the policy rate peaking at around 2.5% in the second quarter of next year, rather than a 2% peak early next year seen in June.”We … believe the policy rate will be higher than that and we don’t exclude a peak of 3.5% at the end of 2023,” Lars Kristian Feste, head of fixed income at Ohman Group said.”The reason is that inflation is not going to come down as fast as in the Riksbank’s forecast of around 2.0% in 2024.”Markets also see the policy rate peaking around 3.5%.Sweden’s economic downturn creates an immediate challenge for the new government, which is expected to be formed by a four-party, right bloc which won most seats in a national election earlier this month.Tax cuts are likely on the agenda, although Governor Ingves said fiscal policy would be better focused on structural reform than holding up demand.Other central banks are also expected to keep tightening monetary policy. Earlier this month, the European Central Bank raised its key interest rate by 75 basis points, following two such hikes by the U.S. Federal Reserve.Analysts are betting there will be no let-up in the pace of hikes from the Fed and the ECB, while other central banks, such as the Swiss National Bank, are likely to follow suit with aggressive hikes.The United States, Britain, Norway, Switzerland and Japan all have monetary policy meetings this week. More

TOKYO (Reuters) -Japan’s ruling party is ramping up calls for a fresh spending package worth at least $105 billion to cushion the blow from rising inflation, reinforcing fears that the world’s third largest economy will lag others in pruning huge fiscal support.A package worth at least 15 trillion yen ($105 billion) was needed to fight headwinds from rising living costs and monetary tightening by U.S. and European central banks, said Toshimitsu Motegi, a key ruling party official, the Kyodo news agency said.”We need a large-scale, comprehensive package,” Motegi, the sectretary-general of the Liberal Democratic Party (LDP), said on Tuesday, regarding a spending package the government is due to compile next month.But another senior LDP official, Hiroshige Seko, estimated at least double that, or 30 trillion yen, was needed, he told a separate news conference, Kyodo added.That figure echoed comments last week by party policy chief Koichi Hagiuda.Prime Minister Fumio Kishida, who has seen public support for his cabinet slump in recent weeks, faces pressure from his ruling coalition for fresh measures to prop up his ratings and a fragile economy.To fund the spending, the government is likely to submit a supplementary budget next month to parliament.Just as Japan’s economy recovers from wounds inflicted by the COVID-19 pandemic, it finds itself battling rising commodity prices and slowing global growth.The Bank of Japan has pledged to retain ultra-low interest rates to support the economy. But its dovish policy stance has driven the yen currency to 24-year lows, pushing up food and fuel import costs, to put more strain on homes and firms.Natsuo Yamaguchi, head of the LDP’s coalition partner Komeito, said policymakers must watch the impact rapid moves in the yen could have on livelihoods.”The yen is weakening much faster than before, which is said to be driven by the interest rate policies of Japan and the United States,” Yamaguchi told a briefing.Japan’s core consumer inflation quickened in August to 2.8%, its fastest annual pace in nearly eight years, and exceeding the central bank’s target of 2% for a fifth straight month as prices of raw materials grew, along with the yen weakness.The BOJ is set to keep ultra-low rates and its dovish stance at a two-day meeting that ends on Thursday, just hours after a big rate hike expected by its U.S. counterpart, possibly triggering a fresh bout of yen selling. ($1=143.3200 yen) More

Sweden’s Riksbank unveiled its biggest interest rate rise in three decades on Tuesday, kicking off a week in which central banks round the world are expected to take similar action.The bank raised interest rates by 1 percentage point to 1.75 per cent as it sounded the alarm over sky-high inflation.The US Federal Reserve, Swiss National Bank, Bank of England and Norges Bank are all expected to follow suit in the coming two days with rate increases of 0.5 to 0.75 percentage points as central banks fight to bring inflation under control.Sweden’s central bank was one of the last to raise rates this year, opting to lift them from zero in April after years of lower inflation than its 2 per cent target. In August, the inflation rate stood at 9 per cent, the highest in Sweden since 1991.The 1 percentage point rise is the biggest since the country’s inflation-targeting regime was introduced in 1993, and is the joint highest this year by a major western central bank after the Bank of Canada made a similar increase in July.“Inflation is too high. It is undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances. Monetary policy now needs to be tightened further to bring inflation back to the target,” the Riksbank said in a statement on Tuesday.The Swedish central bank indicated it would increase interest rates by a further 0.5 percentage points in November, and 0.25 points in February but then possibly stop.Torbjörn Isaksson, chief analyst at bank Nordea, called the increase “historic” and added: “The Riksbank is far behind the curve and is now trying to catch up. Monetary policy is indeed front-loaded. The bank will do what it takes to bring down inflation, even if it will lead to a recession.The Riksbank has struggled for more than a decade with its inflation target. It was one of the few western central banks to raise interest rates in 2010-11 after the global financial crisis, in what some economists dubbed “sadomonetarism”. It was forced to cut them soon afterwards.It then took its main policy below zero in 2015 and kept rates negative for five years as it worried about inflation remaining stubbornly below its target.Now, it is facing the same dilemma as nearly all central banks: how to curb surging inflation without harming the economy. Sweden’s households are some of the most indebted in the world and most have floating mortgage rates, leading some Riksbank officials to warn of pain for consumers in the months to come.“Rising prices and higher interest costs are being felt by households and companies, and many households will have significantly higher living costs,” the Riksbank said on Tuesday. “However, it would be even more painful for households and the Swedish economy in general if inflation remained at the current high levels. By raising the policy rate more now, the risk of high inflation in the longer term is reduced, and thereby the need for greater monetary policy tightening further ahead.”Economists expect the US Federal Reserve to raise rates by 75 basis points on Wednesday while the Swiss, British and Norwegian central banks are all forecast to raise by 50bp on Thursday. More

Ecuador announced on Monday night that it has reached a debt relief restructuring agreement with Chinese banks worth $1.4bn until 2025, as Beijing increasingly offers bailouts to countries at risk of financial crises.The government of centre-right president Guillermo Lasso said it had reached agreements with the China Development Bank and the Export-Import Bank of China (Eximbank) worth $1.4bn and $1.8bn, respectively. The deals will extend the loans’ maturity and reduce interest rates and amortisation.“As a result of these agreements, the maturities are extended to 2027 for China Development Bank and 2032 for Eximbank, allowing the cash flow relief to support government priorities,” said the Ecuador presidency.The South American nation’s government had been seeking since February to restructure its debt with China, which has been its most important financial partner for the past decade, beginning under leftist former president Rafael Correa, who was in office from 2007-2017.But the Chinese financing — totalling about $18bn in loans since Correa took office — has drawn scrutiny from economists in Ecuador over high interest rates and a growing dependence on the Asian power. China has disbursed tens of billions of dollars in emergency loans to countries in recent years in bailouts that have made Beijing into a competitor of the western-led IMF. Pakistan, Sri Lanka and Argentina are three of the largest recipients of China’s rescue lending, receiving $32.83bn since 2017, according to data compiled by AidData, a research lab at the College of William & Mary in the US. The funds freed up by the debt restructuring are expected to provide relief for Lasso, who is negotiating with indigenous protest leaders after demonstrators brought the country to a standstill in June over rising fuel and food prices. Their demands include increased spending on social programmes.A separate deal announced last week between state oil company Petroecuador and China will bring in $709mn, the company said, while Ecuador’s finance minister, Pablo Arosemena, has promised that the money raised from that deal will fund social spending.“The idea is that part of the oil is released and it is allowed to be sold at market price, which is an additional benefit for the Republic of Ecuador,” he said. “And with those resources, the president can further strengthen social investment.”Analysts in Ecuador cast the debt restructuring as a political victory for the Lasso government, which has been weakened by the protests as well as its minority status in congress.

“It’s a positive deal. There is an important political demand for a more active state role and more active state spending,” said Sebastián Hurtado, the founder of Prófitas, a Quito-based political risk consultancy. “The reduction in payments that is being achieved is important from the perspective of public finances.”Ecuador is pursuing a free trade agreement with China, which it hopes to reach by the China-Latin America and the Caribbean business summit in December.Hurtado, the analyst, said the restructuring deal could be a precursor to an agreement. “It is not easy, but in any case it is the sign of a good relationship with China.” More

Liz Truss has admitted that a UK-US trade deal, long seen as one of the biggest prizes of Brexit, is not on the horizon, as she arrived in New York on her first overseas trip as prime minister.Brexit supporters insisted that the 2016 Leave vote would open the way for a free trade agreement with the US, which would dwarf trade deals with countries such as Australia or New Zealand.But President Joe Biden has made it clear that such a deal was not a priority and on the flight from London to New York, Truss admitted it was not on the agenda.“There aren’t currently any negotiations taking place with the US and I don’t have an expectation that those are going to start in the short to medium term,” Truss told reporters en route to the UN General Assembly.Her frank assessment ahead of a meeting with Biden in New York leaves a hole in the government’s post-Brexit trade strategy, a core part of Truss’s ambition to boost the UK’s growth rate.Boris Johnson’s government replaced a deep trade deal with the EU, Britain’s biggest trading partner, with a more basic trade agreement that threw up numerous barriers.The argument ran that Britain would compensate for lost trade with Europe by striking trade deals around the world, such as the one agreed last yearwith Australia.Truss said her focus was to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, along with trade deals with India and the six countries of the Gulf Cooperation Council.“Those are my trade priorities,” Truss said. Asked when she thought a trade deal with the US might be feasible, she declined to comment.A leaked UK government document in 2018 assumed a US trade deal might boost Britain’s gross domestic product by 0.2 per cent in the long term, compared with official forecasts suggesting that Brexit would cut GDP by 4 per cent in the long term.The analysis said deals with countries including India, Australia and nations in the Gulf and south-east Asia might add a further total of 0.1-0.4 per cent to GDP over the long term.Truss’s downbeat comments on a putative US deal partly reflect the fact that Biden and the US Congress are in no hurry to conclude a trade deal with Britain, as well as the wider politics around her visit to New York.

When Truss meets Biden on Wednesday, post-Brexit trading arrangements in Northern Ireland are expected to come up.Biden wants Truss to settle a row with the EU on the issue and some Democrats have warned the UK that there can be no trade deal unless the matter is resolved.Truss’s allies said the prime minister wanted to “decouple” the issues, making it clear that her tough stance on the Northern Ireland protocol would not be affected by threats of trade reprisals, especially as no deal was on the table.In May, Nancy Pelosi, Speaker of the US House of Representatives, warned that unilateral UK legislation to scrap the protocol, which is being pushed through parliament, could endanger Britain’s prospects for a free trade deal.“Our relationship with the US goes far beyond talk of trade deals,” said one ally. Talks with Biden at the UN on Wednesday will also focus on policy towards the war in Ukraine and broader security co-operation.Truss said: “The number one issue is global security and making sure that we are able to collectively deal with Russian aggression and ensure that Ukraine prevails.” The prime minister added that it was important that Europe and G7 countries worked together “to make sure we are not strategically dependent on authoritarian regimes”. More