Aurelia Butler

Investors are preparing for a longer period of high interest rates than expected after the US central bank chair delivered his most hawkish speech to date, vowing to ensure elevated prices do not become entrenched.Jay Powell on Friday put an end to any hopes that the Federal Reserve would step back from its dramatic tightening of monetary policy anytime soon, as he reaffirmed his “unconditional” commitment to tackling high inflation.“The theory of a dovish pivot has been squashed,” said Brian Kennedy, a portfolio manager with Loomis Sayles. “Powell is a creature of history and to me this is further confirmation that the Fed does not believe inflation is rolling over and going back to 2 per cent.”The eight-minute speech sparked a dramatic stock sell-off with the benchmark S&P 500 sliding more than 3 per cent — its biggest drawdown since the June rout, when $14tn in value was erased from the US stock market. Hopes that the Fed may relax its stance as the economy slows were shattered. All but six of the companies within the stock benchmark dropped, with shares of economically sensitive homebuilders falling nearly 5 per cent and chipmakers declining more than 6 per cent.Traders in futures markets shifted their bets as well. While they still expect the Fed to lift rates to between 3.75 and 4 per cent in the first half of next year, they began to dial back their wagers that the central bank would begin to start cutting rates later that year and into 2024 as they previously bet.“It could not be clearer that they are going to keep raising rates and running down the balance sheet until they get clearly on top of inflation,” said Bob Michele, the head of JPMorgan Asset Management’s global fixed income, currency and commodities unit. “This fantasy that they will start cutting rates a couple months after the last rate hike is nonsense.”Michele added the fact that futures and Treasury markets did not react more forcefully to Powell’s speech underscored the credibility problem the Fed chair still faced. Powell and his colleagues have run into criticism for arguing last year that inflation would prove transitory and ultimately fall back towards the Fed’s 2 per cent target.The more muted move in Treasuries could also reflect the brutal sell-off they have already faced this year, money managers said, with the yield on the two-year note trading just below a 14-year high struck in June.The market ructions followed Powell’s long-awaited speech at the first in-person Jackson Hole symposium of global central bankers since the start of the pandemic, in which he stressed the Fed “must keep at it until the job is done” on inflation. He also acknowledged that tackling inflation will probably have economic costs, including a “sustained period of below-trend growth”.“While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”Citing the tumult of the 1970s — in which the Fed made errors by easing policy prematurely in order to shore up growth but before inflation had moderated sufficiently — Powell vowed to avoid that outcome. He also reiterated that rates will need to stay at a level that restrains growth “for some time” and emphasised the high bar in terms of the economic data to justify shifting to a less-aggressive stance.Julian Richers, an economist with Morgan Stanley, said Powell’s speech helped dispel the view the Fed might be swayed to loosen policy as the economy slows. Powell’s comments following the Fed’s July meeting helped propel a relief rally.“This whole debate of a Fed pivot in July never really made sense,” he said. “If you were hanging your hat on the Fed being uber-dovish, that’s a course correction.”Fed officials have yet to decide whether a third consecutive 0.75 percentage point rate rise is necessary at the next policy meeting in September or if they can begin shifting away from the “front-loading” phase of the tightening cycle and scale back to a half-point rate rise. In just four months, the federal funds rate has increased from near-zero to a target range of 2.25 per cent to 2.50 per cent.Economists believe further rate rises will be necessary in 2023 in order to quell inflation, which they warn is at significant risk of persisting longer than anticipated. Most have pencilled in a recession at some point in the next 12 months, with the unemployment rate rising well beyond its historically low level of 3.5 per cent.“The great unknown is how much the economy actually will slow in the near-term and at what point does the Fed acknowledge that,” Loomis Sayles’ Kennedy said. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyOver the years, the annual central bank confab at Jackson Hole has seen Federal Reserve chairs address immediate policy issues as well as longer-term and more academic ones, that involve the economic and institutional context for policymaking. Present circumstances called for Jay Powell, the current chair, to do both — that is, address the policy errors of the last 18 months, try to realign monetary policy expectations and establish a path for the resetting of the guiding policy framework. In the event, his brief speech (just under nine minutes) last Friday largely attempted just one of these three. By focusing on the present, he left much still to be said while less than fully exploiting a much-anticipated opportunity for enhancing policy effectiveness.There are five reasons why Powell needed to deal with issues that relate to the past, present and future. First, time has not been kind to his presentation at last year’s gathering. His characterisation of inflation as transitory, his forecasts of the economy and his elucidation of the required policy responses have fallen short. They are now part of the four-element Fed policy mistake that involves inadequate analysis, bad forecasts, poor communication and belated policy responses. Second, Fed slippages have robbed the country (and, therefore, the global economy) of a first best policy response and the soft-landing that can come with that. If left uncorrected, this is a mistake that builds on itself, aggravating problems of low growth, high inflation, worsening inequality and future financial instability.Third, markets went from following the central bank’s guidance to sidestepping it. Indeed, this may well be the least credible Fed in the markets’ estimation since the 1970s. Its quarterly forecasts have been repeatedly dismissed as fantasy and its communication is seen as lacking the consistency needed for effective policy guidance. This is a combination that slows the necessary evolution in the market mindset from a mainly cyclical view, including romanticising an early policy pivot towards lower rates, to a more structural one.Fourth, the Fed is encumbered with a policy architecture — the “new policy framework” — that is not fit for purpose. Adopted two years ago, it was designed for the past world of insufficient aggregate demand. As a result it is somewhere between ineffective and counter-productive in the current and future world of challenged aggregate supply.Finally, the Jackson Hole audience is dominated by economists, the majority of whom both understand the importance and urgency of a politically independent central bank, and worry about the path this Fed has been on.In this context, Powell correctly opted for a notably hawkish tone. He rightly stated that “high inflation has continued to spread through the economy”, that “there is clearly a job to do” to bring inflation back into control, and that the Fed must “keep at it”. He also said this will entail “a sustained period of below-trend growth”. In the process, he attempted to clean up his July remarks that former US Treasury secretary Larry Summers characterised as “analytically indefensible” and “inexplicable”. Illustrating a more general sensitivity to reputational risk, and the political vulnerability that comes with that, Powell combined this hawkish tone with reference to several of his predecessors. The attempt to borrow from past credibility included quoting Paul Volcker whose inflation-beating reputation is as strong today as it was in the 1980s.Equally important is what Powell did not do. He is yet to take responsibility for the last 18 months of Fed errors, including the mis-characterisation of economic and policy issues in last year’s speech. He is also yet to provide a pathway for the much-needed revisions to the policy framework. In a world of perfect foresight, Powell’s 2021 speech would have focused on monetary policy at a time of sudden high inflation and, this year, on restoring the central bank’s credibility and policy effectiveness in an even more challenging world of rapidly slowing global growth, worsening inequality and widespread high inflation. Instead, his unusually short speech essentially dealt well with the present, but left out important past and future issues. I suspect that we will look back on this year’s Jackson Hole speech as a missed opportunity for the Fed to regain control over its policy narrative, as well as to outline what is needed to overcome the considerable policy challenge facing the world’s most powerful and systemically important central bank. More

The new material technology known as M3P can enable an electric vehicle to run 700 km (430 miles) per charge combined with CATL’s next generation of battery pack technology, Zeng Yuqun said at the World New Energy Vehicle Congress in Beijing on Saturday. The new materials will also lower the costs compared to nickel and cobalt-based batteries, he added. Zeng, however, didn’t say what metals M3P batteries will use or when mass production could start.CATL, whose clients include Tesla (NASDAQ:TSLA), Volkswagen (ETR:VOWG_p), BMW and Ford, is the world’s biggest battery maker accounting for more than a third of the sales of batteries for electric vehicles (EV) worldwide.It aims to increase the lead over rivals such as LG Energy Solution and BYD by accelerating expansions globally and innovation in new battery technologies.Wan Gang, Vice Chairman of China’s national advisory body for policy making, said the global market size of EV batteries is expected to reach $250 billion by 2030, with demand exceeding 3.5 terrawatt hours.CATL said in a separate announcement on Saturday that it will supply Qilin batteries with its latest battery pack technology to power Geely Automobile Holdings (OTC:GELYF)’s Zeekr cars due to hit the market in early 2023. CALT launched the Qilin battery in June and touted a 13% higher energy density compared to the same size of pack of Tesla’s 4680 cylindrical battery cells– denoting 46 millimetres in diameter and 80 millimetres in length, while using same type of materials. More

NEW DELHI (Reuters) – India’s top crypto app CoinSwitch is cooperating with the national financial-crime agency, whose agents searched its offices this week to find out about its business model and user-onboarding processes, its CEO told Reuters on Saturday. CoinSwitch, valued at $1.9 billion, says it is the largest crypto company in India, with more than 18 million registered users. The firm is backed by Andreessen Horowitz, Tiger Global and Coinbase (NASDAQ:COIN) Ventures. Ashish Singhal, speaking for the first time publicly about Thursday’s search, said his company was engaging with the Indian Enforcement Directorate’s unit in the tech hub Bengaluru on functioning of its crypto platform.”Most of their engagement with us has been about knowing what CoinSwitch does,” Singhal said, saying the inquiries included operations of crypto exchanges, how users were onboarded and details about know-your-customer norms.A person with direct knowledge said the case relates to suspected violations of India’s foreign exchange laws. Agents asked about foreign investments, income and outflows to check on compliance, and seized financial documents, the source said.Singhal declined to specify the agency’s allegations, citing legal sensitivities. The Enforcement Directorate did not immediately respond to a request for comment.The investigation into CoinSwitch comes amid tightening regulatory scrutiny of the crypto sector in India.In a separate case the agency this month froze $8 million in assets of WazirX, a top virtual currency exchange, in an investigation of a possible role in helping instant loan app companies launder the proceeds of crime by converting them into cryptocurrencies on its platform.WazirX disputes the allegations. The agency has said it was conducting money-laundering investigations against several shadow banks and their fintech companies for potential violations of central bank norms and predatory lending practices. The CoinSwitch search was “not about money laundering,” Singhal said. The agency “has been engaged with us with respect to functioning of our crypto platform and we are fully cooperating with them,” he said.While no official data is available on the size of India’s crypto market, CoinSwitch estimates the number of investors at up to 20 million, with total holdings of about $6 billion. More