Aurelia Butler

JACKSON, Wyo. (Reuters) -U.S. Federal Reserve officials on Thursday were noncommittal about the size of the interest rate increase they will approve at their Sept. 20-21 meeting, but continued hammering the point they will drive rates up and keep them there until inflation has been squeezed from the economy.Those higher rates could lead to a rise in unemployment and are already starting to crimp household and business spending, Kansas City Federal Reserve president Esther George said on CNBC, but the central bank will not flinch from tighter policy.George said it remained “too soon to say” whether a half-point or three-quarter-point rate increase would be most appropriate at the September meeting. However, she said, “our charge is pretty clear, to bring inflation back to our target” by raising interest rates high enough to fix what she called a “fundamental imbalance” between the demand for goods and services and the economy’s ability to produce or import them.In an interview with Bloomberg, she said the target federal funds rate may ultimately need to exceed 4% to get the desired impact, and may need to remain high for some time.”I think we will have to hold — it could be over 4%. I don’t think that’s out of the question…You won’t know that, I think, until you begin to watch the data signs.”Philadelphia Fed President Patrick Harker had a similar message in comments to CNBC, though he appeared to see policy rates topping out a bit lower than George.”I’d like to see us get to, say, above 3.4% – that was the last median in the SEP (Summary of Economic Projections) – and then maybe sit for a while,” Harker said. “I am not in the camp…of taking rates up and then way down.” As for next month’s decision, he said, he’ll need to see what the next inflation report shows. “Whether it’s 50 or 75 I can’t say right now,” Harker said, adding that in the context of a historical record where quarter-point rate hikes have been the norm, even a half-point hike is a “substantial” move.The Fed has raised rates at each of its meetings beginning in March, with the federal funds rate currently set in a range between 2.25% and 2.5%. The last two increases were in three-quarter point increments, and Fed officials must now decide whether to sustain that pace or reduce it.The interviews with George were broadcast ahead of the kickoff Thursday night of the Kansas City Fed’s annual research symposium here, held as a live event for the first time since 2019.Fed chair Jerome Powell addresses the conference on Friday in remarks expected to summarize where he feels the Fed stands in its fight to control the worst outbreak of inflation in 40 years.He will have longer-term expectations to manage about how high the Fed thinks rates may need to rise, how long they will need to stay there, and how the Fed might react if the economy weakens more than expected.But there is also shorter-term focus on what the Fed will do when it meets in just under four weeks. In an interview with the Wall Street Journal, Atlanta Fed president Raphael Bostic said “at this point, I’d toss a coin” to decide between a half-point versus a three-quarter-point rate increase.The Fed gets two more key inflation reports and more jobs data before the September meeting, including the last reading of the personal consumption expenditures price index on Friday, and the August jobs report in a little over a week. An update on second-quarter gross domestic product showed the economy contracted less than initially thought from April through June.If the numbers remain strong “then it may make a case for…another 75 basis point move,” Bostic said. He added he would be “resolute” in keeping rates high and “resist the temptation” to cut them until inflation was “well on its way” to the Fed’s 2% target.St. Louis Fed President James Bullard in an interview with CNBC said interest rates are not yet high enough to push down on inflation and repeated his preference for “frontloading” rate hikes to lift them to 3.75%-4% by year. More

WASHINGTON (Reuters) – Wall Street’s main regulator on Thursday voted to adopt a measure requiring that U.S.-listed companies disclose how the pay of their top executives squares with overall company performance.The U.S. Securities and Exchange Commission said the rule will require that firms provide in their proxy statements and other disclosures a table outlining executive compensation and financial performance measures over the five most recently completed fiscal years.In addition, U.S.-listed companies will have to provide a clear description of the relationship between each financial performance measure and CEO pay versus other named executives, the SEC said in its release. The measure will make it easier for shareholders to assess a publicly traded company’s decision-making with respect to executive compensation policies–a long-recognized value to investors, SEC Chair Gary Gensler said in a statement. “The final rule provides for new, more flexible disclosures that allow companies to describe the performance measures it deems most important when determining what it pays executives,” Gensler said.Companies will be required to report total shareholder return, the total shareholder return of companies in the firm’s peer group, net income, and a financial performance measure chosen by the company, the SEC said.Smaller reporting companies will be subject to scaled disclosure requirements, the SEC added. Those companies are defined as having a public float of less than $250 million, or less than $100 million in annual revenues and a public float of less than $700 million. The measure comes amid a push by President Joe Biden’s administration to force listed companies to review working conditions, pay equity, hiring and retention policies.It follows complaints by investor and employee advocates who have long wanted more details on how listed companies incentivize their labor forces across all levels, including top executives.Advocates argue that the best-paid CEOs do not necessarily run the best-performing companies. Industry groups have said the approach by the SEC could ultimately confuse investors.The rule will become effective 30 days following publication of the release in the Federal Register; it is not yet known when it will be published there. More

The British government should move on to a “war footing” to tackle the energy crisis as the regulator Ofgem prepares to announce a sharp jump in energy bills from October, according to a former senior adviser.The cap on typical household energy bills is expected to roughly triple from levels a year ago to £3,600, according to industry and government estimates — with further rises potentially above £5,000 looming early next year.Adam Bell, the former head of energy strategy at the business department, said the new prime minister, who is due to take over on September 5, must act quickly to replace gas in the energy mix of the UK economy as concern grows about the impact of rising prices on households and business this winter.“War footing is very much the necessary response to this situation — this is like the oil crises of the 1970s but the difference is we know how to get out of this now,” Bell said. “The question is whether the government is willing to drive forward with the rapid degasification of the economy that is clearly required.”Bell’s comments were echoed by Lord David Howell, energy secretary under Margaret Thatcher in the 1980s, who told the BBC that the government needed to “worry a lot” and move on to something “similar to a war footing” through the winter.The government is examining a possible bailout plan for households, proposed by Scottish Power, that would cap bills around the current level of £2,000. That level of intervention would cost about £100bn over the next two years, which would exceed the scale of the coronavirus furlough scheme that protected millions of jobs during the pandemic.James Cooper at consultants Baringa warned that without government help, the soaring energy costs would have a bigger effect on the average family than the 2008 financial crisis. “We’re now moving into territory where a majority of households are placed into debt or a very fragile financial position,” he said.The sharp jump in energy bills is driven by the spiralling international price of wholesale gas, largely because of Russia’s decision to cut supplies to western Europe in response to sanctions imposed after the invasion of Ukraine.UK gas prices have almost quadrupled since the middle of June and now trade at roughly ten times the average level of the last decade.Dale Vince at Ecotricity, a renewables generator and energy retailer, said that the government needed to intervene to protect the public as well as small business, which are not covered by the price cap. Many companies face at least a fourfold rise in energy bills from October. He called on ministers to consider a proposal to put a price cap on gas producers in the UK portion of the North Sea, similar to restrictions on energy retailers that limit their profit margins around 2 per cent. “This is as exceptional as the pandemic and needs a similar response,” Vince said. “Almost 50 per cent of the UK’s gas comes from the North Sea so we could solve half of the crisis at a stroke.”

The UK oil and gas industry has pushed back hard against windfall taxes and in May won large carve outs for investments when then chancellor Rishi Sunak raised taxes on the industry.Harbour Energy, the largest oil and gas producer in the UK North Sea, on Thursday reported a ten-fold increase in pre-tax profits to $1.5bn in the first half of the year.Sunak announced a package of measures earlier this year involving £400 payments to every household in Britain and more generous help of up to £1,200 for more vulnerable families.Yet the new prime minister — either Sunak or foreign secretary Liz Truss — will come under immediate pressure to extend that relief.Sir Keir Starmer, leader of the opposition Labour party, said ahead of the Ofgem announcement that the government was “absent at this time of national crisis”. More

European Central Bank rate-setters expressed mounting concern that the weak euro would feed higher inflation when they decided last month to raise interest rates for the first time in more than a decade, minutes published on Thursday from their meeting revealed.Concerns about soaring inflation, which some feared might not be tamed even if the energy supply crisis intensified, appeared to outweigh worries about a weakening growth outlook during the deliberations of the ECB governing council in July. Policymakers at the meeting raised the ECB’s deposit rate by a greater than expected half-percentage point to zero and signalled more increases to come. “Members widely noted that the depreciation of the euro constituted an important change in the external environment and implied greater inflationary pressures for the euro area, in particular through higher costs of energy imports invoiced in US dollars,” said the ECB.Some policymakers argued it should stick to its earlier plan for a 25 basis point rate rise in July, rather than the 50 basis point rise it ultimately decided on. But most of them agreed their decision to launch a new bond-buying programme to tackle unjustified divergence in borrowing costs between eurozone member states — dubbed the transmission protection instrument — enabled them to take a bolder approach.Rate-setters identified a growing number of upside risks to inflation, which hit a record for the eurozone of 8.9 per cent in July. As well as the weaker euro, these included “a durable worsening of the production capacity of the euro area economy, persistently high energy and food prices, inflation expectations rising above [the 2 per cent] target and higher than anticipated wage rises”.“It was argued that even a recession would not necessarily diminish upside risks, especially if it was related to a gas cut-off or another supply shock implying a further increase in inflation,” the ECB said. However, other council members argued low growth would “itself take care of low inflation”.Since last month’s meeting, economists have raised their forecasts for eurozone inflation over the next two years, reflecting a rise in European wholesale gas and electricity prices to record levels in response to fears of a potential shortfall caused by Russia making further cuts to supplies.This has prompted investors to bet the ECB will raise rates by a further half percentage point at next month’s meeting in an effort to cool price growth, even though many economists fear the eurozone could fall into recession this winter. The hawkish mood is likely to be reflected in this week’s meeting of central bankers at Jackson Hole, Wyoming. US Federal Reserve chair Jay Powell is on Friday expected to underscore the central bank’s commitment to do what is needed to combat inflation, even if it determines it may soon be appropriate to start implementing smaller rate rises than the third consecutive increase of 0.75 percentage points that some Fed rate-setters have called for next month.Aggressive rate rises in the US are one of the factors behind the fall in the euro against the dollar, along with the worsening outlook for the eurozone economy and the traditional role of the dollar as a haven during downturns. The euro was trading at $0.9966 against the dollar on Thursday, only slightly above the 20-year low it hit last week.“It was argued that, if the present risks of recession in the US economy were to materialise, the euro would be expected to appreciate,” the ECB said in its account of last month’s meeting. “However, a countervailing — and probably dominant — effect could result from worsening global risk sentiment, which typically implied a strengthening of the US dollar.”

Policymakers said the eurozone economy had “demonstrated considerable strength and resilience in the face of multiple crises”. This was underlined on Thursday when Germany revised its estimate of second-quarter gross domestic product up from its initial estimate of stagnation to growth of 0.1 per cent. Separate survey data also showed sentiment continued to fall for German businesses and French manufacturers, but by less than expected.Are we heading towards a global recession? Our economics editor Chris Giles and US economics editor Colby Smith discussed this and how different countries are likely to react in our latest IG Live. Watch it here. More

This week, Jay Powell, Federal Reserve chair, is in the spotlight — and pulpit. A year ago, he delivered a speech at that gigantic economic tribal gathering known as the US Federal Reserve’s Jackson Hole conference, pledging that inflation pressures would only be “transitory.”On Friday morning he speaks again — and it is now clear that this “transitory” message was totally wrong. It remains uncertain if he will apologise, or admit the mistake. But what is clear is that any numbers Powell cites will prompt investors to reappraise their macroeconomic models and forecasts. Fair enough. However amid this frenzy of number-crunching, investors should also take note of some intriguing research floating around the edge of the Jackson Hole meeting about the importance of storytelling in monetary policy.A couple of decades ago, this was a topic that garnered little attention at the Fed. For while anthropologists such as Douglas Holmes have long studied how central bank language and rituals influence the economy, economists used to assume this was less important than mechanistic models.However, after the 2008 financial crisis, Robert Shiller, the Nobel Prize-winning economist, urged his colleagues to study how “narratives” shape sentiment and thus economic trends. And one encouraging post-crisis development in economics is that a swelling number of young behavioural finance economists have heeded Shiller’s call. Last year a team spearheaded by Peter Andre surveyed 10,000 households and 100 economists and concluded that whereas economic “experts” attribute price jumps to cyclical demand swings, consumers blame supply issues such as government mismanagement. That perception, which is heavily influenced by media, causes consumers to project higher inflation for longer.This year another group led by Yongmiao Hong used machine learning tools to analyse inflation narratives in 880,000 Wall Street Journal articles. They concluded that “narrative-based forecasts perform better in the long-run forecasting” than numerical models, seemingly because the latter miss subtle economic signals and shifts. And this month Chad Kendall and Constantin Charles released research about extensive psychological experiments into how humans create explanatory frameworks to frame economic data. This shows that people almost always seek to fit new information into pre-existing narratives.But what is most interesting is that the shape of our storytelling matters, since “narratives with a particular structure may affect people’s actions by influencing the subjective beliefs they form from the data they observe”. More specifically, the experiments suggest that “lever” narratives, which present linear causality frames (A leads to B leads to C, and so on) have the strongest grip on people’s minds. So-called threat narratives, which describe how offsetting forces both avoid and cause particular outcomes, are less potent. The research also notes that people love “to share their homegrown narratives with other subjects, who are then persuaded by them”. All of this has practical implications for Powell, given that the Fed faces an increasingly bitter fight over inflation. Some Fed critics, such as former US Treasury secretary Lawrence Summers, are currently promoting one causality narrative — that this year’s spiralling inflation arose because of lax monetary policy. This implies that interest rates must rise to stop inflation.Fed officials, however, prefer another causal story according to which prices have jumped because of high energy prices and supply side shocks. This suggests that prices will fall if (or when) the initial shock of the war in Ukraine subsides, and/or economic activity slows down.There is a political tussle too: Republicans blame the Biden administration for inflation; Democrats blame it on external events. One consequence is that Pew research suggests that 84 per cent of Republicans think inflation is “a big problem”, but only 57 per cent of Democrats agree. This is a striking demonstration of why narrative causality matters.Of course, an intellectually honest economist might note that all these simplistic causal stories are essentially fictions, given that economic phenomena arise from complex interactions in the economy. The causality narrative being presented by the White House around its Inflation Reduction Act is also somewhat fictitious. While some measures in the legislation are sensible, they are unlikely in themselves to influence short-term price trends much, if at all. But Powell’s problem is that if he does not present a convincing causality narrative at Jackson Hole, others will offer one in its place. Simply describing what has happened in the past year, or proffering complex and competing explanations, is unlikely to pack much of a punch — or shape sentiment in the way that the Fed needs. So if I were his speechwriter, I would take a leaf from Paul Volcker’s book and argue that inflation will fall when rates go up, and promise to keep raising those rates until price growth is at a sensible level. That will not be politically popular ahead of a crucial midterm election. But it is at least a crystal clear message — or it would be if the Fed actually does it. [email protected] More

Industrial firms were originally ordered to restrict output from Aug. 17 until Aug. 24, but formal curbs were extended through Thursday and will be gradually relaxed “in an orderly manner” once weather conditions have improved, according to a notice issued by Chongqing authorities on Wednesday. Drought has devastated power generation in the Yangtze river basin, with hydropower accounting for around 80% of the electricity in neighbouring Sichuan province. Dwindling water levels have left generators operating well below their normal capacity. Pangang Group Vanadium & Titanium Resources Co Ltd told the stock exchange in a filing on Wednesday its Chongqing subsidiary had received the notice and would continue to suspend production. “The specific recovery time will be subject to the notification of relevant departments in Chongqing,” it said.Honda Motor Corp also said on Thursday its power product factory in Chongqing will remain closed this week. “We don’t know what to do until we see what the government tells us for next week,” a spokesperson said. The plant makes small-engine products like lawnmowers and tillers and doesn’t manufacture automobiles. Honda made 23% of all of its power equipment in Chongqing last financial year.The factory was on summer vacation until this past Sunday and suspended operations from Monday. Chongqing and other parts of the Yangtze basin have been broiling under weeks of temperatures in excess of 40 Celsius (104 Fahrenheit), causing crop damage and forest fires. Power rationing has impacted firms in sectors like battery making and solar manufacturing. Toyota Motor (NYSE:TM) said it had used an in-house generator at its Sichuan plant to resume operations. Although national forecasters reduced their heat alert level from “red” to “orange” from Tuesday, temperatures are still expected to exceed 40C until the weekend in some parts of the Yangtze delta. Sichuan province normally delivers large amounts of its surplus hydropower to other provinces, and coal-fired power plants in Anhui province and elsewhere have been under pressure to pick up the slack, according to state media. “It’s unclear how long this power will continue to be exported ex-province, considering the severity of the local power shortage, but cross-province transmission is usually given highest priority in China’s power dispatch planning,” said David Fishman, a power expert with the Lantau Group consultancy. “If these exports are suspended, already-tight power supply in eastern China, which is enduring its own heat wave, will be further affected,” he said in a research note. China’s State Grid Corporation is now delivering 130 million kilowatt-hours of power per day to Sichuan, state broadcaster CCTV said on Wednesday. Economists at ANZ said in a note on Tuesday it was unlikely China would see a repeat of last year’s nationwide energy shortages, which were caused by tight coal supplies, adding that the impact of the current power crunch on gross domestic product was “negligible” so far. More

Investing.com — The European Central Bank’s decision to raise its key interest rates by half a percent in July was opposed by some members of its governing council, according to the accounts of the meeting published on Thursday. The ECB said “a very large majority” of members on the council had supported the move, but noted that some were concerned enough by “looming recession risks” to advocate for a smaller step. By contrast, the decision to create a new tool to contain unwarranted volatility in sovereign debt markets was supported unanimously. The two decisions had been seen by analysts at the time as a ‘quid pro quo’, which would satisfy inflation hawks by raising rates faster than the bank had suggested at its June meeting, while also putting a safety net under the bond markets of Italy and other, financially weaker members of the Eurozone.In addition to the actual rate hike, which ended the ECB’s experiment with negative interest rates, the bank had also flagged that it intended to raise rates again in September. However, it had said its action in September would depend on the economic data, abandoning a policy of ‘forward guidance’ in a desire to maintain maximum flexibility in its decision-making. The accounts show a continued reluctance at the bank to accept the need for an overall higher trajectory of interest rates to deal with this year’s surge in inflation.”It was seen as important to stress that the 50 basis point hike did not constitute an upward shift in the interest rate path but rather a frontloading of the policy normalization,” the accounts said. One likely opponent of the move is board member Fabio Panetta, who told a conference on Wednesday that the ECB shouldn’t need to raise rates much more. “We may have to adjust our monetary stance further, but …. we have to be fully aware that the probability of a recession is increasing,” Panetta said. His comments contrast sharply with those of German ECB board member Isabel Schnabel, who said recently that rates are still well away from a level that could be construed as ‘neutral’ for the economy. The ECB’s accounts side with Schnabel, saying that its policy stance remains “accommodative”.In part, that is because the ECB has repeatedly underestimated inflationary pressure this year – something that was acknowledged in the meeting.”Once more, June had seen an inflation surprise, confirming the underestimation bias observed in the recent past when outturns were compared with earlier projections,” the ECB said.That trend has continued since the meeting, with Eurozone inflation hitting a new high of 8.9% in July. That means that real interest rates – adjusted for inflation – are still deeply negative.The euro, which has fallen to a 20-year low against the dollar amid the ECB’s reluctance to raise rates more aggressively, drifted marginally lower after the accounts’ publication but was still up a touch on the day at $0.9977. In the past, a cheaper euro has served the Eurozone well, ensuring robust demand from export markets such as the U.S. and China that has offset chronically weak domestic demand. However, the ECB’s accounts suggested a dawning realization that it can’t rely on such factors any more, due to the “deteriorating outlook” in the U.S., U.K. and China. “The point was made that the improvements in competitiveness and support for growth that would normally be associated with a depreciation were being impeded by the prevailing global supply constraints and logistics restrictions,” the ECB said. More