Aurelia Butler

(Reuters) -The U.S. Federal Reserve is seen ramping up its battle with 40-year high inflation with a supersized 100 basis points rate hike this month after a grim inflation report showed price pressures accelerating. “Everything is in play,” Atlanta Fed President Raphael Bostic told reporters in Florida, when asked about the possibility. While he said he still needed to study the “nuts and bolts” of the report, “today’s numbers suggest the trajectory is not moving in a positive way. … How much I need to adapt is really the next question.”Bostic has been among the bevy of central bankers in recent weeks signaling support for a second straight 75 basis points rate increase at their upcoming policy meeting on July 26-27.But after Wednesday data from the Labor Department showed rising costs of gas, food and rent drove the consumer price index (CPI) up 9.1% last month from a year earlier, views may be evolving.Traders of futures tied to the Fed’s policy rate are betting they already have: They are now pricing in a nearly 80% probability of a full percentage-point rise at the coming meeting, according to an analysis of the contracts by CME Group (NASDAQ:CME). That was up from about a one-in-nine chance seen before the report, which also showed core inflation, excluding more volatile food and energy prices, accelerated on a monthly basis.The expectation that the Fed will get more aggressive to stop inflation is also raising alarm that policymakers will go too far and crater economic growth as well. Yields on longer-term Treasuries fell, making the so-called yield-curve inversion the most pronounced it has been in more than 20 years. An inversion is seen as a harbinger of a downturn because it suggests investors are banking on a growth slowdown. Rate futures trading suggests investors anticipate the Fed may need to start cutting interest rates again by the middle of next year.”The June CPI report was a straight up disaster for the Fed,” wrote SGH Macro Advisors’ Tim Duy. “The deepening yield curve inversion is screaming recession, and the Fed has made clear it prioritizes restoring price stability over all else.”Other central banks are also feeling the heat with the Bank of Canada on Wednesday raising its benchmark interest rate by 100 basis points in a bid to tame soaring inflation, a surprise move and its biggest in nearly 24 years. [L1N2YU0PO]’RECESSION THREAT IS RISING’Fed Chair Jerome Powell and other policymakers have become increasingly worried that business and consumer expectations of a torrid rate of future price increases could become entrenched. They have shown they will react swiftly when data worsens.Ahead of its prior meeting in June, the Fed telegraphed a 50 basis points move before pivoting at the last minute to a three quarter point hike on the back of a worse-than-expected inflation report for May, as well as a downbeat consumer inflation expectations survey the same day. The persistence of such high inflation and the strength of the central bank’s moves needed to quash it are also once again sharpening fears a recession is on the horizon.A Fed survey of firms across the country published later on Wednesday showed increased pessimism on the outlook for the economy, with almost half of the central bank’s districts reporting firms seeing an increased risk of a recession, while substantial price increases were reported across all districts with “most contacts expect(ing) pricing pressures to persist at least through the end of the year.”Fed research published this week based on modeling of bond-market yields puts the chance of a recession next year at about 35% if the Fed sticks to its expected baseline rate-hike path, but at 60% if the Fed removes accommodation faster.”With supply conditions showing little sign of improvement, the onus is on the Fed to hit the brakes via higher rates to allow demand to better match supply conditions. The recession threat is rising,” said James Knightley, chief international economist at ING.The Fed began tightening policy only in March, and has already raised its benchmark overnight lending rate by 1.5 percentage points. Financial markets now predict that rate will reach the 3.5% to 3.75% range by year end, higher than Fed policymakers themselves predicted just three weeks ago. A very tight labor market has so far withstood those swift rate hikes, with unemployment remaining at 3.6%, near a historic low. However, that is seen as a double-edged sword as it also raises concerns that such competition for labor will eventually have to cool to ease inflation.The U.S. Senate on Wednesday confirmed Michael Barr, a former Treasury official, as the Fed’s vice chair of supervision, filling the last vacant seat on the Fed’s seven-member board. More

The hike of 75 basis points was approved by all of the central bank’s board members. This continues an accelerated hike in Chile’s Monetary Policy Rate (MPR) that started last year and reached 9.0% in June.In a statement, the bank said “increased internal uncertainty” had led to a strong depreciation of the peso.”In the short term, these developments provoke an additional hike in domestic prices, in a context where inflation and its persistence are already elevated,” it said.”The board expects that new MPR hikes will be necessary to ensure convergence of inflation to 3% over two years.”The hike exceeded operator and analyst polls, which had predicted an MPR of 9.5% in July. More

OTTAWA (Reuters) – The Bank of Canada on Wednesday raised its main interest rate by 100 basis points in a bid to crush inflation, surprising markets and becoming the first G7 country to make such an aggressive hike in this economic cycle.The central bank raised its policy rate to 2.5% from 1.5%, its biggest rate increase in 24 years, and said more hikes would be needed. Economists and money markets had been expecting a 75-basis point increase.”We had indicated we were prepared to be more forceful. Today was more forceful,” Governor Tiff Macklem told a news conference after the decision. “Yes, it is a very unusual move to increase by 100 basis points at one decision and that really reflects the very unusual, exceptional circumstances that we find ourselves in.”Earlier, the central bank said excess demand, high inflation felt across sectors and rising consumer expectations of persistent price gains prompted the super-sized hike, which lifted the policy rate to its highest level since 2008.”If this doesn’t get us back into the idea that the Bank of Canada is serious about bringing inflation down, I don’t know what would,” said Jay Zhao-Murray, a market analyst at Monex Canada.The Bank of Canada’s move follows a 75 basis point rate hike by the U.S. Federal Reserve last month. “The Bank of Canada saw the Fed hike 75 bps and said ‘Hold my beer,'” said Royce Mendes, head of macro strategy at Desjardins Group, noting hawkish language in the statement that accompanied the “colossal move.”The central bank’s surprise move lifted the Canadian dollar, which was trading up 0.4% at 1.2975 to the greenback by late afternoon. The benchmark Canadian stock index slipped to its lowest since March 2021, before recovering to trade flat.SOFT LANDINGIn its July forecasts, also released on Wednesday, the Bank of Canada said it expected inflation to rise further, saying it would remain around 8% in the next few months. Canada’s inflation rate hit 7.7% in May, near a 40-year high.The central bank now sees inflation averaging 7.2% this year, falling to about 3% by the end of 2023 and then back to the 2% target by the end of 2024. The Bank of Canada has been playing catch up with hot inflation for months, prompting rare attacks from critics and fueling worries that Canadians could lose faith in its ability to contain prices, leading to price spirals.”Our forecast is for soft landing. As I said, the path to that soft landing has narrowed,” said Macklem, who participated in the decision remotely after recovering from COVID-19. “And that is an important reason why we took stronger action today to front-load policy interest rates.”Still, the 100-bp move coupled with a warning of more hikes to come could spook markets, said economists.”I think the market is going to be on edge here about the possibility of more upside surprises on rate hikes,” said Doug Porter, chief economist at BMO Capital Markets. SLOWER GROWTHThe policy rate is now at the nominal neutral rate – the midpoint between 2% and 3% – where monetary policy is neither stimulative nor restrictive.The bank also cut its economic growth forecast for this year to 3.5% from a previous estimate of 4.2%. It predicted growth would then slow to 1.8% in 2023 before rising to 2.4% in 2024. The slower growth is “largely due to the impact of high inflation and tighter financial conditions on consumption and household spending,” the bank said. More

President Gotabaya Rajapaksa has fled Sri Lanka on a military aircraft for the Maldives, according to the country’s air force, leaving behind a deepening economic and political crisis in the island nation on the day he was expected to resign in the face of mass protests. The 73-year-old leader was forced to offer his resignation on Saturday by a street revolt in which tens of thousands of protesters angered by rising prices and shortages of fuel and food converged on Colombo, the commercial capital, and over-ran the presidential palace. Rajapaksa’s downfall marks the end of one of Asia’s most powerful political dynasties, which many Sri Lankans credit with winning a long-running and brutal war against Tamil separatists in the north of the country. However, they now blame him for borrowing heavily to build China-backed Belt and Road spending projects and for a series of failed economic policies that caused Sri Lanka to default on its debt in May. “This has been a train wreck in slow motion,” said one investor who holds Sri Lankan debt.Thanks for reading FirstFT Asia. Here is the rest of today’s news — Emily Five more stories in the news1. Euro falls to parity with US dollar for first time in two decades The risk that aggressive interest rate rises could tip the US into recession, combined with the likely damage to the European economy stemming from its dependence on Russian energy, have shoved the euro down to parity against the US dollar for the first time in 20 years.Related read: The euro’s slide revives memories of its difficult early years when it fell so low traders dubbed it the “toilet currency”. 2. US employs ‘tuna politics’ to resist China’s Pacific push The US has signed a vital fishing agreement with a group of Pacific islands that will help strengthen security ties in Oceania to counter China’s campaign for influence in the region. Vice-president Kamala Harris appeared by video link at the Pacific Islands Forum as she detailed a renewed diplomatic push into the region.3. Central banks around the world react to inflation The Bank of Korea, the Reserve Bank of New Zealand and Canada all raised interest rates as inflation continues to roil the globe. The US consumer price index published today hit an annual pace of 9.1 per cent, a fresh 40-year high that cements expectations of another historically large 0.75 percentage point Federal Reserve interest rate rise this month.4. Trafigura sells stake in Putin-backed oil project to obscure HK outfit The commodity trader has sold its multibillion-dollar stake in Vostok Oil, a giant Russian oil project, to a the obscure Hong Kong company Nord Axis Limited, which was set up just nine days before Russia invaded Ukraine. The sale shines a spotlight on a new group of traders in Russian oil that has emerged since the invasion.5. Kim Jong Un regime blames balloons for Covid spread For a country that has sought for decades to isolate its population from the outside world, balloons sent from neighbouring South Korea represent an unacceptable incursion — and even a bearer of Covid-19, according to North Korean state media.

Rishi Sunak and Penny Mordaunt become frontrunners in Tory leadership race

The day aheadSecond ballot in UK Conservative leadership contest Conservative MPs will reduce the number of candidates further in a second round of voting on Thursday — the contender with the lowest level of support will fall out of the race. Rishi Sunak and Penny Mordaunt have become the frontrunners.Biden meets with Israeli officials During his Middle East tour, US president Joe Biden is expected to sign a joint declaration with Israel enshrining strategic co-operation, committing both countries to preventing Iran from getting a nuclear weapon. Biden is also expected to push Saudi Arabia on a timeline for upgrading ties with Israel.Join FT journalists on Friday July 15 at 1pm BST/8pm HKT for a virtual briefing for FT subscribers on what awaits Britain and business after Boris Johnson as rival Conservative candidates battle to succeed him as prime minister. Register for free.What else we’re reading and listening to Inside the fall of Celsius The decline of Celsius has been labelled the crypto community’s “Lehman Brothers moment”. It loaned deposits from retail investors to large crypto companies and promised exceptionally high interest rates. But it now has a hole in its balance sheet of as much as $2bn and is facing collapse. This week the FT is launching a cryptocurrency newsletter to help guide you through the crash. Premium subscribers can sign up here.How we became a Covid high-risk family On a recent Friday morning in Beijing, a man arrived at FT reporter Ryan McMorrow’s door to seal him and his family inside; they had been classified as a “high-risk” needing at least four days of home quarantine. For the next four days Ryan, his wife, their 11-month-old and his wife’s parents remained holed up in the apartment.Related read: Pfizer’s antiviral treatment Paxlovid is being widely prescribed despite questions about its effectiveness.A new era of astronomy has begun The maiden image of deep space shows a vanishingly small piece of the night sky, equivalent to the size of a grain of sand held at arm’s length. Each dot or disc represents a galaxy that itself is made up of millions, even billions, of stars. Each grain of sky contains more worlds than it is humanly possible to contemplate.

India takes political gamble on $1.3bn fight with satellite firm The ruling Bharatiya Janata party says India’s original contract with Devas Multimedia was fraudulent and refuses to pay damages ordered by tribunal. Now the issue has become politicised as the BJP uses the battle to attack the Congress party, its chief political rival, which struck the contract.Why companies could soon pay for climate change In this week’s episode of the Behind the Money podcast, listen to the story of a David vs. Goliath battle: How one man is taking on one of the world’s biggest polluters in a landmark case that could one day force companies to pay for damage they’ve done to the environment.BooksThe Work & Careers team select what to read this month, including the lessons for business from Alabama’s American football coach Nick Saban and a guide on how to succeed in a changing world by Seamus Gillen. More