Aurelia Butler

Joe Biden is calling on Congress to suspend the federal tax on petrol and diesel for three months in a bid to provide some temporary relief to American households grappling with high inflation. The so-called gas tax holiday proposed by the US president would involve scrapping the 18.4 cent federal levy on every gallon of petrol and the 24 cent levy on diesel that consumers pay at the pump. The total cost of the measure would be approximately $10bn. Biden is asking Congress to replenish the highway trust fund, which is normally funded by those taxes, with other revenue increases. “President Biden understands that a gas tax holiday alone will not, on its own, relieve the run-up in costs that we’ve seen,” the White House said in a fact sheet on Wednesday. “But the president believes that at this unique moment when the war in Ukraine is imposing costs on American families, Congress should do what it can to provide working families breathing room.”Some states, including New York and Florida, have taken steps to suspend their own state petrol taxes and offer drivers relief from high prices.Biden’s call for a gas tax holiday marks the latest effort by the White House to show its determination to do everything it can to tame inflation and bring down energy costs amid the war in Ukraine. In recent months, Biden released oil from the strategic petroleum reserve, nudged domestic energy groups to increase production and is to travel to Saudi Arabia for talks with a regime it once considered a “pariah”. The president is expected to speak about energy prices from the White House on Wednesday afternoon. As petrol costs have soared to about $5 per gallon, the suspension of the federal tax would only offer a minor reprieve to struggling consumers. Consumer prices rose at an annual rate of 8.6 per cent last month, souring Americans’ perceptions of the strength of the US recovery.

Biden considered a gas tax holiday in February but decided against it. Critics have warned that the policy could backfire, boosting demand and contributing to inflation, while failing to provide meaningful relief to families. There is also no guarantee that it would be approved by Congress.“I’m glad that @POTUS is exploring ways to lower gas prices at the pump. Still, suspending the primary way that we pay for infrastructure projects on our roads is a shortsighted and inefficient way to provide relief. We should explore other options for lowering energy costs,” Tom Carper, the Democratic senator from Delaware, wrote on Twitter. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a non-partisan think-tank in Washington, said a petrol tax holiday “would modestly reduce prices at the pump but exacerbate overall inflationary pressures and increase demand for an energy source already short in supply”.Oil executives are likely to welcome the move, which amounts to a subsidy for their product. Executives from some of the US’s largest oil and fuel producers will meet energy secretary Jennifer Granholm on Thursday.But high fuel prices have deepened tensions between Biden and oil industry executives. On Tuesday, he lashed out at Chevron chief executive Mike Wirth after he said in a letter to the president that a “change in approach” was needed to bring down prices and that the administration should not “vilify” the industry.Biden called Wirth “sensitive”, while urging the industry to increase fuel supply. More

The UK’s inflation rate hit another 40-year high in May, reaching 9.1 per cent, its highest level since 1982.Fuelled by higher food prices last month, the rise from the 9 per cent rate in April was in line with economists’ expectations that inflation will hit double digits by the autumn.The Bank of England expects the inflation rate to exceed 11 per cent in October, significantly higher than other similar countries in the G7. The rise in inflation will add to cost of living pressure on households, intensify demands for wage rises to offset higher prices and make it more difficult to resolve industrial disputes such as this week’s rail strike. Echoing the language used by the US Federal Reserve when talking to reporters, chancellor Rishi Sunak said: “I want people to be reassured that we have all the tools we need and the determination to reduce inflation and bring it back down.”He earlier said: “We can build a stronger economy through independent monetary policy, responsible fiscal policy which doesn’t add to inflationary pressures and by boosting our long-term productivity and growth.” The task of reducing inflation will be more difficult, Bank of England officials have noted over the past week, because they think price rises well over the 2 per cent inflation target are now embedded into corporate pricing policies and wage settlement. In May, prices rose at high rates across a broad group of categories. For a quarter of all individual items measured by the Office for National Statistics, prices were 10 per cent higher than last May, and for half of the categories measured, they rose by 7 per cent or more. The biggest contributor to the increase in inflation came from food prices, which increased 1.5 per cent in May, with bread, cereals and meat rising fastest. The Office for National Statistics said that road fuel prices were 32.8 per cent higher in May than a year earlier, the largest annual jump in prices in the category since detailed indices were first compiled in 1989. Next month, the inflation rate is likely to rise strongly again, the Resolution Foundation said, because it would take into account the recent rise in fuel prices at the pumps. In May, the average price of a litre of petrol was recorded at £1.66 and has risen about 20p a litre since then. Yael Selfin, chief UK economist at KPMG, said there were “no signs yet of inflation receding” and that while the largest increases were in energy and road fuels, “price rises spread widely across the economy”.

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Paul Dales, chief UK economist at Capital Economics, said the pattern of inflation justified further interest rate rises, but not a half-point rise at the BoE’s next meeting in August. “It is not obvious in this release that there are signs of the ‘more persistent inflationary pressures’ that last week the Bank said would prompt it to ‘act forcefully’.”

One worrying sign indicated by Grant Fitzner, ONS chief economist, however, was that price pressures were still bubbling away in factories across the UK. “The price of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record,” he said. In the latest figures the retail prices index, used to calculate the uplift on index-linked bonds, rose to 11.7 per cent in May from 11.1 per cent in April, marking the highest reading for the measure since October 1981. More

Good morning. Nice rally in stocks yesterday, for no apparent reason. We’re sticking with the commonsense view that market is going to stay messy until we have a better guess where the Federal Reserve is going to stop, so we’re buckling up for more of this in the coming months. Email us if you have a better idea: [email protected] and [email protected]. Europe’s debt messClearly, we should have written about the European debt proto-crisis last week, but we were too captivated by the Fed to catch up on the situation properly.While we dithered, the European Central Bank seems to have scared sellers of European peripheral bonds into backing off, buying some time to come up with a structural solution to this problem:That’s the spread between Italian and German 10-year bonds, which began widening as soon as it became clear that inflation would force the ECB to follow the Fed in raising interest rates. At the right side, you can see how the ECB’s emergency meeting last Wednesday, and the promises of action issued afterwards, reversed the widening, for now.Recall the basic problem. Italy — which is emblematic of many peripheral eurozone countries from Spain to Greece — has even more debt than it did when it slipped into a crisis 10 years ago. The maths is really nasty now. Italy’s debt is 150 per cent of gross domestic product. Its 10-year bonds, for example, yield 3.7 per cent. Of course it will have sold debt at lower yields than that, but as old debt rolls over, the cost will rise. GDP, on the other hand, is not going to grow at anywhere near 5.5 per cent (3.7 per cent x 150 per cent). So the Italian debt burden is set to grow steadily bigger relative to GDP.This causes problems. Higher interest rates slow growth in general. Households own quite a lot of the debt, creating negative wealth effects. Banks own a lot too, so as the bonds lose value, their balance sheets weaken and they can’t make as many loans. Then there is the possibility of portfolio contagion bringing other European asset prices down. The debt wobbles could also push the euro even lower, and therefore push the dollar even higher — which is an automatic tightener of financial conditions globally.This is all quite bad. And then there is the very remote but not unthinkable political follow-on: life within the eurozone becomes so unpleasant for Italians that the country decides to leave the common currency.The ECB really does not want any of this stuff to happen. Hence its commitment to some kind of bond-buying programme, or “anti-fragmentation instrument”, that would compress Italian (or other peripheral) debt spreads. The details will come next month.The good news is that the ECB governing council seems to be on the same page, and they are getting after the problem early. As rapid and unsettling as the rise in spreads has been, their absolute level was higher as recently as 2018-19, as the bank’s bond-buying programmes tailed off. Same chart, going further back:The bad news is that the job of depressing the spreads is made complicated by inflation. It is bonkers to buy bonds and raise rates at the same time. In monetary policy terms, the two have opposite effects. So the ECB plan will have to involve some form of “sterilisation” to keep the peripheral purchases neutral to the money supply. Presumably this will mean sales of some other flavour of euro bond, or some sort of term deposit mechanism to sop up the proceeds from the bond purchases (it may also be that anti-fragmentation means that the ECB will have to enact more rate increases than it would have otherwise).This is all a big experiment. As Eric Lonergan of M&G summed up in Monday’s FT:Sovereign spread targeting by a central bank has never been done before. The outline of a programme would involve creating a reference basket of “safe” European sovereign bonds from core eurozone countries such as Germany and determining an acceptable spread for each market. The ECB would then commit to enforcing a cap on these spreads . . . We need to be clear about the risks. In extremis, the ECB becomes the market-maker for [Italian] or other bonds. Liquidity could disappear. How will Italy issue debt in the primary market, and at what price? Can the arrangements be gamed by market participants? How will the ECB exit? The ECB is in terra incognita, and if things go wrong, the world economy is going to receive yet another nasty growth shock.How much money will the ECB spend buying peripheral bonds, and will it be enough? Frederik Ducrozet of Pictet has estimated that €10bn a month could be put to work initially, raised by redemptions of assets bought under the Pandemic Emergency Purchase Programme. But, he points out, twice that amount of Italian debt needs to be rolled over through the rest of this year. Pepp reinvestment “probably falls short of the support needed in case of severe fragmentation and protracted market dislocations”. The ECB may have to go further.So this could get expensive. But there is the possibility of a significant long-term upside. The original sin of the eurozone is common currency and monetary policy without a central fiscal policy, like the one enjoyed by the US. Anti-fragmentation could be a step in that direction. Here is George Saravelos of Deutsche Bank:The [proposed anti-fragmentation] tool increases implicit fiscal pooling and establishes a de facto eurobond. A peripheral backstop can theoretically be conceived as a put option on [Italian bonds] and a call option on [German] Bunds thereby creating a more stable GDP-weighted risk-free rate. Assuming the operations are sterilised, the eurosystem will absorb peripheral risk on its balance sheet in exchange for short-dated risk-free liabilities (most likely term deposits) thereby increasing fiscal pooling. An investable [European bond] basket improves European yield. Consider that the Euro-US 10-year interest rate differential is at an eight-year high outside of Covid.Europe has proven in the past that, under duress, it will do what it takes to hold together its fragile and faulted monetary-financial-political structure. If it does so again this time, it might also end up making some structural improvement.Given this, it might be tempting to try the Jon Corzine memorial trade, and bet that spreads will compress before you get margin called. Not a stupid bet but, as Corzine discovered, a tricky one to time.One good readThe champ, at rest. More

Good morning and welcome to Europe Express.When leaders gather tomorrow for a two-day summit in Brussels, energy will not be officially on the agenda. But as the International Energy Agency is warning today that the bloc must prepare immediately for the complete severance of Russian gas exports this winter, the continuing energy crisis has the potential to dominate leaders’ discussions once again. With the European Commission proposing tighter enforcement of sustainability sanctions in new trade deals today, we’ll look at how that squares with a call from more than half of EU countries to sign more trade agreements.And in Polish news, we’ll explore the reasons behind Jarosław Kaczyński’s decision to withdraw from government.Hot button issuesThe worsening energy crisis may not feature in the draft conclusions for the EU’s summit this week — or indeed in European Council president Charles Michel’s invitation letter — but it will be top of many leaders’ minds as they arrive in Brussels tomorrow, write Sam Fleming and Valentina Pop in Brussels. The situation is becoming increasingly dire. Energy prices were up nearly 40 per cent in May compared with a year earlier, making it far and away the biggest driver of the euro area’s heady 8.1 per cent inflation rate. Gas prices are now at least six times more expensive in the euro area than they were before the pandemic. The situation is just becoming worse as Russia throttles back gas deliveries. The question is what member states can do about it, as the politically toxic spectre of inflation hangs ever more heavily over their electoral fortunes. There are few easy answers. Brussels has touted its efforts to identify alternative gas supplies and drive fresh renewables investment, and it is busy encouraging member states to do more to save more energy, including by lowering the settings on air conditioners. But many of the solutions are likely to remain quite country specific. Germany, for example, ranks alongside the member states (among them also the Netherlands and Austria) that are firing up coal plants as they try to offset soaring power prices. The moves have already prompted a warning from the commission that member states should not lose sight of their green goals. Christian Lindner, the German finance minister, this week tweeted on the previously unmentionable idea of extending the lifespans of his country’s nuclear power plants, something that has generally been viewed as politically impossible. Mario Draghi, the Italian prime minister, reiterated his appetite for the imposition of price caps when he spoke to the country’s parliament yesterday, saying action at EU level was even more urgent, given reduced gas supplies from Moscow. He will probably come to Brussels ready to proselytise on the topic once again. But he has struggled in the past to win over the EU’s 27 member states to the idea. Looming in the background is the fraught question of whether energy rationing may be needed, as the EU works on co-ordinated plans in case the supply situation worsens.The energy topic is set to play out at G7 level too, as a summit looms in Germany on Sunday. The US has been imploring its allies to consider price caps on oil as it seeks to drive down the Kremlin’s revenue — and undercut the momentum behind the rampant US inflation rate. This idea, too, has been met with scepticism from a number of big European capitals, but it remains a live debate going into the G7 summit in the Bavarian Alps. There may be more mileage in the concept if the price cap is targeted at lower and middle-income oil importers. As for the leaders’ discussions in Brussels, the euro summit on Friday is likely to see an eruption of angst over soaring inflation and energy prices, as member states become increasingly alarmed by where the region’s economies are heading. “With Ukraine’s candidate membership out of the way, it offers room for EUCO to turn into a group-therapy session to discuss domestic issues such as energy prices and inflation,” said an EU diplomat.Chart du jour: ECB warning

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Read more here about why the European Central Bank is projecting that food prices in the eurozone will continue to rise at near-record rates for at least another year.Free trade allianceMore than half the EU’s member states have written a forthright letter to trade commissioner Valdis Dombrovskis telling him to sign more free trade agreements, writes Andy Bounds in Groningen.Several deals are on ice because of concerns over deforestation, cheap food imports or security (talks with Australia froze temporarily after it cancelled a contract to buy French submarines in favour of Anglo-American ones).The 15 governments signing the letter, sent on Monday, include noted free traders such as Germany and Sweden but also Portugal and Italy. The signatures of two of the big three member states puts pressure on the third, France, which has used its presidency to delay approval of deals with Chile and New Zealand. The letter warns that other countries are overtaking the EU in expanding trade ties.The Regional Comprehensive Economic Partnership (RCEP) between Asean and Japan, China, South Korea, Australia, and New Zealand enters into force this year and “should be a wake-up call for Europe”, the letter says.“With RCEP in place, Japan will have free trade agreements covering 80 per cent of its trade. The EU’s trade agreements cover only about a third of our external trade. With 85 per cent of the world’s future growth projected to occur outside the EU, we need to do better than this.”The commission has relaunched talks with India last week and officials say a New Zealand deal could be ready within weeks.But today Dombrovskis will announce tighter enforcement of sustainability sanctions in new deals, which could make getting partners to sign harder.The letter calls for the acceleration of trade agreements with New Zealand, Australia, India, and Indonesia and the adoption of concluded deals with Chile, Mexico, and Mercosur.Trade deals “would ensure our access to key foreign markets, our long-term economic growth, and our geopolitical standing in the world” when the Russian invasion of Ukraine has showcased the rise of autocracies. “We need to take advantage of windows of opportunity when they open, otherwise others will,” it warns.Out, but not quiteBy announcing his withdrawal from government yesterday, Jarosław Kaczyński, the leader of Poland’s governing Law and Justice party, set off the unofficial starting gun for the campaign ahead of next year’s parliamentary elections, writes Raphael Minder in Warsaw.His withdrawal was anticipated, since Kaczyński had made clear before the Ukraine war that he would leave a government in which he retained a second-tier role, as deputy prime minister as well as head of a national security committee. But as the mastermind of his party, Kaczyński remains Poland’s most influential politician, with the result that his announcement brought the focus back on Poland’s tense domestic politics after months in which they had been eclipsed by the more pressing issue of containing Russia’s military threat. In a comment made to Poland’s national news agency, Kaczyński said “I have decided to concentrate on what is most important for the future of Poland”, namely helping his party win elections that are expected to take place in the autumn of 2023.Since February, Russia’s invasion of Ukraine has not only overshadowed Poland’s internal political debate but also helped the staunchly anti-Russian government in Warsaw recast itself as a defender of western democratic values, having previously been castigated as the largest flouter of EU rules within the 27-nation bloc. Having threatened to withhold post-pandemic recovery funds for Poland, the commission instead approved earlier this month a financial aid package of as much as €36bn that had been held up because of a dispute over whether the Polish judiciary has sufficient independence.Kaczyński was also quick to distance Poland from Hungary — its previously clearest ally in its disputes with Brussels — and denounce instead Viktor Orbán, the Hungarian prime minister, for maintaining his allegiance to Moscow. In a radio interview in April, he described Hungary’s stance in the Ukraine conflict as “very sad.”As further evidence of the reversal of roles, Hungary blocked last week an EU corporate tax deal that Poland had previously opposed but on which Poland has now changed tack. The Ukraine war has helped Law and Justice widen its lead over rival parties, according to opinion polls. But as a wily veteran politician, Kaczyński will also know that his party is facing an uncertain year in which the nationalist sentiments sparked by Russia could gradually be overtaken by economic malaise, as Poland now finds itself struggling with one of Europe’s highest inflation rates. As Kaczyński warned yesterday, his party “must regain vigour” in order to win a third term in office. What to watch today Prime minister of Croatia, Andrej Plenković, speaks in the European parliamentEuropean Commission president Ursula von der Leyen and Spanish PM Pedro Sánchez present an initiative for vaccine co-operation with Latin AmericaEuropean Commission tables proposals on halving the use of pesticides by 2030Notable, Quotable

German controversy: Chancellor Olaf Scholz’s foreign policy adviser, Jens Plötner, has sparked controversy yesterday when he said the media should focus more on Germany’s future relationship with Russia than on arming Ukraine and criticised Kyiv’s structural problems with the rule of law.Petrol engine fan: Germany’s finance minister, Christian Lindner, has rejected EU plans for a de facto ban on the sale of new combustion engines cars by 2035. He also floated the possibility of keeping Germany’s nuclear reactors going instead of using coal-powered plants. More

Your browser does not support playing this file but you can still download the MP3 file to play locally.The Federal Reserve announced its largest interest rate increase since 1994. And it’s the equivalent of the US central bank taking a baseball bat to the economy, according to the FT’s US financial commentator Robert Armstrong. In this week’s episode, Armstrong is helping us to make sense of the Fed’s announcement. He’ll explain what the recent hike means for the economy and for investors, and tell us whether or not we should be freaking out. For further reading:Fed smash! How fast is the US economy slowing? Bear market to the rescueTime for strong medicine: How central banks got tough on inflationSign up here to get the Unhedged newsletter sent straight to your inbox every weekday. On Twitter, follow Robert Armstrong (@rbrtrmstrng)Read a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

Over the past few years one of the biggest concerns for many of our clients has been the danger of the government introducing a wealth tax. Today many of us face an even greater threat — tax by stealth.The government does not need to incur the opprobrium of creating a new tax on wealth. It can do very nicely just by freezing existing tax allowances. We have entered a fiscal ice age at the point when it looks set to hurt savers most. Nearly all the core tax allowances have been frozen — some for several years.

Effect of inflation on frozen tax allowancesUnchanged sinceCurrent figureInflation adjusted figure for April 2022DifferenceAdditional tax bill if over the adjusted thresholdIncome tax — personal allowance2019*£12,570£13,390£820£164Income tax — basic rate upper threshold2019**£37,700£40,169£2,469£494Income tax — higher rate upper threshold2010£150,000£193,453£43,453£2,173Income tax -income limit for personal allowance2010£100,000£128,969£28,969£5,028^Pensions — lifetime allowance2020£1,073,100£1,133,606£60,506£33,278~Pensions — annual allowance2016£40,000£45,692£5,692£2,277~ ~IHT — nil rate band2009£325,000£427,951£102,951£41,181IHT — residence nil rate band (CPIH adjusted)2020£175,000£184,867£9,867£3,947IHT — residence nil rate band (house price adjusted)2020£175,000£210,382^^£35,382£14,153IHT — residence nil rate band taper2017£2,000,000£2,244,194£244,194Up to £70,000Isa — annual allowance2017£20,000£22,442£2,442The annual CPIH from the previous calendar year has been used to calculate an inflation adjusted threshold for each April. * Income tax personal allowance changed marginally from £12,500 to £12,570 in 2021-22. ** Income tax basic rate threshold changed marginally from £37,500 to £37,700 in 2021-22. ^Additional tax cost to someone losing the full personal allowance on 40% marginal tax rate. ~ Additional tax at 55% assuming excess is drawn in cash. If residue is left in fund, tax is 25% plus income tax at marginal rate when drawn. ~ ~ Lost tax benefit to someone on 40% marginal tax rate. ^^ Inflation calculated using annual house price rises instead of CPIH. Source: James Hambro & Partners

Today, inflation is 7.8 per cent (including housing costs for property owners) and is forecast to breach 11 per cent by October. Few of us expect last week’s interest rate increase to give much of a boost to our cash savings. Savings accounts are lagging so far behind inflation that your cash is set to halve in real terms in around 14 years.Our research shows what allowances would have been by the start of the financial year — April 2022 — if they had tracked inflation. More recent price rises mean the damage these tax freezes cause is likely to grow even more sharply this year. But let’s just look at where we are now. It adds up. The worst is inheritance tax (IHT). The nil-rate band threshold has been frozen at £325,000 since 2009-10. Had it risen in line with inflation it would be £427,951 now — a difference of £102,951.The residence nil-rate IHT band has been frozen at £175,000 since 2020-21 and, like its partner, will remain in the ice box until 2026 at least. Adjusted in line with inflation, it would be £184,867 now. For a couple dying today and leaving a qualifying estate worth in excess of the thresholds, the impact of these freezes could be £90,255 extra in IHT. It could be as much as £110,666 if you believe the residence nil-rate band should have risen in line with house prices.On top of this, we should also remember the residence nil-rate band taper, which reduces the allowance by £1 for every £2 an estate is worth over £2mn. Had that risen in line with inflation it would be £2,244,194 today.Turning to the living, one of the most hated tax thresholds for my clients is the pension lifetime allowance. It is considered not just punitive but also devilishly and needlessly complex. The threshold (frozen since 2020-21) should now be £1,133,606 by our calculations. This could mean an additional tax charge of over £33,000 for those breaching the limits and taking the surplus in cash. And that’s before we consider the pension contribution taper for high earners or the effects of big cuts in pension contribution limits over the past 20 years.Income tax thresholds have barely risen since 2019, costing a basic rate taxpayer £164 this year, a higher rate taxpayer £494 and an additional rate taxpayer £2,173. I have written before about how those earning between £100,000 and £125,140 lose £1 of their personal allowance for every £2 they earn over £100,000. These people effectively pay a marginal rate of 60 per cent tax on earnings within this bracket. As wages rise, more people are trapped by it. The taper was introduced in 2010 and has remained at that level ever since. Adjusted for inflation, it should start at £128,969 now — a difference of £28,969. This means an additional tax cost of at least £5,028 for someone losing the full personal allowance.What can any of us do about this?Use your allowancesThe obvious first step is to ensure you make the most of the allowances available — and, if you expect to be hit by IHT, start planning now. If you are retired and can afford it, consider drawing more heavily from your general investment accounts and Isas than your pensions. Money in a pension fund is currently ringfenced from IHT. Use any unused Isa allowance to shelter money sitting outside a tax wrapper to protect it from capital gains and dividend taxes. These tax-sheltered funds can also pass to a surviving spouse or civil partner.Invest smartlyEveryone has distinct circumstances and needs, but we generally suggest clients keep up to two years’ worth of annual expenditure in cash savings. Many wealthy people hold far too much in cash. Over the past decade that has not been particularly problematic, but with today’s inflation it is. You might say that being invested in bonds and equities has not been a smart move in the past year. But history suggests that the time to invest is when it feels most painful. If investing today, consider drip-feeding money into investments to reduce the risk of bad market timing.Give it awayYour biggest gift to your children is not to be a burden on them. Make sure you have what you need — and remember when budgeting for potential later-life care costs to allow for these to rise with inflation and then some. If you have a surplus after that, consider beginning to give it away. The second major concern of most of my clients is the financial plight of their children and grandchildren. My generation feels blessed. Many of us had free university education, affordable housing and final-salary pension schemes. To give those graduating today a similar advantage would cost a substantial six-figure sum. Giving money is the topic of another day — it is not as simple as it sounds — but it is now the subject of many client meetings.Spend itFinally, how about spending it? I have seen too many clients postpone retirement because of the income or status employment brings, only to meet life-changing events such as dementia and terminal illness soon after they finally stopped work.I have one client who was successful enough to retire in his 50s. He and his wife travel around the world, staying in Airbnb homes. Others have gone back to university; one is writing a book. I have huge admiration for them.Accumulating wealth is hard work. It should not become a burden to us once we have succeeded, causing us to fret anxiously about its preservation. Remember that at the same time as your savings are being eroded your dreams are becoming more expensive. Live life!Charles Calkin is a financial planner at wealth manager James Hambro & Partners More

When the Federal Reserve released its semi-annual report on monetary policy to Congress last Friday, one word stood out in the 70-odd-page document. The US central bank’s commitment to restoring price stability was “unconditional”, policymakers wrote, in their most emphatic pledge to date to tackle the most acute inflation problem in roughly 40 years.While that promise eliminated any doubt of the Fed’s overarching priorities, it also suggested that some of the historic economic recovery since the depths of the pandemic might now need to be sacrificed in order to fulfil that goal.Fed chair Jay Powell will have to contend with these queries on Wednesday, when he faces US lawmakers for the first of two congressional hearings on the state of the economy and how the Fed seeks to accomplish its dual mandate of stable prices and maximum employment.His testimony comes at a watershed moment not only for the US central bank — which last week markedly stepped up its efforts to quell soaring prices by implementing the biggest interest rate increase since 1994 — but also the White House, which is trying to manage expectations of a slowdown in growth and the labour market heading into November’s midterm elections and beyond.“There’s nothing inevitable about a recession,” US president Joe Biden told reporters this week, echoing language used by Janet Yellen, the US Treasury secretary, and Brian Deese, the director of the National Economic Council.Biden’s remarks followed a conversation with former Treasury secretary Lawrence Summers, who criticised the president’s stimulus plan last year as well as Fed policy for stoking inflation, and is now raising red flags about the economic pain that it might take to successfully fight high prices.“We need five years of unemployment above 5 per cent to contain inflation — in other words, we need two years of 7.5 per cent unemployment, or five years of 6 per cent unemployment, or one year of 10 per cent unemployment,” Summers warned on Monday. “There are numbers that are remarkably discouraging relative to the [Fed] view.”

Compared to March’s forecasts, which many economists billed as “wishful thinking”, the latest individual projections published by the Fed last week more explicitly acknowledged that an economic slowdown will be necessary in order to bring down inflation. But importantly, they stopped short of suggesting efforts to cool the economy will lead to a recession.Most officials now project the benchmark policy rate to peak at roughly 3.75 per cent by the end of next year, with core inflation slowing from its 4.9 per cent annual pace, as of April, to 2.7 per cent in 2023. The unemployment rate is still only set to rise 0.03 percentage points to 3.9 per cent at that point, before eventually reaching 4.1 per cent in 2024.That is a step up from the 3.6 per cent level forecast three months ago, but still a conservative estimate, economists warn.“[The Fed] have a daunting task ahead of them,” said Karen Dynan, an economics professor at Harvard University, who previously worked at the central bank. “The experience of the past year really raises questions about whether such a large retreat [in inflation] is realistic without more pain.”Powell has only gone so far as to concede that the path to achieving a so-called soft landing has become more challenging, especially as external forces — such as the commodity price surge stemming from Russia’s invasion of Ukraine and prolonged supply chain disruptions tied to Covid-19 lockdowns — have exacerbated inflationary pressures.“What’s becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not,” he said at a press conference last week, stressing that until there is “compelling evidence” that inflation is coming under control, the central bank would press ahead with its aggressive approach to raising interest rates. Fed officials have begun to lay the groundwork for at least one more 0.75 percentage point rate rise at their next meeting in July, with market participants girding for even further tightening. This is based on the expectation that the inflation data over the coming months will not improve at a pace that would warrant any easing up from the central bank.According to estimates published by the Fed on Friday, which are purely based on theoretical policy rules the central bank uses as guideposts but does not “mechanically” follow, interest rates should be between 4 and 7 per cent given the current economic backdrop. More

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Recent crises such as the pandemic and Russia’s invasion of Ukraine have thrown the vulnerability of supply chains, and with them, food supplies, into sharp focus. The war between Ukraine and Russia has already sent wheat prices to a 14-year high. And fertiliser prices have also hit record highs, partly due to the war and the impact of sanctions. But a landmark UN report says climate-related shocks, such as extreme weather events will become more common and severe as the world warms and could further upend interconnected supply chains. That could drive up the price of critical items such as food and hamper international development. For example, wildfires devastated agricultural crops in Russia in 2010 and 2011, disrupting wheat supply chains and causing a spike in food prices. As well as the direct impacts of extreme weather, the UN report said shocks, such as energy outages, could hit food supply chains. Damage to food storage caused by electricity failures and to transport routes, could significantly decrease availability and increase the cost of 22 highly perishable nutritious foods, such as fruits, vegetables, fish, meat, and dairy, the report said. It also stated that climate change will make it more difficult to grow food in certain areas of the world. Despite the gloomy forecasts, the UN report has suggested some actions that could mitigate the negative impacts on food security. These range from better managed fisheries, to forest conservation, and farm and landscape diversification. The report pointed out that agroecological farming, sustainable farming that works with nature, has been shown to increase resilience, yields, reduce emissions, and improve farm incomes. It also talked about agroforestry, in which trees and shrubs are deliberately grown in the same areas as crops and livestock. Studies referenced in the report show that agroforestry can store 20 to 33 per cent more soil carbon than conventional agriculture. Another recommendation involves minimising nitrogen-based fertilisers and other synthetic inputs. And the report also says that shifting diets away from meat and dairy would make a positive difference. The world has warmed by about 1.1 degree Celsius since the pre-industrial period and is on track for 3 degrees by 2100. While agriculture is a significant source of greenhouse gas emissions, it also has strong potential to reduce this pollution. [MUSIC PLAYING] More