Aurelia Butler

(Reuters) – Philadelphia Federal Reserve Bank President Patrick Harker on Wednesday said he believes the central bank can bring inflation down without sending the economy into a recession, in part because the labor market is currently strong. “We may have a few quarters of negative growth, but again, that’s not what I’m estimating, what I’m forecasting right now,” Harker said in a virtual event with the Mid-Size Bank Coalition of America, adding the economy can withstand a “measured” and “methodical” tightening of financial conditions that would bring down demand. “We don’t want to overdo it, but we have to act.” More

British inflation surged last month to its highest annual rate since 1982, with consumer price inflation hitting 9% in April, pressuring Sunak to do more to help those struggling to pay rising food, fuel and energy bills.”Our role in government is to cut costs for families. I cannot pretend this will be easy,” Sunak will say at a Confederation of British Industry dinner, according to extracts of his speech released in advance.”There is no measure any government could take, no law we could pass, that can make these global forces disappear overnight. The next few months will be tough.”Sunak has previously said he wants to wait to see the extent of a further rise in regulated domestic power tariffs in the autumn before deciding on how much more support households need.In his speech on Wednesday, he will also reiterate a promise made in March to cut business taxes later this year and encourage employers to do their bit to ease the economic pain for households by keeping up investment and innovation spending.”We need you to invest more, train more, and innovate more. In the Autumn Budget we will cut your taxes to encourage you to do all those things,” he will say.”That is the path to higher productivity, higher living standards, and a more prosperous and secure future.” CBI Director-General Tony Danker welcomed Sunak’s willingness to help households and provide incentives for business investment but said the need for support was immediate.”There’s a window now where firms are deciding whether to stick or twist on their spending plans, so not everything can wait until autumn,” he said. “Immediate delivery of existing commitments can help protect business confidence.” More

BONN, Germany (Reuters) – U.S. Treasury Secretary Janet Yellen on Wednesday confirmed she is advocating within the Biden administration for eliminating some tariffs on Chinese imports that “aren’t very strategic” but are hurting U.S. consumers and businesses.Yellen told a press conference ahead of a G7 finance ministers and central bank governors’ meeting that internal discussions are underway about the punitive “Section 301″ tariffs imposed by former U.S. president Donald Trump on hundreds of billions of dollars in Chinese goods.”Some of them, to me, seem as though they impose more harm on consumers and businesses and aren’t very strategic in the sense of addressing real issues we have with China,” she said, referring to unfair trade practices, national security issues or supply chain vulnerabilities.Reuters on Tuesday reported exclusively that U.S. President Joe Biden will have to resolve the heated debate among his aides over whether to cut the tariffs as his administration tries to battle high inflation, citing sources familiar with the conversations.While Yellen has argued for removing some of the tariffs, the sources said U.S. Trade Representative Katherine Tai prefers to keep them in place to develop a more strategic China trade agenda that protects U.S. jobs and China’s behavior in global markets. This approach could even include new strategic tariffs. Many of the goods subject to the punitive tariffs of up to 25% have little to do with the aims of the Trump administration’s Section 301 investigation into China’s misappropriation of U.S. technology and intellectual property. Tariffs on consumer goods from bicycles to apparel were imposed after China retaliated against initial rounds of Trump’s tariffs.Some economists, both inside and outside the administration, along with many business groups, have advocated for China tariff reductions as a way to help tame high inflation brought on by COVID-19 supply chain disruptions, a strong recovery and food and energy price spikes due to Russia’s invasion of Ukraine.Yellen has said that tariff cuts may help ease inflation but would not likely be a “game changer.””So I see a case not only because of inflation, but because there would be benefits to consumers and firms from…cutting some of them. But we’re having these discussions.”But she said she respects the opinions that she has heard in the tariff policy debates.”There are a variety of valid concerns,” she said. “And we really haven’t sorted it out yet — come to agreement on where to be where to be on tariffs.” More

LONDON (Reuters) – In volatile currency markets, one trade stands out as an easy bet: selling the British pound.With the world’s fifth-biggest economy grappling with a particularly unhealthy cocktail of slowing growth and surging inflation, the British currency has become the medium of choice to express a negative view. Official data on Wednesday showed inflation reached a 40-year high of 9% in April – more than four times the Bank of England’s 2% target while Britain’s worst cost of living crisis in three decades will not subside until late this year, according to a Reuters poll.And though the BoE was the first among major central banks to raise interest rates in December, now their predicted future path is far less steep than some of its global peers including the U.S. Federal Reserve.While the British economy’s problems are broadly similar to what other policymakers are grappling with, a few unique factors additionally weigh on the pound.One is the potential for a messy trade conflict with the European Union if Britain threatens to push ahead with a law to override parts of a post-Brexit trade deal for Northern Ireland.Any protracted trade war would threaten to further widen the current account deficit and subsequently weaken the currency. Then there is an increase in tax burdens, which followed massive temporary relief for struggling sectors during the pandemic and which has hit workers and employers already saddled with surging energy bills, adding to the drag on the economy. “The chance of a UK recession is all but guaranteed as there are just too many headwinds facing the economy,” said Wouter Sturkenboom, chief investment strategist for EMEA and APAC at Northern Trust (NASDAQ:NTRS) Asset Management. Money markets now expect only 120 basis points of cumulative rate hikes by the end of the year compared to the Fed’s nearly two full percentage points. Even a more cautious European Central Bank is expected to raise interest rates by 108 basis points over that period.Jane Foley, head of FX strategy at Rabobank says markets have slashed their UK rate hike expectations in recent weeks because recession risks have grown. Respondents in a Reuters poll assign a 35% probability of a recession within a year.Kaspar Hense, a senior portfolio manager at Bluebay Asset Management in London, said he was short the currency in his portfolios.”The pound has the weakest outlook among all the major currencies as the central bank’s reluctance to raise interest rates aggressively means it has the lowest inflation-adjusted yield among its rivals,” he said.As the war in Ukraine added more fuel to price pressures, UK growth expectations and consumer confidence tumbled because of the soaring inflation, the protracted conflict and concerns about the impact of extended COVID lockdowns on growth in China, Britain’s third biggest trading partner.Citibank indexes that measure how economic data fare compared with expectations are lower for Britain than for the rest of Europe or the United States, suggesting growing economic headwinds ahead.TURN FOR THE WORSEThat suggests any British rate hike cycle will be short-lived. Using the spread between three year and 1-year market interest rates, HSBC strategists predict interest rates will peak in June 2023, rising to 2.5%, and then rate cuts will follow.”The consumer outlook has taken a big turn for the worse, as the real income squeeze bites hard and this will make it very difficult for the Bank of England to deliver anything close to what is priced into the forward rates market,” HSBC said.HSBC now expects the pound to end the year at $1.20, some 8% weaker than its earlier $1.30 forecast.On Wednesday, the pound was trading at $1.24, down nearly 8% so far this year and not far from a May 2020 low of below $1.21 touched again last week.The British currency’s transformation into a poster child of the stagflation risks facing the global economy has been swift. In early December, hedge funds still were still betting against the dollar and favouring the pound. Six months later that has completely flipped to the biggest short pound bet in more than 2-1/2 years. The outlook remains bleak. Three-month British pound risk reversals which measure a ratio of sell to buy options are at one-month highs while expected price swings are holding near two-year highs. More