Aurelia Butler

Testifying before Congress earlier this month, Jay Powell was asked if the US Federal Reserve was prepared to “do what it takes” to get inflation back under control — and if necessary, follow in the footsteps of his venerated predecessor, Paul Volcker, who regained price stability “at all costs”.Calling the late Volcker “the greatest economic public servant of the era”, Powell responded: “I hope history will record that the answer to your question is yes.”The chair of the central bank on Wednesday sought to drive home that point, framing the first interest rate rise since 2018 as the start of a series of increases and emphasising that the Federal Open Market Committee (FOMC) was “acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that”.Volcker’s efforts to squeeze out inflation sent the US economy into a steep recession. But Powell struck an optimistic note at a press conference on Wednesday, saying the sheer strength of the US economy meant it could “flourish” in the face of less accommodative monetary policy.Economists have welcomed Powell’s embrace of a much more aggressive policy approach, compared with the gradual pace signalled just three months ago. They warn, however, that the amount of monetary tightening potentially needed to quell inflation may produce much more economic pain than the Fed is willing to admit.“This was a big, important step in the right direction,” said Ethan Harris, head of global economics research at Bank of America. “But there could be other much less friendly steps where they basically say, ‘we’re taking away the punch bowl and we’re really going to end the party’.”Powell’s hawkish tilt was underscored by the so-called dot plot of individual interest rate projections, which showed officials expect to lift the federal funds rate to 1.9 per cent by the end of the year from the target range of 0.25 per cent to 0.50 per cent established on Wednesday — translating to six additional quarter-point increases this year.Additional rate rises pencilled in for 2023 would bring the benchmark interest rate to 2.8 per cent. That is slightly higher than the level a majority of policymakers believe will neither hasten nor hold up growth, known as the neutral rate, which they pegged at 2.4 per cent.At that pace, the majority of Fed officials forecast core inflation to moderate from 4.1 per cent by the end of 2022 to 2.6 per cent in 2023, before dropping to 2.3 per cent the year after. While economic growth is set to slow from 2.8 per cent to 2 per cent over the time period, according to the new projections, policymakers saw almost no change in the unemployment rate. Unemployment is expected to settle at 3.5 per cent this year and next before ticking up only 0.1 percentage point by 2024, despite the large increase in rates. For Peter Hooper, an almost three-decade Fed veteran who is now the global head of economic research at Deutsche Bank, the Fed’s overarching outlook amounted to “wishful thinking”.“The problem is that they need to acknowledge at some point that the economy is going to have to slow and unemployment is going to have to rise to begin to take some of this extra inflation out of the system if there’s a risk of it becoming increasingly embedded,” he said. “A lot of things have to go amazingly well for you to bring down inflation substantially.”Hooper said the fed funds rate might need to rise as much as 1 percentage point above “neutral” to roughly 3.5 per cent in order to tame price pressures.Even at the projected pace of tightening, Roberto Perli, a former Fed staffer, warned the central bank was “playing with fire”. He sees the risk of a recession rising for 2023.“The risk is that the FOMC may be too focused on bringing down inflation and willing to roll the dice with respect to growth and the labour market,” said Perli, who is now the head of global policy research at Piper Sandler.Powell on Wednesday again said the Fed would be “nimble” in its thinking about setting monetary policy, a point underscored by the wide range in central bank officials’ forecasts for the funds rate through this year, which spanned from 1.4 per cent to 3.1 per cent.Constance Hunter, global head of strategy and ESG at AIG, said the diversity of views indicated “a Fed that has a certain amount of agility with regard to how it might respond to events as they unfold for the remainder of this year”.

That may even mean reducing the pace of interest rate increases if growth slows too quickly, according to some economists, or using a policy tool the Fed has not deployed since 2000 — boosting the size of its rate increase to half a percentage point, said Jason Thomas, head of global research at Carlyle. It could also speed up the pace at which it shrinks its $9tn balance sheet.With clear signs that inflationary pressures have rippled out well beyond the pandemic-affected sectors where they began, Sonal Desai, chief investment officer at Franklin Templeton, said it was much more likely the Fed would lean in a more hawkish direction and would be forced to raise interest rates much more significantly than anticipated. The political environment made that more probable as well, she said.“It is rare for a central bank to have zero political pushback on tightening,” she said. “I think the level of conviction [of] the Fed comes from the fact that there is full, broad cross-party support for getting inflation under control because it is the single most significant issue for Americans.” More

Veronika Mironova, who runs a home for sick and abandoned pets in Voronezh in southern Russia, rushed to stock up on special medical cat food as sanctions against the country started to hit. She feared that prices on the imported products could soon soar and supplies run short. “Only afterwards did I realise that I needed to be doing the same for myself,” said Mironova. The 39-year-old has diabetes and looks after her mother, who also suffers from the disease. They rely on drugs and medical devices from Denmark, Ireland and Japan. “But by then it was too late. All the medicines were gone. Insulin was missing here and in Moscow,” said Mironova, speaking by telephone from her home in Voronezh, a city less than 200km from the border with eastern Ukraine. From medical devices to staple goods and electronic devices, prices on many products have shot up as sanctions imposed in response to the invasion of Ukraine blow a hole in Russia’s economy. Panic buying of staple goods whose prices were capped has been widely reported, as Russians anticipate shortages of imported goods and a cost of living crisis after the rouble plunged in value. The price for new cars made by foreign brands was on average 16 per cent higher last week than in February, according to the state statistics service, while televisions had risen by 20 per cent, vacuum cleaners 17 per cent and smartphones 12 per cent. “It’s a spike in panic demand because of expected shortages,” said a Moscow-based economist who asked not to be named. “It’s inflation of the middle class rushing to buy something — inflation of the poor will follow.”The cost of some food products, such as sugar, bananas and tomatoes, has risen more than 15 per cent since last month, the service added.Admitting the economic pain caused by the sanctions, Vladimir Putin, Russia’s president, on Wednesday said he would raise pensions and salaries. “I understand that rising prices are seriously hitting people’s incomes,” he added. The government has set up a hotline for people to complain about unfair price increases.For many, though, the measures may not be enough. In the week to March 15, nearly half of those earning less than Rb50,000 ($506) a month said their financial conditions had worsened over the past year, 4 percentage points up from the week to February 15, according to data group Morning Consult. Economists expect a combination of sanctions, high interest rates, soaring inflation, capital outflows, lower business investment and weak consumer confidence to drag Russia into a deep recession this year. Scope, the rating agency, forecast that the economy will shrink more than 10 per cent this year, having predicted growth of 2.7 per cent in December. In the first week after the invasion, there was a Rb2.5tn outflow of cash from the Russian banking system, according to the country’s central bank, as depositors queued in the street to withdraw funds. But central bank interventions have since helped to stabilise the economy. The monetary base — the total cash in circulation and held in bank deposits — increased 14 per cent to more than Rb16.3tn in the past month.“Russians took several trillion roubles out of banks in the first days of war, but now it’s coming back because of higher rates, no major bank failures and capital controls,” said the Moscow-based economist, adding that a “banking collapse” had been “averted”.Yet the possibility of a sharp rise in unemployment looms as businesses that relied on imports struggle to continue operations. Some western businesses that were major employers have suspended Russian operations. Dmitry Peskov, Kremlin spokesman, said last week that he hoped “that fewer than millions of people” would be out of work.For now, Russian social media channels are flooded with pictures of empty shelves in supermarkets and videos of people scrambling to buy bags of sugar and grains. Mironova said she had seen empty shelves in Voronezh, too. “People here are buying up sugar, flour and buckwheat in the tonnes.”“We’re not doing that,” she said, adding that she thought there was no risk to food supplies and no need to fuel a run on buckwheat in an agriculturally rich region. Food products were among the least likely to be affected by sanctions, analysts said, since the largest supermarkets stock a relatively small share of imported goods. Russia has boosted agricultural production since 2014, when it restricted imports of some fresh products from Europe in retaliation for sanctions imposed after its annexation of Crimea. But one executive at a major Russian retailer, asking to remain anonymous, said: “The problem will be with imported goods. All prices for imported goods are being raised. What will come next is unclear, to be honest.” His business had already raised prices on some imported beverages. Writing on the social media platform VKontakte, after Instagram was banned by the Russian government, one St Petersburg-based baker said prices on the Belgian chocolate and French cacao she uses in her cakes had risen 25 per cent. Basics such as nuts and dairy products were also on the increase. Many Russians who earn money from overseas commerce have also been cut off from their source of income, unable to receive international payments because Visa, Mastercard, Western Union and PayPal suspended operations. Some have rushed to sign up to China’s UnionPay payments system, but face weeks of delays because of shortages of plastic cards. At home in Voronezh, Mironova said she had struggled to find the drugs she needed, and only had enough medical supplies for the next two months. She hopes that the government health service will provide her with imported insulin at an appointment next month, but fears that it is unlikely. For the time being, Mironova said she had stocked up on sedatives instead, — the only way she can handle the stress of a war that she wants to end. Her home is near an air base, and she hears the roar of fighter planes taking off in the direction of Ukraine from dawn until dusk. “We’re monitoring all the pharmacies online and they all say that they don’t have it in stock — wait for deliveries, wait for deliveries,” she added.“People understand that at some point things will change, but they don’t know when. A month? Two? How much time has to pass?” More

(Reuters) – Federal Reserve policymakers on Wednesday signaled much faster interest rates hikes this year than they had expected just a few months ago, getting them to about 1.9% by the end of the year as they try to tamp down soaring inflation. Markets swiftly priced in their agreement, and then some, with trading in contracts tied to the Fed’s target policy rate pricing in a rate of 1.93% by the end of 2022.The last time the Fed raised rates as quickly as policymakers now expect was in 2004-2006. Back then, they lifted rates by a quarter of a percentage point at every meeting; since then they have gone much slower when tightening policy, amid weaker recoveries and sleepier inflation. Now, with inflation by the Fed’s preferred inflation gauge running at three times its 2% goal, policymakers are “acutely” aware of the need to stabilize prices and committed to doing so, Fed Chair Jerome Powell said Wednesday. But the exact tempo of the rate hikes remains in question, with markets pricing in a good chance of a half-point interest rate hike in May or June. Powell left the door well open to that possibility, saying repeatedly that if inflation did not cool off as expected, the Fed would accelerate its rate hikes. And indeed, seven of the Fed’s 16 policymakers penciled in rate hike paths that would require at least one half-point increase, if not more, this year. “Clearly, the (Fed’s policysetting) committee intended to send an aggressive signal of their resolve to rein in inflation and keep inflation expectations in check,” wrote Regions’ Chief Economist Richard Moody. The markets got the message. More

WASHINGTON (Reuters) -China Eastern Airlines Corp on Wednesday asked the U.S. Transportation Department for approval to temporarily shift New York to Shanghai flights over COVID-19 measures.The carrier said because of “evolving coronavirus pandemic control measures in the Shanghai region, China Eastern has been instructed” by Chinese aviation officials “to divert Shanghai-bound passenger flights arriving from the U.S. to certain alternate airports in China.”China Eastern asked approval starting March 31 to move existing twice-weekly Shanghai westbound passenger flights from New York to China’s Fuzhou Changle International Airport through the end of April.China’s aviation regulator said on Tuesday it will divert 106 international flights scheduled to arrive in Shanghai to other domestic cities from March 21 to May 1 due to COVID-19.The impacted flights include those operated by Air China (OTC:AIRYY), China Eastern, Shanghai Airlines, Juneyao Air and Spring Airlines, the Civil Aviation Administration of China said.Shanghai, which reported five new local symptomatic transmissions and nearly 200 domestically transmitted asymptomatic carriers on Tuesday, said on Wednesday it has identified some key areas and would finish testing all people in those areas twice between Wednesday and Thursday.Tesla (NASDAQ:TSLA) Inc is suspending production at its Shanghai factory on Wednesday and Thursday, according to a notice sent internally and to suppliers, while the notice did not give a reason for the stoppage. Volkswagen (DE:VOWG_p) Group China said it would resume production in Shanghai on Thursday after a 48-hour suspension. More

Citigroup Inc (NYSE:C), Wells Fargo (NYSE:WFC) & Co, JPMorgan Chase & Co (NYSE:JPM) and Bank of America Corp (NYSE:BAC) said they were each lifting their base rates to 3.5% from 3.25%, effective Thursday.Earlier, the Fed signaled it would begin to aggressively wean the economy off pandemic-era measures to curb decades-high inflation.The central bank hiked its benchmark rate by 25 basis points, looking to counter economic risks posed by excessive inflation and the war in Ukraine. Policymakers signaled they would push the key federal funds rate to a range of 1.75% to 2.00% by the end of 2022.Banks, which make money on the difference between what they earn from lending and pay out on deposits and other funds, typically thrive in a high interest rate environment.In after-market trading, shares of big U.S. banks were up between 3.3% and 6.6% each.The Fed faces the task of charting a course for the economy to weather rate hikes without a repeat of the 1970s-style predicament in which the central bank’s rate hikes to fight inflation resulted in a steep recession.Inflation, running at three times the Fed’s 2% target and a hot-button political issue, has been worsened by the war in Europe which has led to a surge in commodity prices and piled pressure on to an already battered supply chain. More