Aurelia Butler

WASHINGTON (Reuters) – The Federal Reserve’s preferred measure of inflation rose again in January and a new report from the central bank warned that price pressures could persist unless a shortage of available workers begins to ease. The new inflation data, alongside the developing sense at the central bank that inflation may prove harder than anticipated to dislodge, will likely firm the central bank’s intent to raise interest rates through the year, beginning with an initial hike in March from the current near zero level.Policymakers will have to weigh one fresh and unanticipated set of risks in their discussion: The Russian military invasion of Ukraine could roil the economic outlook in unpredictable ways, and potentially undermine global growth and financial markets. But Fed officials say that’s unlikely to shift their immediate plans to begin tightening monetary policy in response to inflation that is not only high but continues moving higher. The personal consumption expenditures price index rose at a 6.1% annual rate through January, its highest since 1982 and more than triple the 2% inflation rate the Fed has set as its target for the U.S. economy.That measure of annual inflation, reported monthly by the government, has been as higher or higher than in the prior month for 14 straight months – a run not seen since the 1970s and a blow to arguments commonly heard at the Fed last year https://graphics.reuters.com/USA-FED/INFLATION/zdpxoqkrkvx/index.html that rising prices would prove “transitory” and disappear as the economy reopened. The month-to-month change in the same index, watched by some officials as a signal of moderation, showed no sign of easing. Graphic: The COVID inflation surge The COVID inflation surge – https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png “EXCEEDINGLY HOT?”The Fed is set to raise interest rates when it meets on March 15-16. Officials have been debating whether the initial “liftoff” should be a standard quarter point increase, or a larger half point hike to demonstrate the Fed’s seriousness in controlling prices.On Thursday, Fed Governor Christopher Waller flagged Friday’s PCE inflation report as one to watch, saying if it shows “the economy is still running exceedingly hot, a strong case can be made for a 50-basis-point hike in March.”For now at least the data are not only hot but getting hotter: Since September the PCE index has jumped in steady increments from 4.4% to 6.1%, and has either risen or held level with the prior month in each report since November 2020. In the Fed’s latest monetary policy report to Congress, issued twice a year, central bank officials acknowledged that inflation had not eased as they expected, but in fact had broadened through the economy.The “extraordinary circumstances” which the Fed had said last July were driving higher prices had given way to other dynamics, the report said, particularly a workforce falling far short of the numbers demanded by businesses to fill open positions.”In the period ahead, the large price changes in goods may ease once supply chain disruptions finally resolve,” the Fed report stated. “But, if labor shortages continue and wages rise faster than productivity in a broad-based way, inflation pressures may persist and continue to broaden.”Fed officials have largely downplayed the risk of a durable “wage price spiral.”But they’ve also been surprised by much of what’s happened during the reopening from the pandemic.The rapid spread of the Omicron coronavirus variant was expected to slow hiring and spending through the winter. It didn’t happen. Job growth continued, and new spending data released on Friday showed consumer spending exceeded expectations.Now the virus is fading and Fed officials anticipate a renewed sense of reopening in society and the economy will keep growth strong. Trading in futures contracts based on expectations of Fed policy show investors downplaying the chance now of a half-point increase.But the PCE report is still moving in the wrong direction for Fed officials hoping to avoid the most aggressive measures to control inflation.”Though diminished, the chance of a 50bp move is still intact,” wrote III Capital Chief Economist Karim Basta. Inflation at 6% “would definitely qualify as hot.” The main factor tempering arguments for a faster move by the Fed is the economic fallout from Russia’s invasion of Ukraine. That could for a variety of reasons drive prices higher; it could also pose risks to global economic growth, or rattle financial markets in a way that could make the Fed less inclined to raise rates as fast as it would otherwise.With the incursions less than 48 hours old that analysis was just beginning.”In theory, the war has two contrasting effects on Fed policy: It could stoke inflation…and it could slow economic growth,” wrote Piper Sandler macro analysts Roberto Perli and Benson Durham. “The Fed is likely to be more concerned about the latter than the former…The war will not delay liftoff…But it could well result in fewer rate hikes this year than the market is currently pricing.” More

WASHINGTON (Reuters) -Ukraine has asked the International Monetary Fund for emergency financing, IMF managing director Kristalina Georgieva said on Friday, adding that the IMF was exploring all options to aid the war-torn country, including under its existing IMF loan program. Georgieva said in a statement that she met with the IMF’s executive directors and “assured them that our staff will continue to work closely with the authorities to support Ukraine in every way we can.”That includes exploring options for further financial support, including under the remaining capacity of about $2.2 billion in Ukraine’s existing $5 billion stand-by loan arrangement.Georgieva also said the Fund was assessing potential implications for the functioning of the global financial system, on commodity markets and on countries with economic ties to the region.”We stand ready to support our members as needed, in close coordination with our international partners,” including the World Bank, she said.World Bank President David Malpass said on Thursday the bank also was preparing “fast-disbursing” financing options for Ukraine.Earlier on Friday, Georgieva said that Western sanctions against Russia will add to the economic impacts of the war in Ukraine, which are primarily being transmitted through higher energy and grain prices, adding to inflation.Georgieva, speaking at a Georgetown Law School event on Black History Month, also said that greater financial market uncertainty caused by the conflict may cause capital “outflows from emerging markets, when we need exactly the opposite — more financing going there.”She also said that heightened regional tensions may impact economic activity in countries and regions surrounding Ukraine, such as Moldova and the Caucasus. Russia is among the world’s biggest oil exporters and also is a major wheat exporter along with Ukraine, whose Black Sea ports have been closed to shipping.Georgieva also said that she was concerned about her brother, who is married to a Ukrainian woman and who is currently in Kharkiv, Ukraine’s second-largest city, where heavy fighting is taking place.”When I talked to him, I feel strongly for all — for his family of course, but for everybody there — to wake up to the sounds of bombing and to be unsure about what the next would bring,” said Georgieva, a Bulgarian economist who grew up during the country’s communist era. More

(Reuters) -Brazil’s government cut an industrial tax (IPI) by 25% to fight inflation and help industry recover from a pandemic downturn, the country’s official gazette showed on Friday.The tax cut, with immediate effect, “is a milestone of the beginning of Brazilian reindustrialization after four decades of de-industrialization,” said the Economy Minister Paulo Guedes.It will affect all industrialized products, with the exception of tobacco items. Guedes acknowledged the measure has a short-term impact on inflation, but highlighted it was designed as a policy to increase industrial productivity.Reuters had previously reported that the tax cut was coming.The minister said it will represent a loss of around 20 billion reais ($3.9 billion) in tax revenue, with the federal government giving up 10 billion reais and the rest coming from state and municipal revenue.According to the minister, a 50% reduction in the tax was considered, but was not adopted “out of respect for the industry established in the Amazon (NASDAQ:AMZN).”Companies operating in the Manaus Free Trade Zone are exempt from paying IPI, but can generate credits equivalent to the tax to deduct from the payment of other taxes. The lower the IPI rate, the fewer the credits.A carbon market that is being designed by the government for the coming months is aimed at greatly benefiting the region, defended Guedes, adding that the goal is to promote a transition from IPI credits to carbon credits.The IPI is a regulatory tax, so the rate was changed with only a presidential decree.Earlier on Friday, President Jair Bolsonaro said he would have “good news” for Brazilian business in the afternoon regarding “the industrialization of the country,” without giving any further details.The government has consulted the Superior Electoral Court about the feasibility of the measure, which implies a net loss of revenue in an election year, according to three sources heard by Reuters, who requested anonymity. The court has not provided guidance yet, the sources said, with two of them noting the consultation was made out of caution, since the court’s prior endorsement is not mandatory. Guedes has said that the government could give up the revenue from the tax cut, as a run of record tax revenue has boosted fiscal balance in Latin America’s largest economy.Central bank data on Friday showed that public debt as a share of gross domestic product fell to 79.6% in January from 80.3% in December, as surging tax revenue led to the highest primary surplus for any month on record.($1 = 5.1488 reais) More

The new license represents a shift in U.S. policy that had impeded ordinary commerce with Afghan government agencies headed by U.S. sanctioned Taliban and Haqqani Network leaders since the Islamists seized power in August as U.S.-led forces withdrew.It maintains prohibitions on transactions with sanctioned leaders and other blocked individuals and excludes transfers of luxury items.The license makes clear “that while sanctions on the Taliban remain in place, this action facilitates the private companies and aid organizations working with governing Afghan institutions and paying customs duties, fees and taxes,” a senior administration official told reporters on a conference call.Some experts have questioned whether sanctioned Taliban and Haqqani network leaders can be prevented from benefiting from transactions with the agencies they control without efficient oversight mechanisms.The new license is part of what U.S. officials said are ongoing U.S. efforts to help contain an economic collapse that quickened in August when Washington and other donors cut financial aid underpinning 75 percent of Afghanistan’s public spending.”Our action today recognizes that in light of this dire crisis, it is essential that we address concerns that sanctions inhibit commercial and financial activity,” Deputy Treasury Secretary Wally Adeyemo said in a statement.The financial aid cut and a freeze of some $9 billion in Afghan central bank funds – $7 billion by Washington – have fueled a cash crunch and a humanitarian crisis that the United Nations warns has pushed more than half the population of 39 million toward starvation.U.S. President Joe Biden last week issued an order sequestering half of the $7 billion frozen in the Federal Reserve Bank of New York for possible use to recapitalize the crippled Afghan central bank. More

NEW YORK (Reuters) – Stocks around the world rebounded on Friday, the U.S. dollar fell and oil prices dipped as investors welcomed talk of renewed diplomacy after Russia’s invasion of Ukraine, and as coordinated Western sanctions left Russia’s energy sector largely untouched. On Thursday, worries about the invasion lifted oil prices past $100 a barrel for the first time since 2014. [O/R]Wall Street’s indexes extended the previous session’s rally with Nasdaq and the S&P 500 registering gains for the week. The MSCI World Index closed up 2.43%; for the week it was down 0.7%. Russian President Vladimir Putin urged Ukraine’s military to overthrow its political leaders and negotiate peace. Authorities in Kyiv called on citizens to help defend the capital.EU countries agreed to freeze European assets of Putin and his foreign minister, Sergei Lavrov, and the White House announced plans for U.S. sanctions. Ukrainian President Volodymyr Zelenskiy pleaded for faster and more forceful sanctions. China’s Foreign Minister Wang Yi said China respects Ukraine’s sovereignty and Russia’s security concerns, and it welcomes direct Russia, Ukraine dialogue as soon as possible. [nL1N2V02LS]Russia said it was ready to send a delegation for talks with Ukraine, but U.S. State Department spokesperson Ned Price called this an attempt to conduct diplomacy “at the barrel of a gun,””Markets went through a progression. They heard the word invasion Wednesday night and started selling. Then markets heard the word sanctions Thursday and started buying. Then they heard the word diplomacy on Friday and kept buying,” said John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio.Some investors remained wary of riskier assets, weeks before the Federal Reserve is expected to raise U.S. interest rates. “The market is purely looking at the short run, saying that what they feared has happened so there’s nothing else to fear on the invasion of Ukraine … that’s being pretty shortsighted,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.Zaccarelli is turning his focus on “what the Federal Reserve is going to do. … raise rates to a higher level than people believe in order to combat inflation.”The Dow Jones Industrial Average finished up 2.51% after closing 0.28% higher on Thursday while the S&P 500 gained 2.24% after rising 1.5% the previous day and the Nasdaq Composite added 1.64% after rallying 3.3% on Thursday. Russia’s main stock index closed up 20% on after Thursday’s record 33% drop. Gains pared somewhat in after-hours trading with the index last up around 15%. Graphic: Russian stock market plunging far more than during other crises-https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoekmepr/Pasted%20image%201645779548050.pngOIL PRICES DROPBrent crude settled at $97.93 per barrel, down 1.16%, while U.S. West Texas Intermediate crude settled down 1.3% at $91.59. Safe haven gold dropped 0.8% to $1,887.24 an ounce. On Thursday it had jumped to $1,973.96, its highest since September 2020. The yield on 10-year U.S. Treasury notes dipped 0.7 basis points to 1.965%. The two-year Treasury yield, which typically moves in step with interest rate expectations, was up 2.2 basis points at 1.568%. “The bond market is trying to guess what Fed Chair Powell is going to say next week in his congressional testimony. The bond market has moved on to the Fed. Global geopolitcal risks in the eyes of the dollar and gold have lowered,” said Huntington’s Augustine. The U.S. dollar dipped a day after notching its biggest daily percentage gain in more than three months. Investors bet sanctions on Russia and U.S. inflation data would probably keep the Fed cautious about hiking rates too quickly.The dollar index fell 0.589%, with the euro up 0.73% to $1.1273.The Russian rouble rose to 83.54 per dollar, clawing back from the previous session’s record low of 89.986.U.S. economic data on Friday showed consumer spending increased more than expected in January even as price pressures mounted, with annual inflation hitting rates last seen four decades ago. More

WASHINGTON (Reuters) – The United States on Thursday imposed sanctions on Russia in retaliation for its invasion of Ukraine, targeting major banks and members of the elite coupled with new export control measures.Washington warned that more action could follow and that all options are on the table.The below are some ways in which the United States could further escalate sanctions on Russia.SANCTIONS ON PUTINThe United States could take the rare but not unprecedented step of imposing sanctions on a head of state and designate Russian President Vladimir Putin.The United States has in the past imposed sanctions on heads of state, including on Venezuela’s Nicolas Maduro and Syria’s Bashar al-Assad.The EU on Friday agreed to freeze any European assets of Putin and Foreign Minister Sergey Lavrov.SWIFTAnother option could be shutting Russia out of SWIFT – the world’s main international payments network – which would hit Russian trade and make it harder for Russian companies to do business.SWIFT is a secure messaging system that facilitates rapid cross-border payments and has become the principal mechanism for financing international trade.In 2020, around 38 million SWIFT ‘FIN messages’ were sent each day over the SWIFT platform, according to its 2020 annual review. Each year, trillions of dollars are transferred using the system.Asked why Washington did not shut Russia out of the payment system in Thursday’s action, U.S. President Joe Biden said the sanctions that were rolled out against Russian banks incurred “equal consequence,” if not more.”It is always an option, but right now that’s not the position that the rest of Europe wishes to take,” Biden said.The EU is looking at what the consequences would be of cutting Russia off from SWIFT, France’s finance minister said on Friday. Some countries are reluctant over concerns about how payments for Russian energy imports would be made and whether EU creditors would get paid.OLIGARCHSThe Treasury this week imposed sanctions on what it said were Russian “elites,” including on some with ties to Sberbank, VTB, Rosneft and the Federal Security Service (FSB).Brian O’Toole, a former U.S. Treasury Department official now with the Atlantic Council, said the United States could also impose sanctions on more significant Russian oligarchs.O’Toole said those listed in Thursday’s action were not “the major tycoons.”TIGHTENED SANCTIONS ON BANKS, FIRMSAnother option could include tightening sanctions on banks and firms the United States targeted in Thursday’s action but did not designate using its most powerful sanctioning tool, the Specially Designated Nationals (SDN) list.Washington said U.S. banks must sever their correspondent banking ties – which allow banks to make payments between one another and move money around the globe – with Russia’s largest lender, Sberbank, but did not freeze its assets.It also expanded the scope of existing curbs on U.S. persons dealing in the debt and equity of Russian state-owned enterprises. The restrictions apply to 13 firms, including Gazprombank, the Russian Agricultural Bank, and Gazprom (MCX:GAZP).Washington could tighten the restrictions on those entities and add them to the SDN list, a move that effectively kicks them out of the U.S. financial system, bans their trade with Americans and freezes their U.S. assets.”We still have all options on the table. We have room to further escalate as Russia’s aggression escalates,” a senior U.S. administration official said.OIL COMPANIESWashington could decide to go after Russian oil companies, which it has so far largely held back from doing.The Biden administration has seemed concerned that its sanctions could trigger higher energy prices and has taken steps to mitigate those effects, including by issuing a general license on Thursday authorizing energy-related transactions involving certain banks until June 24.The official on Thursday said: “We know there are going to be some costs that we have to bear, but our goal is to mitigate those and that’s why we stayed away from targeting energy.” More