Aurelia Butler

At a community college in central Virginia on Thursday, Joe Biden put his finger on the biggest domestic problem of his presidency. “Inflation is up. It’s up,” the US president said. “And coming from a family when if the price of gas went up, you felt it . . . it matters.” Biden was speaking just a few hours after data showed the US consumer price index rose by 7.5 per cent last month compared to January 2021, exceeding economists’ expectations and marking the largest annual jump since 1982. High inflation has blemished what would otherwise be a strong economic record for Biden, with elevated job and wage growth. It has depressed his approval ratings and contributed to the demise of a $1.75tn flagship spending bill that some lawmakers feared would exacerbate higher prices.Like many forecasters, the Biden administration’s economic team had been expecting inflation to gradually subside after its initial surge in the spring of 2021, but that view has been debunked by persistently high readings.

The White House has since scrambled to tame inflation: Biden dispatched top officials to ease bottlenecks at US ports, pushed Saudi Arabia and other Opec members to increase oil production, and told regulators to crack down on price gouging. But those efforts have done little to change the dynamic, leaving the administration relying on the Federal Reserve to stamp out inflation with a string of interest rate rises ahead of this year’s midterm elections, when many pundits expect Biden’s Democratic party to take a shellacking. “Inflation is not intractable, the Federal Reserve can always do something about it,” said Don Kohn, a former senior Fed official now at the Brookings Institution. “I guess the harder question is, ‘what does the Fed need to do, and can it engineer a soft landing?’” White House officials believe there is still a strong case to be made for inflationary pressures subsiding over the course of the year as the disruptions of the pandemic recede and the economy returns to a more normal footing. Although price increases have broadened out in recent months, in some areas, such as new and used cars, they have shown signs of moderation, suggesting a peak could be on the horizon. “We continue to think as we look over the course of the year that we will get to a place where inflation is substantially easing, and inflation is substantially lower by the end of the year than it is now,” said a White House official. But plenty of damage has already been done to Biden’s political standing. As recently as August, 51 per cent of Americans approved of his handling of the economy, but that figure has fallen to just 37 per cent, according to a CNN poll released on Thursday that contained grim figures for the White House. The persistence of inflation has obscured the benefits of a roaring job market, which performed much better than expected even in recent months as the Omicron variant of the coronavirus surged across the country. Higher prices have also undercut wage gains. Perhaps most dispiritingly for the White House, it was soaring inflation that emboldened Joe Manchin and Kyrsten Sinema, Democratic senators from West Virginia and Arizona respectively, to scupper Biden’s hopes of spending $1.75tn on bolstering the social safety net. The Build Back Better package, which also contained climate measures and was funded by higher taxes on the wealthy and corporations, was the centrepiece of the president’s vision for the economy. “Inflation [is] causing real and severe economic pain that can no longer be ignored,” Manchin said on Thursday, in his latest shot across the bow of the White House. “It’s beyond time for the Federal Reserve to tackle this issue head on, and Congress and the administration must proceed with caution before adding more fuel to an economy already on fire.”Michael Strain, director of economic policy studies at the American Enterprise Institute, said the Biden administration shoulders much of the blame for surging prices, arguing the $1.9tn stimulus it enacted in March last year was excessive. “It contributed to both a big boom on the demand side of the economy and also supply side restrictions. And so I think that set the stage for the United States to have a worse inflationary problem than Europe and also a worse inflationary problem than we would have had if the [stimulus] were say, $500bn.”Some economists including Strain have also pointed out that Biden could have done more to ease inflation by cancelling tariffs on Chinese goods introduced by his predecessor Donald Trump, a move the Biden administration has resisted so far.

But White House officials and many Democrats fiercely defend their economic approach and the stimulus measures. They argued it achieved their primary goal of fostering a much stronger rebound compared with the recovery from the 2008 financial crisis, while sharply reducing poverty and handing a financial lifeline to struggling families. Indeed, left-leaning economists now worry that lawmakers and central bankers may become too hawkish on inflation, both in monetary and fiscal policy, jeapordising the administration’s accomplishments thus far. “I’m more concerned that people overreact to the numbers, that they force the Federal Reserve to raise interest rates too aggressively and kill the recovery that needs to live much longer,” said Christian Weller, a senior fellow at the Center for American Progress and a professor at the University of Massachusetts at Boston. He added: “I’m also concerned that people will use it to block legislation necessary to increase economic capacity.” More

The writer is chief investment officer of emerging market debt at FIM PartnersThe warnings back in 2011-2013 were ominous: “If the Turkish lira breaks through 2 against the dollar, the economy will implode.” Once the 2 was reached, the new implosion target moved to 3, then to 5, and here we are at 13. The economy is still standing.An economy with debt in dollars as high as Turkey’s should seemingly have imploded a long time ago under such currency volatility. The history of emerging markets is littered with balance of payments crises under similar foreign exchange depreciations.There might be several reasons for this resilience. For one, up until earlier this year, the Turkish authorities did what they always had done in the past when confronted with capital outflows and currency weakness: interest rate hikes, if only belatedly and often in an obfuscated manner.This boom-and-bust way of managing the economy kept the system going for quite some time. That time is what gave economic actors the chance to build buffers against an unbalanced economy. Banks, for example, kept balance sheets largely hedged on currency.By virtue of a build-up of dollar deposits and a low level of foreign currency loans made relative to them, banks also had excess dollars. So they kept lending dollars to obtain cheap lira funding, creating in the process another safety mechanism for themselves.But it hasn’t been only banks which have built resilience over time. As dollarisation progressed, households have continued to accumulate dollar assets but no foreign exchange liabilities. This is because banks were forbidden to lend foreign currency to households, making them a lot more resilient to currency risk. This was perhaps the regulators’ greatest foresight.The creditor profile of the country has also changed over time. Fickle portfolio flows have greatly reduced. Foreigners used to own nearly 30 per cent of the local debt market but this number is now less than 5 per cent (a mere $3bn in absolute terms). Meanwhile locals now own almost 50 per cent of the country’s sovereign Eurobonds.This has left Turkey more dependent on different types of external creditor — the syndicated loan market, trade finance, intra-corporate lending, or domestic lenders. These creditors are more patient, more long-term oriented than foreign portfolio investors.The passing of time has also allowed Turkish corporates, the weakest link in the country’s external balance sheet chain, to reduce debt levels somewhat while building a positive net short-term foreign exchange position. The problem, however, remains one of co-ordination. While on paper each economic sector has enough liquidity buffers of its own, they are all “joined at the hip”. One sector drawing on its foreign exchange assets has a ripple effect on the entire system, as those assets will be residing in someone else’s balance sheet. Against that, the country is tentatively turning its persistent current account deficit into a surplus by virtue of the very large lira depreciation which boosts exports and contracts imports. Whether this turn in the current account, if it materialises, is yet another boom-and-bust episode or a structural manifestation of a policy-driven rebalancing of the economy remains unclear. All in all, it’s been a surprisingly resilient journey, though longer than many of us would have anticipated. Turks also have suffered from high inflation and a squeeze in purchasing power in dollars. And the fact that Turkey hasn’t “broken” yet doesn’t mean it still can’t.There is clearly a before-and-after President Recep Tayyip Erdogan’s dismissal of orthodox central bank governor Naci Agbal in March 2021, and the economic-logic-defying interest rates cuts that followed. The old policy playbook of belated hikes has seemingly been abandoned for good.The foreign exchange equilibrium in the system remains too tenuous for the government to be confident an accident can be avoided.Meanwhile, any touting by Ankara of a “new economic model” based on high savings rates and a cheap currency must be evaluated against high and persistent inflation, and the acceptance by the government of a painful acceptance of a contraction in demand. Turkey was a very attractive destination for foreign lenders — a double-B rated, high-growth economy, with five per cent dollar yields, at a time the rest of the world was at zero. This context has changed for the worse. Whether the new creditors in town as well as the locals will take enough comfort from the existing economic set up remains an open question. But unless there is a change in policy direction, the government will be testing their limits. More

Liz Truss, UK foreign secretary, is to make new proposals to break the deadlock over post-Brexit trading arrangements in Northern Ireland on Friday, saying that resolving the row with the EU was “an absolute priority”.Truss’s allies said both sides wanted to bridge their differences, although Boris Johnson, the prime minister, warned this week that Britain could still unilaterally suspend parts of the so-called Northern Ireland protocol if no deal was reached.British ministers have been drawing up fresh contingency plans in recent weeks in the event that Johnson activates the Article 16 override mechanism, possibly plunging the UK into a trade war with the EU.The “carrot and stick” approach taken by Truss is intended to intensify the pace of the talks, which both sides want to wrap up, if possible, within weeks and ahead of Northern Ireland assembly elections on May 5.Speaking ahead of talks in London with European Commission vice-president Maros Sefcovic, Truss said: “We have a shared responsibility with the EU to work towards solutions as quickly as possible that deliver for the people of Northern Ireland.”Truss, who will host the talks at Lancaster House, wants to reset relations with the EU. Recently returned from Moscow, the foreign secretary has told colleagues she wants Europe to unite over the crisis in Ukraine, not descend into a trade dispute over Northern Ireland.While Johnson would win some cheers from Conservative Eurosceptics if he suspended parts of the NI protocol — part of the UK’s Brexit treaty — it would open up a range of unpredictable outcomes.Renewed “no deal” contingency planning by ministers, which stepped up in January, has looked at issues such as possible disruption of medical supplies in the event of an EU trade war, along with much broader economic disruption.Johnson, who is trying to stabilise his political situation after weeks of chaos, may also recoil from the idea of a trade dispute that could create turmoil at the ports and possible shortages of some products.

Officials on both sides cautioned against expecting a breakthrough at Friday’s talks, but said there was a joint determination to create a positive atmosphere ahead of a February 21 meeting of the Joint Committee that manages the post-Brexit trading arrangements for Northern Ireland. Under the terms of the Northern Ireland protocol, all goods going from Great Britain to the region must follow EU customs and health rules leading to the creation of an “Irish Sea border” that the UK government has declared unsustainable. A source with knowledge of the UK’s latest offer to the EU said that the ideas expanded upon the concept of “red and green channels”, in which goods that were clearly destined to remain inside Northern Ireland, would be exempted from border bureaucracy.One British official confirmed that both sides were putting new ideas on the table: “We are trying to be constructive and by definition in negotiations both sides are trying to move towards each other.”Despite the warmer tone from Truss, two senior Whitehall figures confirmed that the government had been actively “ramping up” contingency planning for the use of Article 16.In October 2021, when Lord David Frost was still the UK Brexit minister, the British government stepped back from the brink of triggering the safeguards mechanism after Brussels warned that it would lead to the suspension of the wider EU-UK trade agreement. However, Whitehall insiders said that since mid-January contingency planning for a suspension of the TCA had quietly restarted under the leadership of Steve Barclay, the Cabinet Office minister via the Domestic and Economic (Operations) cabinet committee.According to a person with knowledge of the plans, Barclay advised Johnson that in the event that it triggered Article 16 the government should consider rebuilding medicine stockpiles and prepare for disruption at the Channel ports of Dover and Folkestone as a result of further French retaliatory measures.“There is a big operation being run out of the Cabinet Office which has caused alarm in some parts of Whitehall,” one of the people said. “It all went quiet after October but really started to ramp up last month.” More

How well did you keep up with the news this week? Take our quiz.Russia’s foreign minister has described a two-hour meeting in Moscow with his British counterpart as “disappointing” and “a dialogue of a mute person with a deaf person”, as European countries continued to struggle in their diplomatic effort to prevent a Russian attack on Ukraine. Speaking to the press yesterday, Sergei Lavrov said Liz Truss’s delegation had come “unprepared”, as he reiterated that the Russian military build-up around Ukraine posed no threat and that Moscow’s security demands in Europe had been ignored. Meanwhile Truss demanded Russia withdraw the more than 100,000 troops massed on the border with Ukraine. Truss’s visit is the first by a UK foreign secretary to Russia in more than four years. But Lavrov openly questioned whether there had been a point in holding the meeting. “I am disappointed that our conversation was the dialogue of a mute person with a deaf person,” Lavrov said. “We appear to listen to each other, but we do not hear each other.” Truss said: “I certainly wasn’t mute in our discussions earlier. I put forward the UK’s point of view on the current situation as well as seeking to deter Russia from an invasion of Ukraine.” Further reading: Russia began massive military exercises in Belarus and naval drills in the Black Sea as the UK warned that the stand-off with Moscow over Ukraine faced its “most dangerous moment” in the next few days.US officials have warned that Russia has continued to ramp up its military activity around the Ukrainian border, despite a flurry of diplomatic efforts to defuse the crisis.Sign up for our Swamp Notes newsletter to receive today’s edition, which covers the Finlandisation of Ukraine. Thanks for reading FirstFT Asia. Have a great weekend. Share feedback on today’s newsletter at [email protected] — EmilyFive more stories in the news1. US inflation surges at its fastest in 40 years The US consumer price index rose 7.5 per cent last month compared with January last year, its fastest annual pace since 1982, heaping pressure on the Federal Reserve to act more aggressively to tame inflation. 2. Evergrande chair breaks silence to rule out asset fire sale Evergrande’s shares rose after its chair ruled out asset fire sales and pledged to complete half its remaining projects over the rest of the year, as the world’s most indebted developer battled to deliver units to homebuyers. 3. Hedge funds and activists could face new US disclosure rules Hedge funds and other activist investors would have to disclose significant investments in US public companies within five days, halving the time they currently have to amass a secret stake, under new rules proposed on Thursday by the Securities and Exchange Commission. 4. Australia foils ‘Puppeteer’ plot to infiltrate parliament Australia’s security services have thwarted a plot to interfere in national elections this year by an unnamed government through a wealthy individual nicknamed the “Puppeteer”.5. New Delhi seeks record IPO of up to $8bn Narendra Modi’s government is expected to raise as much as $8bn from its initial public offering of Life Insurance Corporation of India, as it seeks to ramp up a privatisation drive crucial to financing its expansionary budget. Coronavirus digestThe head of the Mandarin Oriental hotel group wants his executive team to be temporarily based outside Hong Kong because of strict coronavirus rules.Senior Conservative MPs said Boris Johnson would face a vote of no confidence in his leadership if he was fined for breaking coronavirus restrictions. AstraZeneca reported record revenues, helped by a $1.8bn contribution from its Covid-19 vaccine and sales from newly acquired rare disease company Alexion.Stronger than expected results from Uber helped offset a knock in rideshare demand caused by Omicron, sending shares up in after-hours trading.Opinion: A malaria theory known as the “rebound effect” adds nuance to the debate over how to protect children against Covid, writes Anjana Ahuja.The Austrian village of Ischgl made headlines for all the wrong reasons at the onset of the pandemic: as a superspreader ski resort. Can it reinvent itself?

Partying skiers rapidly became a powerful shorthand across Europe for official ignorance and public carelessness © Getty Images

The days aheadIndia industrial production figures The country’s monthly factory output will be released today. Last month’s report found that India’s factory output, measured in terms of Index of Industrial Production, grew 1.4 per cent in November. (Indian Express) Russia interest rate decision The Russian central bank on Friday is expected to raise interest rates for the second time in a row, according to a Reuters poll. (Reuters) National Football League Super Bowl Ahead of the NFL’s biggest game this weekend, the Brian Flores lawsuit has reinvigorated the discussion about race and leadership in America’s most popular sport. What else we’re reading Olympian Eileen Gu wins over public and brands by avoiding politics The 18-year-old, who speaks English and Mandarin fluently, is one of the most marketed Olympic stars in China. But Gu’s calibrated comments highlight the difficult balance brand ambassadors and athletes must strike during the Games amid a US-led diplomatic boycott over Beijing’s policies in Xinjiang.

Eileen Gu’s gold medal win this week ignited celebrations in China, which she has represented since 2019, but she waved off questions about her citizenship status after the victory © Richard Heathcote/Getty

Indian cosmetic start-ups harness the rise of ‘boss lady’ energy In India, where analysts say that working women have more money (and freedom to spend it) than ever before, a traditionally uninspiring market has spotted a new and lucrative target demographic, writes Mumbai correspondent Chloe Cornish. Can Kuala Lumpur lure back international workers? The Malaysian city has affordable homes and a vibrant culture, but bureaucracy and a downturn are a deterrence. Many immigrants have left in the past year or so, disillusioned with strict lockdowns and the inability to see family.Apollo under scrutiny over lingering ties to Leon Black Links between the investment company and its billionaire co-founder remain fraught but may be loosening. Last week an Apollo lawyer told regulators in Nevada that if Black ever wanted to return to the investment company’s space on 57th Street, he would first have to line up with other visitors and register with building security.Siberia’s crypto boom is made of ingenuity and defiance The little wooden house in Stolbova is not your average Siberian cottage. Fuelled by cheap electricity and Chinese hardware, households across Russia’s frigid east have been furiously mining cryptocurrency. But a crackdown looms.BooksThe power of regret and how to reinvent the workplace are among the themes in this month’s selection of top business titles, selected by our Work and Careers team. More

WASHINGTON (Reuters) -Toyota Motor Corp , General Motors Co (NYSE:GM), Ford Motor (NYSE:F) and Chrysler-parent Stellantis said they had been forced to cancel or scale back some production at North American plants on Thursday because of parts shortages stemming from Canadian trucker protests against pandemic mandates.The truckers, who oppose a vaccinate-or-quarantine requirement for cross-border drivers, have used their big rigs to snarl traffic https://www.reuters.com/world/americas/us-canada-border-closures-risk-trade-more-govt-action-is-likely-2022-02-10 at the Ambassador Bridge linking Detroit and Windsor, Ontario – which accounts for about 25% of U.S.-Canadian trade.A Toyota spokesman told Reuters the automaker was suspending production through Saturday at plants on both sides of the border, in Ontario and Kentucky. The largest Japanese automaker said it was “experiencing multiple dropped logistics routes” and it is “not isolated to only one or two parts at this point.”The shortages affected Toyota’s production of the RAV4 – the best-selling non-truck vehicle in the United States, Camry, Avalon, Lexus RX and Lexus ES, the automaker said.Ford said it was running its plants in Windsor and Oakville, another Canadian city, at reduced capacity. It added that it hoped for a quick resolution “because it could have widespread impact on all automakers in the U.S. and Canada.”Stellantis said some U.S. and Canadian plants cut short shifts on Thursday after many shortened shifts Wednesday night “due to parts shortages caused by the closure of the Detroit/Windsor bridge.”GM said it was forced to halt production Thursday at a Michigan plant where it builds sport utility vehicles after the protests.The largest U.S. automaker said it had canceled a shift on Wednesday and two shifts Thursday at its Lansing Delta Township plant.Shilpan Amin, GM’s vice president for global purchasing and supply chain, told suppliers on Thursday in a message seen by Reuters that “although we may have intermittent stoppages, we intend to keep production running and meet current schedules at all of our manufacturing operations in the U.S., Canada and Mexico.”The company added it was “encouraging suppliers to evaluate alternative options in order to sustain your operations to meet our production schedules.”Honda said its Alliston, Ontario plant temporarily suspended manufacturing on one production line Wednesday evening due to border delays but was back online.Stellantis said the “situation at the Ambassador Bridge, combined with an already fragile supply chain, will bring further hardship to people and industries still struggling to recover from the COVID-19 pandemic.””We hope a resolution can be reached soon so our plants and our employees can return to normal operations,” Stellantis added. The White House said Wednesday it was talking to automakers, Canada and customs officials to try avoid disruptions to auto production.Michigan Governor Gretchen Whitmer on Thursday called on Canada to reopen the Ambassador Bridge, as did U.S. Representatives Debbie Dingell and Dan Kildee.”It is imperative that Canadian local, provincial, and national governments de-escalate this economic blockade,” Whitmer said. “They must take all necessary and appropriate steps to immediately and safely reopen traffic.” More

Four of the Bank of Mexico’s board, including new governor Victoria Rodriguez, voted for the half a percentage point increase, while member Gerardo Esquivel voted for a 25 basis points hike to 5.75%, the bank said in a policy statement.Saying “new governor, same script”, Nikhil Sanghani, an economist at Capital Economics, noted Rodriguez had sided with the majority in maintaining the bank’s hawkish stance.”As we suspected, the new governor Victoria Rodriguez did not want to rock the boat,” Sanghani said in a research note.Banxico said in its statement that inflationary pressures have been greater and lasted longer than anticipated, noting that forecasts for headline and core inflation were revised upwards, especially for 2022 and the first quarter of 2023.The bank underscored that the balance of risks for the trajectory of inflation remains biased to the upside.Analysts have said expectations the U.S. Federal Reserve will start raising rates would be top of mind for Banxico board members when considering what to do with rates at home.Core inflation in Mexico in January surged to heights not seen since 2001, and though headline inflation eased slightly to 7.07%, it was still more than double Banxico’s target rate of 3%, official data showed on Wednesday.”With inflation likely to remain well above target over the coming months, the board remaining hawkish under the new governor, and the Fed set to start hiking too, it’s clear that the tightening cycle has further to run,” Sanghani said.He forecast three more 50 basis point hikes in the coming months, taking the policy rate to 7.50%. After that, as headline and core inflation eased towards target, “policymakers should take their foot off the brake pedal,” he said. More

(Reuters) – The unexpectedly large jump in U.S. consumer prices last month has bolstered the view that the Federal Reserve is late to the fight against the strongest inflation since the early 1980s and needs to take dramatic action to make up lost ground.With investors sharply upping their bets that the U.S. central bank will start with a “big bang” 50-basis-point interest rate hike at its March 15-16 policy meeting, debate over the possibility is sure to intensify within the Fed in the coming weeks.Until this moment, Fed policymakers had largely resisted the idea. “I don’t think there’s any compelling case to start with a 50-basis-point” rate increase, Cleveland Fed President Loretta Mester, often among the Fed’s more hawkish voices, said on Wednesday, Fast forward a day, and the latest U.S. inflation reading appears to have tipped that on its head. Household prices were up 7.5% in the 12 months through January, the Labor Department reported earlier on Thursday.A few hours later, St. Louis Fed President James Bullard – who last week echoed Mester’s view – told Bloomberg News he had become “dramatically” more hawkish and called for a full percentage point worth of rate hikes over the course of the Fed’s next three next meetings, in March, May and June.Market participants had already begun pricing a bigger likelihood of a half-percentage-point rate hike in March on the back of the inflation data, up from a one-in-four probability when Mester spoke.After Bullard’s bombshell they finished the job: bets are fully on a half-percentage-point hike next month and then some, with rates expected to be in the 1%-1.25% range by June and 1.75%-2.00% by the end of the year. Fed policymakers have already flagged that they will begin raising the central bank’s benchmark overnight interest rate from near zero at the March meeting, just days after it stops its two-year spree of buying billions in government bonds each month. It began the bond purchases to keep financial conditions loose and spur borrowing amid the COVID-19 pandemic.By many measures they are already late to the party, with inflation at its highest level in 40 years and a super-tight labor market at odds with a Fed only just getting ready to remove crisis-era policy support.”All this logically supports a 50-basis-point move in March,” says Karim Basta, chief economist at III Capital Management. “Whether the Fed ditches its gradualist approach remains the most relevant question.”To Mark Cabana, head of U.S. interest rates strategy at Bank of America (NYSE:BAC) Global Research, the case only gets stronger as market bets on a bigger rate hike in March continue to build. “The logic for them to go is compelling,” he said, noting that doing so would get Fed policy faster to where it needs to be in the face of inflation while keeping borrowing costs still far below the level where they would put the brakes on economic growth. “Are you going to tell the market that it’s wrong and you need to go slower?” Cabana said. “If the market gives the Fed the option, we do not believe that the Fed will tell the market that it’s wrong.” Economists at Deutsche Bank (DE:DBKGn) on Thursday said they now think the Fed will kick off its policy tightening with a 50-basis point hike next month.Still, many economists for now are predicting the U.S. central bank will stick to quarter-percentage-point increments for future rate increases. Instead of going bigger to start, they say, the Fed will just speed up the pace of rate hikes quicker than the one-per-quarter pace it has stuck to in recent memory or begin to reduce its balance sheet sooner than expected. With one more big inflation reading and more jobs data due before the March meeting, Fed officials will be watching the data closely. Graphic: Fighting the Fed – https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png BOXED IN?The Fed is leery of spooking financial markets, which have required diligent handholding in recent years to avoid a knee-jerk tightening of financial conditions and repeats of episodes like the 2013 “taper tantrum,” which was widely seen as a communications misstep.A half-percentage-point hike in March wouldn’t itself hurt the economy, economists say, but the signal it sends about the future path of policy could if traders expect similar-sized increases in rates at future meetings. “The market goes from pricing five (quarter-percentage-point rate hikes) to pricing eight, 10 and then you are potentially causing some real sharpening in financial conditions,” said Aneta Markowska, chief financial economist at Jefferies. “They are way behind the curve, and I think they have a lot of catching up to do,” Markowska added, “but I think it makes sense to move, not slowly, but not too aggressively.”Keeping rate hikes to 25-basis-point increments allows the Fed to better tailor policy to the data if inflation soon cools on its own, as Atlanta Fed President Raphael Bostic said earlier this week he thinks is likely. In fact, up until now Fed officials have been betting much of the inflation spike will ebb on its own in the second half of this year as supply chains get untangled and an easing COVID-19 pandemic allows more people to return to work, making the need for a bigger rate hike less important.And already, the relative tightening in financial conditions that has occurred in just a few months means there is less catch-up for the Fed to do, despite the apparent disconnect between keeping its policy rate near zero and inflation running at more than twice its 2% target. One way to quantify that tightening is the Wu-Xia “shadow” rate, which uses bond yields and other market clues to show how loose monetary policy really is when the actual policy rate is stuck near zero. After the pandemic-triggered recession, the Fed’s monthly purchases of $120 billion in Treasuries and mortgage-backed securities pushed that rate as low as negative 2%. Since November, when Fed Chair Jerome Powell began signaling a quicker end to the bond-buying program and an earlier start to rate hikes, the rate has risen by about 1.65 percentage points.Narayana Kocherlakota, an economics professor at the University of Rochester who was known for his dovish views after the 2007-2009 recession when he was the Minneapolis Fed’s president, sees it differently, and expects dissents, including perhaps from Fed Governor Christopher Waller, should the central bank not go harder in March.”I think going 50 now also puts it on the table in every meeting going forward … so it expands optionality in a big and useful way,” he said. Much-higher-than-expected inflation, he said, “deserves an aggressive response.” More

WASHINGTON (Reuters) -The United States is seeking the first-ever consultations with Mexico over its environmental obligations under the U.S.-Mexico-Canada trade agreement, including protection of the critically endangered vaquita porpoise, U.S. trade officials said Thursday.The formal talks – which could ultimately result in trade sanctions – will also focus on Mexico’s obligations to prevent illegal fishing and trafficking of the critically endangered totoaba fish, the Office of the U.S. Trade Representative (USTR) said in a statement.Vaquita become entangled and die in fishing gear set to catch shrimp, totoaba – a large fish in demand in China for its swim bladder – and other finfish. “There are serious concerns about Mexico’s enforcement of its environmental laws in compliance with its USMCA obligations related to the protection of endangered species, the prevention of illegal fishing, and the trafficking of fish,” Deputy U.S. Trade Representative Jayme White told reporters.He said USTR hoped to reach a negotiated settlement with Mexico as a result of the formal consultations, but the trade deal also provided “additional tools” if the talks failed.Senior USTR officials said the trade agreement called for the consultations to be scheduled within 30 days, and would involve technical experts, although an extension was possible.If no agreement is reached, U.S. officials could request a dispute settlement panel after a minimum of 75 days had passed, which could ultimately result in tariffs or other trade sanctions, the USTR officials said.”This is a big move that could save these little porpoises from extinction,” said Sarah Uhlemann, international program director at the Center for Biological Diversity. “Illegal fishing is out of control in Mexican waters, and the vaquita is paying the highest possible price.”Mexico’s Economy Ministry said in a statement it had received a request for consultations on the issue with the United States. The ministry said it would coordinate the work between authorities from the two countries “with the objective of timely presenting the efforts and measures adopted to protect marine species in the national waters.””The Government of Mexico reaffirms its commitment to the correct implementation of the T-MEC and the responsibilities acquired within it,” the statement said, using the Spanish acronym for the USMCA.Environmental groups urged USTR in August to initiate proceedings against Mexico over its ongoing failure to crack down on rampant illegal fishing in the Gulf of California that has caused the vaquita’s near-extinction.USTR said the most recent data showed that at least six, but likely fewer than 19 vaquita remained on earth, but experts believe that the species remains biologically viable if given the space to recover. More