Aurelia Butler

After the Fed raises rates above zero, the central bank should “move into a normalization process” using a “glide path that will be steeper” than it used the last time because the balance sheet is larger, Harker said during an interview on CNBC. Harker said earlier on Thursday that he could be convinced of the need for a fourth rate increase this year if inflation stays elevated. More

“The closer that inflation comes back to target levels, the easier it will be to normalize rates at a measured pace,” Barkin said in remarks prepared for a virtual event organized by the Virginia Bankers Association and Virginia Chamber of Commerce. “But were inflation to remain elevated and broad-based, we would need to take on normalization more aggressively, as we have successfully done in the past.”Policymakers are set to debate strategies for removing the extraordinary support offered during the pandemic when they meet in two weeks, including possible approaches for raising interest rates and reducing more than $8 trillion in bond holdings. Several Fed officials have said in recent days that they would support raising interest rates at least three times this year, starting in March, if the economy stays on the current trajectory.Barkin said the labor shortage making it difficult for businesses to find needed workers may persist because of longstanding trends in demographics and challenges related to the pandemic. The Fed official said he expected the labor market to see more growth last fall as more businesses reopened but instead, labor force participation has been “basically stagnant,” something policymakers may need to accept. “I do think this is a long lasting phenomenon,” Barkin said. Asked about the Fed’s work on a potential central bank digital currency, Barkin said a model where individuals could hold deposits with the Fed would not be a good fit in the U.S. and could raise privacy concerns. “You have to think hard about what the use case might be for digital currencies,” Barkin said. Fed Chair Jerome Powell said Tuesday that the Fed’s discussion paper on digital currencies would be released in the coming weeks. More

Is the global outlook becoming dark(er)? If you look at equity prices this week, the answer might be “no”. In America, the inflation rate has just hit an eye-popping 7 per cent, and the Federal Reserve is preparing to tighten policy. But the US stock markets remain buoyant, along with most other world indices — never mind the tensions around Ukraine and Taiwan and soaring oil prices.However, if you look at the mood among the so-called Davos elite — the business leaders who normally attend the World Economic Forum’s annual meeting in that lofty Swiss ski resort — you might feel more alarmed.Each winter the WEF polls its members about perceived risks, and it has just released the latest survey, ahead of its virtual meeting next week. This reveals that just 16 per cent of Davosians feel “positive” or “optimistic” about the global outlook; the rest are “worried” or “concerned”. No surprise there, you might think, given Covid trends. But what is more notable is that a mere tenth of Davosians forecast an accelerating global recovery, while a similar proportion fear catastrophe — and four-fifths expect a “consistently volatile” scenario or “fractured trajectory”. This is startlingly gloomy, even allowing for the caveat that this survey often skews pessimistic, because it focuses on risk. Doubly striking is the detail about what scares the Davos elite. A decade ago, the issues preoccupying them tended to relate to economic, technological or political problems such as “fiscal imbalances”, “oil price spikes”, “financial collapse”, “cyber security threats” or “interstate conflict” (the polite term for war).These remain concerns, to some degree. “Geoeconomic confrontation” (ie trade wars and other clashes) is considered to be the tenth biggest general global risk now. “Debt crises” sit in ninth place. And a supplementary, more detailed survey of world leaders shows that 14 per cent of Davosians are worried about an “asset bubble burst” in the next two years (albeit the tenth worry in a list of 10). But fewer are worrying about a bubble than are fretting about “cyber security failure” or environmental or social problems. And in the general outlook, five of the top 10 global risks are linked to green issues such as “climate action failure”, “extreme weather” and “biodiversity loss”. The rest are social in nature and include “social cohesion erosion”, “livelihood crises” and “infectious diseases”. Moreover, the list of social concerns features problems that have never cropped up in this ranking before. Some 26 per cent of respondents, for instance, now worry about “mental health deterioration” — a higher proportion than express concern about debt and fiscal or cyber risks. In other words, if the WEF survey is correct, then the denizens of Davos today are overwhelmed with human-to-human and human-to-nature problems of the sort that most of them were never trained to analyse. So what should investors conclude? One (cynical) interpretation of the results is that these simply reflect a generalised howl of fear, not a hard-headed assessment of risk. Corporate boards, like the proverbial generals, tend to fight the last war, or worry about problems that are in the news. The focus on environmental and social issues in this WEF survey — which is echoed in polls such as the one conducted annually by AXA life insurance — is thus probably distorted by the recent Glasgow climate change talks and the Covid-19 pandemic. That does not necessarily make it a good guide to the ranking of future risks, however. On the contrary, if you look back at the past two decades, the Davos consensus has sometimes called the world wrong: the 2007 risk survey, for example, focused on oil prices and a Chinese economic slowdown, not financial collapse; its 2020 counterpart fretted about climate change but barely mentioned pandemic risk. There’s a reason that some hedge fund traders joke that a smart way to trade markets is to sniff the mood in Davos and then take the opposite tack.Another issue which might also be distorting the poll: disorientation. Today’s corporate leaders have spent their careers assessing tangible economic risks, such as rising rates or oil prices. At a pinch, they ponder political ones too. However, many of the new social and environmental issues are unknowns. That might explain why the survey reveals such a high level of generalised fear; and why this seems so at odds with the experience of many company leaders today. Next week’s corporate reports in America are expected to show that earnings have jumped in nine of the 11 sectors.However, there is another explanation for what is going on: that it is the Davos elite who are right to be worried, and the equity markets that have it wrong. A decade of ultra-loose money has bred dangerous levels of complacency about risks, be they economic, environmental or cyber. This is not a conclusion that most investors want to hear. Nor does it mean that markets are about to collapse — at least not while the Goldman Sachs index of financial conditions is at record loose levels. But I think it is partly the right one. Flawed or not, investors would be foolish to ignore the tone of this report. And Davosians are probably also wrong to rank “asset bubble burst” so low on their worry [email protected]  More

Spain’s addiction to temporary jobs is, says its government, what makes the country a “distant planet” from the rest of the EU.About a quarter of the workforce relies on such employment contracts, far more than in any other member state. Young people and women are principally affected.So when Yolanda Díaz, the country’s communist deputy prime minister, reached a long-sought accord with business and unions on labour rules last month — focusing on measures to curb uses of temporary contracts — the government was not alone in hailing the breakthrough on a hugely contentious and consequential issue.“On a symbolic level, we’ve barely seen anything like this since the transition to democracy: a communist minister has struck a deal with business and labour,” said Máriam Martínez-Bascuñán, a political scientist at the Autonomous University of Madrid.Now comes the hard part: getting parliament to pass the measure into law and making real improvements to Spain’s dysfunctional labour market.The changes — a component of the reforms Spain has promised in return for €70bn of grants from the EU’s coronavirus recovery fund — need to be backed by parliament by February 7. Failure to ratify the reforms could affect future funds from Brussels.But so far the votes are not there. The opposition People’s party says it will oppose the measure, which has already provisionally taken effect, while the nationalist and regional parties on which the minority leftwing government depends have yet to be won round.Meanwhile, the real challenge awaits: mending Spain’s labour market, the country’s biggest economic black spot. At twice the EU average, Spain’s unemployment rate of 14 per cent is the highest in the bloc.“The situation in parliament shows where Spain is right now,” Martínez-Bascuñán said. “The far right is on the rise, so the PP won’t support the reform for fear of seeming too centrist and the bloc that backs the government remains fragile even though it’s pushed a lot of legislation through.”The reform’s roots lie in the coalition deal between the Socialists and Díaz’s smaller, radical left Podemos grouping two years ago. The parties agreed to scrap changes made by the conservative government in 2012 that reduced redundancy payments and gave precedence to company-specific negotiations on wages and conditions, rather than to sector-wide talks.Many economists say the 2012 measures helped businesses bounce back from the financial crisis, enabling an export-led recovery, but the left argues that they exacerbated economic inequalities.For years, the coalition partners feuded over how to rewrite the rules, with the Socialists keen to keep business on-side. Spain’s central bank urged the government to retain the measures to avoid damaging the country’s competitiveness.During the pandemic the planned changes to labour rules were subsumed into the recovery agenda agreed with the EU. Because Brussels required the changes to be negotiated with business and labour organisations, the CEOE, Spain’s employers’ federation, played a decisive role in the talks. It signed up to the reform last month, despite dissent within its ranks from groups such as carmakers, agro-industry and business organisations from Madrid and Catalonia, the country’s main economic powerhouses. Commuters aboard a train in Barcelona. About a quarter of Spain’s workforce relies on temporary employment contracts © Nacho Doce/ReutersThe CEOE’s leadership says the deal “consolidates the current labour model”. The accord places limits on temporary contracts, 17m of which were concluded last year, compared with just 2m fixed-term contracts. But it allows their use for training, temporary replacements and work limited to fewer than 90 days.The CEOE adds that, while sector-wide talks will now set wage accords with unions, negotiations on conditions, which it considers more important, will stay business-specific.Mariano Rajoy, Spain’s previous conservative prime minister, has come up with a simpler analysis, telling the ABC newspaper the government pact has “left the [previous] labour reform where it was”.But the PP’s current leadership indicated it would vote against any changes to measures that it said had brought millions of jobs to Spain over the past decade.

The government also depicts the changes as a paradigm shift. “The previous model was based on precariousness and wage depreciation,” said an official. “This reform will recover workers’ rights without hurting business.”Officials express confidence they will win enough support from Spain’s smaller parties to pass the measures into law. But they are reluctant to reopen a lengthily negotiated text that has already been ticked off Spain’s list of commitments to the EU.“It’s true that in large part this measure maintains the PP’s labour reform, while focusing on cutting down on temporary contracts, which if it works will be very positive,” said Alicia Coronil, chief economist at Singular Bank, a Madrid-based private bank.Coronil said the 2012 reform helped Spain to add half a million jobs a year before the pandemic and probably reduced job losses during it.But she said the pandemic “also showed how exposed the Spanish economy is — with companies that are often too small to expand and employment policies that are inadequate. What’s most important is to address those issues.” More