Aurelia Butler

The research arm of the U.S. investment bank earlier predicted the Fed would raise rates in March, June and September, but it now expects another hike in December.The investment bank’s predicted rate is only modestly above market expectations for 2022, “but the gap grows significantly in subsequent years,” economist Jan Hatzius wrote in a note dated Sunday.Traders ramped up bets for rate hikes this year after the U.S. central bank’s minutes from the December meeting suggested an earlier-than-expected rate hike and the possibility the Fed may cut its bond holdings sooner than many initially thought.San Francisco Fed President Mary Daly, who is not a voter this year, said on Friday she could see the central bank shrinking its more than $8 trillion balance sheet soon after it has raised rates once or twice. More

While the 68-year-old Fed chair enjoys widespread support from both Democrats and Republicans — and is expected to win easy confirmation — members of the Senate Banking Committee are sure to press him on his views on everything from when to start raising interest rates to whether to adopt bank capital standards tied to climate risks. The hearing begins at 10 a.m. in Washington.“It will be a lot of focus on the state of policy and where he thinks it’s going,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York. The off-year state elections held two months ago “really drove home for people that inflation matters,” Porcelli said — highlighting the sensitivity of lawmakers to living costs ahead of this November’s midterm congressional elections.Following are a number of key issues likely to come up during the hearing:Interest RatesInvestors are betting the Fed will begin raising its benchmark federal funds rate in March, two years after cutting it to nearly zero at the onset of the pandemic in March 2020. A Labor Department report Friday showing the U.S. unemployment rate fell to 3.9% in December — closing in on the 3.5% pre-pandemic low — bolstered those expectations, and saw some economists change their forecasts to a March liftoff.The last time Powell appeared before Congress, in late November, he was pressed by Republicans and Democrats alike on the Fed’s response to inflation. Consumer prices had risen 6.8% over the preceding 12 months, the most in nearly 40 years.Amid widespread concerns in Washington about inflation, minutes of the Fed’s Dec. 14-15 policy meeting, published Jan. 5, revealed that “several” officials also “viewed labor market conditions as already largely consistent with maximum employment” — the final prerequisite for moving forward with rate hikes.Omicron WaveWhile a March rates liftoff is looking increasingly likely, Tuesday will probably still be too soon for Powell to give explicit guidance to that effect. That’s especially true given the disruptions the omicron variant of Covid-19 is causing as it sweeps across the country, according to Aneta Markowska, the chief financial economist at Jefferies in New York.The December meeting minutes indicated policy makers were concerned with the risk that it could prolong supply-chain strains that have contributed to fast-rising prices in recent months, something Powell is likely to be quizzed on.The analysis is complicated because the impact of omicron could be different from that of the delta variant that preceded it, Markowska said. The new variant has led to more widespread labor-market disruptions due to faster transmission than was the case with delta. At the same time, it’s coming during a seasonal slowdown in price pressures — unlike delta, which hit just as the U.S. was ramping up imports ahead of the holiday shopping season.Balance SheetAnother potential area of questions is tied to policy makers’ discussions on when and how to downsize the Fed’s $8.8 trillion balance sheet. San Francisco Fed President Mary Daly on Friday said that the central bank could opt to start the process after one or two rate increases.That timeline would be quite different from the one it followed in the 2015-2018 tightening cycle, when Fed officials waited nearly two years after the first rate hike to begin reducing the balance sheet.The urgency reflects growing worries “that maybe they actually have slipped behind the curve” on taming inflation, Porcelli said.Financial RegulationPresident Joe Biden, when announcing his backing of Powell for a second term in November, said the Republican former Carlyle Group (NASDAQ:CG) partner had made clear to him that climate change poses risks to the financial system and underscored the importance of a proactive Fed role for financial regulation — key items for progressive Democrats.Senate Democrats and Republicans diverge significantly on those topics. The Fed chair in recent congressional testimonies has been decried by Elizabeth Warren, a Democratic senator from Massachusetts, who in September told him he was a “dangerous man” to be running the central bank, citing the Fed’s relaxation of some regulatory requirements for banks on his watch.Powell could also be asked about the supervision of cryptocurrencies — he has backed regulation of stablecoins — and the potential introduction of a digital version of the dollar.Biden has yet to announce his nomination for the Fed’s vice chair of supervision, the central bank’s point person when it comes to regulatory matters, though former Fed Governor Sarah Bloom Raskin is seen as a leading contender. More detailed questions would likely be raised at the hearing for that nominee.Climate RisksThe central bank has in recent years moved forward with initiatives aimed at promoting climate risk as a financial stability issue, which Democrats strongly support and Republicans see as a potential threat to credit access for oil and gas companies.Powell in October backed a judgment that climate change was an “emerging threat” to financial stability, but hasn’t embraced the idea of tying such risks to capital standards for lenders.©2022 Bloomberg L.P. More

It said footfall last week was 21.8% lower than the same week in 2019, before the pandemic impacted traffic.Springboard said the week-on-week decline in footfall was driven by a drop of 10.9% in high streets and 4.4% in shopping centres. It rose 2.9% in retail parks.”With employees continuing to work from home the drop in footfall in Central London and in other city centres around the UK was far greater than in more local high streets,” said Springboard director Diane Wehrle. More

WASHINGTON (Reuters) – Sixteen Democratic lawmakers are urging U.S. Treasury Secretary Janet Yellen to back a review aimed at ending the International Monetary Fund’s policy of charging countries significant surcharges on larger loans that are not repaid quickly.In a Jan. 10 letter to Yellen led by Representatives Jesus Garcia and Alexandria Ocasio-Cortez, the lawmakers called the policy “unfair and counterproductive,” and said it robbed countries of resources needed to combat the COVID-19 pandemic.”At a time when countries around the world should be focused on this public health crisis, these surcharges divert billions of dollars into the IMF’s pockets here in Washington and prevent an equitable recovery,” Garcia said in a statement to Reuters.The letter, a copy of which was viewed by Reuters, said the policy could also increase the risk of sovereign defaults.Argentina, which is expected to spend some $3.3 billion on surcharges from 2018 to 2023, has repeatedly asked for temporary relief from the surcharges given the COVID crisis, but IMF executive board members remain divided over the broader issue.The Argentine government is also negotiating with the IMF to roll over some $45 billion it owes the global lender from a $57 billion standby loan signed by the previous government in 2018.Nobel Prize-winning economist Joseph Stiglitz, a professor at Columbia University, and Kevin Gallagher, who heads the Global Development Policy Center at Boston University, backed the call for reform in a paper published in October, arguing that surcharges hit countries when they could least afford them.They said the IMF estimated that borrowing countries would pay over $4 billion in surcharges on top of interest payments and fees from the start of the pandemic through the end of 2022.IMF executive board members last month discussed the role of surcharges, now the fund’s largest source of revenue, with some open to temporary relief, while others saw no need to review the policies on surcharges. Those opposed cited the overall low total cost of borrowing from the fund and the role surcharge income plays in ensuring an adequate build-up of risk buffers for the global lender, the IMF said at the time.Germany, France and Britain are open to reviewing the IMF’s surcharge policy, but the United States, the fund’s largest shareholder, has argued against such a move.Surcharges do not apply to the poorest borrowers, and help build precautionary balances to protect the IMF’s shareholders against potential losses from these higher risk programs, said a source familiar with Treasury’s position.Rates applied to IMF loans were also generally below market rates, even with surcharges, the source said. Argentina, for example, paid just over 4% on its loans from the IMF, well below the 50% rates it is paying to borrow in capital markets. More

Compliments of the season, and welcome to the first Trade Secrets of 2022. First of all, our format is changing as of today. Instead of a four-day-a-week newsletter I’ll be writing a comprehensive briefing on Mondays and a midweek opinion column. The content will be similar to before but the views even more trenchant. As ever, I’m open to helpful tips, lavish praise and gratuitous abuse, all of which can be directed to me via email — [email protected]. Today’s main piece looks ahead to the rest of the year and concludes that, whatever your idea of normality is, we’re probably not going back to it.Globalisation is surviving a hostile environmentMy last set of year-ahead predictions, in 2020, had such a high hit rate I’ve been reluctant to repeat the exercise in case the massive role of good luck on that occasion became too obvious. In any case, globalisation since the pandemic hasn’t mainly been framed by a set of neat processes (trade deals, dispute settlement cases) with clear observable outcomes. So instead of spuriously precise forecasts, here’s what I’m keeping an eye on in 2022.Supply chains are a wait-and-see puzzle. The jury’s still out on the culprit for the biggest problem in world trade right now, the supply chain disruptions that have persisted for several months. I remain pretty convinced by the arguments of members of the optimistic Team Temporary Rebound In Consumer Durables Demand rather than the gloomy Team Enduring Supply-Side Rupture. But I admit that my hopes about an easing in shipping and supply chain congestion towards the end of last year proved a bit premature.Even if you mainly believe the demand-side thesis, the Omicron coronavirus variant has obviously interrupted ports, manufacturing and food supply across the world. By the middle of the year, assuming the Omicron wave has subsided somewhat, we should have a clearer sign of how deep-seated the problems are. Brace yourselves as governments come to the “rescue”. The longer that supply chain problems persist, the more political chuntering there will be about industrial policy and the greater is the chance of truly boneheaded government interventions such as a global subsidy race for semiconductor production. The best thing governments can do for globalisation in the short term isn’t so much in trade policy as in macroeconomics and public health: keep domestic demand humming and people vaccinating and masking up.Still, longer-term challenges such as climate change and tech rivalry will keep permanent pressure on governments for an activist trade policy. One example: the Biden administration’s response to the EU’s carbon pricing plan has been to suggest an anti-China managed trade alliance of dubious effectiveness and legality, and throw in some domestic favouritism on electric vehicles to boot. China hasn’t cut itself off from the world, but it is set on its China-first “dual circulation” course. Economic nationalism is getting contagious.Big-power strategic rivalry and the Asia-Pacific. Everyone agrees that a dominant role in the Asia-Pacific region is the big prize in trade governance, but the US’s efforts at leadership are looking pretty feeble. The Biden administration has signalled it will continue to flail about trying to make Donald Trump’s deal with China work. In lieu of joining the CPTPP (Comprehensive and Progressive etc, you know the one) the US is coming up with what seem likely to be flimsy, face-saving bilateral memoranda with some of its members. Despairing of a strong US presence, America’s allies in the region (Japan, Australia, New Zealand et al) will agonise about how much they can slow-walk China’s application to join the CPTPP. The strategically autonomous Europeans have been presented with an early test of their resolve for a more geopolitical trade policy in the form of China’s bullying of Lithuania. It will be a huge challenge for the EU to weave trade into a coherent and durable strategic approach, even with the energetic French running the show for the first six months.There aren’t many big trade deals on the table. There’s not much to rival CPTPP in terms of formal agreements involving the dominant trading powers. The big EU-US irritants, including Airbus-Boeing and the steel and aluminium dispute, have been patched up, but there’s little sign of any transatlantic substance beyond that. Apart from knocking off pending deals with New Zealand and Australia in the second half of the year, the EU is mainly focusing on arming itself with more bilateral tools against what it considers unfair competition. December’s World Trade Organization ministerial, postponed because of Covid-19, will reconvene at some point, probably towards the middle of the year. But even if it is deemed a success it probably won’t be in the top five, maybe the top 10, most important things to happen in global trade. The US is reluctant to commit to a major revival of the WTO before November’s midterm elections.The UK has teed up its annual capitulation to the EU. I have one solid prediction for 2022. The UK’s new year tough talk to the EU over the Northern Ireland protocol will end in meek retreat. It always does.What form of globalisation can survive? There are too many sustained disruptions to the trading system — climate change, data wars, tech rivalry, cyber security — for the pandemic to be a shock that simply goes away and lets normality return. Yet despite everything I’m pretty optimistic that the 30-year expansion of globalisation, which has weathered multiple shocks, will continue to resist implosion. The question is how it will adapt to stay alive.Charted watersThe following chart — pulled from the excellent Big Read yesterday on the supply chain crisis by Harry Dempsey — highlights how far freight shipping rates have risen during the pandemic.In the decade prior to coronavirus, shipping cargo in containers was so cheap that the industry, plagued by excess capacity, struggled to make a profit, according to the piece. Some carriers went bust and the market consolidated such that the world’s leading nine carriers now control 83 per cent of tonnage.As this chart shows — and has been noted previously by this newsletter — there are signs that shipping rates have fallen recently, at least on the more popular routes. However, there lingers an expectation that the world will have to learn to live with lofty freight rates and this feeds into the economic debate about inflation, given the link between shipping costs and the final price of goods.Trade linksThe New York Federal Reserve has designed a new index of pressures on global supply chains.Shipping industry experts tell the FT the supply chain disruptions are likely to persist this year.The former EU trade commissioner Cecilia Malmstrom optimistically suggests that the EU (which we note borders the Arctic and Atlantic Oceans) should join the trans-Pacific CPTPP.Noah Barkin, of the German Marshall Fund think-tank, describes how German industry has mobilised to defend its close trade relationship with China in the face of scepticism within the new government in Berlin.France’s official programme for its six-month presidency of the EU Council of member states emphasises the need to create an anti-coercion tool to deter bullying by other trading powers. 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