Aurelia Butler

Roughly two weeks before the Federal Reserve wrapped up December’s meeting on monetary policy, Jay Powell sent a clear message to US lawmakers and market participants that change was afoot.“You’ve seen our policy adapt, and you’ll see it continue to adapt,” the Fed chair told members of the Senate banking committee on the final day of November.On Wednesday the scope and scale of that adaptation was crystallised, with the US central bank announcing that it would more speedily withdraw its pandemic-era stimulus programme. At a time of surging inflation and a recovering labour market, the move would give the Fed more flexibility to raise US interest rates early next year.“The pivot is complete in terms of them worrying about more persistent and problematic inflation,’‘ said Diane Swonk, chief economist at Grant Thornton. “It is a late realisation but they are there, which is important.”With the stimulus consisting of monthly government bond purchases now set to end in March, Fed officials expect to raise rates three times in 2022. That is a significantly more aggressive pace than just a few months ago when policymakers were evenly split on the notion of a 2022 lift-off from today’s near-zero rates. Members of the Federal Open Market Committee and other regional Fed presidents signalled their support for three more rate rises in 2023, and another two moves in 2024.The Fed’s less patient approach and its shift away from the ultra-loose monetary policy, despite a worrying wave of new coronavirus cases linked to the Omicron variant, underscores the immense pressure piling up on the central bank to do more to tame inflation. Powell justified the hawkish pivot by highlighting the underlying strength of the US economy, which Fed officials expect to expand by 5.5 per cent this year and 4 per cent next year, and the spread of inflationary pressures through a broader cross-section of the economy. Speaking at a press conference, he also stressed the importance of keeping prices stable to support steady and more inclusive growth. He acknowledged that the current inflation level was “not at all” what the Fed was looking for when it rolled out a new policy framework in August last year, which indicated a higher tolerance for swifter consumer price growth. With core inflation at present running at 4.1 per cent and only set to moderate to 2.7 per cent next year, according to the median Fed forecast, the central bank declared that its inflation test for lifting interest rates had been met. While Powell noted that progress towards maximum employment had been “rapid” — so much so that there need not be a “long delay” between the end of the bond purchase programme and the first interest rate increase — the hawkish turn seemed to suggest a “changing in the hierarchy” in the Fed’s dual priorities of full employment and stable prices, said Seth Carpenter, who spent 15 years at the central bank.“The way they had been formulating their approach to policy before Covid was in a world where you had a very, very long expansion, extraordinarily low unemployment, still very muted inflationary pressures and the recent history of inflation being too low relative to the target,” said Carpenter, who is now the global chief economist at Morgan Stanley. “Because the world has changed pretty substantially, their approach is changing in response to it.”The Fed has previously said it would keep interest rates tethered close to zero until it achieved maximum employment and inflation that averaged 2 per cent for some time. Powell on Wednesday suggested the jobs market in future might look different than the one before the Covid-19 shock, especially in terms of participation in the workforce, suggesting the Fed may be willing to raise rates before the full suite of labour statistics resemble those last seen in February 2020.“They definitely have lowered their expectations about what they are getting in the near-term,” said Julia Coronado, a former Fed economist now at MacroPolicy Perspectives. “Their ultimate objective now is a stable expansion, and to get that, they feel they need to cool off inflationary pressures. And that means removing more accommodation earlier than they previously expected.”

Financial markets took the Fed’s more assertive posture in their stride, with the S&P 500 stock index advancing 1.6 per cent and the technology-heavy Nasdaq Composite notching a gain of 2.2 per cent.Jean Boivin, who now heads up the BlackRock Investment Institute after serving as deputy governor at the Bank of Canada, attributed the positive reaction in part to the more “muted hiking cycle” suggested by the so-called dot plot of individual interest rate projections. A majority of Fed officials expect the policy rate to reach only 2.1 per cent in 2024, well shy of the 2.5 per cent longer-run target. Expectations implied in futures markets are even more subdued, suggesting a 1.5 per cent level around that time.“Their dots are suggesting a faster pace but they end up at the same place,” Boivin said. “It doesn’t send the message that we really need to slam the brakes here.” Swonk warned that financial markets could be at risk of a sharp sell-off, however, if the Fed did indeed tighten policy much more substantially to root out entrenched inflation.“Many rate-hiking cycles have had the Fed off to the races and then they have to pull back,” she said. “Markets seem to be expecting that scenario to play out again and are not acknowledging that this time really could be different.” More

European supermarket chains J Sainsbury, Carrefour and Ahold Delhaize will stop selling several Brazilian meat products after an investigation found they contributed to the destruction of the Amazon rainforest. Pressure to halt deforestation has ratcheted up since last month’s COP26 climate summit in Glasgow.It resulted in more than 100 countries pledging to end by 2030 meat production supported by livestock reared on land where rainforests and savannahs had been cleared — a main source of carbon emissions.As the world’s biggest beef exporter, Brazil’s meat’s processing industry has long faced scrutiny over its supply chain and its impact on climate change.The decision by Sainsbury’s, the UK’s second-largest supermarket chain, the Belgian stores of Carrefour, the French retailer, and Albert Heijn, the biggest chain in the Netherlands and part of Ahold Delhaize, follows an investigation by environmental campaigners Mighty Earth and NGO Repórter Brasil, which was published on Thursday.The report highlights the risk of supply chain contamination by processed meat, where cows from deforested areas are sent to suppliers to be fattened and eventually slaughtered by processors such as JBS, Marfrig and Minerva. This meat ends up in European supermarkets as products, such as beef jerky, corned beef and prime cuts. About a fifth of the beef the EU imports from Brazil each year has been linked to illegal deforestation in the Amazon rainforest and the Cerrado savannah, according to academic research. However, high consumer demand for the products has helped drive the rate of deforestation of the Amazon rain forecast to the highest level in 15 years.Albert Heijn said on Thursday it would stop sourcing beef from Brazil for all of its stores. Sainsbury’s said it would move its own brand corned beef away from Brazil. It has been selling corned beef processed by JBS, despite being alerted to beef products linked to deforestation by environmental and social campaign group Earthsight in 2019.Carrefour in Belgium and French retailer Auchan added that they would remove beef jerky products made by a JBS joint venture. Carrefour said it would “increase its surveillance in all its operating countries”, while Sainsbury’s said it had “played an active role in formulating clear asks for the beef industry in Brazil and engaged with meatpackers to achieve better supply chain transparency in the sector”.Meanwhile, Lidl Netherlands said it would halt sales of South American beef from next month. Germany’s Metro, which stocked filet mignon from Marfrig, said it was in the process of investigating the report’s claims.JBS said it had “no tolerance for illegal deforestation, forced labour, misuse of indigenous lands, conservation units or violations of environmental embargoes”. It added it had blocked suppliers that did not comply with its policies. “We have made extensive investments in a new blockchain-enabled platform to overcome this challenge and achieve a completely illegal deforestation-free supply chain by 2025,” the company said.Marfrig said more than 60 per cent of its suppliers in the Amazon and 47 per cent in the Cerrado savannah had been mapped so far and it would map its entire supply chain by 2030. Minerva said it had started tests with a digital tool, developed by the University of Wisconsin in partnership with the National Wildlife Federation, which assesses risks in the supply chain.Additional reporting by Jonathan Eley in London More

Investors pour billions of dollars into inflation-linked assets as prices continue to soarYour browser does not support playing this file but you can still download the MP3 file to play locally.Read a transcript of this episode on FT.comFederal Reserve officials expect to raise interest rates three times next year, and investors are piling into inflation-linked assets in a bet that consumer prices will continue to soar. Plus, the FT’s law courts correspondent, Jane Croft, tells the tale of a money laundering conviction that started with garbage bags stuffed with cash. Fed officials expect three rate rises next year in hawkish pivot on inflationhttps://www.ft.com/content/834e773c-0bf6-4510-87d3-123a5d040c05Investors pour billions of dollars into inflation-linked assets – with Kate Duguidhttps://www.ft.com/content/76122770-a4ac-4cee-a045-fc1a298c1d5eNatWest fined £265m for money laundering failures – with Jane Croft https://www.ft.com/content/f080cc09-62bc-4898-9814-ee7759d80cd7M&S sues discounter Aldi over ‘copycat’ Christmas gin https://www.ft.com/content/ffccedd3-db95-4e5e-8641-d0cb9caeff81The FT News Briefing is produced by Fiona Symon and Marc Filippino. The show’s editor is Jess Smith. Additional help by Peter Barber, Gavin Kallmann and Michael Bruning. The show’s theme song is by Metaphor Music. The FT’s global head of audio is Cheryl Brumley.  See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

The Reserve Bank of Australia may end its asset purchase programme as early as February, said governor Philip Lowe, in the latest shift by a global central bank towards tighter monetary policy.Lowe said on Thursday that an early end to the RBA’s quantitative easing programme — under which it buys government bonds at a pace of A$4bn (US$2.9bn) a week — was one of three options discussed at a recent board meeting.The governor’s comments highlighted the strength of Australia’s economic recovery and came hours after the Federal Reserve said it would reduce the pace of asset purchases in the US.But Lowe suggested he was in no hurry to raise interest rates and any move to halt asset purchases would not affect the timing of that decision. “We view the two decisions as completely separable,” he said.Speaking to a forum of accountants in Wagga Wagga, New South Wales, Lowe said that one option was to end RBA asset purchases in February if progress towards its employment and inflation goals went faster than expected.The other possibilities were to taper purchases and end them in May, or taper and then review the programme in May, based on whether the economy’s progress was in line with November forecasts or slower.“If better than expected progress towards the board’s goals was made, then the case to cease bond purchases in February would be stronger,” Lowe added. An early end to the programme appeared to become more likely after new data showed a sharp rebound in the labour market.Australia’s labour force survey for November, released after Lowe’s speech, showed a jump of 366,100 in the number of people employed. That reduced the jobless rate from 5.2 per cent in October to 4.6 per cent.The rate of participation in the labour force rose to 66.1 per cent, close to the record of 66.3 per cent.The labour market data exceeded the RBA’s forecasts in November, which projected the unemployment rate a little below 5 per cent by the end of the year.The RBA began its quantitative easing programme in November 2020, much later than other central banks, having been reluctant to do so before succumbing to the risk of exchange rate appreciation.

“We were very much influenced by the actions of other central banks,” said Lowe in a question-and-answer session after the speech.The Federal Reserve’s signal on Wednesday that it would taper at a faster rate could be a factor in the RBA’s February decision. “At the margin, if they [other central banks] stop doing this, it increases the probability of us doing the same as well,” Lowe said.Lowe said the decision would be based on further readings on inflation, the labour market, spending in the economy and the effects of the Omicron coronavirus variant.Omicron represents a downside risk, Lowe said, but he expected positive momentum in the economy to continue through the summer, underpinned by the end of lockdowns, high rates of vaccination, significant fiscal and monetary support and strong household and business balance sheets.However, rate rises would probably take time because the economy was a “fair way away” from the point where inflation was sustainably in the RBA’s target range of 2-3 per cent, he said. More

The Bank of England is likely to voice deep concern about the rise in inflation on Thursday but will keep interest rates at a record low as a wave of Omicron coronavirus infections engulfs the UK, according to economists.Although there has been a flurry of speculation in financial markets that the BoE’s Monetary Policy Committee might bite the bullet at midday and raise rates from 0.1 per cent to 0.25 per cent, most economists believe the majority of members will vote to hold fire.Even the most hawkish members of the committee, including external member Michael Saunders, have suggested in the past that the new facts surrounding the virus might require a pause for additional thought.With the labour market tight and inflation in November at 5.1 per cent, its highest level for a decade, the IMF has told the central bank to act and avoid “inaction bias”, but economists lined up on Wednesday to say the BoE would hold tight. Krishna Guha, at Evercore ISI, said he was confident the BoE would delay a rate rise, which would “reflect the higher bar for rate tightening rather than quantitative easing tapering in terms of learning about Omicron and the balance of its demand and supply effects, along with the imposition of new activity restrictions in the UK”.The Federal Reserve announced it would accelerate the pace at which it would wind down its asset purchases and forecast three rate rises next year after its meeting on Wednesday, in response to inflation rising to a multi-decade high in the US in November. The European Central Bank is also expected to announce a slowing of asset purchases at its meeting on Thursday. In the UK, asset purchases are already scheduled to end by January and the focus had been on the next step of raising interest rates from the current level of 0.1 per cent in an attempt to cool spending and bring inflation lower.

Even though all the economic conditions for an interest rate rise set by the MPC after its November meeting have been met, the additional uncertainty of the Omicron variant has presented an opportunity for the BoE to wait until its next meeting in February. Allan Monks, UK economist at JPMorgan, said the spread of the virus, with 78,000 reported cases on Tuesday, would pose an acute short-term risk to the economy. He expected this to be shortlived and so expected the MPC to be hawkish while it did nothing on rates. “We expect the MPC tomorrow will retain language similar to November by stating that a rate rise is still likely to be needed in the coming months,” Monks said on Wednesday.But with the economic data strong, a few economists sided with the financial market participants who were betting on a rate rise. George Buckley, chief UK and eurozone economist at Nomura, said: “We continue to think the bank will raise rates tomorrow to prepare the ground for more significant tightening next year.” More

Activity in the services sector also grew at a slower pace, slipping from a more than two-year high recorded in the prior month, suggesting it will take time for the sector to fully recoup the negative impact from the coronavirus pandemic.The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 54.2 from a final 54.5 in the previous months.”Manufacturers and services companies signalled softer rates of output and new order growth compared to November,” said Annabel Fiddes, economics associate director at IHS Markit, which compiles the survey.”Cost pressures also remained more acute at manufacturers, with average input prices rising rapidly amid reports of higher material costs and supplier shortages.”Manufacturers reported a decline in suppliers’ delivery times and stocks of purchases and a slowing expansion of new export orders.Both manufacturers and service-sector firms became less optimistic about business conditions in the 12 months ahead, IHS Markit’s Fiddes said. “Concerns over supply chains, rising costs and the unpredictable nature of the pandemic (including new strains) pushed overall optimism down to the lowest in four months,” she said.The au Jibun Bank Flash Services PMI Index dropped to a seasonally adjusted 51.1, a nearly two point drop from the prior month’s final of 53.0.The au Jibun Bank Flash Japan Composite PMI, which is calculated by using both manufacturing and services, dropped to rose to 51.8 from November’s final of 53.3. More