Aurelia Butler

Moderate Democrats are pushing the Federal Reserve to move more aggressively towards tighter monetary policy to stamp out inflation, in a sign of their mounting concern about the political fallout from high prices.The pressure on the US central bank from the centrist wing of the Democratic party has increased ahead of next week’s Federal Open Market Committee meeting, during which the Fed is expected to announce a more rapid drawdown of its asset purchases, setting the stage for possible interest rate increases later next year. It reflects growing unease within Joe Biden’s party that high inflation could prove toxic with voters in the 2022 midterm elections — and will not be reined in soon enough by his $1.75tn childcare and climate change legislation, whose structural reforms to the economy will only have an impact in later years. “The Fed needs to start tapering immediately and then they need to raise interest rates. Both those things can be done by March,” Jake Auchincloss, a Democrat from Massachusetts and member of the House of Representatives financial services committee, which oversees monetary policy, told the Financial Times. “I think chair [Jay] Powell would do well to end the decade of easy money,” he added. The Democratic debate over inflation keeps intensifying at every new data release. In November the consumer price index rose by 6.8 per cent compared to a year earlier, its fastest pace since 1982. Biden on Friday acknowledged that inflation had been a “real bump in the road”, though White House officials still expect prices to ease and are glad that petrol costs have begun to decline. When the US president appointed Powell for a second term as Fed chair, Biden suggested he believed he was the best person to tackle inflation, but the White House is not commenting on specific central bank policies.

Vocal support for tighter monetary policy is still relatively rare from Democrats. The party has long emphasised the need for the Fed to maintain as much support for the recovery as possible in order to fully honour its mandate to pursue full employment that would benefit all segments of the population. Some key Democrats still suggest that should be the priority. “At this moment, when workers are finally gaining bargaining power, we need to continue pushing for full employment and a job market where companies compete for workers by offering higher wages and better benefits,” Sherrod Brown, the chair of the Senate banking committee, and an Ohio Democrat, said in a statement to the FT. “The Fed should make sure our economy works for workers and their families, not Wall Street,” he added.But others are calling for the central bank to move faster on inflation. Joe Manchin, the Democratic senator from West Virginia, is an unabashed critic of the Fed’s bond-buying, and Mark Warner, the Democrat from Virginia, suggested to Powell that he should speed up the “tapering” of asset purchases during a hearing last month. “I I believe that tapering, and frankly accelerating it, can kind of serve as an insurance policy if . . . we see this potential overheating of the economy,” Warner said on November 30. Ian Katz, an analyst at Capital Alpha Partners, said the shift was not surprising given the political pressures facing Democrats. “If inflation threatens the economy and the prospects of Democrats in elections, there are going to be a lot fewer doves out there,” he said. One Democratic congressional aide in the Senate said many Democrats, as well as the White House, were taking inflation more seriously as they recognised this was a new “political moment”. “In prior cycles, we have always talked about more jobs, better paying jobs. We have both of those now. But to many voters it don’t feel [like it]. The money in their pockets isn’t stretching as far.”

The growing Democratic hawkishness is taking a variety of forms — including renewed criticism that loose Fed policies are driving disparity. Jon Ossoff, the Democratic senator from Georgia, pressed Powell about what specific economic purpose the bond-buying programme serves at a time when aggregate demand is “quite strong” and capital markets are “highly liquid”.“Does it not for example, while it provides additional liquidity to capital markets, worsen inequality by driving up equity and asset valuations and shifting more cash on to the balance sheets of major financial institutions, high net worth individuals and investors?” Ossoff asked.Auchincloss suggested the Fed was far better equipped than the Biden administration and Congress to tackle inflation. “Fiscal policy is like an aircraft carrier, it takes a long time to get geared up, a long time to move, it takes a long time to deploy. It’s powerful, but it takes a while. Monetary policy is like fighter jets. They’re very nimble,” he said. “When it says it’s gonna do something, it’ll do it, but it can operate on a timeline of weeks and months.” More

Britain issued 18 licences for EU replacement vessels in UK territorial waters and five licences for EU vessels to access Jersey waters, Britain and the European Commission said. Technical consultations about seven additional licences are expected to conclude on Monday, the statements from London and Brussels said. “We have licensed vessels where sufficient evidence has been provided that demonstrates that a vessel qualifies for access … Where that evidence has not been provided, licences have not been issued,” the British government said.France said it took note of the new British licences and that 1,034 or 93% of French licence requests had now been secured.Europe Minister Clement Beaune and Seas Minister Annick Girardin said in a joint statement France and the EU were looking into all possible legal avenues to secure the remaining licences and produce evidence that Britain had agreed to review. Britain and the EU agreed to set up a licensing system to grant fishing vessels access to each other’s waters when Britain left the bloc. But France says it has not been given the full number it is due, while Britain says only those lacking the correct documentation have not been granted.Fishing represents a tiny share of both the French and British economies, but it is politically sensitive. More

The colourful piñatas that usually hang from the ceiling of Jennie Hogg’s Cachao Toys store in London’s Muswell Hill have been impossible to source this Christmas.“My suppliers said it’s too expensive bringing them over,” Hogg said. Though supply chain disruptions and higher transport costs have put piñatas out of reach, “customers will still get what they need, they just need to keep an open mind,” she added.The global supply chain crunch has led retailers from grocers to toy stores to warn of product shortages and higher prices. Recent manufacturing delays in China have added to the pressure, leading some in the $95bn global toy market to reconsider their reliance on the country.Lego, the world’s largest toymaker, said its geographical spread of manufacturing had helped it shrug off the disruption and it posted a record first-half profit this year. The company coped with high demand in lockdowns and pandemic supply pressures thanks to its manufacturing facilities in Europe and Mexico. This week, the Danish group announced a $1bn investment in Vietnam to provide local production for neighbouring Asian markets.China accounts for roughly 80 per cent of global toy exports but Alain Joly, founder of Doudou et Compagnie, France’s leading seller of teddy bears, said problems caused by the pandemic had given a “financial reason” to increase local production.

80%

Proportion of global toy exports that are from China

Most of Doudou et Compagnie’s products are made in Chinese factories. But in 2019 the company acquired Maïlou Tradition, which manufactures high-quality soft toys in Brittany.“We planned for 10 per cent of our production to be in France. Now, our target is 20 to 25 per cent,” said Joly. It hopes to achieve this by mid-2023.Doudou et Compagnie’s French-made products will be no more than 40 per cent more expensive than high-quality toys from China and Joly believes demand for home-made teddies will be high.The “made in France” toy movement is growing, up from 8 per cent of the French market in 2014 to 15 per cent today, according to Alain Ingberg, head of France’s Association of Toy Creators and Manufacturers. “I’m not saying that everything will come back, but we’ll get to 20 per cent [in five years],” he said.Frédérique Tutt, global toys industry analyst at NPD Group, a market research company, said the “story of localisation and a will of reindustrialising the sector” was taking root elsewhere because of the shipping crisis.Freight rates have rocketed. The cost of shipping a 40-foot container from China to the UK peaked above $15,000 in October, almost seven times more expensive than a year earlier, according to data provider Xeneta.Jennie Hogg in her store in London. She says customers ‘need to keep an open mind’ when buying gifts this Christmas © Ian Johnston/FTCosts have edged lower but port congestion, vessel delays and container shortages persist, according to Peter Sand, chief analyst at Xeneta. “For container shipping, the arrival of Omicron is another hurdle,” he said.Character Options, whose brands include Peppa Pig and Fireman Sam, has its toys made in subcontracted factories in China. Jerry Healy, group marketing director, said the company had taken “the bull by the horns”, ordering 95 per cent of its entire stock requirement by the end of March, two to three months earlier than usual. But long lead times for deliveries mean it has been unable to replace unexpectedly strong performers such as Moon Shoes — strap-on bouncy footwear branded as “trampolines for your feet”. “That’s happened to five or six lines of toys, where we were significantly short,” said Healy. “We forecasted a number where it wasn’t big enough.” Those missed opportunities equated to “a couple of million” pounds of lost revenue, he added. “We had the potential to have a fantastic year and we’ve had a pretty decent year. It could have been much better.”At Los Angeles’ ports, where roughly 40 per cent of Chinese imports to the US arrive, about 75 container ships are waiting to dock, according to logistics group Kuehne+Nagel, with some stuck for weeks. Ynon Kreiz, chief executive of Barbie-maker Mattel, was among business leaders to attend the White House last month to discuss the issue. In recent years, Mattel has closed factories in Asia, Canada and Mexico but it still owns some of its own factories in China, and its scale has helped it to manage supply challenges. Smaller rivals, such as model trainmaker Hornby, which outsourced production to China in 1995, do not have such control. After supply problems hit profits, the company has diversified to several Chinese suppliers in recent years. But, with demand up 35 per cent for its Scalextric sets compared with last year, they are running short in some UK toy stores. Still, Lyndon Davies, chief executive, said the company has no plans to repatriate production because of high labour costs and skill shortages. Character Options’ Healy said that “if the logistics challenge was to remain, more companies will certainly look at it”, though conceded “there’s no quick fix”. For low-margin toys retailing at less than £20, the elevated costs of local manufacturing are off-putting, he said.But manufacturing in China is not as cheap as it was. Rising shipping, energy and raw material costs mean prices will climb further. Tutt predicts rises of as much as 12 per cent next year, especially for bulkier toys of which fewer can fit in containers.“Retailers don’t have that much leeway,” she said. “It’s likely they’re going to pass some or all of that on to the consumer.”Additional reporting by Harry Dempsey More