Aurelia Butler

The Omicron coronavirus variant threatens to intensify imbalances that are slowing growth and raising costs, the OECD said on Wednesday as it significantly increased its inflation forecasts from three months ago.The new variant, which was identified last week, could delay the world economy’s return to normality, the Paris-based international organisation of largely rich country members warned.Monetary policymakers should be “cautious”, the OECD added, saying that the most urgent policy requirement was to accelerate deployment of Covid vaccines globally.The recommendations came alongside its twice yearly economic outlook, which left global growth forecasts similar to those three months ago but significantly raised expected inflation. Across the G20, the OECD raised its inflation forecast for 2022 from 3.9 per cent in its September predictions to 4.4 per cent now. The largest increases were in the US and UK, where inflation forecasts for next year rose in both countries from 3.1 per cent to 4.4 per cent.Laurence Boone, chief economist of the OECD, told the FT that the Omicron variant was “adding to the already high level of uncertainty and that could be a threat to the recovery, delaying a return to normality or something even worse”. She did not contradict the hawkish stance voiced on Tuesday by Jay Powell, chair of the US Federal Reserve, or recent comments by the Bank of England, commenting that these central banks had already been cautious and that more persistent inflationary pressures in the US and the UK required a slightly tighter monetary stance. “There is no one-size-fits-all [monetary] policy because you have a very different situation in some emerging market economies with high inflation rates. The US is also different from Europe and also different from Asia where there’s much less of an inflation issue,” Boone said. She stressed the need for policymakers to communicate clearly that they would not raise interest rates as a result of supply shortages, but would be ready to act if price pressures broadened and become self-reinforcing. The OECD noted that the global recovery had been much stronger than it initially expected in 2021, but said this had now created a series of damaging imbalances that could persist longer than expected. “Supply shortages risk slowing growth and prolonging elevated inflation,” Boone said. In the automotive sector alone, the OECD calculated that supply disruptions knocked more than 1.5 per cent off the size of the German economy this year and more than 0.5 per cent in Mexico, the Czech Republic and Japan. Alongside such mismatches between supply and demand, the OECD’s main message was that there were many other large imbalances emerging in the global economy. These range from the supply of vaccines — which is far greater in rich countries; a growing gap in economic performance between advanced economies and emerging markets; and a divide between the labour market performance of European countries and the US. In Europe, employment is better protected and higher than pre-pandemic levels, but economic output had not fully recovered lost ground. In the US, the reverse is true. Boone said the European protection of jobs had been beneficial to people “but some of the necessary reallocation of jobs may not have taken place”. She also said that part of this important trend was likely to be because the initial coronavirus hit was harder in Europe than in the US. In the OECD’s economic forecasts, it projected world economic growth slowing from 5.5 per cent this year to 4.5 per cent in 2022, followed by a 3.2 per cent expansion in 2023. Inflation in G20 countries was likely to fall to 3.8 per cent in 2023 after hitting 4.4 per cent next year. However, the OECD forecast that inflation would be below 2 per cent in the eurozone in 2023, vs 2.4 per cent in the UK and 2.5 per cent in the US. More

Australia’s economy contracted in the third quarter but the decline was less severe than forecast, raising hopes of a full rebound in the final three months of the year. Gross domestic product fell 1.9 per cent from July to September compared with the previous quarter, the third-largest quarter-on-quarter decline on record, after lockdowns to contain the Delta coronavirus variant weakened demand.But the fall, which followed four consecutive quarters of growth, beat expectations of a 2.7 per cent contraction forecast by economists polled by Reuters.Government support eased the impact on household consumption, with consumer spending given a boost after lockdowns were lifted.“Households are sitting on savings, businesses have shown resilience and the public sector has done the heavy lifting, cushioning the Delta disruption and underwriting a smaller than expected contraction in today’s national accounts,” said Jo Masters, Oceania chief economist at EY, the professional services firm.“This strength shows in the fact that we’ll only need 2 per cent growth in the December quarter to get the economy back to pre-Delta levels — which is achievable even in the face of Omicron,” she added, referring to a new coronavirus variant discovered in recent days.Official data from the Australian Bureau of Statistics showed growth in the third quarter was mainly attributable to exports and government spending.The economy grew 3.9 per cent compared with the same period in 2020, shortly after lockdowns were first imposed, and down from a 9.5 annual rate in the second quarter of this year.Tapas Strickland, director of economics at National Australia Bank, expected a sharp rebound in the final three months of 2021 based on employment data, household consumption and demand in the current quarter.“There is good reason to expect a very sharp rebound in the fourth quarter and growth back to pre-lockdown level,” he said.The Reserve Bank of Australia has forecast 3 per cent annual growth for 2021.Australia’s unemployment rate rose to 5.2 per cent in October but recent payroll data showed employment would tick up in November and more than recoup the declines associated with lockdowns.

The economy was already experiencing skills shortages and plans to reopen borders to international students and those on working holidays were expected to alleviate the pressure. But the government announced the measures would be delayed until December 15 following the emergence of the Omicron variant.In contrast to the global economic picture, Australia has not been hit by inflationary pressures because wage growth remains weak and the country has not faced high energy costs. The ABS said the shorter and sharper lockdowns implemented from late 2020 had a markedly different impact on household consumption from measures taken earlier in the pandemic. “The weekly aggregated bank data showed expenditure in discretionary consumption categories declined when lockdowns were introduced but rebounded almost immediately when the lockdown ended,” the ABS said. More

The UN has forecast that Afghanistan’s gross domestic product will contract 20 per cent within a year following the Taliban’s takeover of the country, representing one of the worst economic meltdowns in history. “[It’s] an economic contraction that we’ve never seen before, ever,” said Abdallah Al Dardari, the UN Development Programme’s Afghanistan head and a former deputy prime minister of Syria. “I’m comparing with Venezuela, Lebanon and so on — we haven’t seen such an immediate, abrupt drop.”A UNDP report published on Wednesday said such a contraction took five years of civil war in Syria to achieve, and was expected to worsen to 30 per cent next year. The sharp economic decline highlights the fragility of the Afghan state despite almost two decades of US-led assistance and billions of dollars in aid. The country was not strong enough to withstand the recent shocks of the Covid-19 pandemic, droughts and the militant Islamist group’s takeover, according to the authors of the report.The UNDP forecast that per-capita income in Afghanistan, already the poorest country in Asia, would drop to $350 next year from $500 in 2020, having already fallen from a peak of $650 a decade ago.The economy had relied on foreign aid, which the UNDP said accounted for as much as 80 per cent of budget expenditure.Afghanistan’s foreign currency reserves, which amount to almost half of the country’s $20bn annual GDP, were also frozen soon after the Islamists took over this year, prompting a cash and liquidity crisis. Hundreds of thousands of workers are owed months of salaries, hospitals are on the brink of collapse and nine out of 10 Afghans are expected to fall below the poverty line by next year. More than half of the 39m population require food assistance, with about a quarter facing “emergency” food insecurity and potential famine. “Even in very bad situations like Lebanon, they still have access to some remittances from the Lebanese diaspora,” said Adnan Mazarei, an economist at the Peterson Institute think-tank in the US, and one of the report’s authors. “In the case of Venezuela, there’s still oil. Afghanistan is almost in a class by itself. “[In] countries that have been hit by natural disasters . . . there’s a prospect for getting out of some of those problems,” Mazarei added. “It’s not in store for Afghanistan yet.”

The crisis had become so entrenched that it was too late to avoid a breakdown, the report’s authors said, though measures such as unfreezing reserves and aid and providing cash transfers to families would help. “Even if the assets are unfrozen, humanitarian aid doubles and triples, it will not be enough to mitigate let alone avert the crisis that we’re seeing,” said Zafiris Tzannatos, a professor at the American University of Beirut. “Now we’ve fallen off the cliff. No matter how much we provide, still there is a crisis that is sliding to become a catastrophe.”The UNDP said the Taliban’s own policies were exacerbating the breakdown. The group’s decision to restrict women from work and education will have a severe economic cost, according to the report. The UNDP estimates that the loss of female employment could cost up to $1bn, or 5 per cent, of GDP, and slash productivity.“If you fail to invest in the human capital of half your population . . . then you’ll have a loss for many years to come,” Tzannatos said.

Video: How the 20-year war changed Afghanistan | FT Film More

Good morning. A few words to start on yesterday’s Covid piece, which expressed worry that the US could go the way of Austria this winter. Quite a few readers wrote to say that the key difference is Austria’s greater population density. Well, maybe. But as my colleague John Burn-Murdoch points out, if higher population density explains the current outbreak, why did Austria have such a low infection rate until October? It’s population did not suddenly get more dense. Second, some of the highest rates of Covid infection in the US are in low-density states such as Alaska. You will have noticed that neither Ethan nor I are epidemiologists, so now we move back to familiar territory: the Federal Reserve and environmental, social and governance, or ESG, investing. Email us: [email protected] and [email protected]. RIP ‘transitory’Time to ditch “transitory”, Fed chair Jay Powell told the US Senate on Tuesday. This terminological declaration, paired with an expression of support for faster tapering, smooshed the yield curve. The 10-year Treasury note fell 9 basis points as the two-year stayed flat. Expectations for rate increases are moving forward, too: markets on Tuesday dutifully priced one in by March 2022. Stocks were grumpy. We’ve written on the transitory-or-permanent debate before. It will rage on whatever words Powell uses. But given all the heat the term has generated, was introducing “transitory” into the lexicon a bad idea from the outset?Chatter about the term picked up in April, when core inflation topped 3 per cent and Powell told reporters “these one-time increases in prices are likely to have only transitory effects on inflation”. By May, the term had exploded into the public consciousness. Here’s Google searches for “transitory” in 2021 (the index is relative to the highest point on the chart):

But the concept debuted well before that, back in May 2019. At the time Powell used the term to describe entirely different circumstances. Inflation was about 1.6 per cent, below the Fed’s target. Questions about the US central bank’s commitment to a symmetric inflation target were growing louder. Wary of the scepticism, Powell told reporters:“We suspect that some transitory factors may be at work . . . And I’d point to things like portfolio management, service prices, apparel prices and other things. In addition, the trimmed mean measures of inflation did not go down as much. Indeed, the Dallas trimmed mean is at 2 per cent.”Sound familiar? The suspects are different — portfolio management instead of used cars — but the story is the same. “The (dis)inflation we’re seeing is due to idiosyncrasies that will go away and leave the underlying price trends in place. Go have a look at the trimmed-mean index in the meantime.”From Powell’s perspective, the appeal of “transitory” is clear. It sends the message that the Fed will not tighten policy in response to what it considers idiosyncratic spikes in inflation. It is a way of jawboning expectations for future rates down, and assuring the market a classic “Fed mistake” is not in the cards, without committing to a specific response to any one data threshold.But the concept invites misunderstanding, as Powell rightly said in his Senate testimony Tuesday:“So I think the word transitory has different meanings to different people. To many, it carries a [sense of] time, a sense of [being] shortlived. We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s probably a good time to retire that word and try to explain more clearly what we mean.” “Won’t leave a permanent mark in the form of higher inflation” is clear enough: it means that after the inflationary incident is over, trend inflation will go back to historically normal levels. That interpretation is consistent with how Powell used the term all along. But that use is also compatible with an inflationary incident that goes on for quite a while. But neither the market nor the public had ears for that level of subtlety. So in the end, the transitory story was more confusing than illuminating.Using the term as Powell did was a mistake, but a small one. Powell has shown willingness to adapt on the fly and put data over dogma. Remember: both Powell’s patient response to inflation and his view that it won’t stick could still be vindicated. If inflation moderates to 2-2.5 per cent as late as, say, the middle of next year, it will not feel transitory. But from the point of view of history, an inflationary period that lasts only a little over a year — a real possibility — will look very transitory indeed. (Ethan Wu)Glencore and BluebellBluebell, a smallish activist investor fund that has had some success harassing the likes of Danone and GSK, wants the commodities conglomerate Glencore to spin off its coal business into a separate entity. It thinks a split will raise the value of the whole because coal is a drag on the valuation of Glencore’s non-coal assets (which mostly come from extracting and trading metals). Bluebell argues that the coal business imposes a high cost of capital on the rest of the operation:“Due to its coal business, Glencore is not an investable company for investors who place sustainability at the heart of their investment process. This is a huge barrier for wider investment in Glencore’s ex-coal business . . . “A clear separation between carbonised and decarbonised assets is needed to increase shareholder value and remove the ‘coal discount’.” Sustainability aside, Bluebell argues, coal is a dying business and the terminal value of Glencore’s coal assets is highly uncertain, another drag on the cost of capital. Bluebell might well be right that there is an ESG-driven coal discount (though the point is not obvious: Glencore trades at similar multiples of earnings, and at higher multiples of ebitda, as its coal-free peers Anglo American and Rio Tinto). It also might well be right that the coal industry is going to wither even faster than the market anticipates.What is quite wrong is Bluebell’s view that Glencore spinning off its coal assets will help the fight against global warming. Glencore has committed to winding down and closing its coal assets over the next 30 years, but Bluebell says that: “The simple concept that thermal coal should continue to be part of Glencore’s portfolio until 2050 is to us, as a company shareholder, both morally unacceptable and financially flawed.”The necessary implication is that spinning off the coal assets is morally better than not doing so. Why?“The world is moving to net zero, and capital allocation is a key driver to accelerate this transition because carbonised and decarbonised assets have started to attract very different pools of capital at significantly different costs. By separating businesses with different [carbon-dioxide] footprint, it will become possible to foster a global reallocation of capital towards more sustainable companies, which in itself is a powerful force to drive decarbonisation. Vice versa, by retaining a composite portfolio of low and high-impact CO2 assets, it will become virtually impossible to use capital reallocation (ie, via capital markets) as an engine of sustainability.” The idea here is that when the coal assets are in a separate entity, that entity will have a higher cost of capital (lower stock price, higher-yielding bonds) and therefore have less money to invest in coal extraction, leading to less coal burnt and less carbon in the air. This is gibberish from front to back.How much the hypothetical new entity will invest in coal assets also depends on the return on capital for mining coal, not just the cost of capital alone. Divestment campaigns drive those returns up (assuming stable demand) by making coal assets cheaper to buy and limiting coal supply. It is anything but obvious that the balance between cost of and return on mining capital in coming years will lead to less coal mining. Furthermore, there is no reason why it is not possible to reallocate capital from coal to non-coal within a composite portfolio. Bluebell complains that such cross-subsidisation is economically inefficient, which is debatable, and is in any case a separate issue. Bluebell tries on another argument, as well:“By transferring existing in-house coal expertise to a separate entity — with the commitment to apply the same (and possibly tighter) coal ESG policy currently in place at Glencore group level — it would be possible to spin-off coal whilst maintaining unchanged (and possibly improving) the company’s existing commitment of responsible ownership.”The argument is that when the coal business is separated, and all the shareholders who don’t like owning coal sell to investors who are perfectly happy to own coal, the sustainability policies of the coal company will not change for the worse, and may even improve. This is bonkers. Glencore spinning off its coal business is morally neutral and environmentally irrelevant, but it might be a good move financially. One good readUnhedged was shocked to learn from a colleague, who for some reason wanted to remain anonymous, that the pop star Avril Lavigne died in 2003 and was replaced by a body double. Wild stuff. More

The internet was, at one time, looked upon as a potential tech utopia, yet three decades after the launch of the world wide web — a name that holds the promise of a global network — the reality looks increasingly fragmented.Instead of a single internet, there are now dozens around the world, divided not only by the kind of content that they deem legal but also the infrastructure they contain. Because while the internet may feel ephemeral, it relies upon physical telecoms equipment: the sort of hardware that has increasingly been scrutinised in debates around national security.Experts dubbed it the ‘splinternet’, and they have been warning about it for years. “Bit by bit, the internet is becoming more cordoned off,” wrote Katja Bego, principal researcher at UK innovation foundation Nesta, back in 2016. “The time of the internet of fun and games, of unfettered access, is quickly coming to an end.”The gulf between different versions — and visions — of the internet has only widened in the past half a decade, driven by geopolitical and trade tensions. This Balkanisation risks pushing up prices and potentially hurting customer choice, as products are shut out of markets that consider them hostile. But, for governments, the issue is not just the costs that the splinternet imposes; it is also the need to balance security risks with commercial interests.

The concept of the splinternet also reflects how the digital space has become crucial in interstate one-upmanship. China’s “Great Firewall” of internet censorship has long been the most prominent example, allowing for the growth of domestic tech titans (which have, themselves, since suffered under Beijing’s regulatory crackdown).Battle lines are also being drawn in standard-setting in forums, such as the International Telecommunication Union. For example, an Internet of Things — of connected devices — built on Chinese standards might be mutually exclusive to US technologies. That would force countries to choose between diverging tech stacks when it comes to powering their core digital infrastructure.Beijing is not the only party looking to keep out external technology. Last year, the UK told mobile providers that 5G equipment from Chinese tech group Huawei must be removed by 2027. In the US, Huawei has been on the “entity list” since 2019 — a blacklist of companies, and affiliates, to which US firms cannot sell any kind of technology without a licence. Software has also faced growing restrictive pressure, with India banning Chinese apps such as TikTok. The Indian Ministry of Information Technology deemed the apps “prejudicial to sovereignty and integrity of India, defence of India, security of state and public order”.India has banned Chinese apps such as TikTok over security concerns © Nasir Kachroo/NurPhoto via Getty ImagesHuawei’s woes in the UK demonstrate one of the more obvious costs of the splinternet for both private companies and governments: Huawei’s 5G kit was cheaper than that from European rivals such as Ericsson so, being forced to rip out and replace existing Huawei hardware, is expensive.A year ago, even Borje Ekholm, Ericsson’s chief executive, criticised Sweden’s decision to ban Huawei, telling the Financial Times: “For Ericsson and Sweden, we’re built on free trade. We’re built on the opportunity to trade freely.” “Slowing the rollout of 5G is also a risk for the economy,” Ekholm added. And experts agree that unlocking many of the new wave of innovative technologies, such as the Internet of Things and smart cities, relies on 5G.

Governments’ ability to constrict physical supply chains can affect companies in their domestic markets, too. In May 2020, the US government said it would tighten restrictions on access to microchips for Huawei and its subsidiaries — leading the company to say that the sanctions had put its survival at stake.However, these costs of the splinternet cannot be weighed purely in monetary terms. Protecting national security is vital in an age where digitisation is expanding across key sectors, even as the preparedness of critical systems remains unclear. In an increasingly interconnected world, core telecoms equipment can be used to deploy dangerous attacks.

Moreover, a degree of flexibility and uncertainty is perhaps to be expected in this decision-making. Security assessments of 5G components, for example, can change significantly; what is important is that governments are forthright and as transparent when it comes to decisions. Revealing their reasons may be tedious, but at least shows that careful consideration has taken place.Failing to do so plays into the other reason for the splinternet: geopolitical tussles for dominance between countries, mixed in with petty attempts to win over domestic audiences by displaying macho zeal. Worse still, mixing cyber security concerns with purely economic interests — for example, the search for better trade deals — risks undermining the former.The splinternet appears to be here to stay, but governments should not exacerbate it without good measure. Keeping out potential weaknesses from core sectors is laudable; driving up costs for businesses and consumers to score political points, less so. More

TOKYO (Reuters) – Japanese companies raised spending on plant and equipment for the second straight quarter in July-September, as corporate activity remained resilient to the hit from the pandemic, although the pace of gains slowed.A slow pickup in company spending is likely to worry policymakers hoping strong domestic demand can make the country’s economic recovery more sustainable.Ministry of Finance (MOF) data out on Wednesday showed capital expenditure in the third quarter rose 1.2% from the same period last year.It marked the second straight quarter of year-on-year gains, having posted a larger 5.3% expansion in the second quarter.The data, which will be used to calculate revised gross domestic products (GDP) due next Wednesday, comes after factory production grew in October, raising hopes of a recovery fuelled by stronger car output.The world’s third-largest economy declined in the third quarter as global supply disruptions hit exports and the health crisis soured consumer sentiment.A preliminary estimate found the economy shrank an annualised 3.0% in July-September amid a resurgence of coronavirus infections.Wednesday’s data showed manufacturers’ business spending improved 0.9% from a year earlier, while that of service-sector firms advanced 1.4%.Capital expenditure, however, lost 2.6% in July-September from the previous quarter on a seasonally-adjusted basis, the MOF data showed.Corporate recurring profits rose 35.1% in July-September from a year earlier, while sales were up 4.6%. More

Businesses, however, said cost pressures remained an issue as materials shortages and delivery delays caused input prices to surge the most in 13 years.The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) in November rose to 54.5 on a seasonally adjusted basis, marking its fastest pace of expansion since January 2018.The figure, which compared to the prior month’s 53.2 and a 54.2 flash reading, also marked the 10th straight month of expansion in manufacturing activity.”The Japanese manufacturing sector continued to see an improvement in operating conditions midway through the fourth quarter,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey.Bhatti said manufacturers reported a sustained and marked deterioration in lead times, with evidence suggesting supply chain disruptions continued to hinder activity within the sector.”Material shortages and logistical disruptions contributed to a rapid rise in average cost burdens, as input prices rose at the fastest pace since August 2008,” Bhatti added.Data on Tuesday showed Japan’s industrial output rise for the first time in four months in October as faster car production offset declines in manufacturing of chemicals, steel and other sectors.The world’s third-largest economy is expected to rebound in the current quarter after contracting in July-September as curbs to stem a rise in coronavirus infections hurt household and corporate sentiment. More

In a clear sign that the Federal Reserve is shifting to tighter monetary policy, Jerome Powell — who’s spent months arguing that the pandemic surge in inflation was largely due to transitory forces — told Congress on Tuesday that it’s  “probably a good time to retire that word.”The Fed chair, tapped last week for another four-year term, still thinks inflation will ebb next year. But in testimony before the Senate Banking Committee, he acknowledged that it’s proving more powerful and persistent than expected, and said the Fed will consider ending its asset purchases earlier than planned.“It looks like the Fed wants to create some space to give them the option to raise rates well before the end of next year if they feel they need to,” said Brian Coulton, chief economist for Fitch Ratings Ltd.Tightening credit before the jobs market has returned to the halcyon days that prevailed before Covid-19, when Black unemployment was at record lows and labor force participation was elevated, could invite criticism that the Fed is stepping away from the new monetary policy framework it adopted last year. That was designed to ensure jobs gains that were broad-based and inclusive.For markets, what Powell had to say about the two T-words — transitory and tapering — pointed in the same direction: policy makers are preparing the ground to raise interest rates much earlier than they’d anticipated just a few months ago, when the emphasis was on waiting until the economy was back to full employment.How soon is that? After Powell’s remarks, money markets estimated a 50-50 chance that the Fed will hike as early as May, and they’re pricing in around 60 basis points of increases by the end of 2022. That’s more than they’d anticipated at the start of the day — but less than a week ago, before the world heard much about the new omicron strain of Covid-19, which poses fresh dangers to the economic outlook.Not Baked InPowell cited that risk, and said “it’s not really baked into our forecasts” but didn’t dwell on it much. He was more concerned with spelling out the Fed’s latest thinking on prices and employment.Since the reference to “transitory” inflation first appeared in the Fed’s policy statement in April, it’s been ever-present — and at the center of a fierce debate. Critics like former Treasury Secretary Larry Summers accused Powell and his team of downplaying the danger of a sustained bout of price pressures.To hear Powell tell it, the problem with the “transitory” label was partly about messaging. While many in the markets saw it as suggesting that the Fed expected price pressures to be short-lived, Powell said policy makers intended it to mean that inflation wouldn’t become entrenched.“The word ‘transitory’ has different meanings to different people,” he said. “We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation.”‘What We Missed’But it’s about more than just messaging. The Fed misjudged the vigor of the inflationary impulses hitting the economy as it simultaneously opened up more fully after last year’s virtual shutdown while still dealing with the reality of an ongoing pandemic.The personal consumption expenditures price gauge, which the Fed uses for its 2% inflation target, rose 5% in October from a year earlier. “What we missed about inflation is that we didn’t predict the supply side problems,” Powell said.Those snafus, from a shortage of microchips to a shipping squeeze, have ramped up costs for business and forced consumers to pay more for products they want that are in limited supply.Powell said the Fed had also been caught out by the performance of the job market. Officials had expected Americans to flock back into the labor force after schools reopened in the fall and extended unemployment benefits had expired. That hasn’t occurred – at least so far.The result has been a near record level of unfilled job openings, and bigger wage increases. U.S. employment costs rose at the fastest pace on record in the third quarter against a backdrop of widespread labor shortages.‘Very Abrupt’The Fed is currently scheduled to complete its bond-purchase program in mid-2022 under a plan announced at the start of November. Policy makers next meet on Dec. 14-15, when they could decide to speed up that timetable.“This is a very abrupt pivot,” said Krishna Guha, vice chairman of Evercore ISI. “The likelihood that the Fed goes on to make a step-change in its rate plans is much higher than usual.”Raising interest rates, though, would be far more consequential than ending bond buys. It would constitute a tightening of policy and an overt attempt to rein in the demand that’s helped the U.S. economy climb out of its Covid slump faster than most global peers.Under the new monetary policy framework it adopted last year, the Fed said it would countenance inflation above its 2% target for a while to make up for past shortfalls, while also seeking to foster job gains that were broad-based and inclusive.But Powell said it might take some time to return to the stellar jobs market that was in place before Covid-19, and that inflation would have to be brought under control in order to do it.“To get back to the great labor market we had before the pandemic we’re going to need a long expansion,” he said. “To get that we’re going to need price stability.”“The biggest change I saw in Powell was the lowering of the ceiling of the labor market,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington. “Once that happens, the maximum employment door is open, so they can start talking about liftoff.”©2021 Bloomberg L.P. 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