Aurelia Butler

Yellen, in remarks prepared for a Senate Banking Committee hearing on Tuesday, said she was confident “at this point” that U.S. economic growth remained strong, but said failure to deal with the debt limit would “eviscerate” the recovery.She also called on Congress to pass President Joe Biden’s $1.75 trillion social and climate spending bill, saying it would end the “childcare crisis” and let parents return to work. More

BERLIN (Reuters) – German consumer price inflation rose further in November to hit another record high, preliminary data showed on Monday, increasing pressure on the European Central Bank to react.Consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose 6.0% year-on-year following an increase of 4.6% in October, the Federal Statistics Office said.The reading was the highest rate recorded since January 1997, when the EU-harmonised series began.The national consumer price index (CPI) rose by 5.2% year-on-year, which was the highest rate since June 1992.ECB board member Isabel Schnabel told ZDF television the rise did not come as a surprise to the central bank although its earlier forecasts had not predicted such a strong one.Schnabel said the central bank believes inflation peaked in November, meaning it would be premature to raise rates as price increases look likely to slow gradually next year.Preliminary euro zone inflation data due on Tuesday is expected to show a rise to 4.5% in November from 4.1% in the previous month.The ECB targets an inflation rate of 2%.DOWNWARD TREND COMING?The recent surge in inflation is caused by a mix of several factors, including base effects, higher energy prices, a pandemic-related temporary VAT rate in the previous year and material shortages in the course of the recovery.”Although inflation rates will remain at a relatively high level in the coming months, a downward trend should be discernible,” VP Bank analyst Thomas Gitzel said.”If there are no second-round effects, the ECB target of 2% should already be reached again by mid-2022,” Gitzel said, adding that the ECB would react calmly to the latest data.Commerzbank (DE:CBKG) economist Joerg Kraemer was more alarmed by the fresh figures, calling it a worrying sign that seasonally adjusted consumer prices rose unusually strongly on the month.”In addition, prices are now increasing on a broader front, it is no longer just about energy and some goods particularly affected by the coronavirus pandemic,” Kraemer added.While he agreed that inflation was likely to fall again after the turn of the year due to some special factors, Kraemer said there was too much money circulating in the euro zone because of high budget deficits and the ECB’s bond purchases.”The ECB should take its foot off the accelerator, stop its bond purchases and end the negative interest rate policy,” Kraemer said. More

Rising Covid-19 cases and the new Omicron variant threaten to imperil the economic recovery and exacerbate inflationary pressures, Federal Reserve chair Jay Powell is set to tell US lawmakers on Tuesday.In testimony to be delivered at a joint congressional hearing with Janet Yellen, Treasury secretary, Powell said that while US consumer demand remains buoyant and workers are returning to the workforce, the possibility of pandemic-related setbacks is clouding the economic outlook.“The recent rise in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” he said in prepared remarks released on Monday.“Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labour market and intensify supply-chain disruptions.”Yellen, who will testify alongside Powell on Tuesday, reiterated his warnings while encouraging people to get vaccinated.“The progress of our economic recovery can’t be separated from our progress against the pandemic, and I know that we’re all following the news about the Omicron variant,” she said. “What remains true is that our best protection against the virus is the vaccine. People should get vaccinated and boosted.”Yellen added that a failure by Congress to raise the debt limit could also “eviscerate” the current economic recovery. According to the Treasury’s latest estimates, the government risks running out of cash after December 15.Powell, who was recently appointed to a second term by president Joe Biden, and Yellen will face the Senate Banking Committee at a tenuous moment for the US economy, which is grappling with the highest rates of inflation in roughly 30 years. Price increases in certain areas have been “notable”, Powell stressed in his statement, with the factors pushing up inflation likely lingering “well into next year”. He still expects inflation to abate “significantly” over the next year, however, as supply and demand imbalances work themselves out.His comments come amid a broader debate among senior central bank officials about how the Fed should manage this period of uncomfortably high inflation, which appears to be persisting for far longer than expected. Richard Clarida, the outgoing vice-chair who will be replaced by governor Lael Brainard if she is confirmed by the Senate, opened the door earlier this month to the Fed speeding up the pace of its so-called taper or reduction of its $120bn asset purchase programme. It began scaling back that bond-buying this month at a pace of $15bn each month, which suggests the stimulus will end in June.That possibility was raised before the Omicron variant sparked global alarm, however, injecting even greater uncertainty into the Fed’s policy path.

Powell vowed again on Monday that the Fed would act to tame inflation if necessary, acknowledging the costs posed by higher prices. Reducing inflation is also a crucial priority of the Biden administration, whose latest spending bill is facing considerable pushback from Republicans and even some moderate Democrats.“We understand that high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation,” Powell said. “We will use our tools both to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched.”Investors expect the Fed to raise interest rates twice next year, with the first adjustment pencilled in as early as the third quarter.Treasuries advanced on the comments from Powell, with the yield on the two-year note — the most sensitive to monetary policy — declining 0.01 of a percentage point for the day to 0.48 per cent. It had traded with a yield of 0.51 per cent just before the prepared testimony was released.Additional reporting by Eric Platt More