Aurelia Butler

WASHINGTON (Reuters) -U.S. Federal Reserve officials on Monday turned their focus toward a debate over monetary policy that will heat up in coming months as the Fed slows the pace of its asset purchases, clearing the decks for interest rate hikes as soon as next year.At the center of the debate will be an assessment of how many more jobs the economy can add, and how much longer high inflation can be tolerated, given that the rate of price increases is already pushing beyond comfortable levels.Fed Vice Chair Richard Clarida said that while the U.S. central bank remains “a ways away from considering raising interest rates,” if his current outlook for the economy proves correct, then the “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022.”Inflation to date already presents “much more than a ‘moderate’ overshoot of our 2% longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” Clarida said.Economists expect a government report due out this week to show consumer price inflation rose 5.8% in the 12 months through October in what would be the fifth straight month of above 5% year-over-year price increases. He said economic growth should drive the unemployment rate to 3.8% by the end of next year, and “eliminate the 4.2 million ’employment gap’ relative to” the months before the pandemic. At that point an interest rate path similar to the one laid out by Fed officials in September would “be entirely consistent” with the Fed’s new framework for hitting its 2% inflation target and reaching “maximum employment,” Clarida said in remarks prepared for presentation at the Brookings Institution. That rate “dot plot” showed 18 Fed officials evenly split over the need to raise rates next year, with a majority showing rates rising more steadily in 2023 and 2024.In separate remarks St. Louis Federal Reserve Bank President James Bullard repeated his outlook that the Fed will need to raise rates twice next year – with U.S. job markets already so tight it is adding to inflation through growing wage and compensation costs.The unemployment rate fell to 4.6% in October, a government report showed Friday, still above the 3.5% level before the pandemic but well below the 14.8% high in April 2020. “We are going to see downward pressure on the unemployment rate and we are going to continue to see a very hot jobs market with compensation rising,” Bullard said on Fox Business Network. “We’ve got quite a bit of inflation here. … We definitely want to see that come down closer to our inflation target.””If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” Bullard said, adding that he feels that many of the millions of Americans who left the workforce during the pandemic are not likely to return to the job market, leaving the labor supply tight.Fed Governor Michelle Bowman echoed those concerns in a separate appearance later in the day.”We are making great strides toward our maximum employment goal and I’m watching for signs that the labor market might become too hot,” Bowman told a Women in Housing and Finance gathering. “But my main concern again is the outlook for inflation, which has remained elevated much longer than most of us expected earlier in the year.” High inflation, she said, poses a particular hardship for the elderly and the poor, and rising energy and food prices could push up broad inflation expectations more than many realize. “I am concerned about the supply chain disruptions and about labor shortages that have pushed inflation higher and I’ll continue to watch these developments closely,” she said. The Fed is currently on track to completely wind down its bond-buying by the middle of next year, and Evans and others cautioned against viewing that process as sending any direct signal about the timing of a rate increase. “I don’t expect that the federal funds rate will rise before the tapering is complete,” Philadelphia Fed President Patrick Harker said during a virtual event organized by the Economic Club of New York. “But we are monitoring inflation very closely and are prepared to take action, should circumstances warrant it.” In a separate appearance Chicago Fed President Charles Evans stuck to his view that the current inflation surge is likely to be temporary, but he also sounded less sure of that outlook.Signs that inflation pressures are broadening, he said. “present a greater upside risk to my inflation outlook than I had thought last summer.” Still, he told reporters after his talk, there’s a “high bar” to speeding up the taper; to do so, he said, he would need to see a “totally different” world than what he currently expects. Today’s strong inflation readings are mostly driven by supply shocks that will eventually wane, he said, adding that he is of the view the Fed can wait until 2023 before needing to raise rates. “I still tend to think we have time to be patient,” he said. More

WASHINGTON (Reuters) -President Joe Biden and top officials in his Cabinet are hitting the road to promote the $1 trillion infrastructure bill passed in Congress last week, as they explain when and where Americans can expect to see some of the funds in their own communities.White House aides are planning a bipartisan signing ceremony for the infrastructure bill as soon as this week, after it gained final passage on Friday night when Democrats who control the House of Representatives ended months of bickering and approved it. Biden is also pressing lawmakers to approve a separate, climate and safety-net package known as his Build Back Better plan. It is estimated to cost about $1.75 trillion and has been the subject of fierce debate on Capitol Hill.“It’s going to be a tough fight. It ain’t over yet, as the expression goes, but I feel good, and I think people are beginning to realize it’s important to get it done,” Biden told reporters on Monday.Biden heads to the Port of Baltimore on Wednesday to promote the infrastructure bill and will travel to places where the “need is and the action is,” Transportation Secretary Pete Buttigieg told the White House daily news briefing on Monday. Buttigieg and Energy Secretary Jennifer Granholm, Interior Secretary Deb Haaland, Environmental Protection Agency Administrator Michael Regan and Commerce Secretary Gina Raimondo are fanning out across the country as well.”In the coming weeks, those members and other senior officials will travel to red states, blue states, big cities, small towns, rural areas, tribal communities and more to translate what this deal means for real people across the country,” a White House source said.A Democratic National Committee source told Reuters the party would unveil a slogan based on the bill: “Democrats delivered.”The bill sends tens of billions of dollars to federal agencies and states for bridge and highway repair, new broadband and public transportation projects and will fund a network of electric-vehicle charging stations across the country.”A lot of this sells itself,” Buttigieg said, “because communities never needed to be persuaded that their bridge needed to be fixed or their airports needed an upgrade. … They’ve been trying to get Washington to catch up to them.” It gives Biden and Democrats a much-needed jolt of good news after poll numbers have fallen for the president. Republicans made gains in local elections last week, winning the governor’s office in Virginia and coming closer than expected in heavily Democratic New Jersey. The White House victory lap will include messages on African-American and Spanish-language media and partnering with labor unions, business groups and state and local leaders.The DNC source said that while the infrastructure bill is an important milestone, Democrats need to pass Biden’s social safety and climate spending plan next. “Voters have a short memory. They have already forgotten the CARES Act (COVID-19 relief program). They will forget a bridge that was built or a highway that was repaired, but they will remember the monthly child tax credit payment. It is necessary that we pass that,” the source said. More

BEIJING (Reuters) -China’s central bank will likely move cautiously on loosening monetary policy to bolster the economy, as slowing economic growth and soaring factory inflation fuel concerns over stagflation, policy sources and analysts said.Momentum is faltering in the world’s second-largest economy due to fresh curbs to control COVID-19 outbreaks, power shortages that have hit factories and a debt crisis in the real estate sector, among other factors that have gummed up activity.Chances of a rate cut look slim, but the central bank may opt to cut the amount of cash banks must hold as reserves against their loans if growth suffers, according to sources involved in internal policy discussions.Economic growth is widely expected to slow further in the fourth quarter from a one-year low of 4.9% in the third quarter. Factory activity shrank for a second month in October, an official survey showed, while factory output growth eased to the lowest since March 2020, due to environmental curbs, power rationing and higher raw material prices.The People’s Bank of China (PBOC) has defied market expectations for cutting interest rates or banks’ reserve requirement ratio (RRR), after a broad-based RRR cut in July, focusing instead on deleveraging and fending off property bubbles.Some economists had thought the central bank could cut interest rates this year but now feel stagflation – rising prices combined with high unemployment and weak demand – is a concern.Producer price inflation has picked up since July, and likely further quickened to 12.4% in October, which would be the highest since October 1995, a Reuters poll showed.The U.S. Federal Reserve’s policy tapering is unlikely to have much impact on the PBOC, which steers policy mainly based on China’s own growth and inflation outlook, they said.”There is room for cutting interest rates and RRR, but the room could be limited by rising produce prices,” said a source.The PBOC did not immediately respond to Reuters’ request for comment.STAGFLATION RISKS”As a result of power rationing and related supply constraints, the features of ‘stagflation’ have become more evident and would limit near-term policy options,” analysts at Citi said in a note.Citi expects fourth-quarter GDP growth to dip to 4% while Nomura expects growth to drop to around 3.0% on both supply and demand shocks. But some Chinese economists argue that China is nowhere near the stagflation that plagued the U.S. economy in the 1970s, preferring to use “quasi-stagflation” to describe a more complex economic picture.Analysts expect producer price inflation to ease into 2022 while consumer inflation, forecast to hit 1.4% in October versus 0.7% in September, could steadily pick up.Reflecting the official caution, most analysts have pushed back expectations for RRR or rate cuts into 2022.”It’s unlikely for the central bank to cut interest rates and RRR within the year. Next year, we need to watch if PPI will fall, and also watch the Fed’s policy,” Tang Jianwei, senior economist at Bank of Communications, told Reuters. A Reuters survey of fixed income analysts this month forecast no cut in the benchmark lending rate in November, and only 23% of analysts expected an RRR cut in the next three months.But some government economists urge the PBOC to take faster action.”We should consider a broad-based RRR cut in the fourth quarter to pump out more money and support growth,” Xu Hongcai, deputy director of the economic policy commission at the China Association of Policy Science, told Reuters.A targeted RRR cut would be especially helpful for small businesses taking the brunt of rising prices.Chinese leaders are due to chart the economic course for 2022 at a key meeting in December. Stability could be the watchword for next year, when the ruling Communist Party is due to unveil key leadership changes, policy insiders said. “Stability will be the top priority in 2022,” Xu said, expecting economic growth to slow to between 5% and 6% in 2022 from an expected expansion of around 8% this year.($1 = 6.3980 Chinese yuan) More

The Federal Reserve has warned that stresses in the Chinese real estate sector “posed some risk to the US financial system”, pointing to heavily indebted property companies like Evergrande as a potential source of global contagion. “Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the Fed warned in its biannual Financial Stability Report. On the domestic front, the Fed also warned that a “steep rise” in interest rates could lead to a “large” correction in risky assets, in addition to a reduction in housing demand that in turn could lead to lower home prices. Employment and investments could take a hit too as borrowing costs for business rose. The US central bank said it was worried about China because the nation’s “business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched”. Do you think stresses in the Chinese real sector pose global risks? Tell me what you think at [email protected]. Thanks for reading FirstFT Asia. Here’s the rest of the news — EmilyFive more stories in the news1. Tesla shares slide after Musk’s Twitter poll backs stake sale Shares in Tesla closed down nearly 5 per cent, making it the second-worst performer on the S&P 500 and the biggest drag on the index after millions of Twitter users polled by chief executive Elon Musk concluded that he should sell 10 per cent of his stake in the electric carmaker.2. Toshiba considers splitting itself into three companies The proposal is just one of several under discussion by Toshiba as Japan’s most famous conglomerate seeks to rebuild its market value and address the demands of activist shareholders. 3. US charges two individuals over ransomware attacks Authorities have brought criminal charges against a Ukrainian and a Russian national for their roles in high-profile ransomware attacks, as part of a sprawling global crackdown on digital extortion groups.4. SoftBank unveils $8.8bn share buyback SoftBank founder Masayoshi Son has promised a ¥1tn ($8.8bn) share buyback programme over the next 12 months, yielding to investor pressure after the company’s Saudi-backed Vision Fund disclosed a record quarterly loss of ¥825.1bn.5. Xi lays groundwork for third term Xi Jinping has summoned hundreds of senior Chinese Communist party officials to Beijing for a meeting that was expected to pave the way for a historic third term in power. Mao Zedong and Deng Xiaoping are the only two other leaders of the Chinese Communist party to have secured a third term in the party’s one hundred year history. COP26 digest Former US president Barack Obama said young people had the “most important energy” in the climate change battle, in a rousing speech in Glasgow.Rich countries are scrambling to reach a $100bn climate finance target in the last week of COP26 after mixed progress at the event so far.Indonesia’s venture into renewables has been short-circuited by the lack of a deal to sell its power to the state utility.FT View: There has been more hot air than progress at COP26.

Barack Obama was given a standing ovation after his speech. “Vote like your life depends on it, because it does,” he said. © REUTERS

Today’s Moral Money, our sustainable finance newsletter, has five things to watch at COP26 this week. Click here to read and sign up to the newsletter, publishing every weekday during the Glasgow summit. The day aheadUK foreign secretary continues south-east Asia visit Liz Truss will travel to Thailand and Indonesia after arriving in Malaysia on Sunday. She will meet officials in the region to “deepen economic and security links” with the UK. (Reuters) Earnings Companies reporting results today include Associated British Foods, Aveva, Bayer, Coinbase, Direct Line, Mediaset, Munich Re, Nissan, Porsche, Salvatore Ferragamo and Swiss Life.What else we’re readingChina’s self-isolation is a global concern Beijing’s zero-Covid policy is damaging international business and global governance, writes Gideon Rachman. And as the outside world transitions towards living with low levels of the disease, contact with foreigners may look even more dangerous to China.

© James Ferguson

Tokyo subway attack exposes subtler dangers in the city Passengers’ terror was heightened by rules which prevent train drivers using their initiative. The fear was not only of the lone madman, but of an institutional failure to recognise the need for flexibility, writes Leo Lewis. Don’t chuck out the chintz — or the Billy bookcase Ikea is rolling out an international programme to take back used items and resell them under the name “Buy Back and Resell”. It is quite the U-turn by furniture’s global superpower in the name of sustainability. But If Ikea now feels the need to atone for its past, how about you, the consumer?Central bankers’ different readings of inflation Policymakers have outlined starkly different responses to the global surge in inflation, with senior US and UK officials signalling that interest rates are likely to rise soon in their countries despite such a policy shift remaining a distant prospect in the eurozone.Related read: Rana Foroohar explains why innovation could stop inflationTravel sector braces for post-pandemic world After losing $6tn during the coronavirus crisis, the global travel industry — from hotel groups to airlines — must navigate a precarious-looking future.

House & HomeTake a look at these five homes with literary connections for sale. From a Georgian house in Berkshire where Jane Austen was a frequent guest to John Steinbeck’s cottage in Long Island.

The former summer home of Pulitzer Prize-winning novelist John Steinbeck More