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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a former supervisory board member of the European Central bank and a senior fellow at Bocconi University and the Leibniz Institute for Financial Research SAFEIt was a hot summer in Europe, not only for tourists. Central bankers on both shores of the Atlantic are under pressure from many sides — political circles, financial markets, public opinion — to cut interest rates.All central banks are facing this equally, regardless of economic conditions or where their policy rates happen to be at the moment.Multiple arguments are being cited. Inflation has been declining steadily towards the 2 per cent target — though progress is called into question by the fact that core measures lag behind. Recession fears linger — in spite of the fact that incoming data is not flagging red; the US economy continues to create a sizeable (though declining) number of jobs every month, and in the euro area economic expectations are not far from their long-run average, according to a European Commission survey. A sudden stock market crash in the first week of August spooked observers — even though in the end it proved to be a fluke: the US stock market index S&P 500 subsequently rallied in the month afterwards. What better reasons, many think in spite of the counterarguments, to slash interest rates?Now, as the September policy meetings approach, central banks would be well advised to think twice and redo their calculations. The key point to be realised is that they are not all in the same spot. For the US Federal Reserve, the case for a cut is persuasive. At a 23-year high of 5.25 per cent to 5.5 per cent, the benchmark federal funds rate is some 3 per cent above current readings of its preferred inflation gauge. With inflation on a gentle downward path and labour markets apparently landing softly, a 0.25 percentage point cut would send an encouraging signal while maintaining the restrictive stance needed to complete the disinflation process. A 0.50 percentage point cut would be a stretch, but still fulfil the criterion. Chair Jay Powell indicated in his August Jackson Hole speech that the time to cut rates had come, saying “the direction of travel is clear”. That view continues to be justified as the US summer draws to an end.The Bank of England’s guideposts are close to the Fed’s, with consumer inflation a tad nearer to the 2 per cent target but expected to rebound. The difference here is that the central bank already cut its rate before the summer break — a controversial decision adopted against the vote of its chief economist Huw Pill. The case for cutting again is less strong than it was in July, and less strong than it is for the Fed now.The European Central Bank is in a completely different situation. Not only did it already cut rates before leaving on holiday but what matters more is that, at 3.75 per cent, its rate is already a solid 1.5 percentage points below that of its peer across the ocean. This is an inheritance of the 2014-2019 period, when the central bank experimented with negative rates and kept them there for about a year after inflation had started rising. That course of action means that today the ECB has less room than other central banks to loosen its policy. Never forget: the monetary stance depends on interest rate levels, not changes. The latter are at most indications of possible future levels.The last reading of headline inflation in the Eurozone, at 2.2 per cent in August, 0.4 percentage points below the July level, provides less comfort than it seems. Core inflation, at 2.8 per cent, did not change. Services inflation, a sticky component representing nearly half of the index, moved up from 4 per cent to 4.2 per cent. The August drop of headline inflation depended fully on a major, but possibly erratic, fall of energy prices. This is an encouraging signal for the future, not a conclusive prompt to act now.The ECB needs to maintain a moderately restrictive stance to make further disinflationary progress. As its chief economist, Philip Lane, said at Jackson Hole, “the return to target is not yet secure”. The current level of real short-term rates, at some 1.5 per cent or actually lower if one uses core inflation to deflate the nominal rate, is needed for that purpose. The ECB should maintain that level in September.Christine Lagarde has often stated that the central bank she leads does not follow the Fed but charts its own course, because the two economies are different. The ECB president is right. This September meeting is the occasion to put that statement into practice. More

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HONG KONG (Reuters) – China’s policymakers this week assessed an official plan to delay the country’s retirement age, among the world’s lowest, marking a key step to address its shrinking working population. The discussion by National People Congress members took place at the 11th meeting of China’s Standing Committee meeting in Beijing, the official news agency Xinhua reported on Tuesday.China said in July it would gradually raise its retirement age to allow people to work longer, to abate pressure on pension budgets with many provinces already reeling from large deficits.The retirement age is now 60 for men, about six years below that in most developed economies, while for women in white-collar work it is 55, and 50 for women who work in factories. Reform is urgent with life expectancy in China rising to 78 years by 2021 from about 44 years in 1960, and projected to exceed 80 years by 2050.”It is an inevitable choice for China to adapt to the new normal of population development,” Mo Rong, Director of the Chinese Academy of Labour and Social Sciences told the People’s Daily.China’s population has fallen for two consecutive years and is expected to continue falling for decades, piling pressure on a rapidly aging population. National health authorities expect the cohort of those aged 60 and older to rise from 280 million to more than 400 million by 2035, equal to the entire current populations of Britain and the United States combined.Each Chinese retiree is now supported by the contributions of five workers, half of what it was a decade ago and trending towards 4-to-1 in 2030 and 2-to-1 in 2050.Eleven of China’s 31 provincial-level jurisdictions are running pension budget deficits, finance ministry data show. The state-run Chinese Academy of Sciences sees the pension system running out of money by 2035. More

SINGAPORE (Reuters) – Asian stocks wobbled on Wednesday as investors gear up for U.S. inflation data and an eagerly awaited U.S. presidential debate, while oil prices loitered around three-year lows on concerns over a weak demand outlook. Democratic Vice President Kamala Harris and Republican presidential candidate Donald Trump will meet in their first and perhaps only debate, a clash that could prove pivotal in their battle for the White House.Harris’ late entry in the presidential race after President Joe Biden’s withdrawal in July tightened the race, prompting a reversal of trades that were put in place on expectations of a second Trump presidency.While the debate, due to start at 0100 GMT, is unlikely to sway near-term monetary policy, investors will keep an eye on whether either candidate talk about fiscal policies and plans for the economy. That has left investors skittish in Asian hours, with MSCI’s broadest index of Asia-Pacific shares outside Japan 0.08% lower. Japan’s Nikkei fell 1% in early trading. “The path to 270 electoral college votes is shaping-up to be a nail-biter,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman, referring to the number of electoral college votes needed to win the U.S. Presidential election. “If Trump is the clear winner of the debate, we expect a slightly stronger USD and higher Treasury yields,” Haddad said, noting fiscal and trade policies under a Trump presidency are inflationary and could force the Fed to keep rates restrictive for longer. “If Harris is the clear winner of the debate, we expect uneven reaction in USD and Treasuries. Fiscal and trade policies under a Harris presidency are less likely to complicate the Fed’s price stability mandate than under a Trump administration.”Investor focus will then switch to U.S. Labor Department’s consumer price index report for policy clues although the Federal Reserve has made it clear employment has taken on a greater focus than inflation. The headline CPI is expected to have risen 0.2% on a month-on-month basis in August, according to a Reuters poll, unchanged from the previous month.While the Fed is widely expected to cut interest rates next week, the size of the rate cut is still up for debate, especially after a mixed labour report on Friday failed to provide clarity on which way the central bank could go. Markets are currently pricing in 66% chance of the U.S. central bank cutting rates by 25 basis points, while 34% chance is ascribed for a 50 bps cut when the Fed delivers its decision on Sept. 18, CME FedWatch tool showed. The dollar remained defensive in early trading, with the yen strengthening to 142.125 per dollar, not far from the one-month high of 141.75 touched last week. That left the dollar index, which measures the U.S. currency against six peers, at 101.65. [FRX/]In commodities, oil prices stabilized a bit but still hovered near their lowest in three years after OPEC+ revised down its demand forecast for this year and 2025. [O/R]Brent crude futures was last 0.5% higher at $69.54 a barrel. U.S. West Texas Intermediate (WTI) crude rose 0.6% to $66.16 a barrel. More

WASHINGTON (Reuters) – Vice President Kamala Harris and Republican opponent Donald Trump have floated new tax breaks and spending plans, as they try to win votes by persuading Americans their ideas will do more to ease their financial burdens. Budget forecasters are struggling to keep up with the latest tweaks, and new ideas may be voiced in Tuesday’s Harris-Trump debate, but so far all estimates show Trump’s agenda piling up much more new federal debt.Trump has said he plans to extend all tax cuts he pushed through Congress in 2017, exempt Social Security and tip income from taxes, and further cut corporate income taxes. These changes would likely add $3.6 trillion to $6.6 trillion to primary U.S. deficits over 10 years, according to published individual and comprehensive estimates from four budget forecasters reviewed by Reuters: the Penn-Wharton Budget Model, the Committee for a Responsible Federal Budget (CRFB), the Tax Foundation and Oxford Economics.Harris’ plans, which include expanding the Child Tax Credit, a $6,000 bonus tax credit for newborns, a $25,000 first-time homebuyer tax credit, and no taxes on tips, could reduce deficits by as much as $400 billion or add up to $1.4 trillion to deficits over a decade, the same forecasters calculated.The estimates are based on static budget scoring, and are compared against the Congressional Budget Office’s current-law “baseline,” which already assumes a massive, $22 trillion increase in debt through 2034.ROLLING ANALYSIS The forecasts vary considerably depending on which ideas mentioned on the campaign trail are included. Estimates of Harris’ recently rolled-out tax deduction of up to $50,000 for business startup costs, and a lower top capital gains tax than the one proposed by President Joe Biden are largely not included.The forecasts include Trump’s proposal to lower the corporate income tax to 15% from 21% but not his latest comments that this rate would be reserved only for companies that produce their goods in the U.S.”The campaign talking points are moving faster than the budget models,” said Shai Akabas, economic policy director for the Bipartisan Policy Center. “I think we’re largely seeing what we’ve come to expect in recent years, which is that candidates are going to put their popular policy priorities ahead of fiscal responsibility on both sides.”Congress must approve tax and spending legislation, making it difficult for the winner of the Nov. 5 election to achieve their priorities without sweeping majorities in both the Senate and the House of Representatives.2025 TAX CLIFFThe major differentiator between Trump and Harris is how they address the 2025 expiration of individual tax cuts passed by Republicans during Trump’s presidency in 2017. Without action by Congress, these rates would snap back to their previous, higher levels.Trump has pledged to permanently extend all of the expiring tax cuts, including for the wealthiest Americans, which tax and budget experts estimate would reduce revenues over a decade by about $3.3 trillion to $4 trillion. Harris would extend the 2017 tax cuts for only those earning under $400,000, keeping a Biden pledge, but this would add up to $2.5 trillion to a spending agenda already estimated at $2 trillion over a decade. Harris has quietly endorsed the nearly $5 trillion in tax hikes in Biden’s fiscal 2025 budget request, including taxing unrealized gains from fortunes over $100 billion and raising the corporate tax rate to 28% This has caused consternation on Wall Street but would substantially offset the cost of her spending plans. “I think the conclusion that Trump’s approach to taxes is more debt-fueled is correct,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “I say that because Harris at least has some pretty well-developed revenue raisers.”Trump has not offered any conventional tax increases to offset his extended tax cuts. Other breaks, including exempting Social Security income, would reduce revenue by $1.6 trillion, CRFB and the Tax Foundation estimate.The conservative-leaning Tax Foundation called the move “unsound and fiscally irresponsible,” weakening Social Security and Medicare.Trump has said his tax cuts would be paid for with “trillions of dollars” generated by stronger economic growth, new import tariffs, ending Biden’s clean energy subsidies and a new government efficiency commission headed by billionaire entrepreneur and Tesla (NASDAQ:TSLA) CEO Elon Musk.The Tax Policy Center has estimated that Trump’s proposed 10% global tariff and 60% tariff on Chinese imports could raise up to $3.8 trillion over a decade but would reduce other revenues due to its economic effects, including imposing a de facto tax on households. The Tax Foundation was the only model reviewed that included a tariff estimate as an offset — $2.6 trillion — but even then, it estimated that Trump’s plans would boost deficits by nearly $4 trillion over a decade. More

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