Evelyn Reynolds

Federal Reserve Chairman Jerome Powell appears before Congress this week as part of semiannual testimony on monetary policy.
Democratic legislators in particular have been worried that the Powell Fed risks dragging down the economy with its determination to fight inflation.
Markets also have been torn between wanting the Fed to bring down inflation and being worried that it will go overboard.

U.S. Federal Reserve Chairman Jerome Powell testifies during the Senate Banking Committee hearing titled “The Semiannual Monetary Policy Report to the Congress”, in Washington, U.S., March 3, 2022.
Tom Williams | Reuters

Federal Reserve Chairman Jerome Powell is set to appear before Congress with a tall task: Persuade legislators that he’s committed to bringing down inflation while not pulling down the rest of the economy at the same time.
Markets have been on tenterhooks wondering whether he can pull it off. Sentiment in recent days has been more optimistic, but that can swing the other way in a hurry should the central bank leader stumble this week during his semiannual testimony on monetary policy.

“He has to thread the needle here with two messages,” said Robert Teeter, Silvercrest Asset Management’s head of investment policy and strategy. “One of them is reiterating some of the comments he has made that there has been some progress on inflation.”
“The second thing is being really persistent in terms of the outlook for rates remaining high. He’ll probably reiterate the message that rates are staying elevated for some time until inflation is clearly solved,” Teeter said.
Should he take that stance, he’s likely to face some heat, first from the Senate Banking Committee on Tuesday, followed by the House Financial Services Committee on Wednesday.
Democratic legislators in particular have been worried that the Powell Fed risks dragging down the economy, and in particular those at the lower end of the wealth scale, with its determination to fight inflation.

Slow out of the blocks

The Fed has raised its benchmark interest rate eight times over the past year, most recently a quarter percentage point increase early last month that took the overnight borrowing rate to a target range of 4.5%-4.75%.

Markets also have been torn between wanting the Fed to bring down inflation and being worried that it will go overboard. The central bank’s slow start in tackling the rising cost of living has intensified fears that there’s virtually no way it can bring down prices without causing at least a modest recession.
“Inflation is a pernicious problem. It was made worse by the Fed not recognizing it in 2021,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.
Sri-Kumar thinks the Fed should have attacked sooner and more aggressively — for instance, with a 1.25 percentage point hike in September 2022 when inflation as measured by the consumer price index was running at an 8.2% annual rate. Instead, the Fed in December began reducing the size of its rate hikes.

Now, he said, the Fed likely will have to take its funds rate to around 6% before inflation abates, and that will cause economic damage.
“I don’t believe in this no-landing scenario,” Sri-Kumar said, referring to a theory that the economy will see neither a “hard landing,” which would be a steep recession, nor a “soft landing,” which would be a shallower downturn.
“Yes, the economy is strong. But that doesn’t mean you’re going to glide by with no recession at all,” he said. “If you’re going to have a no-landing scenario, then you’re going to accept 5% inflation, and that’s politically unacceptable. He has to work on bringing inflation down, and because the economy is so strong it’s going to get delayed. But the more delay you have in recession, the deeper it’s going to be.”

‘Ongoing increases’ ahead

For his part, Powell will have to find a landing spot between the competing views on policy.
A monetary policy report to Congress released by the Fed on Friday that serves as an opener for Powell’s testimony repeated oft-used language that policymakers expect “ongoing increases” in rates.
The chairman likely “will strike a tone that is both determined and measured,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note. Powell will note the “resilience of the real economy” while cautioning that the inflation data has turned higher and the road to taming it “will be lengthy and bumpy.”
However, Guha said that Powell is unlikely to tee up a rate hike of a half-point, or 50 basis points, later this month, which some investors fear. Market pricing on Monday pointed to about a 31% probability for the larger move, according to CME Group data.
“We think the Fed hikes 50bp in March only if inflation expectations, wages, and services inflation reaccelerate dangerously higher and/or incoming data is so strong the median peak rate ends up going up 50,” Guha wrote. “The Fed cannot end a meeting further from its destination than it was before the meeting started.”
Interpreting the data will be tricky, though, going forward.
Headline inflation actually could show a precipitous decline in March as year-over-year comparisons of energy prices will be distorted because of a pop in prices around this time last year. The Cleveland Fed’s tracker shows all-item inflation falling from 6.2% in February to 5.4% in March. However, core inflation, excluding food and energy, is projected to increase to 5.7% from 5.5%.
Guha said it’s likely Powell could guide the Fed’s endpoint for rate hikes — the “terminal” rate — up to a 5.25%-5.5% range, or about a quarter point higher than anticipated in December’s economic projections from policymakers.

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The Biden administration said it would request talks with Mexico over a brewing trade fight.WASHINGTON — The Biden administration said on Monday that it would take initial steps toward challenging a ban that Mexico has placed on shipments of genetically modified corn from the United States, restrictions that have rankled farmers and threatened a profitable export.Mexico has planned to phase out the use of genetically modified corn, as well as an herbicide called glyphosate, by 2024. About 90 percent of corn grown in the United States is genetically modified.Senior administration officials have expressed concerns to the Mexican government about the measures for more than a year in virtual and in-person meetings, saying they could disrupt millions of dollars of agricultural trade and cause serious harm to U.S. producers. Mexico is the second-largest market for U.S. corn, after China.On Monday, U.S. officials said that they were requesting consultations over the issue with their Mexican counterparts under the terms of the United States-Mexico-Canada Agreement, which governs the terms of trade in North America. Biden officials said that parties to that agreement, which was signed in 2020, had committed to basing their regulation on scientific research, and that Mexico’s ban on genetically modified corn did not conform to those promises.The consultations are the first step in a process that could lead to the United States bringing a formal dispute against Mexico. The parties must meet to discuss the issue within 30 days, and, if the talks are not successful, the United States could turn to a separate dispute settlement procedure under the trade agreement. That process could result in the United States placing tariffs on Mexican products, if no other resolution can be reached.Senior officials with the Office of the United States Trade Representative said they were focused on finding a resolution through the talks at hand. But in a statement, the office said that it would “consider all options, including taking formal steps to enforce U.S. rights under the U.S.M.C.A.” if the issue was not resolved.Mexico bought more than 20 million metric tons of corn from the United States in the 2021-22 marketing year, which runs from September to August, according to the U.S. Department of Agriculture.The National Corn Growers Association has said that the impending ban would be “catastrophic” for American corn producers and Mexican consumers alike and undermine the principles of the trade agreement. The industry has maintained that bioengineered corn is safe for human consumption, contrary to health concerns cited by Mexican officials.Scientists, too, widely believe that genetically modified foods are safe, but consumers and Mexican officials remain wary of genetically modified crops.In a statement on Monday, the Mexican Ministry of Economy said its decree was aimed at ensuring that tortillas are made with native Mexican corn varieties, in an effort to ensure the biodiversity of the corn that is grown in the country. It said it would draw on data and evidence to demonstrate that the ban had not had an impact on commerce, and was consistent with the trade agreement.In the United States, the vast majority of corn planted has been bioengineered to be resistant to herbicides and insects. Bt corn, for example, contains a gene from a soil bacterium that kills the European corn borer, an insect that feeds on maize and other grasses.Corn can also be modified to be resistant to glyphosate, the most widely used herbicide in agriculture and lawn maintenance in the United States. Glyphosate-based products like Roundup are sprayed on fields, killing weeds and leaving the resistant crops intact.While the Environmental Protection Agency has said the herbicides pose no risk to human health, overuse can wreak ecological havoc in areas where natural plant species are not resistant to the chemical compound. Environmental groups have warned that glyphosate can be particularly deadly for pollinators like bees and butterflies.It is illegal to grow genetically modified corn in Mexico, where maize was first domesticated 8,700 years ago and where white corn is a staple crop. Supporters of Mexico’s ban worry that any imports of bioengineered corn would threaten native species, as the varieties can cross-pollinate.The Mexican government in February moved to soften its restrictions, saying it would allow genetically modified corn to be brought into the country for animal feed and industrial use, though not for human consumption. Tom Vilsack, the U.S. agriculture secretary, said he was “disappointed” in the decision.It also remains to be seen whether domestic corn production in Mexico is sufficient to replace imports, the eventual goal of the Mexican government. Last year, farmers in Mexico grew 27.3 million metric tons, about 38 percent below domestic demand. One analysis projected that, should the ban remain in place, corn costs could rise by 20 percent in Mexico and increase rates of food insecurity. More

As they escalate a debt-limit standoff, House Republicans blame President Biden’s spending bills for an increase in deficits. Voting records show otherwise.WASHINGTON — President Biden will submit his latest budget request to Congress on Thursday, offering what his administration says will be $2 trillion in plans to reduce deficits and future growth of the national debt.Republicans, who are demanding deep spending cuts in exchange for raising the nation’s borrowing cap, will almost certainly greet that proposal with a familiar refrain: Mr. Biden and his party are to blame for ballooning the debt.But an analysis of House and Senate voting records, and of fiscal estimates of legislation prepared by the nonpartisan Congressional Budget Office, shows that Republicans bear at least equal blame as Democrats for the biggest drivers of federal debt growth that passed Congress over the last two presidential administrations.The national debt has grown to $31.4 trillion from just under $6 trillion in 2000, bumping against the statutory limit on federal borrowing. That increase, which spanned the presidential administrations of two Republicans and two Democrats, has been fueled by tax cuts, wars, economic stimulus and the growing costs of retirement and health programs. Since 2017, when Donald J. Trump took the White House, Republicans and Democrats in Congress have joined together to pass a series of spending increases and tax cuts that the budget office projects will add trillions to the debt.The analysis is based on the forecasts that the C.B.O. regularly issues for the federal budget. They include descriptions of newly passed legislation that affects spending, revenues and deficits, tallying the costs of those new laws over the course of a decade. Going back to the start of Mr. Trump’s tenure, those reports highlight 13 new laws that, by the C.B.O.’s projections, will combine to add more than $11.5 trillion to the debt.Nearly three-quarters of that new debt was approved in bills that gained the support of a majority of Republicans in at least one chamber of Congress. Three-fifths of it was signed into law by Mr. Trump.Some of those bills were in response to emergencies, like the early rounds of stimulus payments to people and businesses during the pandemic. Others were routine appropriations bills, which increased spending on the military and on domestic issues like research and education.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

New evidence shows that many employers are mislabeling rank-and-file workers as managers to avoid paying them overtime.For four years beginning in 2014, Tiffany Palliser worked at Panera Bread in South Florida, making salads and operating the register for shifts that began at 5 a.m. and often ran late into the afternoon.Ms. Palliser estimates that she worked at least 50 hours a week on average. But she says she did not receive overtime pay.The reason? Panera officially considered her a manager and paid her an annual salary rather than on an hourly basis. Ms. Palliser said she was often told that “this is what you signed up for” by becoming an assistant manager.Federal law requires employers to pay time-and-a-half overtime to hourly workers after 40 hours, and to most salaried workers whose salary is below a certain amount, currently about $35,500 a year. Companies need not pay overtime to salaried employees who make above that amount if they are bona fide managers.Many employers say managers who earn relatively modest salaries have genuine responsibility and opportunities to advance. The National Retail Federation, a trade group, has written that such management positions are “key steps on the ladder of professional success, especially for many individuals who do not have college degrees.”But according to a recent paper by three academics, Lauren Cohen, Umit Gurun and N. Bugra Ozel, many companies provide salaries just above the federal cutoff to frontline workers and mislabel them as managers to deny them overtime.Because the legal definition of a manager is vague and little known — the employee’s “primary” job must be management, and the employee must have real authority — the mislabeled managers find it hard to push back, even if they mostly do grunt work.The paper found that from 2010 to 2018, manager titles in a large database of job postings were nearly five times as common among workers who were at the federal salary cutoff for mandatory overtime or just above it as they were among workers just below the cutoff.“To believe this would happen without this kind of gaming going on is ridiculous,” Dr. Cohen, a Harvard Business School professor, said in an interview.Under federal law, employers are required to pay time-and-a-half overtime to salaried workers after 40 hours if they make about $35,500 or less.Scott McIntyre for The New York TimesDr. Cohen and his co-authors estimate that the practice of mislabeling workers as managers to deny them overtime, which often relies on dubious-sounding titles like “lead reservationist” and “food cart manager,” cost the workers about $4 billion per year, or more than $3,000 per mislabeled employee.And the practice appears to be on the rise: Dr. Cohen said the number of jobs with dubious-sounding managerial titles grew over the period he and his co-authors studied.Federal data appear to underscore the trend, showing that the number of managers in the labor force increased more than 25 percent from 2010 to 2019, while the overall number of workers grew roughly half that percentage.From 2019 to 2021, the work force shrank by millions while the number of managers did not budge. Lawyers representing workers said they suspected that businesses mislabeled employees as managers even more often during the pandemic to save on overtime while they were short-handed.“There were shortages of people who had kids at home,” said Catherine Ruckelshaus, the general counsel of the National Employment Law Project, a worker advocacy group. “I’m sure that elevated the stakes.”But Ed Egee, a vice president at the National Retail Federation, argued that labor shortages most likely cut the other way, giving low-level managers the leverage to negotiate more favorable pay, benefits and schedules. “I would almost say there’s never been a time when those workers are more empowered,” he said. (Pay for all workers grew much faster than pay for managers from 2019 to 2021, though pay for managers grew slightly faster last year.)Experts say the denial of overtime pay is part of a broader strategy to drive down labor costs in recent decades by staffing stores with as few workers as possible. If a worker calls in sick, or more customers turn up than expected, the misclassified manager is often asked to perform the duties of a rank-and-file worker without additional cost to the employer.“This allows them to make sure they’re not staffing any more than they need to,” said Deirdre Aaron, a former Labor Department lawyer who has litigated numerous overtime cases in private practice. “They have assistant managers there who can pick up the slack.”Ms. Palliser said that her normal shift at Panera ran from 5 a.m. to 2 p.m., but that she was often called in to help close the store when it was short-staffed. If an employee did not show up for an afternoon shift, she typically had to stay late to cover.Gonzalo Espinosa said that he had often worked 80 hours a week as the manager of a Jack in the Box but that he had not received overtime pay.Max Whittaker for The New York Times“I would say, ‘My kids get out of school at 2. I have to go pick them up, I can’t keep doing this,’” said Ms. Palliser, who made from about $32,000 to $40,000 a year as an assistant manager. She said her husband later quit his job to help with their child-care responsibilities.She won a portion of a multimillion-dollar settlement under a lawsuit accusing a Panera franchisee, Covelli Enterprises, of failing to pay overtime to hundreds of assistant managers. Panera and representatives of the franchise did not respond to requests for comment.Gassan Marzuq, who earned a salary of around $40,000 a year as the manager of a Dunkin’ Donuts for several years until 2012, said in a lawsuit that he had worked roughly 70 hours or more in a typical week. He testified that he had spent 90 percent of his time on tasks like serving customers and cleaning, and that he could not delegate this work “because you’re always short on staff.”Mr. Marzuq eventually won a settlement worth $50,000. A lawyer for T.J. Donuts, the owner of the Dunkin’ Donuts franchise, said the company disputed Mr. Marzuq’s claims and maintained “that he was properly classified as a manager.”Workers and their lawyers said employers exploited their desire to move up the ranks in order to hold down labor costs.“Some of us want a better opportunity, a better life for our families,” said Gonzalo Espinosa, who said that in 2019 he often worked 80 hours a week as the manager of a Jack in the Box in California but that he did not receive overtime pay. “They use our weakness for their advantage.”Mr. Espinosa said his salary of just over $30,000 was based on an hourly wage of about $16 for a 40-hour workweek, implying that his true hourly wage was closer to half that amount — and well below the state’s minimum wage. The franchise did not respond to requests for comment.The paper by Dr. Cohen and his co-authors includes evidence that companies that are financially strapped are more likely to misclassify regular workers as managers, and that this tactic is especially common in low-wage industries like retail, dining and janitorial services.Still, lawyers who bring such cases say the practice also occurs regularly in white-collar industries such as tech and banking.When companies are financially strapped or in low-wage industries like retail and fast food, they are more likely to misclassify regular workers as managers, a recent report found.Max Whittaker for The New York Times“They have a job title like relationship manager or personal banker, and they greet you, try to get you to open account,” said Justin Swartz, a partner at the firm Outten & Golden. “They’re not managers at all.”Mr. Swartz, who estimated that he had helped bring more than two dozen overtime cases against banks, said some involved a so-called branch manager inside a big-box store who was the only bank employee on site and largely performed the duties of a teller.The practice appears to have become more difficult to root out in recent years, as more employers have required workers to sign contracts with mandatory arbitration clauses that preclude lawsuits.Many of the cases “are not economically viable anymore,” said Mr. Swartz, citing the increased difficulty of bringing them individually through arbitration.Some lawyers said only an increase in the limit below which workers automatically receive overtime pay is likely to meaningfully rein in misclassification. With a higher cutoff, simply paying workers overtime is often cheaper than avoiding overtime costs by substantially increasing their pay and labeling them managers.“That’s why companies fought it so hard under Obama,” said Ms. Aaron, a partner at Winebrake & Santillo, alluding to a 2016 Labor Department rule raising the overtime limit to about $47,500 from about $23,500. A federal judge suspended the rule, arguing that the Obama administration lacked the authority to raise the salary limit by such a large amount.The Trump administration later adopted the current cutoff of about $35,500, and the Biden administration has indicated that it will propose raising the cutoff substantially this year. Business groups say such a change will not help many workers because employers are likely to lower base wages to offset overtime pay. More

Companies are trying to maintain fat profits as the economy changes, making “premiumization” their new favorite buzzword.Big companies are prodding their customers toward fancier, and often pricier, versions of everything from Krispy Kreme doughnuts to cans of WD-40.It’s evidence of the corporate world’s new favorite buzzword: “premiumization.”Businesses are hoping to keep the good times rolling after several years in which they seized on strong spending by consumers and rapid inflation to raise prices and pump up profit margins. Many firms are embracing offerings that cater to higher-income customers — people who are willing and able to pay more for products and services.One sign of the trend: the notion of premiumization was raised in nearly 60 earnings calls and investor meetings over the past three weeks.It is an indication of a changing economic backdrop. Inflation and consumer spending are expected to moderate this year, which could make it more difficult for firms to sustain large price increases without some justification.The premiumization trend also reflects a divide in the American economy. The top 40 percent of earners are sitting on more than a trillion dollars in extra savings amassed during the early part of the pandemic. Lower-income households, on the other hand, have been burning through their savings, partly as they contend with the higher costs of the food, rent and other necessities that make up a bigger chunk of their spending.“The pool of people willing to spend on small to large premium offers remains strong,” said David Mayer, a senior partner in the brand strategy practice of Lippincott, a consultancy.As products grow more expensive and exclusive, big swaths of the economy are at risk of becoming gentrified, raising the possibility that poorer consumers will be increasingly underserved.Inflation F.A.Q.Card 1 of 5What is inflation? More

Ajay Banga will begin a monthlong “global listening tour” to drum up support for his nomination to be the bank’s next president.The Biden administration’s nominee to be the next president of the World Bank, the international development and climate institution, is embarking on a monthlong sprint around the globe to solidify support for his candidacy.It will be the first opportunity for the nominee, Ajay Banga, to share his vision for the bank, which has been aiming to take on a more ambitious role in combating climate change while maintaining its core commitment to alleviating poverty.Mr. Banga, who has had a long career in finance, faces the challenge of convincing nations that his decades of private-sector experience will help him transform the World Bank.He will begin his “global listening tour” on Monday with stops in Ivory Coast and Kenya, the Treasury Department said on Friday. In Ivory Coast, he will meet with senior government officials, leaders of the African Development Bank and civil society organizations. In Kenya, he will visit the Kenya Climate Innovation Center and a World Bank-backed project that helps local entrepreneurs find ways to address climate change.Mr. Banga will focus on how finding development solutions can be intertwined with climate goals and emphasize his experience working on financial inclusion in Africa, where he helped expand access to electronic payments systems while chief executive of Mastercard, a Treasury official said.The whirlwind campaign will also take Mr. Banga to Asia, Latin America and Europe.The White House nominated him last week after the unexpected announcement last month that David Malpass will step down as World Bank president by the end of June, nearly a year before the end of his five-year term. Mr. Malpass, who was nominated by President Donald J. Trump, ignited a controversy last year when he appeared to express skepticism about whether fossil fuels contribute to global warming.During a briefing at the Treasury Department this week, Mr. Banga made clear that he had no doubts about the causes of climate change. “Yes, there is scientific evidence, and it matters,” he said.Careful to strike a balance between the bank’s growing climate ambitions and its poverty-reduction goals, Mr. Banga emphasized that both issues were interconnected and equally important.“My belief is that poverty alleviation, or shared prosperity, or all those words that essentially imply the idea of tackling inequality, cannot be divorced from the challenges of managing nature in a constructive way,” Mr. Banga added.The World Bank’s nomination process runs through March 29, and other countries may offer candidates. But by tradition, the United States, the bank’s largest shareholder, selects an American to be its president. The executive board hopes to choose a new president by early May.A climate protest in Munich on Friday. Mr. Banga will focus on how finding development solutions can be intertwined with climate goals.Anna Szilagyi/EPA, via ShutterstockIf approved by the board, Mr. Banga will face an array of challenges. The world economy is slowly emerging from three years of pandemic and war that have slowed global growth and worsened poverty. Emerging economies face the prospect of a cascade of defaults in the coming years, and the World Bank has been vocal in calling for debt reduction.The Biden administration has pointed to China, one of the world’s largest creditors, as a primary obstacle in debt-restructuring efforts. Mr. Banga was careful not to be critical of China and said he expected to travel there in the coming weeks.“Today I’m the nominee of the United States, but if I’m lucky enough to be elected, then I represent all the countries who are part of the bank,” Mr. Banga said on Thursday. “Having their points of view known, understood and openly discussed — maybe not agreed to, but openly discussed — is an important part of leading a multilateral institution.”His nomination has won both praise and skepticism from climate activists and development experts.Some climate groups have lamented Mr. Banga’s lack of direct public-sector experience and expressed concern about his affiliation with companies that invest in the oil and gas industries.“Many question whether his history at global multinationals such as Citibank, Nestlé, KFC and Mastercard will prepare him for the huge challenges of poverty and inequality,” Recourse, a nonprofit environmental organization, said in a statement this week. Recourse has been critical of the World Bank’s policies on gas transition, its exposure to coal and its pace of action on climate change.Other prominent activists have praised Mr. Banga, including Vice President Al Gore, who predicted that he would bring “renewed leadership on the climate crisis to the World Bank.”And others viewed Mr. Banga as a natural choice to bridge the gap between the bank’s broad mandates.“Throughout discussions of the World Bank’s evolution, borrowing countries have consistently communicated that financing for climate should not come at the expense of other development priorities,” Stephanie Segal, a senior fellow with the Economics Program at the Center for Strategic and International Studies, wrote in an essay this week. “In nominating Banga, whose candidacy does not lead with climate, the United States has signaled agreement that the bank’s development mandate cannot be abandoned in favor of a ‘climate only’ agenda.”The Biden administration has also faced questions about why it did not choose a woman to lead the bank, which has had only men serve as its full-time president.Mr. Banga asserted that as someone who was born and educated in India, he would bring diversity and a unique perspective to the World Bank. He also emphasized that at Mastercard, he had demonstrated a commitment to empowering women and elevating them to senior roles.“I think that you should credit the administration with taking a huge leap forward into finding somebody who wasn’t born here, wasn’t educated here,” Mr. Banga said. “I believe that giving people a level playing field is our job.”He added: “And that means whether you’re a woman, your color, your sexual orientation, growing up on the wrong side of the tracks, it doesn’t matter.” More

European companies including Northvolt, Linde, Volkswagen, Enel have all expressed interest in profiting from the U.S. subsidies.
Experts have argued that the simplicity of the IRA is too attractive to pass up on.
But Europe cannot afford to lose key investments as it struggles with a cost-of-living crisis.

Elon Musk, Tesla CEO, on a stage at the Tesla Gigafactory in Grünheide, Germany.
Picture Alliance | Picture Alliance | Getty Images

Tesla recently announced a strategy shift away from Europe as it seeks to benefit from unprecedented subsidies in the United States. But it’s not the only company reviewing investment decisions vis-à-vis Europe.
Many multinationals are reconsidering plans to deploy new money into Europe. It comes after U.S. President Joe Biden last year presented the Inflation Reduction Act, or the IRA, which includes a record $369 billion in spending on climate and energy policies.

The landmark legislation, which features green subsidies for businesses, has raised competition issues for European companies — and upset politicians in the region. Brussels has been left considering how best to respond.
Northvolt, a Swedish battery maker; Linde, a chemical giant from Germany; Volkswagen, the carmaker; Enel, the Italian energy giant, have all expressed an interest in profiting from U.S. subsidies. And there could be more.

Europe needs to step up its game.

Miguel Stillwell D ‘Andrade
CEO of EDP

“European companies, they prefer to have the present of the U.S. government rather than the penalty of the European authorities,” Evangelos Mytilineos, CEO and chairman at the Greek industrial conglomerate Mytilineos, told CNBC’s “Squawk Box Europe” about the additional bureaucracy in Europe.
When asked if he would be taking his business to the U.S., Mytilineos replied, “It is a possibility. Unfortunately, it is not just a possibility for our company.”
It is still early to assess just how much investment could drift away from Europe as a result of Biden’s policy. But so far the message from European businesses is clear: they want officials in the region to do more to support them.

“Europe needs to step up its game,” Miguel Stillwell D ‘Andrade, CEO of energy giant EDP, told CNBC’s Squawk Box Europe Friday. He described the IRA as an “extremely powerful, simple pro-business investment tool.”
In a speech in February, European Commission President Ursula von der Leyen said it was time for a “simpler and faster framework.” Previously, her team had welcomed the efforts stateside for a cleaner economy, while intensifying talks with their counterparts to ensure European businesses would not flock to America.
But there are fears it could be too little, too late.

Peter Carlsson, the CEO of Northvolt, told CNBC in February that his company has been working on a North American plant. “And with the IRA that plan kind [of] got turbo boosted given the very strong incentives,” he added.
Northvolt is in the midst of deciding whether to press ahead with its expansion in North America before doing so in Germany.
Meanwhile, Ilham Kadri, CEO of Solvay, a chemicals company headquartered in Belgium, said in January: “The reality is that the Biden administration incentivizes when Europe regulates — to put it black in white.”

EU ‘aware that it needs to do more’

Tesla last month decided to scale back some investments in Germany and focus on the North American market instead to benefit from the IRA.
“The focus of Tesla’s cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act (IRA),” the company said on Feb. 22, according to Reuters. A spokesperson for the company was not available when contacted by CNBC Thursday.
It comes as both businesses and analysts argue that the simplicity of the IRA is too attractive to pass up on.
“The IRA is constructed in a way that is first of all, very simple. And simplicity is always a winner. By contrast, the European Union machinery is a lot more complex,” said Maria Demertzis, senior fellow at the think tank Bruegel.

“Will firms in the European Union or anywhere else postpone investment that they wanted to make in the European Union and actually profit from the direct and very simple and immediate benefit that the IRA actually promises?”
It’s something European officials are worried about, she added, and comes at a particularly difficult time.
Economies across the EU cannot afford to lose key investments as they struggle with a cost-of-living crisis. The bloc also wants to be independent of China and others for critical materials like lithium.
“The EU is particularly aware that it needs to do more to compete internationally,” Demertzis said.
The European Commission, the executive arm of the EU, is still working on a Sovereignty Fund to provide financing for green projects, but the full details are not expected before June.

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The regulations were meant to prevent dollar transfers to those targeted by U.S. sanctions on Iran, Syria and Russia. But they have ended up harming ordinary Iraqis who need U.S. currency for business or travel.BAGHDAD — When the United States and Iraq put tough new currency rules into effect recently, the intent was to stem the illicit flow of dollars to those targeted by U.S. sanctions on Iran, Syria and Russia, as well as to terrorist organizations and money launderers.But in a country with a primarily cash economy, the changes created unintended hardships for ordinary Iraqis who need dollars for legitimate business purposes or travel abroad. Dollars have run short, and the cost in Iraqi dinars at some local currency traders has surged.Long lines are forming early in the day outside money changers’ shops, where Iraqis planning to travel outside the country often turn up grasping plastic bags stuffed with dinars, which banks outside the country do not accept. These days, it’s not easy to find a money changer who still has dollars. And those who do run out early.“I don’t have any dollars left,” one currency trader, Abu Ali, said last week at his shop in Baghdad’s Karrada neighborhood.The new currency rules, worked out in an agreement between the United States and Iraq, require greater transparency surrounding the transfers of dollars held as foreign currency reserves for Iraq in an account at the Federal Reserve Bank of New York. They went into effect late last year.The agreement was part of a long-delayed modernization of Iraq’s financial system as it begins to conform to the rules that most countries follow and adapts to requirements for more transparency in international financial transactions.U.S. dollars being counted at an authorized currency dealer in Baghdad.Joao Silva/The New York TimesEvery day, the Central Bank of Iraq facilitates the withdrawal of a large sum of dollars from its account at the New York Fed. The transfers are critical because, in Iraq’s largely cash economy, only a few businesses accept credit cards and almost no ordinary Iraqis have one. Even bank accounts are a rarity.Some of the money is wired on behalf of Iraqi businesses to pay for goods from outside Iraq. Some of it is designated for currency exchanges and banks to distribute to Iraqis traveling abroad.But there has been little in the way of electronic footprints to help U.S. officials trace whether some of the transfers were ending up in the hands of parties targeted by U.S. sanctions.A dollar shortage affecting ordinary Iraqis is one of the unintended consequences of new and tougher rules worked out by Iraq’s central bank in concert with the U.S. Treasury and the Federal Reserve Bank of New York.Joao Silva/The New York TimesThe concerns date back to soon after the 2003 U.S. invasion of Iraq.At that time, American authorities tried unsuccessfully to document the chain of custody for billions of dollars transported to the country in cash over a period of years. In one instance, $1.2 billion from Iraq was found in a Lebanese bunker with no record of how it got there, according to a New York Times investigation in 2014.The U.S. Treasury wanted to ensure that dollars were not being sent in violation of U.S. law to fronts or agents for parties under sanctions or terrorist entities. In congressional testimony in 2016, for example, a top Treasury official noted three groups targeted by sanctions that were known to be active in Iraq: Al Qaeda, the Islamic State and the Iran-backed Lebanese militia Hezbollah.With the Islamic State’s takeover of northern Iraq in 2014, it seized of a branch of Iraq’s central bank and those worries became more urgent.The situation underscored the need for more transparency in dollar transfers to Iraq, according to a U.S. Treasury official, who asked not to be named because he is not authorized to speak with reporters.An authorized currency exchange. Joao Silva/The New York TimesAfter the Iraqis finally defeated the Islamic State in 2018, Iraqi and U.S. bankers and the Treasury began to discuss a new system for money transfers.Under the new regulations, both individuals and companies requesting wire transfers of dollars must disclose their own identity, and the identity of whoever is ultimately getting the money. That information is then reviewed by an electronic system as well as by experts at Iraq’s central bank and the New York Fed, before payment is made.The new system allows banks around the world to conduct automatic checks on transfers of money from Iraq to other countries, said Ahmed Tabaqchali, the chief strategist for Asia Frontier Capital’s Iraq fund.“In short, the system heightens the visibility of red flags,” he said.Waiting at a currency exchange in Baghdad.Joao Silva/The New York TimesNow, many requests are being rejected, said Mudher Salih, a former deputy head of Iraq’s central bank and now a financial policy adviser to Iraq’s new prime minister, Mohammed Shia al-Sudani. Sometimes, he said, that is because of suspect identities but other times it is because many Iraqi businesses do not have the requisite licenses to import goods or are not properly registered as commercial entities and therefore are in violation of Iraqi law.The rejections have created a shortage of dollars, which has sharply increased their cost for Iraqis with legitimate needs, he added.Since 2003, there have been two Iraqi dinar rates for buying dollars; an official rate established by Iraq’s central bank and an unofficial street rate, which is higher. And when dollars are scarce, the street price goes up.The difference between the two is creating hardships for Iraqis like Janna, a mother of four. She said she had been saving up to buy a refrigerator and had her eye on a German model that cost about $250. In October, that was the equivalent of 320,000 dinars. Today, because of the scarcity of dollars, the refrigerator would cost 375,000 dinars.“It’s more than I can afford,” she said.Shoppers in Baghdad’s busy Karrada neighborhood.Joao Silva/The New York TimesAfter the new currency rules took effect, the quantity of dollars flowing daily into Iraq fell sharply — on some days down by nearly 65 percent from $180 million to $67 million — compared with the period before the rules were implemented, according to daily cash flow numbers released by Iraq’s central bank.The influx of dollars has since picked up, but it is still often less than half of what it was before the new system was put in place.It is not clear exactly how much of the drop in dollars reflects illicit recipients who have now either stopped requesting money because they do not want to make the disclosures required by the new rules or because the Iraqi central bank or the New York Fed rejected their requests.“I would not put down to fraud the almost 90 percent drop,” said Douglas Silliman, president of the Arab Gulf States Institute in Washington and a former U.S. ambassador to Iraq. “Maybe it’s 45 percent fraud and 45 percent incompetence or just not knowing how to deal with the new regulations.”Iraq’s financial system is going through a long-delayed modernization as it begins to conform to the rules followed in many other countries.Joao Silva/The New York TimesYasmine Mosimann More