Economy

NEW YORK/LONDON (Reuters) -The International Monetary Fund said Argentina is committed to accumulating international reserves and stemming a central bank financing of government debt under the latest review of its $44 billion loan program, as the global lender backed a set of reforms proposed by President Javier Milei’s new administration. The IMF called Milei’s stabilization plan for Argentina’s embattled economy “bold” and “far more ambitious” than those put forth by his predecessors in the South American country, citing the reform mandate of his landslide election victory late last year as a positive given the challenges of its implementation.”The authorities’ strong ownership and electoral mandate to eliminate fiscal deficits and long-standing impediments to growth (many benefiting vested interests) mitigate implementation risks,” the IMF said in a staff report on Argentina published on Thursday.Yet the IMF acknowledged that risks to the program’s success are high, given the “very difficult inheritance” from failed policies and a “complex political and social backdrop, with a fragmented Congress, falling real wages, and high poverty.”The fund said Argentina also committed “in the near term” to eliminate “distortive exchange restrictions and multiple currency practices” and to ban central bank credit to the government.Separately on Thursday, the fund’s Managing Director Kristalina Georgieva said Argentina and the IMF are at this point “not discussing a new program.”She said the government “correctly decided to bring the existing program back on track” and a recent review “felt like review number one, because there is a dramatically different approach to policy making.”CHALLENGE AHEADMilei, a right-wing libertarian who became a lightning rod for voter anger last year as Argentina faced its worst economic crisis in decades, faces a major challenge to push an omnibus reform bill through Congress, with his coalition having only a minority in both chambers. His government yanked a divisive fiscal section from the bill last week to boost support.The fund expects the economic recovery to gather pace late this year as initial negative macro reaction to the new policies fades, although policy will need to remain tight.Earlier this week the IMF slashed its forecast for Argentina’s 2024 GDP to a 2.8% contraction from a previous view of a 2.8% expansion, mostly due to the expected effects of the new government’s proposed reforms.The fund on Thursday highlighted Argentina’s 2024 goal to achieve a primary surplus of 2% of GDP mainly through a combination of temporary taxes and thinning out the cost of running the government, as well as reducing energy and transport subsidies and infrastructure spending.The IMF review set new central bank reserve accumulation targets, moving to a target of $6.0 billion by the end of March from a previous one of $4.3 billion; the end-June target rose to $9.2 billion from $7.3 billion and the goal for the end of September was set at $7.6 billion.Wednesday’s board approval and $4.7 billion disbursement brings the current total within the $44 billion program to $40.6 billion, the fund said.The global lender extended the duration of its $44 billion program by three months to allow for time to implement the government’s current stabilization plan and build out reserves, with the program now running through Dec. 31, from an earlier Sept. 24 cut-off.The remaining program reviews, as previously reported by Reuters, have been delayed to May, August and November of this year. More

President Biden has begun to accuse stores of overcharging shoppers, as food costs remain a burden for consumers and a political problem for the president.President Biden, whose approval rating has suffered amid high inflation, is beginning to pressure large grocery chains to slash food prices for American consumers, accusing the stores of reaping excess profits and ripping off shoppers.“There are still too many corporations in America ripping people off: price gouging, junk fees, greedflation, shrinkflation,” Mr. Biden said last week in South Carolina. Aides say those comments are a preview of more pressure to come against grocery chains and other companies that are maintaining higher-than-usual profit margins after a period of rapid price growth.Mr. Biden’s public offensive reflects the political reality that, while inflation is moderating, voters are angry about how much they are paying at the grocery store and that is weighing on Mr. Biden’s approval rating ahead of the 2024 election.Economic research suggests the cost of eggs, milk and other staples — which consumers buy far more frequently than big-ticket items like furniture or electronics — play an outsized role in shaping Americans’ views of inflation. Those prices jumped by more than 11 percent in 2022 and by 5 percent last year, amid a post-pandemic inflation surge that was the nation’s fastest burst of price increases in four decades.The rate of increase is slowing rapidly: In December, prices for food consumed at home were up by just over 1 percent, according to the Labor Department. But administration officials say Mr. Biden is keenly aware that prices remain too elevated for many families, even as key items, like gasoline and household furnishings, are now cheaper than they were at their post-pandemic peak.And yet, there is a general belief across administration officials and their allies that there is little else Mr. Biden could do unilaterally to force grocery prices down quickly.Grocery store margins are rising

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Operating profit margin by type of retailer
Notes: Operating margin defined as sales, receipts and operating revenue as a share of operating expenses. Data shown as four-quarter rolling average.Source: Council of Economic AdvisersBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

WASHINGTON (Reuters) -U.S. worker productivity gains running well above the long-term average may help buttress the Federal Reserve’s faith that inflation is contained and further open the door to interest rate cuts policymakers anticipate will start in coming months.Output per worker, a key gauge of how fast the economy can grow without rising inflation, increased 3.2% in the last quarter of 2023, the third quarter of productivity gains above 3% in a series that averaged about 1% from 2010 through 2019.Fed Chair Jerome Powell spoke at his Wednesday press conference about the advantages rising productivity holds for the Fed’s inflation fight, offering the prospect of more jobs and stronger economic growth with less pressure on prices.But while the productivity numbers may be more an explanation of why inflation has been falling as opposed to a signal about what comes next, Powell no longer says the economy needs to go through a period of sluggish, below-potential growth for the pace of price increases to decline from a level still described by the Fed as “elevated.”The need for weak growth to cool inflation had been a working premise of Fed policy for much of its fight against rising prices. Its disappearance from Powell’s rhetoric points to some faith that output per worker will remain healthy, and unit-labor costs will stay muted. Beyond lowering inflation pressures, rising productivity leaves more room for wage gains since each worker hour is providing more goods and services.”Whereas a year ago we were thinking that we needed to see some softening in economic activity that hasn’t been the case…We don’t look at it as a problem,” Powell said. “I think at this point, we want to see strong growth, we want to see a strong labor market. We’re not looking for a weaker labor market. We’re looking for inflation to continue to come down as it has been coming down for the last six months.”‘ELEVATED’ FOR HOW LONG?The Fed at its meeting this week finished a policy evolution that began last year, removing a presumption of further rate hikes in favor of a neutral stance and an acknowledgment that rates could fall once policymakers are more confident inflation will continue moving toward its target.”The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the Fed said in its statement.Investors expect a first rate cut in May, but on the way there policymakers will have to make a judgment – and likely reflect it in public comments – that the pace of inflation is no longer elevated.That may just be a matter of time. While the Personal Consumption Expenditures price index used by the Fed to set its target was last at 2.6% on a yearly basis, the eight-month pace since April annualizes to a below-target 1.9%.Powell on Wednesday said he did not think there will be enough data in hand by the March 19-20 meeting to reduce rates. But by the April 30-May 1 meeting policymakers will have received a full suite of first-quarter data on consumer inflation, PCE, jobs, wages, and an estimate of economic growth for the first quarter of the year.All will be watched as policymakers consider when to finally remove the word “elevated” from the description of inflation in their policy statement.Also important are survey and market measures of inflation expectations, something policymakers feel need to remain consistent with the 2% target for them to trust that inflation will “settle” there, not just “tap” it, as Powell said.While currently at 2.9%, the most recent University of Michigan survey of household inflation expectations for the next year is within the range seen before the pandemic, and Fed officials consider them largely consistent with their target. Officials also see market measures of inflation, such as the breakeven rates on Treasury Inflation Protected Securities, as well “anchored.”ACHIEVING ‘GREATER CONFIDENCE’Other data on the job market, like measures of layoffs, quit rates, and labor turnover, are near where they were before the pandemic. “The labor market by many measures is at or nearing normal,” Powell said, though wages were still “not quite back to where they would need to be in the longer run.”New hourly wage data for January will be released on Friday. But after Powell noted how much recent disinflation hinged on actual declines in the prices of some goods, meaning future headline inflation could rise even if goods prices simply stay stable, analysts pointed to two longstanding inflation concerns as key to Fed confidence-building: housing and services. Declines in housing inflation should be almost mechanical in coming months as easing market rents make their way into the inflation indexes. Services price increases may prove stickier and be the final hurdle to clear for officials to describe inflation as something other than elevated.Wage growth still above a level Fed officials see compatible with 2% inflation could also come into play.”There may be enough voices on the (Federal Open Market) Committee that remain concerned about services inflation – and shelter inflation in particular – and wage growth to keep the Fed on hold for longer,” Bank of America analysts wrote. “We think achieving ‘greater confidence’ requires more evidence that services inflation is consistent with 2% outcomes in the event that goods price declines stop, and a further slowing in wage growth to 3.5%.” More

WASHINGTON (Reuters) -International Monetary Fund Managing Director Kristalina Georgieva on Thursday said she anticipates that the Federal Reserve would begin to cut U.S. interest rates in “a matter of months” but cautioned that there was a risk to the global economy of waiting too long to ease policy.Georgieva told reporters at IMF headquarters that she thinks the U.S. central bank made the right decision on Wednesday to hold rates steady but remain cautious on declaring victory against inflation.”If you carefully assess the Fed posture, it is one that recognizes the job is not quite yet done, but we are near the end,” Georgieva said.At the same time, she said the U.S. economy was poised for a “soft landing,” with a strong job market, but “it’s not done. We’re still 50 feet above the ground and we know that until you land it’s not over.”But she said there was a delicate balance on getting the timing right for beginning to ease rates, adding that keeping them higher for longer than necessary could hurt growth in both the U.S. and emerging market economies.If the Fed waits too long to cut rates, some emerging market countries with lower rates could see their currencies come under pressure, exacerbating inflation, Georgieva said. “So the timing of U.S. easing monetary policy is indeed very important – not too early, but also not too late,” she said, adding that she did not think this would be “many months” or a year. “You’re talking about timing that is a matter of months.”Traders on Thursday continued to pare bets for a March Fed rate cut to 36.5% from almost 90% a month ago, while increasing the likelihood of a May rate cut to 93.3%, according to the CME Group’s (NASDAQ:CME) FedWatch Tool. More

The bank hiked the lending rate to 22.25% and the deposit rate to 21.25%, its Monetary Policy Committee said in a statement. Most analysts did not expect a hike. The median forecast in a Reuters poll of 16 analysts was for the central bank to hold rates steady. Six analysts expected a hike of between 100 and 300 basis points.”The hike is likely coming ahead of a EGP devaluation and the announcement of an expanded IMF deal,” said Monica Malek of Abu Dhabi Commercial Bank.Egypt has been in talks for the last two weeks with the International Monetary Fund to revive and expand a $3 billion loan agreement signed in December 2022. IMF disbursements on the loan were put on hold last year after Egypt did not follow through on a pledge to let the Egyptian pound (EGP) respond to market forces and instead fixed it against the dollar in March. Farouk Soussa of Goldman Sachs disagreed a devaluation was imminent. The rate hike “is the start of a process of policy tightening,” he said. But that “will take some time and must be supported by enhanced FX liquidity.”The Egyptian pound, fixed at 30.85 to the dollar since March, has been trading on the black market as low as 71 pounds. Egypt’s already weak economy was hit by the Gaza crisis, which dampened tourism and decreased shipping through the Suez Canal, a major source of foreign currency. The MPC said growth fell to 2.7% in the third quarter of 2023 from 2.9% in the second and was expected to continue softening through June. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF managing director said the lender was “very close” to concluding a loan deal with Egypt widely seen as crucial for easing a foreign currency crisis that has been suffocating the economy of the heavily indebted Arab country.“We may need a little bit more time,” Kristalina Georgieva said at a press briefing at the fund’s headquarters in Washington. “But we are in this very last stretch where we are working on the details of implementation and both sides, Egyptians and us, want to get that right.”Georgieva made clear that the war in Gaza was the main reason why the IMF was pushing ahead with an expanded loan deal despite having stopped disbursements on an earlier $3bn loan. It halted payments last year because Cairo did not meet conditions to move to a flexible exchange rate and reduce the footprint of the state and the military in the economy.She said “we worry a lot” about countries that “border the epicentre” of the war in Gaza, naming Egypt and Lebanon and to a lesser extent Jordan. The drop in shipping revenues as a result of attacks by Houthis rebels in Yemen on Red Sea shipping “added anxiety” for Cairo. “We recognise that the financial gap for Egypt has increased . . . they are losing revenues from the Suez Canal,” said Georgieva. Analysts say the Egypt-IMF discussions have focused on a package of at least $10bn, some of which would come from the lender and the rest from other donors likely to include the World Bank. “Markets are looking at $10bn, even if it is not all from the IMF,” said Farouk Soussa, Middle East and North Africa economist at Goldman Sachs.Egypt has been enduring its worst economic crisis in decades, with soaring inflation — which topped 34 per cent in November — and a severe foreign currency shortage that has resulted in a widening chasm between the official and black market exchange rates. The country is the second-largest debtor to the IMF, with four loan agreements since 2016.The Egyptian pound was trading at 67 to the dollar on the parallel market on Thursday. The official rate has been fixed at 30.9 since March 2023.Speculation has been rife that the central bank would devalue the currency or allow it to float as part of reforms needed to unlock the IMF package.Suez Canal revenue has fallen by 44 per cent since the start of the year compared with the same period in 2023, Osama Rabie, head of the waterway, said in a January 25 interview with Al Sharq TV. Analysts say the war on Egypt’s border had given new momentum in western capitals to back an IMF deal to salvage the country’s foundering economy.“The Gaza war has impacted the way the US looks at Egypt’s current situation and this has produced new flexibility,” said Michael Wahid Hanna, US programme director at the International Crisis Group. The Rafah crossing on Egypt’s border with Gaza was the main entry point for humanitarian supplies to the territory, he noted, and Cairo was “one of few regional players with real and active links to Hamas”, so able to play a role in mediation.The Egyptian government on Wednesday announced measures intended to narrow the deficit and level the playing field for the private sector. It has also halted any external financing for new national projects until June.Under Abdel Fattah al-Sisi, president since 2014, Egypt has embarked on a massive debt-fuelled infrastructure programme led by the military. Critics say that while some of the projects are addressing real needs, others such as a new administrative capital could have been deferred.James Swanston, economist at Capital Economics in London, said Egypt needed reforms and a credible exchange rate if investors were to return, and warned that “the consequences of no IMF deal would be pretty bad because the financial needs for debt repayment are pretty stark”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Milton Friedman believed the “long and variable lags” of active monetary policy made its goal of hitting an inflation target essentially unachievable. Central bankers invoked these flaws earlier in this cycle to allay fears of runaway inflation, by claiming that their rate rises would eventually come to tame it. Now that price growth has fallen rapidly, they could end up contradicting themselves by being too slow to cut rates.The US Federal Reserve and the Bank of England this week followed the European Central Bank’s recent decision to hold rates. With annual price growth now between 2.8 per cent and 4 per cent in the US, the eurozone and the UK, it is clear that the general direction for bank rates will be downwards this year. But central bankers remain in no rush to say when they will start to cut nominal rates. ECB president Christine Lagarde said summer was most likely, Fed chair Jay Powell pushed back on a March cut, and the BoE governor Andrew Bailey wants to wait for more evidence.Caution is understandable. Central bankers fear that inflation could bounce back. Wage growth is still high by historic standards. In America, economic growth has surprised to the upside. Instability in the Middle East is creating new supply chain disruptions, and the threat of higher oil and gas prices remains.Central bankers are also trying to manage market expectations. In the US, financial market conditions are only as tight as they were in the summer. As investors started to believe that the rate cycle had peaked, they priced in future cuts. Any suggestion that a cut is imminent could loosen conditions further than central banks want. Markets may have got ahead of themselves. In the US, they have priced in six cuts this year, compared to the three indicated by the Fed’s “dot-plot” of rate projections. Nonetheless, there is a risk that central bankers are being overly cautious.First, the predominant drivers of inflation in this cycle — supply chain snags, a natural gas price shock and soaring food costs — appear to have washed out. Weaker demand will also blunt the impact of any further supply chain snarl-ups. Goldman Sachs estimates that, as things stand, disruption to shipping in the Red Sea will only raise global core inflation by 0.1 percentage points this year.Second, although jobs markets remain strong, the evidence of cooling has mounted. Vacancies in Britain are at their lowest since the second quarter of 2021. Wage growth and job openings in the US have also slowed. Three-month annualised core inflation, which focuses on recent trends in underlying inflation, is near 2 per cent across the UK, the eurozone and the US. This means the need to maintain highly restrictive rates has fallen.Friedman’s lags are also still in play. More fixed-rate lending, particularly in the US and the UK, has slowed the transmission of higher rates to the economy. The full effect of peak rates is yet to be felt. Many households and businesses are yet to refinance; when they do, demand will weaken further. Cutting rates from their current restrictive levels would, then, hardly amount to a significant loosening, particularly as real rates are rising.The case for faster action is perhaps stronger in the particularly weak eurozone economy, compared to the US. But there are several moving parts, and geopolitical instability makes the task ever more complex. The ghost of Arthur Burns, the Fed chair who cut rates in the 1970s only to reverse course and raise them again when inflation jumped back, is clearly haunting central bankers. Avoiding embarrassment, however, is not a policy objective. If they claim to be “data dependent”, central banks may find themselves needing to cut rates sooner rather than later. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.EU leaders vowed to ease the burden of environmental rules in an attempt to quell protests by farmers, who demolished statues and started fires in Brussels during a summit on Thursday.European Commission president Ursula von der Leyen said after the leaders’ meeting that more changes would be put forward this month to cut red tape for farmers and rethink a recent wave of climate-related legislation.“I think it is fair to say that our farmers have shown remarkable resilience . . . but many challenges remain,” said von der Leyen. “The farmers can count on European support.”Tractors rolled into Brussels and blocked major arteries and squares less than 1km from where leaders were gathered, with riot police setting up rings of barricades to prevent farmers reaching the summit building.The demonstration in the EU capital follows weeks of farmers’ protests in Germany, France, Belgium and other countries this month, during which roads and ports were blocked, and truck drivers attacked.“A number of heads of government here . . . understand the pressures that our farmers are under — whether it is increased energy costs or fertiliser costs or new environmental regulation,” said Ireland’s Premier Leo Varadkar as he arrived at the summit. “It has been layer on layer for farmers.”In joint conclusions, leaders said they had “discussed the challenges” to the agricultural sector and would look at ways to address the situation.Alexander De Croo, the Belgian premier whose government holds the bloc’s rotating presidency, said that among the measures being considered were ways to help farmers manage price fluctuations and cut their administrative burden.EU agriculture ministers had been asked to come up with a plan at a meeting on February 26, he said.In France, where farmers have been blockading motorways around Paris and throughout the country in recent days, Prime Minister Gabriel Attal announced a series of measures, including a pledge to rethink pesticide reduction targets and a potential import ban on fruits and vegetables treated with the insecticide thiacloprid, which is prohibited in Europe. Two of France’s main agricultural unions — FNSEA and Jeunes Agriculteurs — said the measures were enough to pause their actions.“We are calling on our networks [to] suspend the blockages and enter into a new form of mobilisation”, said JA president Arnaud Gaillot.France is the EU’s biggest agricultural producer and the bloc’s biggest recipient of subsidies from the near-€60bn annual Common Agricultural Policy.  The recently appointed French prime minister last week angered the Spanish government when he said he would tackle “unfair competition” from farmers in “neighbouring countries”. Several Spanish lorries were later seized by demonstrating farmers and their produce destroyed.Pedro Sánchez, Spain’s premier, said after the summit that he had raised the issue with French President Emmanuel Macron and “condemned the attacks on our drivers”. He said Spain applied the same laws as France.In Belgium, farmers have also blockaded the port of Zeebrugge and blocked some supermarket warehouses.“We need a fair price for our products,” said Pol Latinis, a Belgian dairy farmer at the demonstration.De Croo, who was joined by von der Leyen and the Dutch PM at a meeting with farming groups in Brussels on Thursday, called for calm: “Please don’t vandalise the city”, he said. Critics of the protests have pointed to the high level of subsidies and the influence that the farming lobby already holds over policymaking in Brussels and EU capitals.Varadkar and Macron are among leaders who have called for a halt to a trade treaty with Latin American countries in the Mercosur bloc, which includes Argentina, Brazil, Paraguay and Uruguay.Farmers say that policymakers have been hypocritical in negotiating a deal that would allow increased imports of beef, soyabeans and other products that are not subject to the same stringent environmental and welfare rules that they face in Europe.Copa Cogeca, the biggest agricultural lobby group in the EU, warned the commission on Wednesday that the Mercosur deal was “unacceptable for most EU farmers” and that a “push for getting the deal across the line will be perceived as a further provocation by the farming community”. Additional reporting by Henry Foy in BrusselsClimate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More