Economy

PARIS/BRUSSELS (Reuters) – French and Belgian farmers set up dozens of blockades on highways and on access roads to a major container port on Wednesday to press governments to ease environmental rules and protect them from rising costs and cheap imports.Protests have spread across Europe. Spanish farmers said they would join the movement, while 1,000 Italian farmers were planning to take part in rallies in Brussels on Thursday, to press EU leaders meeting in the capital to act. German and Romanian farmers with similar grievances have also taken action.Farmers say they are not being paid enough, are choked by taxes and green rules and face unfair competition from abroad.”If we keep on like this, the end of agriculture will mean the end of civilisation,” 28-year-old Belgian farmer Adelin Desmecht said, blaming too much regulation and paperwork.In France, long lines of tractors edged closer to Paris and its Rungis international food market, a hub for produce for France and beyond and a red line for the government, which has so far not intervened to remove the blockades. In total, there are about 100 blockades, Interior Minister Gerald Darmanin said, warning protesters not to try to block airports, Rungis or the capital. BFM TV showed standoffs near the Loire river, with tractors stopped by police from getting closer to Paris.In Belgium, farmers blocked access roads to the Zeebrugge container port. One of the protest organisers, Bruno, who had briefly gone back home to tend to his cows, said more than 100 tractors were taking part in the blockade. A major highway in Belgium was also blocked, according to local media.French farmers have already won several concessions, including the government dropping plans to gradually reduce subsidies on agricultural diesel.On Wednesday, European Commissioners proposed limiting agricultural imports from Ukraine and greater flexibility on rules on fallow land in a bid to quell protests.Imports from Ukraine, on which the EU has waived quotas and duties since Russia’s February 2022 invasion, and renewed negotiations to conclude the Mercosur trade deal with South American countries, have fanned farmers’ discontent about unfair competition in sugar, grain and meat. EU farmers must normally meet certain conditions including devoting 4% of farmland to “non-productive” areas where nature can recover, though there is already a temporary exemption in response to the Ukraine war and food security concerns.GROWING DISCONTENTThe protests across Europe come ahead of European Parliament elections in June in which the far right, for whom farmers represent a growing constituency, is seen making gains.In Italy, farmers have blocked traffic with hundreds of tractors near motorway access points near Milan, in Tuscany and elsewhere in recent days.Farmers’ lobby Coldiretti said in a statement that more than 1,000 of its members would travel to Brussels to take part in a demonstration on Thursday outside the European Parliament.While a deal looks possible on fallow land, the question of talks on a major trade deal with the Mercosur group is more contentious.French Finance Minister Le Maire repeated on Wednesday that Paris does not want the deal to be signed as it is now, due to a lack of guarantees that imported products would have to meet EU rules. But the European Commission has said it was still aiming to conclude a free trade agreement with the South American bloc.Le Maire also said in an interview with French radio CNews/Europe 1 that he would step up checks on big French and European retailers to ensure they pay French farmers fairly under a law designed to safeguard farm-gate prices.In another step to try to subdue farmer anger, the agriculture ministry announced 230 million euros in additional aid for French wine producers, who have been squeezed by declining consumption.The authorities already offered subsidies last year to distil surplus wine stocks into industrial alcohol and to let Bordeaux producers pull up some of their vines. More

(Reuters) – Federal Reserve Chair Jerome Powell has a tough task on Wednesday as he wraps up the U.S. central bank’s first policy meeting of 2024: signaling an end to interest-rate hikes and teeing up future cuts without unleashing financial market exuberance that could undermine progress on inflation.On one level the job is straightforward. Though the Fed has left its benchmark rate at between 5.25% and 5.5% since July and is expected to keep it there on Wednesday, its policy statement has continued to include a reference to “additional policy firming” as a reminder that any future adjustments would be upward. Many analysts expect the Fed to delete that phrase this time around. Powell laid the groundwork for the change last month, when he said policymakers think another rate hike is unlikely to be needed. “It’s become dated,” said Oxford Economics’ Ryan Sweet, citing quickly cooling inflation. Dropping it would give room to cut rates as soon as March if price pressures or economic growth ease faster than expected, said High Frequency Economics’ Rubeela Farooqi – though she, like many economists, believe rate cuts won’t start until June. But analysts disagree on what the Fed will say instead, in part because there is such wide agreement that removing the phrase will be seen not just as opening the door to a rate cut, but practically walking through it. A resulting rally in markets could ease financial conditions and encourage spending and investment that could potentially reignite waning price pressures. To forestall that possibility, Fed policymakers may opt to characterize current policy as “sufficiently restrictive” or add a word like “patient” or “cautious” to signal a longer hold at the current policy-rate level, analysts said.Several economists expect the Fed simply to swap in a more neutral phrase for coming moves, such as “in determining appropriate policy” or “any future adjustments,” and rely on Powell, in his post-meeting press conference, to clarify what that means.But change is fraught. “The risk is for markets to run with a generic ‘adjustments’ line as a signal that March is very much on the table,” wrote economists at BNP Paribas (OTC:BNPQY), whose view is that while it’s a close call they think the “firming” phrase will stay, given recent Fed official commentary. Removing it, even with the addition of a promise of patience, “would heighten focus on the press conference, potentially complicating Powell’s task,” they wrote.CURBING ENTHUSIASMPowell is known for his plainspoken explanations of complicated economic dynamics and an unruffled demeanor in the face of sharp political criticism. Dealers on Wall Street assess communications under his watch as being more effective than under either of his two most recent predecessors. But he’s had his share of miscues and miscalculations. In October 2018 he signaled more rate hikes ahead despite what investors perceived as a swiftly weakening outlook. Then in 2021 he stuck with calling inflation “transitory” despite accumulating data that it was gaining more lasting traction. Toward the end of that year he retired “transitory” and moved to slow the Fed’s bond purchases to prepare for eventual rate hikes, but critics blame the subsequent climb in inflation to 40-year highs in part on the Fed not starting its rate-hike campaign until March 2022.The picture is now dramatically different. By some measures inflation has been at the Fed’s 2% target for months now, though by the yardstick the Fed targets, the annual change in the personal consumption expenditures price index, it is still above target at 2.6%. But complicating matters is the strong consumer spending that helped the economy grow 3.1% last year, measured on a fourth quarter to fourth quarter basis, versus the 2.6% Fed officials penciled in at their last public projections, published mid-December. That’s despite the Fed’s aggressive interest rate hikes that, at the start of 2023, most economists and the Fed’s own staff thought would trigger a recession.”The consumer has been downright defiant,” says KPMG’s Diane Swonk, and that will keep officials from projecting too much confidence in the timing of rate cuts. “Powell will be cautious to curb his enthusiasm at the press conference so that he does not inadvertently trigger a major financial market rally,” she said. Last month Fed policymakers signaled they saw 75 basis-points of rate cuts this year as likely appropriate; Swonk says that by March, they may up that forecast to a full percentage point, and start delivering reductions in May. “The Fed is trying to normalize rates for a robust economy, not overstimulate,” she said. “That is a tough line to walk.” More

WASHINGTON (Reuters) – U.S. Federal Reserve policymakers are expected to cut interest rates later this year, but like any policy turn made outside of a crisis the shift is evolving over time. Fed Chair Jerome Powell oversaw a prior pivot to rate cuts in 2019. While circumstances are different – inflation at that time was below the Fed’s 2% target and policymakers wanted to increase it, not contain it by slowing the economy – their language changes then may show how Powell and his colleagues could come to characterize their plans.DECEMBER 2018: MORE HIKES? NOT SO FASTAs of December 2018, the Powell-led Fed was expecting to push ahead with the rate hikes that had continued over two years of stronger-than-expected economic growth.Markets rebelled after the central bank followed through with a quarter-of-a-percentage-point hike at that month’s meeting and said “some further gradual increases” would likely be needed. Powell’s comment in a press conference that reductions of the Fed’s massive balance sheet would stay on “automatic pilot” added to the sell-off in financial markets and the pressure on the central bank to shift gears in an economy felt to be weaker than policymakers acknowledged. JANUARY 2019: A ‘PATIENT’ FEDAt its first meeting of 2019, the central bank put its policy stamp on an approach Powell already had flagged in public comments.The U.S. unemployment rate remained low, inflation was tame and while the economy had slowed near the end of 2018, it grew as a whole by 3% that year, the fastest annual reading since 2005.The central bank’s Federal Open Market Committee (FOMC) said in its policy statement that it saw “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.”But it pointed to the background context of risks from then-President Donald Trump’s trade wars, announcing that its bias had shifted from tightening.”In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate,” it said.Many analysts expect a comparable shift to a neutral policy stance at the conclusion of the Fed’s latest two-day meeting on Wednesday. JUNE 2019: ‘UNCERTAINTIES’ AND RISKThe policy direction remained unchanged at the Fed’s March 19-20 and April 30-May 1 meetings in 2019, but new language in the statement issued after the June 18-19 meeting said while ongoing growth was the baseline outlook, emerging risks put the central bank in a different posture of possibly having to defend what it regarded as a healthy status quo.”Uncertainties … have increased,” the FOMC’s statement said.It then went on to spell out the logic of coming rate cuts: “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”JULY 2019: SUPPORTING GROWTHThe Fed acted at its July 30-31 meeting, cutting its policy rate by a quarter of a percentage point, a step that it said supported an ongoing economic expansion in light of continued “uncertainties.” No firm commitment to further cuts was made, but officials pledged to “act as appropriate to sustain the expansion.”The economy indeed remained on track until the COVID-19 pandemic struck in early 2020, the sort of outside shock that has derailed the last three expansions.In the current environment the Fed may shy away from language about stimulating the economy and instead characterize cuts as accommodating slowed inflation. The potential for a growing gap between the inflation rate and the Fed’s benchmark overnight interest rate, currently set in the 5.25%-5.50% range, means the central bank may in effect be further tightening borrowing conditions if it doesn’t cut rates. More

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WASHINGTON (Reuters) – The Federal Reserve will conclude a two-day policy meeting on Wednesday, with officials parsing evidence of slowing inflation alongside continued labor market strength and a jump in consumer confidence to decide when it may be appropriate to ease the U.S. central bank’s currently restrictive monetary policy stance.Policymakers are expected to leave the Fed’s benchmark overnight interest rate in the 5.25%-5.50% range at the end of their meeting, but more importantly they will have to summarize their current views about an economy that is challenging some of the central bank’s basic assumptions.Inflation, which soared to a 40-year peak in the middle of 2022, triggering an aggressive Fed rate hiking cycle, is slowing while the economy continues to grow at a surprising pace and the unemployment rate shows no signs of any significant rise from historically low levels.The situation, dubbed “immaculate disinflation” by some economists, has left Fed policymakers in the position of having to decide whether to trust that such a best-of-possible-worlds result can continue and start reducing the policy rate to encourage it, or wait for more data to build confidence that inflation will continue to fall. The policy statement is due to be released at 2 p.m. EST (1900 GMT). Fed Chair Jerome Powell will hold a press conference half an hour later to elaborate on a decision that could pose communication challenges of its own as the central bank tries to reconcile a pivot towards lower interest rates in an economy that continues to show the sort of momentum that could, all things equal, keep inflation above the Fed’s 2% target.Yet the pace of price increases continues to slow even as the economy ended 2023 on a high note.U.S. gross domestic product grew at a 3.3% annualized rate in the last three months of the year, well above what Fed officials consider to be the economy’s long run non-inflationary growth rate of around 1.8%.The unemployment rate in December remained at 3.7%, while data released on Tuesday showed a sustained high level of job openings that jumped back above 9 million last month – leaving more than 1.4 open jobs for every unemployed jobseeker, well above the ratio of jobs to jobseekers seen before the COVID-19 pandemic.Yet the Job Openings and Labor Turnover Survey (JOLTS) also showed the rate at which workers are quitting jobs has continued to stay below the level seen before the pandemic threw the U.S. job market into disarray. Economists consider the quits rate a measure of workers’ ability to switch jobs for higher pay, making it a proxy for changes in wage and benefit costs – with the current data pointing to an easing of labor cost pressures in line with continued progress on overall inflation.RATE-CUT BETSOther data may push the Fed in the other direction. A recent Conference Board survey showed consumer confidence jumping to a two-year high, something that could point to ongoing consumer spending at a time when central bank policymakers still feel aggregate demand needs to ease. “Inflation is on a path to 2%, but data such as these portend slower progress … and may delay the first rate cut,” said Oren Klachkin, an economist at Nationwide.Investors on Tuesday pared bets that the Fed would cut interest rates at its March 19-20 meeting and shifted expectations higher for an initial rate reduction at the April 30-May 1 meeting.Early on Wednesday the U.S. Labor Department is due to release the Employment Cost Index for the fourth quarter. The closely-watched report measures changes in the overall compensation paid to workers that includes wages and benefits. Fed officials will receive another central piece of data on Thursday when the Labor Department releases productivity data for the fourth quarter. That report could provide a rationale for why inflation has continued to slow despite strong growth. Capping a week of data capturing the state of the labor market, the monthly jobs report for January will be released on Friday. More

HONG KONG/BEIJING (Reuters) -A state-backed property project in China has received the first development loan under a so-called whitelist mechanism and two more major cities have eased home-buying curbs, state media reported, as concerns mount about the liquidation of Evergrande .The latest measures add to a string of policies deployed by the world’s second-largest economy over the past year to help revive the property sector, which accounts for a quarter of China’s GDP and has been hit by an unprecedented debt crisis after a regulatory crackdown on the sector’s high leverage.Despite those measures, the property market ended last year with the worst declines in new home prices in nearly nine years, casting a shadow over hopes of broader economic recovery and renewing investor demands for stronger policy initiatives. Analysts say a Hong Kong court placing property giant China Evergrande (HK:3333) Group into liquidation could worsen the demand outlook as homebuyers take a cautious approach given uncertainty about the health of other private developers.Two of China’s major cities, Suzhou and Shanghai, followed Guangzhou in easing home-buying restrictions, official media reported on Tuesday, in an effort to boost demand from homebuyers. Investors were not excited by the new support, however, with Hong Kong’s Hang Seng Mainland Properties Index and China’s CSI 300 Real Estate Index falling 2.1% and 2.5%, respectively, on Wednesday.In another support measure, a loan worth 330 million yuan ($46 million) to a state-backed development was approved just a few working days after the government announced the “project whitelist” mechanism, the official Securities Times reported on Wednesday.Under the mechanism, city governments should provide a list of local property projects suitable for financing support, and coordinate with local financial institutions to meet the financing needs of these projects.Securities Times said Nanning city in Guangxi region had provided its first “project whitelist” to local financial firms containing 107 developments. A project by state-backed Guangxi Beitou Industry & City Investment Group was granted a development loan from China Mingsheng Banking Corp. The southwestern city of Chongqing also has come up with a whitelist of 314 projects, with a total of 83 billion yuan in financing required, according to the official Wechat account of the city’s housing authorities. The first batch of projects on that whitelist include those by private developers Longfor Group and Huayu Group, as well as state-backed Cina Vanke, the authorities added. The three property firms are deemed by the market as financial healthy. The rollout of funding support under this mechanism is being closely watched by a market reeling from a debt crisis since mid-2021 which resulted in unfinished homes and defaults, especially among privately owned developers.Many analysts expect it will take a long time for the property market to stabilise.HOMEBUYER SENTIMENTThe new measures come as analysts weigh the impact of the court’s order to put Evergrande, once China’s top-selling developer into liquidation with more than $300 billion in liabilities.”We think that home-buyer concerns about purchasing pre-sold units from financially troubled developers that might not deliver the project in a timely fashion – that is a major reason that home sales are still sluggish,” said Christopher Beddor, deputy China research director at Gavekal Economics.”If nothing else, the headlines of the ordered liquidation in Hong Kong, that’s not going to have a great impact on homebuyer sentiment.”The unfinished homes promised to buyers by Evergrande are, however, likely to be delivered because the government was making this a top priority for all developers, said Jonathan Krane at Krane Shares in New York. “The long-term impact is that real estate will account for a smaller portion of China’s economy, to be replaced by other industries such as technology and consumer products and services,” Krane said. Besides the impact on home sales, S&P Global Ratings said in a report published on Wednesday Evergrande’s offshore creditors stand to receive a potentially tiny payout in a complicated liquidation process that could take years to play out.($1 = 7.1814 Chinese yuan renminbi) More

BAGHDAD (Reuters) – The U.S. expects Iraq’s government to help it identify and disrupt the financing of Iran-backed armed groups in the country after a drone attack by Iraqi militants that killed three U.S. soldiers, a senior U.S. Treasury official said.The Pentagon said the drone strike on a U.S. military outpost near the Jordan-Syria border on Sunday bore the “footprints” of Iraqi armed group Kataib Hezbollah, though a final assessment had not yet been made. Iran-aligned groups have been waging attacks on Israeli and U.S. targets from Lebanon, Yemen, Iraq and Syria since the war between Palestinian ally Hamas and Israel erupted on Oct. 7. Iraqi armed factions have claimed more than 150 attacks on U.S. forces in the region since.”We are now in a situation where there has been a loss of American life in Jordan,” the Treasury official told Reuters, speaking on condition of anonymity, in line with regulations. “These are, as a whole, groups that are actively using and abusing Iraq and its financial systems and structure in order to perpetuate these acts and we have to address that directly.” He added: “Frankly, I think it is clearly our expectation from Treasury perspective that there is more we can do together to share information and identify exactly how these militias groups are operating here in Iraq.” Iraq, a rare ally of both the United States and Iran with more than $100 billion in reserves held in the U.S., relies heavily on Washington’s goodwill to ensure its access to oil revenues and finances are not blocked. The current Iraqi government came to power with the support of powerful, Iran-backed parties and armed groups with interests in Iraq’s highly informal economy, including the financial sector long seen as a money-laundering hotspot. Still, Western officials have lauded cooperation with Iraqi Prime Minister Mohammed Shia al-Sudani towards carrying out economic and financial reforms meant to curb the ability of Iran and its allies to access U.S. dollars, and to bring the Iraqi economy into line with international standards. That includes a push to link banks to the international financial system and promote e-payments in a society where cash remains king. “I do feel like just in 12 to 13 months we’ve seen a tremendous amount of progress in all those spaces,” the Treasury official said. ‘DIFFICULT NEIGHBOURHOOD’Iraq’s financial system was isolated from the world due to international sanctions imposed in the 1990s after then-leader Saddam Hussein invaded Kuwait. Sanctions were lifted after the 2003 U.S-led invasion that toppled Saddam but little progress was made towards financial sector reforms during the years of sectarian bloodletting that followed.Shi’ite Muslim armed groups and parties close to Iran acquired bigger influence in Baghdad following the invasion and are collectively the most powerful force in politics, though they do not often see eye-to-eye. In line with U.S. sanctions on Iran, Washington has tried to curb Iranian access to U.S. dollars in Iraq, imposing enhanced scrutiny in 2022 of a central bank dollar auction that was rife with fake invoices and a major source of dollar diversion. The Iraqi central bank requests its own dollars from the U.S. Federal Reserve and sells them to commercial banks, who in turn sell to businesses in the import-dependent economy. Around $200 million is auctioned daily.Last year, the U.S. blacklisted 14 relatively minor banks involved in that auction and this week took action against one more it said was used to divert funds to Iran-backed groups. Washington has previously called on Baghdad to take a more active role addressing concerns at banks.”We are not trying to achieve perfection. This is a difficult neighbourhood and Iran is very good at this in particular,” the U.S. Treasury official said. “I actually have some confidence we will achieve getting Iraq to international money-laundering and terrorism-finance standards, and that will remove a vast amount of the illicit finance capacity of this system.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A slowdown in French inflation to almost a two-year low has prompted investors to increase their bets on early interest rate cuts by the European Central Bank.Weaker price pressures for French energy and manufactured goods helped to lower inflation in the eurozone’s second-largest economy to 3.4 per cent in the year to January, compared with 4.1 per cent the previous month, according to data published on Wednesday. The latest figure was slightly above the 3.3 per cent level forecast by economists in a Reuters poll.Markets reacted by sending German two-year government bond yields down 0.04 percentage points to 2.47 per cent, indicating investors think the fall in inflation makes it more likely the ECB will start lowering its benchmark deposit rate from the current level of 4 per cent by April.Before the data was published, ECB president Christine Lagarde sounded a note of caution on inflation and the prospect for rate cuts. “We are not there yet [on inflation]. We need all sorts of data, one of which is critically important,” she said in an interview with CNN broadcast on Tuesday night, saying. “It’s the data concerning wages.”German inflation is also expected to slow, from 3.8 per cent in December to 3.2 per cent in January, when that data is released later on Wednesday. Price data to be published on Thursday is expected to show inflation in the wider eurozone slowed to 2.8 per cent in January, down from 2.9 per cent the previous month.Melanie Debono, an economist at consultants Pantheon Macroeconomics, said the latest data from France and Spain — where inflation unexpectedly accelerated to 3.5 per cent in January in data published on Tuesday — were “consistent” with her forecast for a slowdown of eurozone inflation to 2.4 per cent in January.Lagarde said after the ECB’s meeting last week that the “disinflation process is at work” and annual price growth was on track to continue fading towards its 2 per cent target over the course of this year. The ECB has forecast wage growth will slow from 5.3 per cent last year to 4.8 per cent this year and several policymakers — including Lagarde — have said they want to see evidence from this year’s collective wage agreements with unions that labour costs are moderating.Insee, the French statistics agency, said energy inflation slowed sharply to 1.8 per cent, as did goods inflation to 0.7 per cent. Food price growth decelerated to 5.7 per cent. But services prices that make up half the inflation basket accelerated slightly to 3.2 per cent and tobacco prices moved sharply higher.The IMF said on Tuesday that inflation was falling “faster than expected” in much of the world, allowing central banks to start lowering borrowing costs, which it said might be needed in some parts of the world to “avoid protracted economic weakness” and an undershooting of inflation targets.Figures released on Tuesday showed the eurozone economy was underperforming most of the world after the bloc’s gross domestic product stagnated in the fourth quarter and expanded only 0.5 per cent over the whole of 2023. The US grew 2.5 per cent last year and China estimated its annual growth was 5.2 per cent. More