Economy

Raphael Bostic at Jackson Hole, Wyoming
David A. Grogan | CNBC

Atlanta Federal Reserve President Raphael Bostic expects policymakers to start cutting rates in the third quarter of this year, saying Thursday that inflation is well on its way back to the central bank’s goal.
Bostic, a voting member this year on the rate-setting Federal Open Market Committee, asserted that the goal ahead is to calibrate policy to be not so restrictive as to choke off growth while still acting as a bulwark against persistently elevated prices.

However, he said a “golden path” scenario of tamping down inflation while promoting solid growth and healthy employment is getting closer than many Fed officials had expected.
“Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter,” Bostic said in prepared remarks for a speech to business leaders in Atlanta.
While the remarks help illuminate a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations about policy easing.
Current pricing in the fed funds futures market points to the first cut coming as soon as March, according to the CME Group’s FedWatch measure. The implied probability for a quarter percentage point reduction has decreased in recent days but still stood around 57% on Thursday morning. Pricing further indicates a total of six cuts this year, or one at every FOMC meeting but one from March forward.
Bostic said he’s not dead set against cutting earlier than the third quarter, implying a move in July at the earliest, but said the bar will be high.

“If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalization sooner than the third quarter,” he said. “But the evidence would need to be convincing.”
A number of factors could change the calculus, such as geopolitical conflicts, the ongoing budget battle in Washington and looming presidential election, to name a few that Bostic cited.
Consequently, he advocated caution and said his approach will be “grateful and vigilant.”
“In such an unpredictable environment, it would be unwise to lock in an emphatic approach to monetary policy,” Bostic said. “That is why I believe we should allow events to continue to unfold before beginning the process of normalizing policy.”
Some of the data points Bostic said he will be watching include overall economic growth, inflation readings such as the Commerce Department’s personal consumption expenditures price index, and data on job growth and losses.
The Labor Department reported Thursday that initial jobless claims hit their lowest level since September 2022, a sign that the labor market remains tight.
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank policymakers were concerned that investor bets on rate cuts as early as March had loosened financial conditions so much that they “could derail the disinflationary process”, minutes from their last meeting show.Members of the ECB’s governing council decided to push back against market expectations of early interest rate cuts and agreed that June was likely to be the earliest they could know if inflation had been tamed, according to minutes of the December 15 meeting released on Thursday.“Against this background, it was widely regarded as important not to accommodate market expectations in the post-meeting communication,” the ECB said. “It was stressed that there was no room for complacency.”In the past week, several senior ECB officials have put this plan into action. Comments by ECB president Christine Lagarde suggesting that borrowing costs would not come down until the summer triggered a global sell-off in bond and equity markets on Wednesday. The tension between the ECB and markets underlines how investors expect inflation to fall faster than the central bank is forecasting, which would allow policymakers to start slashing their benchmark deposit rate from its record-high level of 4 per cent this spring.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The ECB minutes show that policymakers in the eurozone were concerned that market expectations could derail disinflation long before a top official warned about the same issue this week. Gita Gopinath, first deputy managing director of the IMF, told the Financial Times that central banks should move cautiously on cutting rates for that reason. Annual price growth in the eurozone slowed from a peak of 10.6 per cent in October 2022 to a two-year low of 2.4 per cent in November, before picking up to 2.9 per cent last month after the phasing out of government energy subsidies.Policymakers debated at last month’s meeting how sticky inflation was likely to be in the “last mile” of its decline to their 2 per cent target. Most agreed wage growth would be a crucial factor and they expected it to start slowing in response to the recent fall of inflation.But ECB policymakers also listed several upside risks to inflation, including geopolitical tensions that could raise energy prices, extreme weather events that could push up food costs and higher than expected growth in wages or profit margins.“The remaining distance of inflation from the ECB’s target, the waning of disinflationary supply-side tailwinds and, overall, still-high levels of domestic inflation continued to call for maintaining a sufficiently restrictive stance,” the ECB said.Carsten Brzeski, an economist at Dutch bank ING, said the minutes showed the ECB was “still far away from discussing rate cuts” at last month’s meeting and this was “unlikely to change” when council members meet again in Frankfurt next week.The sharp increase in borrowing costs since mid-2022 has hit Europe’s building sector particularly hard, as shown by data the EU’s statistics office released on Thursday revealing EU construction production was down 2 per cent in November from a year earlier.Construction activity fell in Germany, France, the Netherlands, Hungary, Poland, Austria and the Nordic region, contributing to a 1 per cent month-on-month decline in the EU overall, as high interest rates and weak economic growth weighed on the sector.Separate data published by Germany’s federal statistical office showed the number of building permits for apartments continued to decline in November, falling 16.9 per cent from a year earlier, squeezing the supply of new housing.There were 238,500 building permits granted in the first 11 months of last year, down more than a quarter from a year earlier and leaving the sector likely to fall well short of the German government’s 400,000 target.German house prices have fallen 10 per cent from a peak in 2022. But Jochen Möbert, economist at Deutsche Bank, predicted the housing market would recover this year “given the shortages of houses, the relatively high wage growth and the low long-term Bund yields which fell substantially towards end-2023”. More

Initial filings for unemployment insurance totaled 187,000 for the week ended Jan. 13, the lowest level since Sept. 24, 2022.
The total for continuing claims hit 1.806 million, below the FactSet estimate for 1.83 million.

The labor market continued to show surprising resiliency in the early days of 2024, with initial jobless claims posting an unexpected drop last week.
Initial filings for unemployment insurance totaled 187,000 for the week ended Jan. 13, the lowest level since Sept. 24, 2022, the Labor Department reported Thursday. The total marked a 16,000 decline from the previous week and came in below the Dow Jones estimate of 208,000.

Labor strength has persisted despite attempts by the Federal Reserve to slow the economy, and the jobs market in particular, through a series of interest rate hikes. Central bank policymakers have linked the supply-demand mismatch between companies and the available labor pool as an ingredient that had sent inflation to its highest level in more than 40 years.
Along with the drop in weekly claims came an unexpected decline of 26,000 in continuing claims, which run a week behind. The total for continuing claims hit 1.806 million, below the FactSet estimate for 1.83 million.
“Employers may be adding fewer workers monthly, but they are holding onto the ones they have and paying higher wages given the competitive labor market,” said Robert Frick, corporate economist at Navy Federal Credit Union.
In other economic news Thursday, the Philadelphia Fed reported that its manufacturing index registered a reading of -10.6 for January, representing the difference between companies reporting growth against contraction. While the number marked an increase from the -12.8 posted in December, it was still below the Dow Jones estimate of -7.
The Philadelphia Fed gauge showed a decline in unfilled orders, delivery times and inventories. The employment index improved somewhat but was still negative at -1.8 while the prices paid and received measures both eased from December.

A third report Thursday showed some optimism for housing: Building permits totaled 1.495 million, a monthly increase of 1.9% and a bit above the 1.48 million estimate, according to the Commerce Department. However, housing starts totaled 1.46 million, a 4.3% monthly decline but better than the 1.43 million estimate.
The reports come a day after the Fed, in its periodic summary of economic conditions, reported mostly stagnant activity since late November.
According to the central bank’s Beige Book report, the economy broadly showed “little or no change in economic activity” during the period.
On employment, the report did note signs of a “cooling labor market,” with lower wage pressures. On housing, it said high interest rates were limiting activity, though the prospects of future easing from the Fed were raising hopes that the pace could accelerate.
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is founder of Sifted, an FT-backed site about European start-upsIn both a metaphorical and a literal sense, Germany is running low on energy. The country was the most sluggish of the world’s major economies last year with output shrinking 0.3 per cent. This was partly because Europe’s biggest economy has an acute energy challenge having renounced the use of coal, nuclear power and Russian gas. Once again The Economist asks: is Germany the sick man of Europe?Yet the country is seen as a “sleeping giant” when it comes to one promising future source of energy: nuclear fusion. Germany’s formidable research base and engineering prowess give it a good shot at developing the technology. There is a strong argument that the country should go all in on fusion, which promises to deliver safe, clean, carbon-free energy with none of the dangers of nuclear fission reactors. Not only would this approach solve Germany’s energy security needs, it could also create a highly lucrative new industry.For decades, fusion energy has been regarded as the technology of the future that will forever remain that way. Although fusion is the most abundant source of energy in the universe, the challenges of harnessing the power of the sun on Earth are dazzling. Although the theory is well understood, the practice of fusing hydrogen atoms to release energy is a diabolical engineering puzzle.But some striking recent progress has triggered a surge of investment. One milestone was reached in December 2022, when the Lawrence Livermore National Laboratory in the US achieved “net energy gain” for the first time by firing the world’s biggest laser at a tiny pellet of hydrogen plasma (even though the overall facility consumed far more energy than it generated).The Fusion Industry Association says a “technology explosion” is now occurring in the field. Last year, 13 new fusion companies were launched taking the global total to 43. Overall, they have attracted $6.2bn of investment. Nineteen of those companies have forecast they will deliver fusion power to the grid by 2035. Helion Energy, a US fusion company, has already signed a deal with Microsoft to deliver electricity in 2028.The International Atomic Energy Agency had previously assumed that Iter, the mammoth, multinational fusion reactor being built in France, would only fully prove its worth from the 2050s. But recent advances elsewhere have led the agency to create a fusion working group to co-ordinate regulation. “I am telling them now that we should be focused on the mid-2030s. We need to be ready by 2040,” says Ryan Wagner, the IAEA’s tech lead for fusion energy.As in so many other technological fields, the US leads the world, with 25 private fusion companies. However, Germany, which has invested heavily in basic fusion research, also boasts impressive expertise and two of the most intriguing start-ups Marvel Fusion and Proxima Fusion, both based in Munich.Last September, the federal government said it would invest €1bn over the following five years to ensure that Germany developed a fusion power plant as quickly as possible. But some doubt this funding is enough to win such a capital-intensive race.Heike Freund, chief operating officer of Marvel, told me she welcomed the increasing political momentum in Germany behind the industry but questioned whether it could compete with the US, given Washington’s activist industrial policy and dynamic venture capital sector. “We’re facing a funding gap. There’s a missing zero,” she said on the sidelines of the Digital-Life-Design conference last week. “The Americans set a mission of 10 years and then do everything they can to reach it.”Similarly, Proxima, the first company to spin out of the prestigious Max Planck Institute for Plasma Physics in 60 years, says it would need €500mn to finance the construction of a demonstration fusion plant using its stellarator magnetic confinement technology by 2031. “Stellarators are the clearest and most robust path to develop the technology,” says Francesco Sciortino, Proxima’s chief executive. But Germany’s regulatory regime is still uncertain and such sums are hard to raise given the lack of private European growth capital.In spite of the industry’s excitement, fusion is not going to help solve the climate crisis in time. Because of this uncertain timetable, critics say investment would be better directed at the more rapid deployment of renewable energy, such as solar and wind. But German manufacturers have lost their grip on both those markets to state-subsidised Chinese competitors. It would be galling if Germany lost out again with fusion.Video: Are small modular reactors the future for nuclear? | FT Energy Source More

The ECB left interest rates unchanged at the meeting and made clear that no further hikes were coming. But it also said it was way too early to discuss policy easing, even as markets were increasingly betting on the start of a reversal in early spring.”There was no room for complacency and that it was not the time for the Governing Council to lower its guard,” the ECB said in the accounts of the Dec 13-14 meeting. “A need was seen for continued vigilance and patience, and for the maintenance of a restrictive stance for some time.””It was still too early to be confident that the task had been accomplished,” the bank added after policymakers agreed unanimously to keep rates steady.Policymakers also concluded that they needed to push back against market expectations for rapid policy easing, even if there was unusual uncertainty around both the inflation and economic growth outlook.”It was widely regarded as important not to accommodate market expectations in the post-meeting communication,” the ECB said. “Some humility was advised with respect to judging market expectations given prevailing uncertainties.”Investors now expect 135 basis points of rate cuts this year, a big change compared with the start of the week when 150 basis points were priced in. The big move came after a host of policymakers said markets were getting ahead of themselves.Inflation rose to 2.9% last month, as the ECB had expected, and the bank forecast price growth in the 2.5% to 2.9% range all year, not coming down to its target of 2% until 2025, even as investors bet on a more benign rate path.Policymakers also concluded that all three of their criteria — the inflation outlook, underlying inflation and the strength of policy transmission — were moving in the right direction, raising confidence that policy was working as intended. With now just a week to go before the ECB’s next policy meeting, the debate has shifted somewhat as policymakers now clearly accept that the next move is a reduction in borrowing costs, but a wide gap between investor and policymaker expectations still remains.Investors think the ECB’s inflation outlook is wrong and rate cuts will have to start soon while policymakers argue that key data, including on wage developments, will not be available for months, so June is the first reasonable time to reconsider policy. More

LONDON (Reuters) – Hedge funds took the most bets against auto companies Tesla (NASDAQ:TSLA), Ford (NYSE:F), and communications company Charter Communications (NASDAQ:CHTR) in 2023, a report by data firm Hazeltree said on Thursday. A short bet expects a company’s stock price to decline. These three firms, the most shorted U.S. large cap stocks, also featured in the top three spots in 2022, though the number of funds betting against Tesla and Ford was lower last year, Hazeltree said.In terms of industry sectors, tech firms attracted the most short positions in the United States, while consumer products and healthcare companies were the most shorted mid and small-cap stocks, respectively. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.What are the prospects for the world’s still highly integrated economy? In answering this question, one has to start with the underlying forces at work.The most fundamental are changes in economic opportunities. These include reductions in costs of transport and communications, shifts in comparative advantage and changing opportunities for exploiting economies of scale and learning by doing. No less crucial, particularly in the short and medium run, are changes in economic ideas and geopolitical realities. Finally, shocks — wars, crises and pandemics — also shift the perceptions of business, peoples and politicians of the risks, costs and benefits of cross-border integration.The history of cross-border integration, especially trade, illuminates the interplay among these forces.The long-term story is one of growing integration. Between 1840 and 2022, the ratio of world trade in goods to global output rose roughly fourfold. Yet openness to trade has fluctuated dramatically: the ratio of trade in goods to world output tripled between 1840 and 1913, then fell by roughly two-thirds between 1913 and 1945, and tripled again between 1945 and 1990, to surpass pre-1914 levels.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.After the collapse of the Soviet Union and empire in the early 1990s, the world economy experienced two eras. The first, up to about 2010, was one of “hyperglobalisation”, a label applied by Arvind Subramanian and Martin Kessler in a 2013 paper for the Peterson Institute of International Economics.The dominant features were rapid growth of international transactions relative to global output, with flows of direct and portfolio capital across borders growing even faster than trade in goods and services. By the financial crisis of 2007-09, the world economy had become more integrated than ever.Thereafter, the world economy entered an era some label “slowbalisation”. Subramaniam and Kessler (with Emanuele Properzi) have analysed this in a Peterson Institute piece of November 2023. In this period, trade has grown roughly in line with world output, while ratios of cross-border investment to world output have more than halved.What caused pre-crisis hyperglobalisation? Why did it end in slowbalisation? What might happen next? The answer to the first question is that, after 1990, all three driving forces came together. First, close to one and a half centuries of divergent economic growth had created huge gaps in productivity between the most advanced economies and those that had fallen behind, notably China. This created enormous opportunities for taking advantage of cheap labour.Second, the container ship, jumbo jet and advances in information and communication technology allowed unprecedented cross-border integration of business organisations and unbundling of supply chains. Finally, the worldwide shift towards belief in market liberalisation and cross-border opening transformed policy. Among the transformative moments were the arrival of Margaret Thatcher, Ronald Reagan and Deng Xiaoping to power in the UK, US and China, respectively. In world trade, highlights included completion of the Uruguay Round of multilateral negotiations in 1993, establishment of the EU single market in 1993, creation of the World Trade Organization in 1995 and China’s accession to the WTO in 2001.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.What ended this period? All the main drivers weakened or went into reverse. The opportunity for further trade increases through exploitation of differences in labour costs diminished, as those costs converged. As China’s economy grew, its dependence on trade naturally declined. Shocks caused by the pandemic and wars also underlined the risks associated with extensive reliance on trade for essential supplies.At least as important have been ideological changes, among them the rise in protectionism and nationalism, notably in the US, triggered by the economic rise of China and the “China shock” to industrial employment. Parallel changes have occurred in Xi Jinping’s China. There, too, policy has shifted from reliance on the free market and private business towards greater government control.Perhaps most important, the global financial crisis, pandemic and today’s great power tensions have transformed trust into suspicion and risk-taking into “de-risking”. No substantial global trade liberalisation has occurred in more than two decades.What could come next? Continuation of a messy status quo seems the most plausible answer. The world economy would remain relatively open by historical standards with trade growing more or less in line with world output. Some decoupling of direct links between the US and China would occur. But the attempted shift by the US (and others) towards other suppliers would leave indirect dependence on inputs imported from China. A large number of countries would continue to maintain trade with the US and its close allies, on the one hand, and China, on the other.The most likely alternative to this would be a more radical breakdown. Attempts to limit US actions against China over national security — Jake Sullivan’s “small yard and high fence” — might end up with a big yard and a high fence; Donald Trump winning the presidency might be the catalyst. Conflicts over the EU’s carbon border adjustment mechanism could be another trigger for global protectionism.The integrated world economy is surviving. But great power nationalist rivalry can cause huge disruption. Will this era prove to be an exception? We must work to ensure it does. More

This move comes as part of a White House initiative to assist Americans living paycheck to paycheck by easing an unnecessary financial burden. The banking industry has already seen a trend toward reducing these charges, with major players such as Bank of America leading the way. This trend contributed to a decrease in fee income for the industry, which fell to $9B in 2022.The proposal has garnered mixed reactions. While President Biden has endorsed the initiative, highlighting the importance of eliminating fees that disproportionately impact lower-income families, the American Bankers Association has voiced concerns. They argue that consumers appreciate the existing overdraft facilities.Major banks are poised for a regulatory clash over the proposal’s final version and its economic consequences. The CFPB’s proposal is part of a larger conversation about the fairness and structure of bank fees and the financial system’s responsibility to consumers. As the proposal moves forward today, it is expected to undergo further scrutiny and debate.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More