Economy

WASHINGTON (Reuters) – The U.S. Congress must raise spending on a food assistance program for low-income women and children or 2 million could be turned away this year, Biden administration officials said on Thursday. A bitterly divided Congress has for months failed to reach agreement on 2024 government spending levels and is racing to avert a partial shutdown on Jan. 19. An eventual deal should include $1 billion more for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), said Agriculture Secretary Tom Vilsack and White House Domestic Policy Council Director Neera Tanden on a call with reporters.The program, which had a budget of $6 billion last year, is facing a shortfall due to rising food costs and higher participation.The funding gap could result in as many as 2 million people being turned away from the program this year, according to a December analysis by the nonpartisan Center on Budget and Policy Priorities.”The longer Congress puts off fully funding WIC, the greater the risk grows to moms, babies and children who need and are seeking nutrition and health support from the program,” Vilsack said.WIC provides food, nutrition education and healthcare referrals to about 6.7 million low-income people each year including about half of all infants born in the U.S., according to the Department of Agriculture, which administers the program.A stopgap federal funding bill in November that narrowly averted a government shutdown extended some nutrition programs until Sept. 30, but not WIC.If Congress does not raise spending levels, states would have to put applicants on wait lists, said Paul Throne, WIC director for Washington State, on the call. “We’re struggling to understand how we’re going to continue to serve the people who need us,” Throne said. “We have not had waiting lists in Washington State for at least 30 years.” More

PARIS (Reuters) – European Central Bank (ECB) President Christine Lagarde said on Thursday that the ‘hardest and worst bit’ regarding inflation was likely over and that interest rates would be cut if the ECB had certainty that inflation had fallen to the 2% level.”I think the hardest part is behind us,” said Lagarde, regarding the battle against inflation, adding she also thought interest rates had reached their highest level.”I think that rates, barring any further shocks or unexpected data, will not continue to go up. And if we win our fight against inflation, and if we are certain that inflation will indeed be at 2%, at that point rates will start to go down,” said Lagarde, who was speaking on France 2 TV.Asked if 2024 would be the year when rates would go down, Lagarde replied: “As President of the European Central Bank, I cannot give you a date.”The ECB sees inflation oscillating in the 2.5% to 3% range for much of this year and policymakers have said any talk of a rate cut before crucial first-quarter wage data due in May would be premature.Investors have priced in at least five rate cuts in 2024 with the first move coming in March or April – a timeline several ECB policymakers have called excessive given lingering price pressures.Inflation in the euro zone rose to 2.9% in December from 2.4% in November – Lagarde said she saw euro zone inflation going down to 1.9% in 2025.Lagarde played down concerns that transport problems at the Suez and Panama canals could eventually result in higher prices, telling France 2 TV that those situations were ‘more or less under control’.Lagarde added that she would view a re-election of Donald Trump as United States President as a ‘threat’ for Europe. More

(Reuters) -Chicago Federal Reserve President Austan Goolsbee on Thursday called 2023 a “hall-of-fame” year for falling inflation, which has paved the way for a few U.S. interest rate cuts in 2024 as long as that trend continues.At the same time, Goolsbee said, he needs to see more data confirming the recent easing in price pressures to judge how soon or how fast those cuts in borrowing costs should take place.”I still think that the primary determinant of when and how much rates should be cut will be driven off what’s happening to the inflation data, and are we meeting the mandate goals,” Goolsbee told Reuters in an interview. “When we have weeks or months of data to come, I don’t like tying our hands … We don’t make decisions about March, June and whatever, in January.”The Fed’s rate-setting committee last month voted to keep the U.S. central bank’s policy rate in the 5.25%-5.50% range, where it has been since last July, and signaled rate cuts this year, with the median of policymakers’ individual projections pointing to a 4.6% policy rate by the end of 2024.One policymaker forecast a below-4% policy rate by the end of this year. “I wasn’t the lowest,” Goolsbee said in the interview. “I was closer to the median.” ‘GOLDEN PATH’Data published earlier on Thursday showed the consumer price index (CPI) rose 3.4% in December from a year earlier. Goolsbee said that reading was “pretty close” to expectations, though he added that services inflation was cooler than he had expected and housing inflation came in a bit hotter. Still, he said, the latter may have limited implications for the Fed’s 2% inflation target, which is measured by a different gauge – the personal consumption expenditures price index – within which shelter inflation is given less weight. Other data suggests rents are coming down, which should eventually factor in to overall inflation readings, he said. Goolsbee has frequently said he believes the Fed has a shot at finding a “golden path” to bringing down ongoing high levels of inflation without also causing unemployment to surge. So far “we’re still on it,” he told Reuters. “The inflation rate came down an astounding amount for any year, much less a year in which the unemployment rate did not go up,” he said.Inflation, as measured by the CPI, started last year at 6.3%. Data released last week showed the unemployment rate was 3.7% in December, just one-tenth of a percentage point above its level when the Fed began raising interest rates from the near-zero level in March 2022. There are risks to that path, Goolsbee said, including if housing inflation persists or if there are new supply shocks, such as what could occur from disruptions of shipping in the Red Sea. But the risks this year are different from last year in that they also include the potential that monetary policy could stay tight for too long, causing unemployment to rise, he added.The Fed’s mandate is twofold: stable prices and maximum employment. With price pressures still too high, the Fed’s rate-setting decisions have been primarily focused on getting inflation back to the 2% target.”If it continues to be clear that we are on (the) path to get back to that, then we also start paying more attention to the other side of the mandate,” Goolsbee said.BALANCE SHEET As Fed policymakers weigh when they ought to start cutting rates, some have also begun to think about what to do with the central bank’s balance sheet, which they began shrinking in May 2022.Goolsbee said the Fed’s “autopilot” approach to the balance sheet reductions has served the Fed well, because investors understand the process and it does not need to be debated at each meeting. “We’ve got to have a high bar before we get off of it,” he said, adding that bank reserves are still abundant, meaning there is little risk for now that further reductions could disrupt financial markets.He said he would defer to Chair Jerome Powell about when to start conversations on slowing or halting those reductions. More

RICHMOND, Virginia (Reuters) – U.S. Federal Reserve officials took little fresh signal from consumer price data published on Thursday as they gauge whether inflation is headed firmly enough back to the central bank’s 2% target to allow them to reduce interest rates in coming months.Overall consumer price inflation on a 12-month basis rose to 3.4% in December from 3.1% the month before. But excluding volatile food and energy costs the pace of price increases fell to 3.9% from 4%, showing ongoing moderation in underlying price pressures.It was an ambiguous outcome at a time when Fed officials are looking for some final but convincing bits of evidence that the pandemic-era spike in inflation has dissipated to the degree they can begin easing monetary policy and begin reducing the benchmark interest rate.To Chicago Fed Bank President Austan Goolsbee, the data marked the final month of a “hall of fame” year for inflation reductions, and though housing inflation came in a bit hotter than he had anticipated, services inflation improved more than he had forecast.Still, Goolsbee signaled he’s not sure if it is enough progress for the Fed to start cutting rates. “When we have weeks or months of data to come, I don’t like tying our hands,” he said.The December CPI report “just shows there is more work to do and that work is going to take restrictive monetary policy,” Cleveland Fed President Loretta Mester said in an interview with Bloomberg TV.”I think we need to see more evidence,” before reducing interest rates, she said, with a March rate cut, currently anticipated by financial markets, “too early in my estimation.”In separate comments to reporters following a presentation at the Virginia Bankers Association, Richmond Fed President Thomas Barkin said the December inflation report was “about as expected,” with prices rising slowly for goods but shelter and services costs still increasing at a more vigorous pace. Barkin said that did not add to the sort of “conviction” about future declines in inflation that he feels he would need to begin reducing the Fed’s target interest rate.”This gap between services and shelter and goods is one that I am watching carefully because you would not want a goods deflationary cycle to end and find yourself disproportionately bearing the cost of shelter and services,” Barkin said.While noting the progress the Fed has seen in inflation this year, with some measures close to the central bank’s 2% target over the past six months, “you’d have even more reassurance…if it were broader based” and included a slower pace of price increases for services and housing costs, Barkin said. The Fed is expected to hold its policy rate steady at the upcoming Jan. 30-31 meeting, but financial markets anticipate rate cuts will begin in March. More

For the period from October 2023 through December 2023, the budget deficit totaled just shy of $510 billion, following a shortfall of $129.4 billion in December alone.
The deficit has continued to pile up despite the Biden administration’s assurances that the Inflation Reduction Act, in addition to reducing prices, would shave “hundreds of billions” off the deficit.

US President Joe Biden, with Treasury Secretary Janet Yellen, speaks during a meeting with his cabinet at the White House in Washington, DC, on March 3, 2022.
Jim Watson | AFP | Getty Images

The U.S. government ran up another half a trillion dollars in red ink in the first quarter of its fiscal year, the Treasury Department reported Thursday.
For the period from October 2023 through December 2023, the budget deficit totaled just shy of $510 billion, following a shortfall of $129.4 billion in just December alone, which was 52% higher than a year ago. The jump in the deficit pushed total government debt past $34 trillion for the first time.

Compared to last year, which saw a final deficit of $1.7 trillion, 2024 is running even hotter.
In the first quarter of fiscal 2023, for example, the difference between spending and receipts totaled $421.4 billion. On an unadjusted basis, that’s an increase of $89 billion between fiscal 2024 and last year. Adjusted for calendar factors, the Treasury Department said the change between the two years is actually $97 billion. December’s shortfall was higher by more than $34 billion compared to the previous year, driven by higher Social Security payments and interest costs.
If the current pace continues, 2024 would end with a deficit of just more than $2 trillion.
The deficit has continued to pile up despite the Biden administration’s assurances that the Inflation Reduction Act, in addition to reducing prices, would shave “hundreds of billions” off the deficit.
While the rate of inflation has come down, Labor Department data Thursday showed the consumer price index increased another 0.3% in December, pushing the 12-month rate up to 3.4%, higher than the Wall Street consensus and above the Federal Reserve’s 2% goal.

With interest rates elevated as the Fed fights inflation, financing costs for the government in 2023 totaled nearly $660 billion. Debt as a percentage of gross domestic product rose to 120% in the third quarter of 2023.Don’t miss these stories from CNBC PRO: More

NEW YORK/ANKARA (Reuters) -Turkey is committed to achieving disinflation, central bank chief Hafize Gaye Erkan told investors on Thursday while anticipating the completion of the monetary policy tightening cycle as soon as possible, two sources told Reuters.Erkan, in New York for a day of presentations to foreign investors, said achieving disinflation is a measure of success and she is determined to achieve it, the meeting participants said.Erkan told investors that Turkey will prudently continue to increase foreign exchange reserves and the process will be supported by accelerating capital inflows, the sources said.Data released on Thursday by the Institute of International Finance showed foreign investors added some $5.4 billion in exposure to debt and equity portfolios in Turkey in the last two months of last year, the largest such inflow in five years.Reuters reported last week that U.S. investment giants Pimco and Vanguard have returned to the Turkish market due to its newfound economic orthodoxy.In June, President Tayyip Erdogan named a new cabinet and central bank chief. Erkan has since hiked rates by 3,400 basis points to 42.5% to rein-in inflation that neared 65% last month on an annualised basis.The Turkish central bank did not immediately respond to a request for comment. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina’s annual inflation rate reached 211.4 per cent in December, the country’s statistics agency said on Thursday, confirming the depth of the economic crisis facing the country and its new libertarian President Javier Milei.On a monthly basis, prices rose on average 25.5 per cent in December, compared with a 12.8 per cent increase in November. The rate is the worst since 1991, when Argentina was exiting a period of hyperinflation. Argentina’s chronic high inflation stems largely from previous governments’ reliance on money printing to finance spending — a practice Milei railed against on the campaign trail. But price pressures intensified in December as Milei devalued the peso’s artificially high official exchange rate by 54 per cent and allowed price-fixing agreements to lapse. Both moves affected food prices in particular.Economists said December’s monthly rate would likely be close to the peak of Argentina’s current inflation crisis, with a burgeoning recession likely to slow further rises. The IMF projects that Argentina’s economy will shrink by 2.5 per cent in 2024.Fernando Marull, director of financial consultancy FMyA, noted that Argentines’ purchasing power dropped roughly 10 per cent on average in December as wages rose slower than prices. Meanwhile, a regular survey of retailers by Argentina’s Federation of Medium-Sized Businesses reported a 13.7 per cent drop in sales in December compared with the same month in 2022.Marull said inflation and economic activity would both remain “terrible” through at least January and February. “After that, if Milei’s economic plan is successful, we should start to see a rebound.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Milei has launched what he calls “shock therapy” economic reforms, and his economy minister Luis Caputo unveiled spending cuts and tax rises in December that aim to eliminate the fiscal deficit this year. Milei has also issued a sweeping presidential decree deregulating vast swaths of the economy.The president faces a lengthy list of obstacles to implementing his plan, including legal challenges to the decree, a planned general strike by labour unions later in January and a battle to approve reforms in congress, where Milei’s coalition has a small minority. Analysts say the impact of spending cuts, particularly the phaseout of energy and transport subsidies, will increase the risk of disruptive protests in the coming months. After several weeks of relative calm following Milei’s devaluation, the gap between the official and black market exchange rates, a closely watched indicator of market confidence in the government, has grown from 18 per cent to 30 per cent since the start of the year.Adding to the government’s problems is a ruling on Thursday by a US federal judge, Loretta Preska, who ruled last year that Argentina must pay $16bn to two now-defunct investors in energy firm YPF following the government’s refusal to buy its shares at an agreed rate when it expropriated the company in 2012.On Thursday Preska said that plaintiffs may begin attempting to seize the country’s assets to recoup their award, after Argentina failed to meet a January 10 deadline to post collateral pending its appeal. Milei has said that, while Argentina has “willingness to pay” its obligations, it would currently be impossible for the country to post collateral or deliver the $16bn, given its economic situation.However, the IMF delivered a boost for the government on Wednesday, provisionally approving a $4.7bn disbursement from Argentina’s $43bn loan. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US economy has done better than anyone would have thought over the past year in terms of economic output, labour market resilience and slowing inflation. Indeed, a recent US Treasury analysis of IMF data suggests it has done better than any of its international peers. A good chunk of this is down to the Biden administration’s post-pandemic bailout of consumers, who have continued spending, and the “new supply side” fiscal stimulus that has gone into supporting construction and manufacturing.Yet the president has seen little upside in terms of voter sentiment. Joe Biden ended 2023 with a 39 per cent job approval rating, according to Gallup polling, and his approval among even Democrats has ticked down. He trails Donald Trump in most polls. Elections are supposed to be about “the economy, stupid”, as the old James Carville quip goes. So what is going wrong here?A particular issue is inflation. The Biden team was slow to realise that while Bidenomics may be a success in terms of macroeconomic data, most Americans do not feel that. They notice double-digit increases in grocery or petrol prices over the past few years. They simply do not feel better off now than four years ago.That is changing, but slowly. While wage increases have trailed inflation, real earnings are finally beginning to rise. What’s more, consumer sentiment is a trailing indicator, and some estimates show that it can take up to a year for inflation-shocked consumers to feel more optimistic in the face of good data. Biden officials are counting on continued improvement into the second half of 2024, making it impossible to deny the strength of the economy. But politics in the US, as in many places, are increasingly less about data and more about polarisation. Far more Democrats than Republicans will say, when polled, that they believe the economy is doing well. This gap has been increasing since the 1990s, fuelled in no small part by the rise of partisan cable news and social media. Indeed, the administration is convinced that social media disinformation about the economy is affecting voters’ sentiment. Biden is facing other impediments, including some of his own making. An increasing number of voters, including in his own party, believe he is too old for the job at 81. That problem is exacerbated by the weakness and lack of political appeal of Kamala Harris as vice-president. The war in Gaza has also hurt Biden, raising the risk that young Democrats, upset by US support for Israel and the Netanyahu government’s devastation of Gaza following the October 7 massacre of Israelis by Hamas, may vote for a third-party candidate or not vote at all.The Biden team expects these hurdles will seem less formidable by later this year, assuming the Gaza war subsides, inflation falls, the job market remains robust and a massive advertising campaign pays off. But a lot has to go right for public sentiment to shift. Things could still go the other way if there is further disruption to oil supplies in the Middle East, or a big market correction.Former president Barack Obama recently criticised the Biden administration for running its re-election campaign out of the White House, rather than taking a more grassroots approach. Certainly, if it is to combat the highly effective, if often disingenuous, messaging of the Trump campaign, the Biden team needs to spend more time outside the Beltway. As well as highlighting the real perils to US democracy of a Trump return, it needs to show more energy in its campaign and vigour and imagination in how it intends to address ordinary voters’ concerns. The future of not only the Biden presidency but US leadership in the world depends on it.    More