Economy

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WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen will travel to Boston on Wednesday in another trip to promote the benefits of the Biden Administration’s clean energy tax credits for the economy ahead of the start of the 2024 presidential nominating contests.Yellen will make remarks at Roxbury Community College’s Center for Smart Building Technology, where she will see a range of energy efficiency upgrades expected to save the school up to $800,000 on its energy bills, the Treasury said in a statement.She will be joined by Massachusetts Governor Maura Healey and Boston Mayor Michelle Wu on the visit, which follows Yellen’s Nov. 30 trip to North Carolina to tour a lithium processing plant that is benefiting from tax subsidies approved in the 2022 Inflation Reduction Act.President Joe Biden has struggled to win voter confidence in his handling of the economy amid persistently high inflation over the past two years that has recently eased. Yellen said on Friday that if inflation continues to slow and wages grow for a sustained period, Americans will “feel good about their future prospects.”In her Boston remarks, Yellen “will discuss the Biden Administration’s efforts to lower energy bills and costs for families through the Inflation Reduction Act and prepare the clean energy workforce for good-paying jobs that don’t require a college degree in growing fields like home electrification and energy efficiency,” the Treasury said.She will highlight Roxbury Community College’s programs in residential and commercial building efficiency and building optimization and automation, it said. Many such energy upgrades are eligible for tax credits under the climate-focused Inflation Reduction Act, which was passed despite solid opposition by Republicans in Congress. More

ATLANTA, Georgia (Reuters) – Atlanta Federal Reserve President Raphael Bostic said on Monday that with inflation still above the central bank’s 2% target, his bias is for monetary policy to remain tight even though overall risks in the economy have become balanced between those posed by rising prices and those posed by slower employment growth.”I’ve got a natural bias to be tighter,” Bostic said in comments at a lunch event with the Rotary Club of Atlanta. “I want to make sure we are really, really there” in terms of returning inflation to the Fed’s 2% target before beginning to cut rates.His comments push against market expectations of rate cuts beginning as soon as March.Bostic repeated his earlier stated view that he does anticipate rate reductions later this year, with two quarter percentage point cuts likely needed by the end of 2024 and an initial one coming some time in the third quarter.But he also downplayed the risk of any imminent need to start lowering rates in order to nurse along an economy that still seems to have momentum of its own.Minutes of the Fed’s Dec. 12-13 meeting indicated some policymakers felt the central bank may be approaching a point where further progress on controlling the pace of price increases may only come at the expense of markedly higher unemployment.”I don’t think that’s where we are today,” Bostic said.But he also felt that “the risk of that possibility has definitely gone up,” and said he is trying to watch ever more closely for signs that the job market’s strength is eroding.”We have to be sensitive to the pace of change,” said Bostic, and he is focusing his conversations with business leaders on issues like whether any are planning layoffs.”We are not seeing that now,” he said. More

TORONTO (Reuters) – Canada’s anti-money laundering agency is increasing its reliance on artificial intelligence (AI) to detect suspicious transactions, betting the use of the latest technology will help better fight financial crimes, a top official said.The Financial Transactions and Reports Analysis Centre (FINTRAC) raised a few eyebrows last month when it fined the country’s two biggest banks – Royal Bank of Canada and CIBC – for a total of C$9 million ($6.7 million) for violations that included failing to submit suspicious transaction reports, setting a record for fines issued on individual banks.In comparison, the agency has collected C$23 million in penalties across most business sectors since it received the authority to do so in 2008. Canada has a reputation of being a law-abiding democracy; think tanks like C.D. Howe estimate between C$100 billion and C$130 billion is laundered annually in the country.FINTRAC’s Deputy Director for Supervision Donna Achimov told Reuters that AI is allowing humans who have the right mindset to analyze much more data than ever before and making it easier to detect more suspicious activity.The federal government has also added new powers relating to national security, helping FINTRAC staff up in recent years. Staffing levels increased about 28% in fiscal 2023 from two years ago. The additional resources will help the agency led by Sarah Paquet to work in real-time and mitigate money laundering and terrorist financing risks. Achimov said one way forward for FINTRAC is to use new technology to scour for suspicious transactions, or additionally to even partner with financial institutions to lower risks.Suspicious transactions for the 2022-2023 financial year reached 560,858 compared with 585,853 in the previous year and sharply higher than the 114,422 reported in 2015-2016.About 75% of all suspicious transactions between April and September 2023 were reported by financial institutions.The agency has also significantly increased the frequency of meetings to a quarterly occurrence with the larger banks and has held meetings with small and medium-sized banks regularly.FINTRAC’s increased scrutiny comes at a time when TD is facing a rare probe and a likely fine by the U.S. Department of Justice related to its AML practices, shortly after it called off its First Horizon (NYSE:FHN) acquisition.AML and legal experts said FINTRAC’s decision to name the banks instead of handling administrative penalties behind closed doors indicates an increase in enforcement activities in the future.”Everybody’s got to take a closer look … we got to make sure that we’ve got our i’s dotted, cross our t’s and we’re not letting that dirty money get into our institutions,” said Garry Clement, financial crime prevention expert and CEO of Clement Advisory Group. ($1 = 1.3351 Canadian dollars) More

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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 a professor of public policy at the LSE, a senior non-resident fellow at Bruegel and a former member of the European parliament The reform of the EU’s fiscal rules agreed in December ignores the fundamental fiscal and political realities of member states. For this reason, the new rules will not work.The deal struck last month, which still has to be partially negotiated by the European parliament, maintains the Maastricht treaty’s 60 per cent debt and 3 per cent deficit ceilings, but significantly alters the Stability and Growth Pact which implements them. The key novelty is the introduction of country-specific spending plans, based on a debt sustainability analysis by the European Commission and negotiated bilaterally with each member state. In addition, the rules include two key safeguards: a debt sustainability safeguard ensuring debt reduction over the adjustment period, and a “deficit resilience safeguard” mandating fiscal adjustments beyond the 3 per cent treaty limit to a margin of 1.5 per cent of gross domestic product.Economically, these rules represent a commendable effort to adapt spending paths to the conditions in which individual states find themselves, and to focus on net growth in expenditure and a debt anchor based on sustainability analysis. But they do not solve the problems that bedevilled previous iterations. Member states have tried to reform the Stability and Growth Pact, introduced in 1997, several times before. These changes failed not because the proposed new rules were bad, but because there was nobody capable of monitoring and implementing them. This was clear as early as 2002, when the first breaches and attempted sanctions occurred. The commission’s initial proposal this time around, put forward in April 2023, included one element designed to improve buy-in (and hence compliance) by member states: a monitoring role for national independent fiscal institutions, which would have to assess the extent to which government plans complied with the agreed spending path. Unfortunately, this element was missing from the final package.Without this, the new rules make the politics much worse. The reliance on bilateral negotiation between the commission and each member state is now explicit. And it is hard to imagine the former not yielding to pressure, particularly from large member states. Additionally, the seven-year implementation horizons stipulated in the new rules extend beyond typical political cycles. It is unlikely, for instance, that the commission would force a government elected with different priorities in the middle of the seven-year cycle to implement policies agreed by its predecessor. The framework is also vulnerable to manipulation through creative accounting and over-optimistic growth assessments.A good example of the commission’s inability to prevail in bilateral negotiations is the failure to implement reforms under the €750bn NextGen EU bond issuance plans. On this occasion, Brussels had a stick with which to threaten non-complying countries. Yet as economists Tito Boeri and Roberto Perotti note in a new book on Italy’s plan: “Almost all these reforms were, already on paper, less ‘epochal’ than successive governments wanted us to believe; in addition, their implementation has been in some cases disappointing, in others a total failure.” The EU is running out of space for creative accounting. Instead of yet more rules, it needs a central treasury able to raise taxes and commit spending on Europe-wide public goods, including defence, innovation and climate change mitigation. Until the EU (or a subset of countries) can do that, the bloc will continue to find itself vulnerable to external shocks, full of unrealised potential but lacking in the purpose and direction needed to succeed in an increasingly complex and hostile world. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Brussels has approved €902mn in state aid for battery maker Northvolt’s factory in Germany, the first use of a new mechanism that allows governments to provide more funding to companies that have been offered higher subsidies elsewhere.The Swedish company had threatened to pull plans for its plant in Heide in the northern state of Schleswig-Holstein, citing more generous subsidies available in the US through President Joe Biden’s $783bn Inflation Reduction Act.But it committed to the project in May after Berlin pledged funding under a new EU state aid regime that allows national governments to match subsidies on offer outside the EU if there is a risk that a project of “strategic importance” is likely to be taken elsewhere.The European Commission granted permission for the subsidies on Monday, making it the first approval under the new regime. The rules were drawn up in response to concerns that excessive bureaucracy and strict climate laws were hampering investment in clean technologies.“This €902mn German measure is the first individual aid being approved to prevent an investment from being diverted away from Europe,” said Margrethe Vestager, the EU’s competition commissioner.The funding consists of a €700mn grant and €202mn guarantee.German economy minister Robert Habeck, who was in Brussels for the announcement, said the agreement was vital to European competitiveness. “We need a more robust industry for the new sectors — semiconductors, batteries, electrolysers, hydrogen. But this means that climate action and industrial production fit very, very well together.”Northvolt was the first homegrown European company to produce a battery cell from a gigafactory, a term used to describe large-scale manufacturing facilities dedicated to electrification. The new factory could supply up to 1mn electric vehicles a year with its lithium-free, sodium ion battery cells, depending on the size of the battery, the commission said. It will reach full production capacity in 2029.Belgium, which assumed the six-month rotating presidency of the EU this month, has made it a priority for the bloc to “prioritise its long-term competitiveness and industrial policies”.The Northvolt funding was granted on the basis that the production was critical for the green transition and would benefit a disadvantaged area of Germany, the commission said, adding that it allowed the matching aid clause to be invoked because the subsidies were enough to trigger the investment in Europe without artificially boosting Northvolt’s profits should it invest in Germany and not the US.Vestager said the German offer was below that from Washington.Habeck dismissed concerns from poorer member states that giving large economies such as Germany and France permission to pump millions of euros into their industries will fragment the single market.He said the EU’s level playing field was important but in the race to develop clean technologies “the real competition is not so much between Germany and Italy or Denmark and the Netherlands, or Hungary and the Czech Republic. It’s between Europe and China and the US, and the system we have developed in the past decades only looks at the internal market.”Habeck warned that the European economy as a whole would be at risk if Germany failed to invest in critical technologies. “We need to think of Europe as an economic system as a whole,” he added. The money was approved in Berlin’s budgetary agreement last month, despite a ruling in November from the German constitutional court that deemed billions of euros of federal spending on clean energy and industrial subsidies unconstitutional.Final approval depends on the agreement of two German local authorities. Habeck said it would be a “terrible joke” if they blocked it. Climate 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