Economy

A battery plant in Michigan will be smaller than planned, Ford said, citing slower E.V. demand than expected, as well as labor costs.Ford Motor said Tuesday that it was resuming work on an electric vehicle battery plant in Michigan but significantly scaling back its plans in part because of slow E.V. adoption in the United States.A company spokesman said that Ford now expected the plant in Marshall, Mich., to create 1,700 jobs rather than 2,500, but that it still expected production to begin in 2026.Demand for electric vehicles is “not growing at the rate that we originally expected,” said the Ford spokesman, T.R. Reid. In the most recent quarter, large auto companies like Ford reported that E.V. sales had increased, but not at a rate sufficient to keep up with the Biden administration’s ambitious goals.The plant was originally planned to produce 35 gigawatt-hours’ worth of batteries annually, which Ford estimated was enough to equip about 400,000 vehicles. Now, the plant will produce 20 gigawatt hours annually, enough for roughly 230,000 vehicles, or a 42.8 percent cut.Ford did not specify exactly how much money it would be pulling back from the project, but said it would be roughly equivalent to its reduction in output. If the 42.8 percent cut in output was applied to its investment, it would represent a $1.5 billion reduction in the initially announced investment of $3.5 billion.Ford said in September that it was suspending construction because of concerns that it would not be able to manufacture products at a competitive price. At the time, the company was in the middle of contentious negotiations with the United Automobile Workers union.Rising labor costs were also a factor in Ford’s decision to scale back its plans for the factory, Mr. Reid said. Ford’s contract agreement with the U.A.W., which has been ratified by union members, raises the top wage for production workers by 25 percent.The agreement will allow U.A.W. members to be transferred to battery and electric-vehicle plants under construction, like the one in Marshall. If workers there choose to unionize, they will be protected under the U.A.W.’s contract.The U.A.W. hopes to keep its membership rates up amid the transition to electric vehicles, but the automakers have pushed back, arguing that it puts them at a disadvantage compared with their nonunionized competitors.The U.A.W. did not immediately respond to a request for comment on Tuesday.Ford has also faced criticism from conservative lawmakers over its plan to license technology from CATL, a Chinese battery maker. Lithium-iron-phosphate batteries, or LFP, are not currently produced in the United States. Some U.S. electric automakers, such as Tesla, import LFP batteries from China.It is not clear whether U.S. companies that license technology from other countries will qualify for government incentives to promote the shift from fossil fuels. Mr. Reid said Ford was “confident about the technology licensing agreement for this plant.” More

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Minutes from the Federal Reserve’s early November meeting suggested another rate increase remained possible, but officials were in no hurry.Federal Reserve officials are contemplating whether they will need to raise interest rates again to cool the economy and ensure that rapid inflation will fully fade, and minutes from their meeting earlier this month laid out the contours of that debate.“Participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the committee’s inflation objective was insufficient,” according to minutes from the central bank’s Oct. 31-Nov. 1 meeting, which were released Tuesday.Fed officials thought that the “data arriving in coming months would help clarify the extent to which the disinflation process was continuing.”Central bankers voted to leave interest rates unchanged in a range of 5.25 to 5.5 percent at their gathering early this month, allowing themselves more time to assess whether their substantial rate moves so far are weighing on demand.Wall Street is keenly focused on what officials will do next. Fed policymakers had predicted one more 2023 rate move as of their September economic projections, but investors think that there is little chance they will raise rates at their final meeting of the year on Dec. 12-13. Tuesday’s minutes may serve to bolster that expectation of an extended pause, because they suggested that officials planned to watch how the economy shaped up over the course of “months.”Fed watchers are now trying to figure out whether officials are conclusively done raising interest rates and, if so, when they are likely to begin cutting them. Policymakers will publish a fresh set of quarterly economic forecasts at the conclusion of their December meeting. Those, together with remarks from Fed Chair Jerome H. Powell, could provide important clues about the future.As of September, policymakers expected to lower rates before the end of 2024. If that forecast stands and Mr. Powell hints that policymakers are not eager to raise rates again, investors may turn their full attention to just how soon rate cuts are coming. As of now, market pricing suggests that Wall Street expects policymakers to begin lowering interest rates at some point in the first half of 2024.But if Fed officials use the December economic projections to predict that rates could remain higher for longer — or if Mr. Powell suggests that a rate increase next year remains firmly on the table — it could keep the possibility of more action at least dimly alive. Several central bankers have been clear in recent weeks that they aren’t sure they are done raising interest rates.“I wouldn’t take additional firming off the table,” Susan Collins, the president of the Federal Reserve Bank of Boston, said in an interview on CNBC last week.The minutes from the Fed’s November gathering fleshed out how policymakers are thinking about the outlook. While officials wanted to make sure that they were cooling the economy enough to ensure that inflation would come back to their 2 percent goal in a timely way, they also wanted to avoid overdoing it by raising rates too much and risking a painful recession.Fed officials thought that “with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided,” the minutes said, though “most participants continued to see upside risks to inflation.”Consumer Price Index inflation fell to 3.2 percent in October, down from a peak above 9 percent in summer 2022. Even so, officials are worried that it could prove difficult to wrestle inflation the rest of the way back to normal.Fed officials define their inflation target using a separate but related measure, the Personal Consumption Expenditures index, which comes out at more of a delay. The October P.C.E. figures are set for release on Nov. 30.Fed officials have been carefully watching strength in the job market and the economy as they try to figure out whether inflation is likely to come fully under control. If the economy retains too much vim — with consumers spending freely and businesses snapping up workers — companies may continue to raise prices at a faster clip than usual.Since their last meeting, the Fed has gotten some positive news on that front. While employers continued to hire in October, they did so at a much slower pace: They hired just 150,000 workers, and earlier hiring figures were revised lower.The minutes suggested that policymakers are watching for signs that “labor markets were reaching a better balance between demand and supply.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Christine Lagarde has said it is too early to “start declaring victory” in the European Central Bank’s push to tame inflation, calling for rate-setters — and markets — to “allow some time” to see how fast disinflationary forces take effect.After raising interest rates by an unprecedented 4.5 percentage points in the past year, eurozone policymakers left borrowing costs on hold at their October policy meeting and are expected to do so again in December. Those pauses and weak eurozone growth have raised expectations that borrowing costs could edge lower, with investors betting the ECB could cut interest rates as early as April. Lagarde pushed back on market bets, saying on Tuesday the ECB was now “in a phase of our policy cycle which I would characterise as being attentive and focused”.“Are we done? No,” the central bank president told a German finance ministry event in Berlin, adding that eurozone inflation was likely to rise slightly in the coming months after slowing to 2.9 per cent in October, down from a record high of 10.6 per cent a year earlier.The ECB targets 2 per cent inflation. “The nature of the inflation process in the euro area means that we will need to remain attentive to the risks of persistent inflation,” she said.Outlining “two main forces pushing down inflation today” — an unwinding of the energy and supply shocks that accounted for two-thirds of the inflation surge, and the impact of higher borrowing costs, Lagarde said the former was fading and there was “some uncertainty” about the strength of the latter.“We expect headline inflation to rise again slightly in the coming months, mainly owing to some base effects,” she said. “This reflects the sizeable drops in energy costs observed around the turn of last year, and the reversal of some of the fiscal measures that were put in place to fight the energy crisis.”Speaking at the same event, Christian Lindner, Germany’s finance minister, stressed the importance of maintaining “fiscal policy discipline” to help lower inflation. Responding to Lagarde’s remarks, he warned high borrowing costs would increase the “problems of debt sustainability” for some heavily indebted countries.He praised the ECB’s focus on reducing price pressures, recalling the “disastrous effect” of German hyperinflation in the 1920s when many people’s income was “not enough to afford bread”.Lagarde said she kept her “feet on the ground” by going to the supermarket to do her grocery shopping “at least once a week”, helping her to stay in touch with the rising cost of living, even if she did not “look at every single price tag”.But she warned rising wages meant rate-setters “will need to remain attentive until we have firm evidence that the conditions are in place for inflation to return sustainably to our goal”. She added: “There is still a journey ahead of us.”Pointing to the 5.6 per cent annual increase in average pay per eurozone employee in the second quarter, up from 4.4 per cent a year earlier, Lagarde said the ECB was “closely monitoring” whether this would lead to inflation staying persistently above target.But she expressed confidence that despite strong labour markets increasing the bargaining power of workers, Europe’s recent wage growth reflected a “catch up” effect linked to past inflation “rather than a self-fulfilling dynamic where people expect higher inflation in the future”. She forecast a “further weakening of overall inflationary pressures”. 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.Brussels has called on several member states to stop subsidising companies’ and households’ energy costs, claiming the measures to curb the crisis triggered by Russia’s invasion of Ukraine soon risked breaching EU budget guidelines. The EU suspended its rule that country’s budget deficits should not exceed 3 per cent of GDP during the pandemic, but wants to reintroduce them in 2024. Under countries’ current plans, Germany, Portugal, Malta, France and Croatia should curtail the support unveiled in the spring of 2022 after energy prices surged following the breakdown of relations between Russia, a major source of European gas and oil, and member states. The European Commission said in the case of the first three their measures should be removed “as soon as possible”.Berlin is in the process of revising its plans for the coming fiscal year. A letter from the finance ministry, reported on Tuesday, called on all new spending commitments to be frozen after a ruling by its constitutional court last week challenged government plans to move €60bn set aside for the response to the pandemic into a fund to help fight climate change. The country’s highest court ruled that the move would lead to the government breaching its constitutionally-enshrined debt brake, which limits deficits to 0.35 per cent of GDP, throwing the government’s spending plans into disarray. Robert Habeck, economy minister and deputy chancellor, on Monday warned that the €200bn fund set up last year to protect consumers from higher energy costs could be declared unconstitutional. “We need to adopt co-ordinated, prudent fiscal policies, starting with the winding down of energy support measures,” Paolo Gentiloni, economics commissioner, told reporters. “This is key both to enhancing public finances’ sustainability and to avoid fuelling inflationary pressures — and thus to help households recover purchasing power.”EU member states introduced fiscal support following the surge in prices. The cost of gas on European markets hit a record high of more than €330 per megawatt hour in August 2022. However, since then it has declined to around €50 per MW hour. The commission has been assessing eurozone countries’ 2024 budget plans as capitals prepare for the resumption of the fiscal rules. Brussels ruled that Germany’s proposed draft budget, along with that of Italy and seven other governments, was at risk of breaching EU recommendations. The commission said Italy had increased spending more than expected in 2023, meaning it needed to cut back its 2024 budget. Officials also said Rome should have used the 1 per cent of GDP saved from ending energy subsidies to pay down debt instead of funding green tax credits. Currently there are nine countries whose deficits violate the deficit 3 per cent of GDP threshold, including Italy, France, Spain and Belgium. Once the data are confirmed in 2024, the commission intends to launch excessive deficit procedures at the end of June 2024, according to Gentiloni. Along with the deficit limit, EU member states are also supposed to keep total government debt levels within a target of 60 per cent of GDP, which many member states also breach. The commission predicted Italy’s national debt would hit 141 per cent of GDP in 2025 and France’s 110 per cent. Countries are locked in talks to overhaul the rules, which form part of the stability and growth pact. Member states, such as Italy and Greece, hope this will lead to their budget proposals being scrutinised over a four-year period, rather than annually. Germany and the Netherlands would prefer to stick with annual reviews. More

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