Economy

Federal Reserve Chairman Jerome Powell appears before Congress this week as part of semiannual testimony on monetary policy.
Democratic legislators in particular have been worried that the Powell Fed risks dragging down the economy with its determination to fight inflation.
Markets also have been torn between wanting the Fed to bring down inflation and being worried that it will go overboard.

U.S. Federal Reserve Chairman Jerome Powell testifies during the Senate Banking Committee hearing titled “The Semiannual Monetary Policy Report to the Congress”, in Washington, U.S., March 3, 2022.
Tom Williams | Reuters

Federal Reserve Chairman Jerome Powell is set to appear before Congress with a tall task: Persuade legislators that he’s committed to bringing down inflation while not pulling down the rest of the economy at the same time.
Markets have been on tenterhooks wondering whether he can pull it off. Sentiment in recent days has been more optimistic, but that can swing the other way in a hurry should the central bank leader stumble this week during his semiannual testimony on monetary policy.

“He has to thread the needle here with two messages,” said Robert Teeter, Silvercrest Asset Management’s head of investment policy and strategy. “One of them is reiterating some of the comments he has made that there has been some progress on inflation.”
“The second thing is being really persistent in terms of the outlook for rates remaining high. He’ll probably reiterate the message that rates are staying elevated for some time until inflation is clearly solved,” Teeter said.
Should he take that stance, he’s likely to face some heat, first from the Senate Banking Committee on Tuesday, followed by the House Financial Services Committee on Wednesday.
Democratic legislators in particular have been worried that the Powell Fed risks dragging down the economy, and in particular those at the lower end of the wealth scale, with its determination to fight inflation.

Slow out of the blocks

The Fed has raised its benchmark interest rate eight times over the past year, most recently a quarter percentage point increase early last month that took the overnight borrowing rate to a target range of 4.5%-4.75%.

Markets also have been torn between wanting the Fed to bring down inflation and being worried that it will go overboard. The central bank’s slow start in tackling the rising cost of living has intensified fears that there’s virtually no way it can bring down prices without causing at least a modest recession.
“Inflation is a pernicious problem. It was made worse by the Fed not recognizing it in 2021,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.
Sri-Kumar thinks the Fed should have attacked sooner and more aggressively — for instance, with a 1.25 percentage point hike in September 2022 when inflation as measured by the consumer price index was running at an 8.2% annual rate. Instead, the Fed in December began reducing the size of its rate hikes.

Now, he said, the Fed likely will have to take its funds rate to around 6% before inflation abates, and that will cause economic damage.
“I don’t believe in this no-landing scenario,” Sri-Kumar said, referring to a theory that the economy will see neither a “hard landing,” which would be a steep recession, nor a “soft landing,” which would be a shallower downturn.
“Yes, the economy is strong. But that doesn’t mean you’re going to glide by with no recession at all,” he said. “If you’re going to have a no-landing scenario, then you’re going to accept 5% inflation, and that’s politically unacceptable. He has to work on bringing inflation down, and because the economy is so strong it’s going to get delayed. But the more delay you have in recession, the deeper it’s going to be.”

‘Ongoing increases’ ahead

For his part, Powell will have to find a landing spot between the competing views on policy.
A monetary policy report to Congress released by the Fed on Friday that serves as an opener for Powell’s testimony repeated oft-used language that policymakers expect “ongoing increases” in rates.
The chairman likely “will strike a tone that is both determined and measured,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note. Powell will note the “resilience of the real economy” while cautioning that the inflation data has turned higher and the road to taming it “will be lengthy and bumpy.”
However, Guha said that Powell is unlikely to tee up a rate hike of a half-point, or 50 basis points, later this month, which some investors fear. Market pricing on Monday pointed to about a 31% probability for the larger move, according to CME Group data.
“We think the Fed hikes 50bp in March only if inflation expectations, wages, and services inflation reaccelerate dangerously higher and/or incoming data is so strong the median peak rate ends up going up 50,” Guha wrote. “The Fed cannot end a meeting further from its destination than it was before the meeting started.”
Interpreting the data will be tricky, though, going forward.
Headline inflation actually could show a precipitous decline in March as year-over-year comparisons of energy prices will be distorted because of a pop in prices around this time last year. The Cleveland Fed’s tracker shows all-item inflation falling from 6.2% in February to 5.4% in March. However, core inflation, excluding food and energy, is projected to increase to 5.7% from 5.5%.
Guha said it’s likely Powell could guide the Fed’s endpoint for rate hikes — the “terminal” rate — up to a 5.25%-5.5% range, or about a quarter point higher than anticipated in December’s economic projections from policymakers.

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The Biden administration said it would request talks with Mexico over a brewing trade fight.WASHINGTON — The Biden administration said on Monday that it would take initial steps toward challenging a ban that Mexico has placed on shipments of genetically modified corn from the United States, restrictions that have rankled farmers and threatened a profitable export.Mexico has planned to phase out the use of genetically modified corn, as well as an herbicide called glyphosate, by 2024. About 90 percent of corn grown in the United States is genetically modified.Senior administration officials have expressed concerns to the Mexican government about the measures for more than a year in virtual and in-person meetings, saying they could disrupt millions of dollars of agricultural trade and cause serious harm to U.S. producers. Mexico is the second-largest market for U.S. corn, after China.On Monday, U.S. officials said that they were requesting consultations over the issue with their Mexican counterparts under the terms of the United States-Mexico-Canada Agreement, which governs the terms of trade in North America. Biden officials said that parties to that agreement, which was signed in 2020, had committed to basing their regulation on scientific research, and that Mexico’s ban on genetically modified corn did not conform to those promises.The consultations are the first step in a process that could lead to the United States bringing a formal dispute against Mexico. The parties must meet to discuss the issue within 30 days, and, if the talks are not successful, the United States could turn to a separate dispute settlement procedure under the trade agreement. That process could result in the United States placing tariffs on Mexican products, if no other resolution can be reached.Senior officials with the Office of the United States Trade Representative said they were focused on finding a resolution through the talks at hand. But in a statement, the office said that it would “consider all options, including taking formal steps to enforce U.S. rights under the U.S.M.C.A.” if the issue was not resolved.Mexico bought more than 20 million metric tons of corn from the United States in the 2021-22 marketing year, which runs from September to August, according to the U.S. Department of Agriculture.The National Corn Growers Association has said that the impending ban would be “catastrophic” for American corn producers and Mexican consumers alike and undermine the principles of the trade agreement. The industry has maintained that bioengineered corn is safe for human consumption, contrary to health concerns cited by Mexican officials.Scientists, too, widely believe that genetically modified foods are safe, but consumers and Mexican officials remain wary of genetically modified crops.In a statement on Monday, the Mexican Ministry of Economy said its decree was aimed at ensuring that tortillas are made with native Mexican corn varieties, in an effort to ensure the biodiversity of the corn that is grown in the country. It said it would draw on data and evidence to demonstrate that the ban had not had an impact on commerce, and was consistent with the trade agreement.In the United States, the vast majority of corn planted has been bioengineered to be resistant to herbicides and insects. Bt corn, for example, contains a gene from a soil bacterium that kills the European corn borer, an insect that feeds on maize and other grasses.Corn can also be modified to be resistant to glyphosate, the most widely used herbicide in agriculture and lawn maintenance in the United States. Glyphosate-based products like Roundup are sprayed on fields, killing weeds and leaving the resistant crops intact.While the Environmental Protection Agency has said the herbicides pose no risk to human health, overuse can wreak ecological havoc in areas where natural plant species are not resistant to the chemical compound. Environmental groups have warned that glyphosate can be particularly deadly for pollinators like bees and butterflies.It is illegal to grow genetically modified corn in Mexico, where maize was first domesticated 8,700 years ago and where white corn is a staple crop. Supporters of Mexico’s ban worry that any imports of bioengineered corn would threaten native species, as the varieties can cross-pollinate.The Mexican government in February moved to soften its restrictions, saying it would allow genetically modified corn to be brought into the country for animal feed and industrial use, though not for human consumption. Tom Vilsack, the U.S. agriculture secretary, said he was “disappointed” in the decision.It also remains to be seen whether domestic corn production in Mexico is sufficient to replace imports, the eventual goal of the Mexican government. Last year, farmers in Mexico grew 27.3 million metric tons, about 38 percent below domestic demand. One analysis projected that, should the ban remain in place, corn costs could rise by 20 percent in Mexico and increase rates of food insecurity. More

The share of independent contractors in the labor force may be about 15% of all workers, according to the study. That’s roughly twice the typical 7% estimate from the Bureau of Labor Statistics.Comprehensive data on informal work and other side hustles have been hard to come by, especially with the rise of the gig economy. The authors of the paper fielded a large-scale survey to find self-employed who might have been miscoded in conventional government estimates and those who may be freelancing on the side of a primary job. They found that less-educated workers and people who have several jobs were the most likely to be under-reported. “Taking these workers into account substantively changes the demographic profile of the independent contractor workforce,” wrote the authors, from the University of Maryland and the W.E. Upjohn Institute for Employment Research.The findings have important implications for the economy. They suggest a greater share of the workforce lacks many of the protections — such as benefits, labor regulations and insurance — afforded to employees. Separately, if many more have extra sources of income, that could help explain the resilience of consumer spending in the face of high inflation, which has been baffling economists.Independent contractors are a subset of the self-employed whose skills and pay varies widely, the paper’s authors wrote. They include freelance consultants, Uber (NYSE:UBER) drivers, and some child-care workers and house cleaners.In their survey, the researchers found that many who thought of themselves as employees were in fact independent contractors upon further questioning, including some cases of multiple levels of subcontracting.The notion of “gig work,” which has been rising in popularity to describe on-demand jobs often handled through apps, fell flat with many groups, especially — but not only — Black workers, the economists wrote. Some associated it with a hobby rather than a job.The survey adds to evidence that informal work has been increasingly prevalent in the US economy, a trend further exacerbated by the pandemic, social media and remote work. The estimated number of Americans who freelanced in 2022 surged to a record 60 million, based on a survey by freelancing platform Upwork (NASDAQ:UPWK).©2023 Bloomberg L.P. More

WASHINGTON (Reuters) -A group of 45 state attorneys general in the United States on Monday demanded Chinese-owned social media app TikTok produce subpoenaed materials sought in an ongoing nationwide consumer protection investigation.The states are seeking to review internal TikTok communications to determine whether the company engaged in deceptive conduct that harmed mental health of TikTok users, particularly children and teens, Florida Attorney General Ashley Moody said. On Monday the states urged a Tennessee state court to compel TikTok answer requests for information.California Attorney General Rob Bonta said the petition alleges TikTok has failed to preserve some potentially relevant evidence, in the form of internal employee chat messages “and is hampering the investigation of Tennessee and other states across the country, including California.”TikTok did not immediately comment.In March 2022, eight states including California and Massachusetts, said they had launched a bipartisan, nationwide probe of TikTok, focusing on whether the popular video-sharing app causes physical or mental health harm to young people.Last week, TikTok said it was developing a tool that will allow parents to prevent their teens from viewing content containing certain words or hashtags on the short-form video app, as the embattled company looks to shore up its public image.TikTok, owned by Chinese tech company ByteDance, is facing renewed scrutiny worldwide over its proximity to the Chinese government and protection of user data.The app, wildly popular among younger users, has been banned from government-owned phones in the U.S., Canada and other countries due to security concerns. Last week, a U.S. House of Representatives committee voted to give President Joe Biden new powers to ban TikTok.Like other social media apps, TikTok has also faced criticism for not doing enough to shield teens from inappropriate content.Parents will now also be able to set custom time limits for their teens’ TikTok usage depending on the day of the week, the company said. More

Biden is considering a number of candidates to replace Lael Brainard, who left her post as Fed vice chair last month to become Biden’s top economic adviser.White House press secretary Karine Jean-Pierre told reporters that the nomination was a priority for Biden. “We don’t have anything to preview with regard to the candidate or announcements, but clearly, we’ll have something in the near future,” she said.Brainard has been a Fed board member since 2014 and its vice chair since last May. She took up her duties at the White House late last month.The Fed vice chair plays a key role in forming U.S. monetary policy and is typically held by a PhD economist. More

According to Fabio Araujo, coordinator of the initiative at the bank, the public use of the digital currency should begin at the end of 2024, after the completion of the testing phase – which will include buying and selling of federal public bonds among individuals – and its subsequent evaluation.Araujo said the “digital real” will be built as a means of payment executed on distributed ledger technology (DLT), to support the provision of retail financial services settled through tokenized deposits in institutions of the financial and payment systems in Brazil.”This environment reduces costs and brings the possibility of financial inclusion for people. You have services that are very expensive to carry out, such as repo operations, which today are only for banks, but which could be performed by anyone with a technology based on digital currencies,” he said.”This could reduce the cost of credit, the cost of improving the return on investments. There is a great potential for new service providers, fintechs, democratizing access to the market and offering new services.”Araujo stressed that the concept of the Brazilian central bank digital currency (CBDC) was not intended to leverage digital payments, as this is already being done on a large scale with Pix, which was launched at the end of 2021 and has been widely adopted in Brazil.Bank deposits would continue to exist within the Brazilian CBDC, only being registered in a more modern environment, meaning that financial institutions would not lose this source of funds for credit generation.”Banks are very interested in this new tokenized world, in every conversation we have they have shown a lot of interest,” said Araujo. More

The UK’s failure to tap the productive potential of its regions and nations goes a long way towards explaining its flagging international economic performance. Its economy is among the most geographically imbalanced in the rich world. The economic might of its second cities lags behind those in peer nations. Its leading light, London, has also slowed since the financial crisis. It is not for want of trying: successive governments have tried and failed to boost British towns and cities. But the longer the UK wavers without a strategy for national growth, the further it will fall in the global economic pecking order.Learning from prior efforts is vital. The UK’s regional development policy has long been plagued by inaction, inconsistency and a lack of focus. A 2017 industrial strategy, 2021 “plan for growth”, and 2022 “growth plan” have all come and gone. Boris Johnson’s “levelling-up” agenda has not taken off. The country now lacks a growth strategy that it desperately needs. To get it right Britain must focus on its existing specialisms, slash growth barriers — such as limited funding, regulation and poor connectivity — and develop institutions to execute and monitor long-run UK-wide development.Building on existing competitive strengths is crucial. Backing clusters which are emerging throughout the UK — particularly in growth sectors like clean tech, AI and life sciences — can bring global trade and investment to the regions and stimulate the development of towns and cities. The government must also better support the country’s world-class universities, which can act as hubs for regional growth by driving job creation and research and development activity.To support these strengths, Britain must lift barriers to growth. Funding is essential. Given the knock-on benefits of spending on R&D and infrastructure, the government must boost public investment, which has proportionally been among the lowest in the OECD over the past two decades. It should also evaluate the development of long-term economic investment funds, for example by consolidating existing pots or by drawing on public sector pension schemes and income from public assets. Raising private sector finance streams via initiatives to encourage pension and insurance funds to invest in long-term assets remains important.At the same time Britain must address its toxic inability to build. Its strained housing supply limits the movement of people across the country. Onerous planning regulations need to be reformed and local authorities need more incentives and responsibility to develop land. Tax reform could play a part. Stamp duty, a tax on property transactions, limits mobility. A tax based on property value makes more sense. Better yet, a land value tax would incentivise development. Improving infrastructure is a priority too. Road and rail links between northern cities are poor, as is urban transport: average commuting times are among Europe’s longest.The right institutional set-up is important. The UK is highly centralised, with Westminster driving policy and funding plans. Further devolution of decision-making to local authorities, alongside more tax retention and revenue-raising powers, would help to ensure policy is more responsive and accountable to local needs. An independent body to monitor and advise on regional and supply-side policies might be beneficial. It would help embed long-termism into the growth agenda beyond the electoral cycle.Next week’s Budget is an opportunity to begin addressing these issues. As this, and future, governments look to mend the UK’s growth woes, they must not overlook the vital importance of unlocking the latent talent, investment and innovation in all its regions and nations.This is the third in a series of editorials on boosting UK economic growth. Previous leaders examined skills and workers, and investment. More

TOKYO (Reuters) – The Bank of Japan (BOJ) is set to maintain ultra-low interest rates, including a controversial bond yield cap, on Friday as it awaits a leadership transition that could eventually end outgoing chief Haruhiko Kuroda’s massive monetary stimulus.With rising inflation pushing up long-term interest rates, some investors bet the BOJ may tweak yield curve control (YCC), such as by raising the 10-year yield cap, as early as next week’s policy meeting – the final one to be chaired by Kuroda.But the BOJ is likely to hold off on making major changes to YCC given uncertainty over whether wages would rise enough to keep inflation sustainably around its 2% target, say four sources familiar with its thinking.While markets have renewed their attack on the BOJ’s yield cap, many central bank policymakers see no immediate need to take additional steps to iron out market distortions caused by its huge bond buying, they say.”The BOJ already has sufficient tools to mend market distortions, which will take some more time to fix,” one of the sources said, a view echoed by another source.At the two-day meeting ending on Friday, the BOJ is set to maintain its short-term rate target at -0.1% and that for the 10-year bond yield around 0%.Markets are rife with speculation the BOJ will phase out Kuroda’s controversial stimulus policies when academic Kazuo Ueda, the government’s nominee to become next governor, takes the helm in April.In December, the BOJ stunned markets by widening the band around the 10-year yield target in a move that allowed the yield to rise to 0.5% from the previous 0.25%.The bank’s quarterly survey showed last week an index measuring the degree of bond market functioning hit a record low in February, a sign the December decision has done little to ease market distortions.”It will take a certain amount of time to gauge the impact of the tweak we made to YCC on market function,” BOJ board member Hajime Takata said last week, stressing that he saw no imminent need to make further tweaks to the policy.Another board member, Junko Nakagawa, also said last week more time was needed to gauge whether the December widening of the band was enough to fix market distortions.Kuroda, whose second, five-year term ends on April 8, will leave behind a mixed legacy with his massive stimulus praised for pulling the economy out of deflation – but straining bank profits and distorting market function with prolonged low rates.While inflation has exceeded the BOJ’s 2% target mostly due to rising raw material costs, Kuroda has stressed the need to maintain ultra-low rates until inflation is driven by strong domestic demand and higher wages.In parliament confirmation hearings, Ueda stressed the need to support the economy with ultra-loose policy for now, saying a shift to tighter policy would only come when Japan’s inflation trend accelerates significantly. More