Economy

WASHINGTON (Reuters) -U.S. President Joe Biden and German Chancellor Olaf Scholz vowed on Friday to keep imposing costs on Russia for its war in Ukraine, now in its second year, as an EU official said any arms provided by China to Russia would trigger sanctions.Biden and Scholz met in private in the Oval Office for over an hour, a senior administration official said. Their discussion focused on the importance of continued “global solidarity” with the people of Ukraine, and ongoing efforts to provide security, humanitarian, economic, and political assistance to Ukraine.Sitting next to Scholz in the Oval Office, Biden thanked the German leader for his “strong and steady leadership” and support for Ukraine. Scholz said it was important to demonstrate that the allies would back Kyiv “as long as it takes and as long as is necessary.”Speaking before the meeting, U.S. officials said discussion points included the state of the war and how to respond if China provided military aid to Russia.Scholz’s brief one-day trip – there were no other meetings on his agenda – was his second to the White House since taking office in December 2021. Biden’s national security adviser also met one-on-one with his German counterpart.Washington has begun consulting with allies about imposing possible sanctions on China should Beijing provide military support to Russia for its war in Ukraine, Reuters reported this week, citing U.S. officials and other sources.Washington has said in recent weeks that China was considering providing weapons to Russia, although U.S. officials have not provided evidence or said that such supplies have started. Beijing has denied any intention to arm Russia.”We haven’t yet seen China do anything yet, as it relates to lethal weapons,” White House press secretary Karine Jean-Pierre told reporters before the meeting. “Every step China takes toward Russia makes it harder for China with Europe and other countries around the world.”A senior European Union official told a separate briefing that it would be an “absolute red line” if China provided weapons to Russia, and the EU would respond with sanctions.Germany has typically taken a much less hawkish stance than the U.S. on China, its top trading partner, but Scholz also sent a strong warning to China on Thursday not to provide weapons to Moscow and appealed to Beijing to pressure Russia to pull back its forces, a speech noted and welcomed by U.S. officials.Biden hailed Scholz’s decision to sharply increase Germany’s military spending and diversify energy sources away from Russia, and said the two leaders had worked in lockstep with other allies to support Ukraine. U.S. officials said Ukraine was bracing for a new Russian offensive in coming weeks.”As NATO allies, we’re making the alliance stronger,” Biden said, as the United States announced a new military aid package for Ukraine worth $400 million that includes ammunition and tactical bridges to move tanks and armored vehicles.The EU official said one major trade irritant – a dispute over U.S. subsidies for green technologies under the U.S. Inflation Reduction Act (IRA) that German and EU officials worry would disadvantage their companies – could soon be addressed.The official said U.S. and European officials were working on a high-level agreement that would make European minerals eligible for U.S. tax credits, with an announcement possible as early as next Friday when European Commission President Ursula von der Leyen visits the White House.Critics say the IRA was a slap in the face to Europe from its biggest ally at a time when Europe was already struggling with sharply higher energy prices due to the Ukraine war. More

The forecast, which is 2.3 percentage points above the 2023 rate projected in last month’s poll, comes amid a prolonged financial and social crisis in one of Latin America’s largest economies.The annual inflation rate in 2022 hit 94.8%, according to Argentina’s statistics institute.February’s monthly inflation is estimated at 6.1%, speeding up from the 6% registered in January, according to the median of estimates.Argentina’s economy is also expected to stagnate in 2023, down from an expectation of 0.5% growth shown in the last poll.The country’s average nominal exchange rate will also likely weaken to 330.47 pesos per U.S. dollar by the end of the year, analysts projected.The survey was carried out between Feb. 24 and 28 among 40 participants. More

“That would suggest inflation was in fact more persistent than a lot of people are forecasting,” Barkin told reporters after a talk at the Stanford Institute for Economic Policy Research in which he outlined why he personally worries inflation will be slow to cool, forcing the Fed to raise rates more.”It’s not what I’m hoping for but I could certainly imagine it,” he said. “My hypothesis has been that now that we have gotten ourselves into restrictive territory, as we did last year, we have the opportunity to, I’ll call it, test and learn what happens to the demand, what happens to employment, what happens to inflation, as rates go up at a more gradual pace than they did last year.” Barkin said it’s “entirely possible” that inflation cools faster than he expects, which would imply a shallower rate path. “But I think it’s entirely possible that it persists, which would require us to do more,” he added. “I think when you are on a more deliberate rate increase path it does give you a lot more flexibility in terms of the ability to move for longer, or to higher, if you need to.” By this time next year, Barkin said, he does not expect the Fed to have started any rate cuts. More

PALO ALTO, California (Reuters) – Richmond Federal Reserve Bank President Thomas Barkin said on Friday that he does not understand the case for pausing interest rates now, although delivering rate increases in smaller increments means that if the Fed does end up going too far it won’t have gone much too far. Rates are currently restrictive, meaning that they are slowing the economy, but the Fed still needs to “feel” its way to a level of rates that is high enough to bring inflation back down, Barkin said at the Stanford Institute for Economic Policy Research. More

WASHINGTON (Reuters) -The United States and European Union are working toward agreement in principle on a deal to make European minerals eligible for tax credits, a senior EU official said Friday.The $430 billion U.S. Inflation Reduction Act passed in August requires rising percentages of battery minerals to come from the United States or a Free Trade Agreement (FTA) partner.The EU official said an agreement could come as early as next week, in time for a visit by European Commission President Ursula von der Leyen to Washington, on a deal that would give the EU “free trade agreement-like status.”White House press secretary Karine Jean-Pierre declined to say if a high-level deal that would provide free trade-like status to the EU could be reached before von der Leyen’s visit, removing an irritant in U.S.-EU ties, but underscored Washington’s desire to maintain a strong working relationship with the EU. “Of course, we want to make sure there’s a good working relationship,” she said. Up to $3,750 per vehicle of the available tax credits relate to critical minerals for batteries, taking effect when the U.S. Treasury issues guidance, which is expected later this month.The EU official said it was critical to reach an agreement soon, given moves by some European companies to shift production to the United States.”We need to react now, and we need to at least avoid as much as possible these disturbances, by granting an FTA-like status, and having better access when it comes to raw materials, battery production, for example.”He said the U.S. side was pressing for the agreement to be “legally binding,” but it would be difficult have that in place ahead of von de Leyen’s visit. “I think that commitment to do this, and to do it quickly, could well be an outcome of next week’s discussions.”The agreement would be limited, the official said.​ “We’re not talking about market access here … This would be very reduced and certainly not a free trade agreement in the classical way,” the official said.The EU, South Korea, Japan and other U.S. allies have harshly criticized the IRA’s provision requiring EVs to be produced in North America to qualify for consumer EV tax credits.But the EU in December praised a U.S. Treasury Department decision to allow EVs leased by consumers to qualify for up to $7,500 in commercial clean vehicle tax credits. More

Ajay Banga will begin a monthlong “global listening tour” to drum up support for his nomination to be the bank’s next president.The Biden administration’s nominee to be the next president of the World Bank, the international development and climate institution, is embarking on a monthlong sprint around the globe to solidify support for his candidacy.It will be the first opportunity for the nominee, Ajay Banga, to share his vision for the bank, which has been aiming to take on a more ambitious role in combating climate change while maintaining its core commitment to alleviating poverty.Mr. Banga, who has had a long career in finance, faces the challenge of convincing nations that his decades of private-sector experience will help him transform the World Bank.He will begin his “global listening tour” on Monday with stops in Ivory Coast and Kenya, the Treasury Department said on Friday. In Ivory Coast, he will meet with senior government officials, leaders of the African Development Bank and civil society organizations. In Kenya, he will visit the Kenya Climate Innovation Center and a World Bank-backed project that helps local entrepreneurs find ways to address climate change.Mr. Banga will focus on how finding development solutions can be intertwined with climate goals and emphasize his experience working on financial inclusion in Africa, where he helped expand access to electronic payments systems while chief executive of Mastercard, a Treasury official said.The whirlwind campaign will also take Mr. Banga to Asia, Latin America and Europe.The White House nominated him last week after the unexpected announcement last month that David Malpass will step down as World Bank president by the end of June, nearly a year before the end of his five-year term. Mr. Malpass, who was nominated by President Donald J. Trump, ignited a controversy last year when he appeared to express skepticism about whether fossil fuels contribute to global warming.During a briefing at the Treasury Department this week, Mr. Banga made clear that he had no doubts about the causes of climate change. “Yes, there is scientific evidence, and it matters,” he said.Careful to strike a balance between the bank’s growing climate ambitions and its poverty-reduction goals, Mr. Banga emphasized that both issues were interconnected and equally important.“My belief is that poverty alleviation, or shared prosperity, or all those words that essentially imply the idea of tackling inequality, cannot be divorced from the challenges of managing nature in a constructive way,” Mr. Banga added.The World Bank’s nomination process runs through March 29, and other countries may offer candidates. But by tradition, the United States, the bank’s largest shareholder, selects an American to be its president. The executive board hopes to choose a new president by early May.A climate protest in Munich on Friday. Mr. Banga will focus on how finding development solutions can be intertwined with climate goals.Anna Szilagyi/EPA, via ShutterstockIf approved by the board, Mr. Banga will face an array of challenges. The world economy is slowly emerging from three years of pandemic and war that have slowed global growth and worsened poverty. Emerging economies face the prospect of a cascade of defaults in the coming years, and the World Bank has been vocal in calling for debt reduction.The Biden administration has pointed to China, one of the world’s largest creditors, as a primary obstacle in debt-restructuring efforts. Mr. Banga was careful not to be critical of China and said he expected to travel there in the coming weeks.“Today I’m the nominee of the United States, but if I’m lucky enough to be elected, then I represent all the countries who are part of the bank,” Mr. Banga said on Thursday. “Having their points of view known, understood and openly discussed — maybe not agreed to, but openly discussed — is an important part of leading a multilateral institution.”His nomination has won both praise and skepticism from climate activists and development experts.Some climate groups have lamented Mr. Banga’s lack of direct public-sector experience and expressed concern about his affiliation with companies that invest in the oil and gas industries.“Many question whether his history at global multinationals such as Citibank, Nestlé, KFC and Mastercard will prepare him for the huge challenges of poverty and inequality,” Recourse, a nonprofit environmental organization, said in a statement this week. Recourse has been critical of the World Bank’s policies on gas transition, its exposure to coal and its pace of action on climate change.Other prominent activists have praised Mr. Banga, including Vice President Al Gore, who predicted that he would bring “renewed leadership on the climate crisis to the World Bank.”And others viewed Mr. Banga as a natural choice to bridge the gap between the bank’s broad mandates.“Throughout discussions of the World Bank’s evolution, borrowing countries have consistently communicated that financing for climate should not come at the expense of other development priorities,” Stephanie Segal, a senior fellow with the Economics Program at the Center for Strategic and International Studies, wrote in an essay this week. “In nominating Banga, whose candidacy does not lead with climate, the United States has signaled agreement that the bank’s development mandate cannot be abandoned in favor of a ‘climate only’ agenda.”The Biden administration has also faced questions about why it did not choose a woman to lead the bank, which has had only men serve as its full-time president.Mr. Banga asserted that as someone who was born and educated in India, he would bring diversity and a unique perspective to the World Bank. He also emphasized that at Mastercard, he had demonstrated a commitment to empowering women and elevating them to senior roles.“I think that you should credit the administration with taking a huge leap forward into finding somebody who wasn’t born here, wasn’t educated here,” Mr. Banga said. “I believe that giving people a level playing field is our job.”He added: “And that means whether you’re a woman, your color, your sexual orientation, growing up on the wrong side of the tracks, it doesn’t matter.” More

“I think it will take time to return to target, and, as a consequence, believe we still have work to do,” Barkin said in remarks prepared for delivery to the Stanford Institute for Economic Policy Research’s annual economic summit. Policymakers have forecast “additional rate increases” and have been clear “we don’t anticipate rate cuts this year,” he said. Inflation by the Fed’s preferred year-over-year gauge was 5.4% in January, an increase from the 5.3% pace in December. The Fed’s target is 2% inflation. Barkin said he is not sure that the strength in spending that bolstered inflation is sustainable. Still, he said, the labor market is “quite tight.”The unemployment rate as of January was 3.4%, the lowest since 1969, and employers added more than half a million workers to their payrolls.That’s putting some upward pressure on inflation, he said, as workers ask for more pay. And two years of high inflation is prompting businesses to bank on the ability to continue to raise prices, he said, and meanwhile is “exhausting” for consumers seeking better deals and workers whose paychecks no longer go as far. After raising the Fed’s policy target from near zero to its current 4.5%-4.75% range in less than 12 months, “it makes sense to move more deliberately than we did last year,” he said. “Here’s where I come back to data dependence. If I’m right and inflation persists, we can react by raising rates further. And, of course, I’d be happy to be wrong.” He did not say how high he expects rates to need to rise. Policymakers in December projected a top Fed funds rate of 5.1% this year, though many analysts and financial market participants now think the Fed will need to push it higher. In the end, he said, the Fed needs to bring down inflation.”I am confident it will in time but doubtful the process will be quick,” he said. More

(Reuters) – Wall Street stocks posted strong gains while Treasury yields and the dollar pulled back on Friday as data pointing to U.S. economic growth boosted risk appetite, even as expectations for rate hikes kept bond yields near multi-year highs.The U.S. services sector grew at a steady clip in February, with new orders and employment rising to more than one-year highs, suggesting the economy continued to expand in the first quarter.U.S. shares jumped, with the Dow Jones Industrial Average up 1.17%, the S&P 500 1.61% higher, and the Nasdaq Composite adding nearly 2%.”Following weeks of relentless upward pressure on interest rates, the S&P 500 got a bit of a reprieve today,” said Bill Sterling, global strategist at GW&K Investment Management in Boston. He added that the small differential between shorter-term bonds indicated lower recession risk: “Market participants seem to be saying that the economy – and corporate profits – can withstand a higher-for-longer interest rate path.”Asian stocks already jumped on investor optimism of a Chinese economic rebound. The positive market sentiment continued during the European session, with Europe’s STOXX 600 up 0.92%.The recovery in euro zone business activity gathered pace last month, PMI survey data showed, in the latest piece of data to suggest the bloc would avoid a recession.But euro zone government bond yields were still near their highest levels in years after euro zone inflation data on Thursday drove market expectations for the European Central Bank’s (ECB) terminal rate to around 4%. At 2.688%, the benchmark 10-year German yield was near its highest level since 2011. U.S. Treasury yields paused their rally. The U.S. 10-year Treasury yield fell to 3.960%, down from Thursday’s high of 4.091%. The two-year Treasury yield, which typically moves in step with interest rate expectations, dipped 4.3 basis points at 4.859%.Federal Reserve Bank of Boston President Susan Collins reiterated in comments made public Friday that more central bank rate rises will be needed to lower high inflation levels.Investors are trying to gauge that exact path for Federal Reserve rate hikes, after strong U.S. data in recent weeks suggested rates may need to be higher for longer.”Our overall view is still more consistent with slow disinflation amid some further improvement to global growth,” Goldman Sachs (NYSE:GS) market strategists wrote in a note late Thursday. “That mix should maintain the upward pressure on yields but ultimately limit the damage to equities and provide an overdue tailwind to commodities.”The MSCI world equity index, which tracks shares in 47 countries, jumped 1.47% on the day, up 5.8% for the year.DOLLAR RETREATSThe euro ticked up 0.33% on the day, while the U.S. dollar slid from a 2-1/2-month high versus the Japanese yen on Friday, its largest weekly loss since mid-January against a basket of six major currencies.Analysts polled by Reuters were unfazed by the dollar’s recent strength, up about 7% over the last 12 months, and predicted a weaker greenback in a year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the ECB.Oil prices rose, recovering from an early slump after Reuters reported that the United Arab Emirates is not planning an exit from the Organization of Petroleum Exporting Countries (OPEC). U.S. crude rose 2% to $79.73 per barrel and Brent was at $85.86, up 1.31% on the day.Spot gold added 1% to $1,854 an ounce. Bitcoin was down nearly 5% at around $22,381, its lowest price since Feb. 15. More