Economy

Semiconductor companies, which united to get the CHIPS Act approved, have set off a lobbying frenzy as they argue for more cash than their competitors.WASHINGTON — In early January, a New York public relations firm sent an email warning about what it characterized as a threat to the federal government’s program to revitalize the U.S. semiconductor industry.The message, received by The New York Times, accused Intel, the Silicon Valley chip titan, of angling to win subsidies under the CHIPS and Science Act for new factories in Ohio and Arizona that would sit empty. Intel had said in a recent earnings call that it would build out its facilities with the expensive machinery needed to make semiconductors when demand for its chips increased.The question, the email said, was whether officials would give funding to companies that outfitted their factories from the jump “or if they will give the majority of CHIPS funding to companies like Intel.”The firm declined to name its client. But it has done work in the past for Advanced Micro Devices, Intel’s longtime rival, which has raised similar concerns about whether federal funding should go to companies that plan to build empty shells. A spokesman for AMD said it had not reviewed the email or approved the public relations firm’s efforts to lobby for or against any specific company receiving funding.“We fully support the CHIPS and Science Act and the efforts of the Biden administration to boost domestic semiconductor research and manufacturing,” the spokesman said.Rival semiconductor suppliers and their customers pulled together last year as they lobbied Congress to help shore up U.S. chip manufacturing and reduce vulnerabilities in the crucial supply chain. The push led lawmakers to approve the CHIPS Act, including $52 billion in subsidies to companies and research institutions as well as $24 billion or more in tax credits — one of the biggest infusions into a single industry in decades.President Biden with Intel’s chief executive, Patrick Gelsinger, at an Intel semiconductor facility under construction in New Albany, Ohio, in September.Pete Marovich for The New York TimesBut that unity is beginning to crack. As the Biden administration prepares to begin handing out the money, chief executives, lobbyists and lawmakers have begun jostling to make their case for funding, in public and behind closed doors.In meetings with government officials and in a public filing, Intel has called into question how much taxpayer money should go to its competitors that have offshore headquarters, arguing that American innovations and other intellectual property could be funneled out of the country.“Our I.P. is here, and that’s not insignificant,” said Allen Thompson, Intel’s vice president of U.S. government relations. “We are the U.S. champion.”The Global Race for Computer ChipsA Ramp-Up in Spending: Amid a tech cold war with China, U.S. companies have pledged nearly $200 billion for chip manufacturing projects since early 2020. But the investments have limits.Crackdown on China: The United States has been aiming to prevent China from becoming an advanced power in chips, issuing sweeping restrictions on the country’s access to advanced technology.Arizona Factory: Internal doubts are mounting at Taiwan Semiconductor Manufacturing Company, the world’s biggest maker of advanced chips, over its investment in a new factory in Phoenix.CHIPS Act: The sprawling $280 billion bill passed by U.S. lawmakers last year gives the federal government new sway over the chips industry.States, cities and universities have also gotten into the act, hoping to lure subsidies and jobs expected to be generated by manufacturing sites and new research and development.Purveyors of chips, their suppliers and the trade associations that represent them together spent $59 million on lobbying last year, according to tracking from OpenSecrets, up from $46 million in 2021 and $36 million in 2020, as they tried to ensure that Congress approved their funding.Some of those activities have now shifted to making sure companies snag the biggest portion.“Everybody wants their piece of the pie,” said Willy Shih, a management professor at Harvard Business School who follows semiconductor issues. He said it wasn’t surprising that companies would be raising tough questions about competitors, which could be helpful for the Commerce Department in setting policies.“We haven’t done something of this scale in the U.S. in a long time,” he said. “There is a lot at stake.”How the Biden administration distributes the funding in coming months could shape the future of an industry that is increasingly seen as a driver of both economic prosperity and national security. It may also influence how vulnerable the United States remains to foreign threats — particularly the possibility of a Chinese invasion of Taiwan, where more than 90 percent of the world’s advanced chips are made.Since American researchers invented the integrated circuit in the late 1950s, the U.S. manufacturing share has dwindled to around 12 percent. Most American chip companies, including AMD, focus on designing cutting-edge products while outsourcing the costly manufacturing to overseas foundries, most of which are in Asia.AMD’s chief executive, Lisa Su, at a technology trade show last month. AMD and Intel have been fierce competitors.David Becker/Getty ImagesTaiwan Semiconductor Manufacturing Company developed the foundry concept in the 1980s and dominates that market, followed by Samsung Electronics. Intel, which both designs and makes its own chips, fell behind TSMC and Samsung in manufacturing technology but has vowed to catch up and build its own foundry business to make chips for customers.The industry’s concentration has left it particularly vulnerable to supply chain disruptions. During the pandemic, shortages of lower-end “legacy” chips that are used in cars forced automakers to repeatedly close factories, sending prices soaring.The CHIPS Act aims to rectify some of these shortcomings by allocating $39 billion in grants for new or expanded U.S. factories. The Commerce Department has indicated that about two-thirds of the money will be steered toward makers of leading-edge semiconductors, a category that includes TSMC, Samsung and Intel. All three companies have already broken ground on major expansions of their U.S. facilities.The remaining third is expected to go toward legacy chips, which are heavily used in cars, appliances and military equipment.Another $11 billion of funding is expected to go toward building a handful of chip research centers around the country. Government and academic institutions in Texas, Arizona, Georgia, Indiana, Florida and Ohio have filed documents describing why they should be considered for funding. Even tiny Guam has raised its hand.One challenge for the Commerce Department will be to distribute the money widely enough across the nation to create several thriving “ecosystems” that can bring together raw materials, research and manufacturing capacity, but not undermine the effort by spreading it too thinly. With dozens of companies, universities and other players interested in snagging a share, the funding could go fast.Commerce Secretary Gina Raimondo told reporters on Wednesday that the goal was to create “at least two” new clusters of manufacturing capacity for leading-edge chips, in addition to facilities producing other kinds of semiconductors. Each cluster would employ thousands of workers and support a web of businesses supplying the raw materials and services they need.“We have very clear national security goals, which we must achieve,” Ms. Raimondo said, noting that not every chip maker will get what it wants. “I suspect there will be many disappointed companies who feel that they should have a certain amount of money, and the reality is the return on our investment here is the achievement of our national security goal. Period.”The competition has intensified as the Biden administration prepares to release the ground rules for applications next week. The grants, which can range up to $3 billion or more per project, could start going out this spring.Executives say huge spending by governments in South Korea, Taiwan, China and elsewhere has helped shape the chip industry globally. And the current U.S. policy push could again alter the market, by giving some companies advantages that allow them to edge out competitors.Most chip companies, in publicly discussing the subsidies, have stressed the common goal of bolstering U.S. production. But clear differences among them have emerged. Many are outlined in the more than 200 filings that companies, organizations, universities and others submitted to the Commerce Department last March.Beyond extolling the merits of their own manufacturing plans, some applicants made the case that rival projects deserved less funding or should face strict limits on how they operated, though few companies mentioned their competitors by name.Intel, along with other U.S.-based firms like GlobalFoundries and SkyWater Technology, expressed concerns about foreign-owned companies, including whether their U.S. factories could continue operating in the event of a crisis in their home country.Taiwan Semiconductor Manufacturing Company, which is building a factory site in Phoenix, has objected to “preferential treatment based on the location of a company’s headquarters.”Adriana Zehbrauskas for The New York TimesIntel has argued that foreign investment is welcome, but that its longtime concentration of chip design, research and manufacturing in the United States meant that it should get special consideration.But competitors argue that investing heavily in Intel could be a risky bet for the U.S. government, and some Biden administration officials have questioned whether Intel can follow through on its plans to catch up to its competitors technologically. The company has suffered from a severe drop in sales and announced on Wednesday that it would cut its stock dividend.U.S. officials have also stressed the need to support a U.S. expansion by TSMC, in part because it produces leading-edge chips crucial to the military.TSMC, which has broken ground on a $40 billion investment in two advanced factories in Arizona, countered in its filing that “preferential treatment based on the location of a company’s headquarters” would not be an effective or efficient use of U.S. money. AMD, one of TSMC’s largest customers, has advocated its U.S. expansion.AMD and Intel, both based in Santa Clara, Calif., have competed fiercely for the market for microprocessor chips.In its filing in March, AMD expressed concerns about whether certain unnamed competitors had proved that they could operate effectively as a foundry and make leading-edge chips. Intel has struggled on both counts. And AMD highlighted the risk that grant recipients would not immediately spend that money to outfit their factories with equipment.“Any facility receiving federal assistance must be operational upon completion of construction,” AMD wrote. “A facility that sits idle or is held in reserve for demand increases should immediately forfeit any federal funds.”Mr. Thompson of Intel declined to comment on the email. But he defended the “smart capital” strategy articulated by Patrick Gelsinger, Intel’s chief executive, which has stressed building factory shells and then investing to equip them in accordance with market demand.Intel is continuing to follow that strategy with construction projects in Arizona, New Mexico and Ohio, to ensure that its new facilities are built out “in alignment with the market,” Mr. Thompson said. But Intel has no intention of using the government money for “basically just building shells,” he said. “The goal is to ensure that we have the capacity to support our customers.”Ana Swanson reported from Washington, and Don Clark from San Francisco. More

The EU and its allies are investigating a surge in exports to economies in Russia’s vicinity as they seek to prevent companies from evading western sanctions imposed on Moscow.David O’Sullivan, the EU’s newly appointed sanctions envoy, told the Financial Times that big increases in trade with countries in Russia’s neighbourhood raised questions as to whether products hit by sanctions were entering the country via the back door. “We see a massive fall-off in trade flows from the EU to Russia and unusual spikes in trade with other third countries, particularly with those in close vicinity to Russia,” he said.“Have they suddenly developed a lot of new needs for this material, and it’s all staying there, or is some of it leaking into Russia in one form or another?”O’Sullivan did not name individual countries, stressing that he started with a “presumption of innocence” when it came to investigating changes in trade flows. Armenia and Kyrgyzstan are among those with sharp increases of western imports and rises in exports to Russia, according to analysis by the European Bank for Reconstruction and Development. Turkey’s exports to Russia have also surged.

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The EU and partners including the US and UK are set to share intelligence on possible sanctions dodging at a meeting on Thursday as they seek to push for tighter controls, O’Sullivan said. EU, US and UK exports to Russia slumped by more than half in the May to July period last year when adjusted for inflation, compared with the average in 2017-19, according to EBRD data that lays bare the impact of the sanctions. But that drop coincides with a jump of more than 80 per cent in sales from Europe and the US to Armenia and Kyrgyzstan. Those two countries, in turn, more than doubled their exports to Russia during the same period, indicating a possible diversion of trade via new routes, the bank said.Exports of products including vehicles, electronics, agricultural machinery and pumps from the EU to Central Asia increased, mainly driven by Kazakhstan, the bank added.One of the possible drivers behind the shifting trade patterns is that western companies are voluntarily withdrawing from direct sales to Russia even when products are not subject to sanctions. However, Beata Javorcik, chief economist at the EBRD, said there were also increases in flows of goods that could “potentially” be subject to sanctions.The government of Armenia said it “takes all measures to prevent any attempt [of] bypassing the sanctions”. Kyrgyzstan’s government did not immediately respond to requests for comment.

Turkey, which substituted some of Moscow’s old trading partners in the aftermath of the Ukraine war, posted a 97 per cent surge in its exports to Russia during the May to July period last year compared with 2017-19, according to the EBRD analysis. Javorcik said the EBRD’s data did not suggest that the increase in trade from Turkey to Russia was related to products subject to sanctions. “Turkey is just selling a lot more of everything to Russia,” she said.Some imports could have a dual use. Several months into the war, the Ukrainian army began to report that some of the microchips they found in captured Russian military equipment were repurposed from everyday household appliances. All the while, EU exports of white goods to Russia’s neighbours surged. According to data from the EU’s Eurostat database, Kazakhstan imported €1mn worth of washing machines from the EU in December 2022, four times the amount it did in the December before Russia’s full-scale invasion of Ukraine. A Kazakhstan spokesperson said: “We have not seen any evidence that specific companies in Kazakhstan are being used to evade western sanctions but will continue to monitor this, and will act swiftly and firmly if we establish any wrongdoing.”

China has also stepped in to fill the void left by western exports, including by shipping increasing quantities of semiconductors to the country, according to Silverado Policy Accelerator, a think-tank.EU ambassadors are aiming to sign off a tenth sanctions package this week, including a swath of measures aimed at closing loopholes in the existing regime — among them a ban on the transit through Russia of goods that can be repurposed for military use. Mark Gitenstein, the US ambassador to the EU, said on Wednesday that there were “havens” where there was “circumvention going on in a major way”, although he declined to name names. Additional reporting by Henry Foy in Brussels More

Hello everyone! This is Lauly writing from Taipei. I’ve been reconnecting with sources in the supply chain and attending earnings calls over the past several weeks. I’m sorry to say, the mood among suppliers regarding consumer electronics — the pillar of the tech industry — is really bleak.Yesterday I went to the earnings conference of a power management supplier whose customers include Meta, AWS and Google as well as all the major PC brands. The CEO told me that demand dropped off so suddenly in the last quarter of 2022 that no one had expected it. “Almost all of our PC clients asked us to stop shipping products to them in October and by December, our data centre clients also suddenly halted shipments from us,” the CEO said. “And now, we don’t even know if it is at the bottom yet.”The manager of a thermal module maker told me that his company, its suppliers and others operating nearby in the same industrial zone in Dongguan, China, have all been running at less than 50 per cent of their production utilisation rates since the final quarter of 2022.The situation in the tech industry is completely different from what it was two or three years ago, when companies were racing to meet unprecedented demand spurred by the boom in working and learning remotely. Now suppliers are hoping that the electric vehicle industry and a recovery in consumer demand in the second half of the year will help them get back on track.Augmented strategyApple has tapped Luxshare to help develop its augmented reality devices, with the Chinese contract electronics manufacturer set to be the primary producer of the first generation of the gadget, Nikkei Asia’s Cheng Ting-Fang and Lauly Li write.Luxshare took over AR development from Pegatron, the Taiwanese iPhone assembler that had been working on the project with Apple for four years.Foxconn, Apple’s largest manufacturing partner, has been tasked with the parallel development of the second generation of the the iPhone maker’s AR devices. Apple has also asked Taiwan Semiconductor Manufacturing Co. and Sony to develop the crucial micro OLED display technologies for the devices.Luxshare’s participation in the AR project marks a milestone for Chinese tech suppliers. In the past, Apple relied on Taiwanese suppliers like Foxconn to develop the first generations of new product lines, while Chinese suppliers were allotted orders later on. Luxshare’s growing importance to Apple also comes amid heightened tech tensions between Washington and Beijing and scrutiny of Apple’s own reliance on its Chinese supply chain.Staying homeChina’s newest crop of technology companies is more likely to list at home rather than in the US, write the Financial Times’ Ryan McMorrow, Sun Yu and Demetri Sevastopulo.International funding for Chinese start-ups dried up in 2022, pushing many fledgling technology companies to raise capital and list at home instead of on Wall Street.Dollar investments in the country’s new companies fell by nearly three-quarters last year, declining to 19 per cent of the total capital put into start-ups, from 39 per cent in 2021, according to new data from research group ITJuzi.Chinese investors and founders say geopolitical tensions with the US, as well as Beijing’s tech crackdown and harsh zero-Covid policy, spooked foreign investors. At the same time, growing support from the Chinese government and Washington’s sanctions also made raising renminbi more appealing.The decision to raise dollars or renminbi generally puts Chinese entrepreneurs on two very different paths. One leads to successful companies going public in New York or in Hong Kong, while the other usually results in a listing in Shanghai, Shenzhen or Beijing.The drop in dollar funding for start-ups comes as large international investors pull back from pouring money into China-focused private equity and venture funds. China funds raised only $14bn last year, down from $95bn in 2021, according to Preqin data.Garbage in, goods outSouth-east Asia has reaped the economic benefits of global supply chains shifting away from China, but the region is also facing a crisis in the form of plastic waste. Local start-ups are tackling the problem in creative ways, including by turning this waste into consumer goods, writes Nikkei Asia’s Dylan Loh.“Compared to the rest of the world, South and south-east Asia use more single-use plastic due to its affordability and convenience,” said Prak Kodali, CEO and co-founder of pFibre, which is taking another approach. The Singapore-based company uses biodegradable plant-based ingredients to make flexible packaging film that mimics the properties of plastic.Eco-friendly businesses of this sort are seeking to promote a “circular economy” that reduces or eliminates human-generated waste. But raising money is a challenge at a time when global macroeconomic uncertainties, rising interest rates and inflationary pressures are keeping investors on the sidelines. Deal activity involving sustainable companies fell 24 per cent in 2022 to $159.3bn, a two-year low, according to a report in January by financial data provider Refinitiv.New drive neededFrom chip and component makers to final product assemblers, tech suppliers are banking on the emerging electric vehicle industry to offset the severe slowdown in consumer electronics demand, Nikkei Asia’s Lauly Li writes.Foxconn, the world’s biggest contract electronics manufacturer, is optimistic about the EV industry, while Taiwan Semiconductor Manufacturing, the top contract chipmaker, says demand for auto-related chips remains high and supply constraints will continue this year.“I spent four months on a business trip to our factories in Dongguan, Suzhou, China, recently,” said a procurement manager at a maker of thermal modules for PCs, smartphones and servers that also supplies EV maker BYD. “The only thing that our company, our suppliers and our compatriots talk about and feel hopeful about this year is EVs.”However, there is a risk in expecting too much from the automotive sector, analysts warn, as the global economy battles inflation while cost of living crises in major countries eat into consumer buying power.Suggested readsChina tells big tech companies not to offer ChatGPT services (Nikkei Asia)Disappearance of dealmaker Bao Fan casts chill across China’s tech sector (FT)Sumitomo to bypass China in EV rare-earth supply chains (Nikkei Asia)China plays catch-up to ChatGPT as hype builds around AI (FT)Shein gives investors lofty revenue projections as it prepares for IPO (FT)Chinese EV matches luxury with cost-cutting guts, teardown shows (Nikkei Asia)Banker’s disappearance undermines Beijing’s messaging to investors (Nikkei Asia)Saudi Arabia-backed group to invest $265mn in Chinese esports company VSPO (FT)Justin Sun to move crypto exchange Huobi’s Asia HQ to Hong Kong (Nikkei Asia)Lex: Temu/Pinduoduo: shopping like a billionaire comes with strings attached (FT)#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London. 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My name is James and I have an overdraft. Have times got so tough that Rich People’s Problems needs to focus on the cost of living “crisis”? The answer is simple. Yes. Inflation is running at over 10 per cent. Over four-fifths of UK adults are concerned about their day-to-day living costs, a PwC survey found. And who can blame them, when grocery costs jumped 16.7 per cent last year, according to Kantar research?The richest 5 per cent of our nation is getting richer, according to the Resolution Foundation think-tank. But the research doesn’t take into account the wealth tied up in non-income producing property and the costs associated with maintaining your home(s). So for many, unless you’re an ultra wealthy individual, or crystallising property gains by selling up, things aren’t looking rosy.

If you can’t stuff your money into a tax haven, the tax burden has risen. If you don’t have oodles of cash on deposit, any debt you have has become more expensive. Bills for pretty much everything have risen. And, disappointingly, efforts at Waitrose to keep down the costs of essential goods does not extend to capping prices on quails’ eggs, smoked salmon, a decent bottle of fizz or any of the things one really goes to Waitrose for. Yes, I can hear the strains of tiny violins, but I haven’t got enough money. I’ve got cash flow problems and need to take urgent action. The question is, what action should I take? And where do I start if I want to take a hatchet to personal spending?I could make a spreadsheet of my expenditure. However, I’d rather eat my own toenails. Life’s too short, and I don’t want to face up to what I’m really doing with my money. Last week, for example, I dropped £72 on chocolate in Alain Ducasse. I only bought a small bag of goodies. One was a box of 16 chocolates, weighing in at 150g. They’ll set you back £26. Nestlé Munchies (pretty much the same thing) can be purchased for £1.99 a bag. But luxury costs. And you cannot apply savings to a Valentine’s Day gift, can you?I tried turning down the heating, switching off the Aga and the pool heating. But a gas bill of just over £2,000 in 2021 became £5,700 in 2022. Goodness knows what the electricity costs will be. Payments for my relatively small mortgage doubled. The rate was fixed, thankfully, before Liz Truss and the Bank of England sent mortgage costs soaring last year. But I don’t have free cash to repay the debt. Insurance for property here and overseas, and the cars, has risen by 40 per cent. Meanwhile, the household costs keep coming in. It turns out the garden fence I’m responsible for is now in such a state of disrepair that the neighbours have offered to mow our lawn. That quote has come in at £7,200. The cars need servicing, our cleaner wants a pay rise and broadband, mobile and streaming TV costs are up too. The list is endless.I’m asset rich and cash poor. I’m also earning more than I did last year. Not because my employers are paying more, by the way. I’m working harder. But it’s still not enough. My bank account is a bit like an old fridge with a few tired vegetables, some out of date condiments and food remnants that even desperation wouldn’t force me to eat. It needs replenishing. Things got so bad last week that at the ever-winning fruity — the ATM — I was refused a withdrawal. This was partly caused by one of my employers deciding that payment this month wasn’t essential. But also by HM Revenue & Customs, which drained my resources a few weeks ago to pay my tax bill. Ugh.I could monetise a few assets. But that’s a sticking plaster over a gaping wound. After all, income is required to cover expenditure if I don’t want to deplete assets over time. A quantum shift in the costs of everyday activities means a change in approach is required. It’s got to be more radical than reining in my Deliveroo habit, buying Nike trainers instead of Balenciaga or Burberry, or cutting back on where I choose to eat out. Last week I took some friends out for lunch at one of my clubs. Three hundred pounds later, after a delicious lunch and a few glasses of fizz, I concluded that perhaps the time for belt-tightening had finally arrived. But why should I? I’m not a student and have little interest in fulfilling a dining treat by “going Nando’s”.Then there’s the mirage of retirement. Last November, I concluded that I’ll never be able to afford to retire. Chancellor Jeremy Hunt thinks we should be working even longer before we’re able to access the state pension. The present threshold for retirement at 66 is expected to move to 67 in 2028. It is due to hit 68 in 2046. But ministers are looking to bring that forward, affecting anyone under the age of 54 today.

I won’t be relying on the state pension in retirement — but it’s a useful addition to the pot. Especially as the government seems intent on eroding private pension benefits and contributions. Anyway, top-ups from me into savings are on hold as all free cash is being used for current expenditure. Sigh. Clearly, I’m going to be working forever.Radical action is required. Yes, I will cut expenditure, use Aldi and FarmFoods for basics to keep down costs. But I can’t go too far. The other half has lodged a complaint. “Are things that bad that we have to have unbranded loo paper”? In other radical moves, I may halt the acquisition of more bubbly for a while. At least until stocks have depleted to emergency levels. I may even sell one of the cars from the fleet. I’d have the capital it produces and reduce running costs too. However, you can only sell an asset once.Keynesianism won’t work for personal finance. You cannot spend or borrow your way out of recession. I can’t put it off any longer. It’s time to fire up the cylinders of personal economic growth. I’m polishing the CV. Stuff the four-day week . . . I’ll get another job to add to the portfolio. Wish me luck!James Max is a broadcaster on TV and radio and a property expert. The views expressed are personal. Twitter: @thejamesmax More

The writer is the founder of Sahm Consulting and a former Federal Reserve and White House economistThe Federal Reserve is the only institution in the US with an official mandate to maintain stable prices. Even so, the Fed is not the only institution we need to help fight inflation, especially given the supply disruptions from the pandemic and the war in Ukraine. The Fed, by raising interest rates, can push down demand, but it cannot push up supply. And Adam Shapiro, an economist at the San Francisco Fed, estimates that about 40 per cent of inflation is supply-driven, 40 per cent is demand-driven, and the other 20 per cent is ambiguous. Given that reality, the Fed alone cannot get inflation back to the 2 per cent target.The Fed’s primary tool to rein in inflation is the federal funds rate which influences the interest rates at which consumers and businesses borrow. The Fed rate rises work through financial markets and monetary policy is only one factor determining the price of debt, meaning that the central bank’s main tool is not a precise one. In addition, forward-looking markets incorporate expectations of future Fed decisions in today’s interest rates. Those expectations may or may not align with the Fed’s actual intentions. For example, overall financial conditions, measured by a Chicago Fed index, had become more restrictive since the Fed began raising rates last year. But in October, the index began falling, suggesting that financial conditions are becoming more supportive of demand. An even clearer example: mortgage rates have moved down about a percentage point from their peak of 7 per cent in November, even as the Fed continued to increase the federal funds by 0.75 percentage points. The finances of households also suggest that changes to the federal funds rate may not have as powerful an effect on demand. Households, including those with lower income, have substantially more savings than before the pandemic, which allows them to buffer the higher costs of borrowing. Plus, during the pandemic, many were able to pay down debt. In addition, many homeowners with 30-year fixed mortgages had locked in the low rates that prevailed before the recent rises. If interest rates are less relevant to spending, that means the Fed is less relevant too.Even so, the Fed is influencing demand in interest rate-sensitive sectors. Business fixed investment has contracted since the second quarter of last year and housing starts plunged by 20 per cent. However, the effects on the labour market are modest even in areas such as construction. Companies are likely holding on to workers because it has been so hard to rehire. If people keep their jobs, it’s hard to get demand down. And if the labour market is strong, it will be harder for the Fed to contain inflation.An important lesson is that supply is crucial to the economy. More workers ease the labour shortage and upward pressure on wages. Last year, 1mn more immigrants came to the US, continuing the rebound from pandemic lows. Julia Coronado, the founder of Macropolicy Perspectives, expects immigration to continue to rise in the coming years. That should help ease the labour shortages and push down on inflation, even though they will increase demand. Again, the Fed had no influence on immigration policy. The best way to solve a labour shortage is with more workers, not fewer customers. But the Fed can only give us less demand and fewer customers.Fortunately, Congress and the White House can influence supply. A key example is the Biden administration’s efforts to bring oil and gasoline down after Russia’s invasion of Ukraine. These included the opening of the Strategic Petroleum Reserve and guaranteeing producers a price to buy oil and refill the reserve. Oil production rose last year and the national price of gasoline is back below pre-invasion levels.An important advantage of fiscal policy is its ability to target certain sectors critical to restraining inflation, in contrast to the Fed’s imprecise tools. The US infrastructure bill, the Chips Act to boost domestic semiconductor production, and the Inflation Reduction Act all have elements that will help with inflation, especially in the future, by creating or fortifying supply.The Fed absolutely has a role to play and its rate rises are almost certainly contributing to the slowing of growth. At the same time, demand management is not an efficient way to deal with supply-driven inflation. It is harder to co-ordinate fiscal policy, but the past two years have shown it can be done, and it must be done. The challenge is to do it well.  More

SEOUL (Reuters) – South Korea’s central bank kept interest rates unchanged on Thursday, matching market expectations and ending an uninterrupted one-year run of rises.The Bank of Korea’s monetary policy board held its policy interest rate steady at 3.50%, in line with a unanimous expectation by the 42 economists in a Reuters poll.The central bank announced the decision without elaborating. Governor Rhee Chang-yong is due to hold a news conference on Thursday.Local markets showed a muted reaction to the decision, with investors awaiting the news conference.The central bank also issued revised forecasts for this year’s economic growth and inflation to 1.6% and 3.5%, respectively, both down from November’s projections, which were 1.7% and 3.6%. More

The initiative will be sent to Lopez Obrador to sign into law.The changes look to reorganize and redefine the administrative tasks of the National Electoral Institute (INE) in part by shrinking its budget and watering down its faculties, drawing heated criticism from opposition lawmakers, who fear the changes would give too much power to the government.Lopez Obrador, a leftist populist who professes austerity in his management of Latin America’s second largest economy, has touted that the changes, including the closing of INE offices, will allow $150 million a year in savings, strengthen democracy and reduce the influence of economic interests in politics.Opposition lawmakers and members of civil society have said they will ask the courts to deem the reform unconstitutional. More

WASHINGTON (Reuters) -The World Bank’s executive board expects to select a new president by early May after last week’s news that David Malpass will leave the top job well before his contract ends in April 2024, the bank said in a statement late on Wednesday.The 25-member board, under pressure to reform its operations to respond more aggressively to climate change and other global challenges, met for several hours on Wednesday to finalize its selection criteria and a timeline for the process.The bank’s executive directors affirmed their commitment to an “open, merit-based and transparent selection process” for the new leader, and said countries could nominate candidates beginning Thursday through March 29.The United States, the bank’s largest shareholder, which has been pressing for more ambitious and quicker reforms at the bank, could announce its nominee as early as Thursday, two sources familiar with the matter said. Treasury officials had no immediate comment.The World Bank board gave a list of criteria and relevant experience for would-be applicants and also said it “would strongly encourage women candidates to be nominated.” The bank has never had a permanent woman president in its 77-year history, although current International Monetary Fund chief Kristalina Georgieva served as acting president for about two months in early 2019.The criteria did not mention climate change.The United States has historically selected the president of the bank, but some developing countries and civil society groups are challenging that tradition.It remains unclear if other countries will nominate their own candidates to lead the bank, which provides billions of dollars a year in funding for developing economies.Malpass, a former Treasury official, was nominated by former U.S. President Donald Trump, and ran unopposed for the job.U.S. Treasury Secretary Janet Yellen, now in Bengaluru, India for a meeting of the Group of 20 major economies, last week pledged to nominate a candidate soon and said she expected a “transparent, merit-based and swift nomination process.”Oxfam International and other civil society groups insist the process should be opened to more candidates to improve the credibility of the institution, while others say a woman should lead the bank for the first time in its 77-year-history.A top minister in Germany, another of the bank’s largest shareholders, this week told Reuters the next president should be a woman, and underscored the need for the institution to tackle climate change as well as fight poverty.Top contenders for the post include Samantha Power, who currently leads the U.S. Agency for International Development (USAID) and served as U.S. ambassador to the United Nations under President Barack Obama, and Rajiv Shah, former USAID administrator under Obama and currently president of the Rockefeller Foundation, a philanthropic group. More