Economy

“Next meeting will focus on inflationary expectations in PH, not the Fed’s 25 bps rate increase,” Bangko Sentral ng Pilipinas Governor Felipe Medalla told reporters in a phone message. Philippine inflation was likely to be within a range of 7.5% to 8.3% in January, the central bank said on Tuesday, following the 8.1% rate in December, which was a 14-year high. The statistics agency will release inflation data on Feb. 7. More

By Elvira Pollina and Martin CoulterMILAN/LONDON (Reuters) – Italy’s Data Protection Agency said on Friday it was prohibiting artificial intelligence (AI) chatbot company Replika from using the personal data of Italian users, citing risks to minors and emotionally fragile people.Replika, a San Francisco startup launched in 2017, offers users customized avatars that talk and listen to them. It has led the way among English speakers, and is free to use, though it brings in around $2 million in monthly revenue from selling bonus features such as voice chats.The ‘virtual friend’ is marketed as being able to improve the emotional well-being of the user. But the Italian watchdog said that by intervening in the user’s mood, it “may increase the risks for individuals still in a developmental stage or in a state of emotional fragility”.Jen Persson, director of children’s privacy advocacy group Defend Digital Me, told Reuters that tools designed to influence a child’s mood or mental well-being ought to be classified as health products, and should therefore be subject to stringent safety standards. “These tools are being used with children without much oversight or protection from potential misuse,” she said. Italian regulators highlighted the absence of an age-verification mechanism, such as filters for minors or a blocking device if users do not explicitly state their age. Replika breaches European Privacy Regulations and processes personal data unlawfully as it cannot be based, even implicitly, on a contract that a minor is unable to sign, the watchdog said.Replika did not immediately respond to a Reuters email seeking comment.Robert Grosvenor, a managing director at consultancy firm Alvarez & Marsal, said the Italian watchdog was unlikely to be the only European regulator considering action against companies like Replika. “Whilst age verification could provide means to protect some of the most vulnerable groups, it does not address the risks and harms that AI-based services and solutions can raise if unregulated, in terms of the potential for unintended bias and discrimination,” he said. Replika’s developer, U.S. company Luka Inc, must notify the Italian authority of measures taken to implement its requirements in 20 days and could be fined up to 20 million euros ($21.80 million), or up to 4% of its global annual turnover, the statement said. (This story has been corrected to say Alvarez & Marsal is a consultancy firm, and not a law firm, in paragraph 11) More

(Reuters) – The U.S. Federal Reserve is likely to need to lift the benchmark rate above 5% and keep it there to squeeze too-high inflation out of an economy where the labor market remains strong even after nearly a year of the most aggressive round of Fed rate hikes in 40 years.That was the betting in financial markets on Friday after the U.S. Labor Department reported employers added more than half a million jobs last month, far more than expected, and the unemployment rate fell to 3.4%, the lowest in more than 50 years. That was also how San Francisco Fed President Mary Daly saw it. In December Fed policymakers thought they would likely need to lift rates to at least 5.1% this year to tame inflation, and that projection is still a “good indicator” for where policy is going, Daly told Fox Business Network. But, she added, “I’m prepared to do more than that, if more is needed.” For Daly and other Fed policymakers including Fed Chair Jerome Powell, the view is not new, and is especially not surprising in light of what Daly called the “wow” strength of January’s job gains. But for markets, it’s a turnaround. The Fed earlier this week increased its benchmark rate by a quarter-of-a-percentage-point to 4.5%-4.75%. In a news conference following the decision, Powell said that with the labor market still tight he expects to need “ongoing” increases to get monetary policy “sufficiently restrictive” to engineer a more balanced job market and bring down too-high inflation. Interest-rate futures traders, initially skeptical that with a disinflationary trend already underway the Fed would need more than a one further quarter point interest-rate increase in March, moved after Friday’s job report to price a further increase in May. That move would bring the policy rate to the 5%-5.25% range. Traders also pushed out their expectations for eventual Fed rate cuts after the jobs report, pricing them to start in November versus in September previously. Powell has said he does not expect inflation to fall fast enough to allow the Fed to cut rates at all this year.Friday’s Labor Department report did show slower growth in average hourly earnings to a 4.4% pace, from an upwardly revised 4.8% in December. “While the Fed welcomes any signs of easing wage pressures, the pace of growth in average hourly earnings is still too strong to help lower inflation,” Oxford Economics’ Ryan Sweet wrote. And it is progress on inflation that will drive the Fed’s policy decisions ahead, Daly said on Friday. By the Fed’s preferred gauge, inflation registered 5% in December, a slowdown from earlier in the year. But it’s too early to say that inflation has peaked, Daly warned. “The direction of policy is for additional tightening and in holding that restrictive stance for some time,” she said. “We really will have to be in a restrictive stance of policy until we truly understand and believe that inflation will come squarely back down to our 2% target.” More

As the president prepares for his national address, his aides debate an emphasis on his still-unrealized plans for child care, prekindergarten and more.WASHINGTON — President Biden’s top economic aides have battled for weeks over a key decision for his State of the Union address on Tuesday: how much to talk about child care, prekindergarten, paid leave and other new spending proposals that the president failed to secure in the flurry of economic legislation he signed in his first two years in office.Some advisers have pushed for Mr. Biden to spend relatively little time on those efforts, even though he is set to again propose them in detail in the budget blueprint he will release in March. They want the president to continue championing the spending he did sign into law, like investments in infrastructure like roads and water pipes, and advanced manufacturing industries like semiconductors, while positioning him as a bipartisan bridge-builder on critical issues for the middle class.Other aides want Mr. Biden to spend significant time in the speech on an issue set that could form the core of his likely re-election pitch to key swing voters, particularly women. Polls by liberal groups suggest such a focus, on helping working families afford care for their children and aging parents, could prove a winning campaign message.The debate is one of many taking place inside the administration as Mr. Biden tries to determine which issues to focus on in a speech that carries extra importance this year. It will be Mr. Biden’s first address to the new Republican majority in the House, which has effectively slammed the brakes on his legislative agenda for the next two years. And it could be a preview for the themes Mr. Biden would stress on the 2024 campaign trail should he run for a second term.Administration officials caution that Mr. Biden has not finalized his strategy. A White House official said Friday that the president was preparing to tout his economic record and his full vision for the economy.The Biden PresidencyHere’s where the president stands as the third year of his term begins.State of the Union: President Biden will deliver his second State of the Union speech on Feb. 7, at a time when he faces an aggressive House controlled by Republicans and a special counsel investigation into the possible mishandling of classified information.Chief of Staff: Mr. Biden named Jeffrey D. Zients, his former coronavirus response coordinator, as his next chief of staff. Mr. Zients replaces Ron Klain, who has run the White House since the president took office.Economic Aide Steps Down: Brian Deese, who played a pivotal role in negotiating economic legislation Mr. Biden signed in his first two years in office, is leaving his position as the president’s top economic adviser.Eyeing 2024: Mr. Biden has been assailing House Republicans over their tax and spending plans, including potential changes to Social Security and Medicare, as he ramps up for what is likely to be a run for re-election.Few of Mr. Biden’s advisers expect Congress to act in the next two years on paid leave, an enhanced tax credit for parents, expanded support for caregivers for disabled and older Americans or expanded access to affordable child care. All were centerpieces of the $1.8 trillion American Families Plan Mr. Biden announced in the first months of his administration. Mr. Biden proposes to offset those and other proposals with tax increases on high earners and corporations.Earlier this week, Mr. Biden hinted that he may be preparing to pour more attention on those so-called “care economy” proposals, which he and his economic team say would help alleviate problems that crimp family budgets and block would-be workers from looking for jobs.At a White House event celebrating the 30th anniversary of a law that mandated certain workers be allowed to take unpaid medical leave, Mr. Biden ticked through his administration’s efforts to invest in a variety of care programs in the last two years, while acknowledging failure to pass federally mandated paid leave and other larger programs.Mr. Biden said he remained committed to “passing a national program of paid leave and medical leave.”“And, by the way, American workers deserve paid sick days as well,” he said. “Paid sick days. Look, I’ve called on Congress to act, and I’ll continue fighting.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.For Mr. Biden, continuing to call for new spending initiatives aimed at lower- and middle-income workers would draw a clear contrast with the still-nascent field of Republicans seeking the White House in 2024. It would cheer some outside advocacy groups that have pushed him to renew his focus on programs that would particularly aid women and children.The State of the Union speech “presents the president with a rare opportunity to take a victory lap and, simultaneously, advance his agenda,” the advocacy group First Focus on Children said in a news release this week. “All to the benefit of children.”The efforts could also address what Mr. Biden’s advisers have identified as a lingering source of weakness in the recovery from the pandemic recession: high costs of caregiving, which are blocking Americans from looking for work. The nonprofit group ReadyNation estimates in a new report that child care challenges cost American families $78 billion a year and employers another $23 billion.“Among prime-age people not working in the United States, roughly half of them list care responsibilities as the main reason for not participating in the labor force,” Heather Boushey, a member of the White House Council of Economic Advisers, told reporters this week. She noted that the jobs rebound has lagged in care industries like nursing homes and day care centers.“These remain economic challenges and addressing them could go a long ways towards supporting our nation’s labor supply,” she said.But focusing on that unfinished economic work could conflict with Mr. Biden’s repeated efforts this year to portray the economy as strong and position him as a president who reached across the aisle to secure big new investments that are lifting growth and job creation. On Friday, the president celebrated news that the economy created 517,000 jobs in January, in a brief speech that did not mention the challenges facing caregivers.Calling for vast new spending programs also risks further antagonizing House conservatives, who have made government spending their first large fight with the president. Republicans have threatened to allow the United States to fall into an economically catastrophic default on government debt by not raising the federal borrowing limit, unless Mr. Biden agrees to sharp cuts in existing spending.“Revenue into the government has never been higher,” Speaker Kevin McCarthy, Republican of California, told reporters on Thursday, a day after he met with Mr. Biden at the White House to discuss fiscal issues and the debt limit. “It’s the highest revenue we’ve ever seen in. So it’s not a revenue problem. It’s a spending problem.”Catie Edmondson More

NEW YORK (Reuters) – Much stronger-than-expected U.S. job growth stopped early-year rallies in stocks and bonds dead in their tracks on Friday, forcing Wall Street to recalibrate expectations for how much more hawkish the Federal Reserve will need to be in its fight against inflation.An unexpectedly dovish message from Fed Chair Jerome Powell earlier this week had emboldened investors looking for evidence of the so-called “soft landing” scenario that has fueled a market rally this year, in which the central bank can tame inflation without causing a recession. But Friday’s data, which showed U.S. employment growth accelerating sharply in January, renewed the inflation concerns that hammered stocks and bonds last year, reinforcing some investors’ belief that the twin gains in both asset classes may have gotten ahead of themselves. The S&P 500 index was down about 1% on Friday though still up 8% on the year. Yields on the benchmark 10-year Treasury, which move inversely to prices, gained 12 basis points despite having declined by 30 basis points this year.”This report gives us more confidence that the Fed’s got to keep going, and that increases at the margin the odds that we do have to deal with a recession at some point later this year,” said Michael Reynolds, vice president of investment strategy at Glenmede, who has been underweight equities while holding a larger allocation to fixed income and cash.Job growth and wages are a chief concern for the Fed in its attempt to lower inflation to its 2% target rate after it surged to 40-year highs last year. The Labor Department’s nonfarm payrolls report on Friday showed a gain of 517,000 jobs in January, almost three times what was expected.The reading quelled hopes that the U.S. central bank might stop its tightening cycle, which is the most aggressive since the 1980s, after delivering just one more rate hike in March.Goldman Sachs (NYSE:GS) said it continued to expect two more 25-basis-point hikes in March and May, while Morgan Stanley (NYSE:MS) on Friday changed its forecast for the so-called terminal rate to 4.875% from 4.75%.The Fed’s policy rate is currently in the 4.50%-4.75% range. According to CME Group (NASDAQ:CME) data, the probability of a 25-basis-point hike at the Fed’s March 21-22 policy meeting rose on Friday to around 95% from 83% just before the release of the jobs report. Those betting that the Fed might cut rates later this year also lost some conviction, with fed funds futures traders now expecting the policy rate to go down to 4.7% in December. Earlier this week, they anticipated a rate of 4.49%.”The report will make insurance cuts less likely as there are no material signs of stress to force a rate cut,” said Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management.”The data today reinforces our positioning where we continue to be cautious on risk as the inflation question is slowly coming back into the investment narrative,” she said. More

The report defied expectations and underscored the challenges for the Federal Reserve, which is trying to cool the labor market to fight inflation.Soft landing? The American labor market is still soaring.After months of gentle but steady declines in job growth, employers unleashed an unexpected burst of hiring in January, adding 517,000 jobs on a seasonally adjusted basis, the Labor Department said on Friday.The increase was the largest since July, and it drew exclamations from economists steeped in labor market trends, who had been expecting another month of gradual cooling.“So much for moderation!” said Beth Ann Bovino, the chief U.S. economist at S&P Global Ratings. “We certainly didn’t see it in this report.”Underscoring the labor market’s extraordinary vibrancy was the unemployment rate, which fell to 3.4 percent, the lowest level since 1969.But even as businesses hired with striking zeal in January — or at least laid off fewer seasonal employees than in most years — wage growth continued to moderate. Average hourly earnings increased 0.3 percent from December, and 4.4 percent over the year, an indication that some of the pressure to lure employees with pay raises may be easing.Wage growth is slowing along with inflationYear-over-year percentage change in earnings vs. inflation More

BRASILIA (Reuters) – Brazil’s finance ministry sees room for leftist President Luiz Inacio Lula da Silva to raise the minimum wage as of May at a cost of up to 5 billion reais ($975 million) to the government, two sources in the ministry told Reuters on Friday. The sources, who spoke on condition of anonymity as the discussions are private, said a review of government spending, including curbing fraud in the Bolsa Familia welfare program, would pave the way for the new increase to be granted. “The minimum wage is easier to accommodate. If you are going to give an increase in May to reach 1,320 reais ($257), which would be everyone’s wish, it would be more or less 5 billion reais,” said one of the sources. The decision, which would bring the minimum wage up from 1,302 reais now, contrasts with the latest stance by Finance Minister Fernando Haddad that the current level already fulfilled Lula’s campaign promise to increase workers’ earnings above inflation. Haddad, however, did not deny the possibility of a new increase and said that the topic would be studied further.A real wage gain has already happened this year because the government of then President Jair Bolsonaro had forecast higher than observed inflation for 2022 when proposing this year’s budget.Because of that, the resources to guarantee a minimum wage increase that only compensated for past inflation were enough to secure a raise of 1.4%, to the current level. The newly-inaugurated Lula government set aside 6.8 billion reais in this year’s budget to further increase the minimum wage to 1,320 reais, a figure made public by Lula’s allies before he took office.But under the argument that beneficiaries of the social security system had increased in higher than expected numbers, the new government decided not to raise the minimum wage right away.Last month, Lula said the minimum wage policy for the coming years should take into account the country’s economic growth, setting up a working group to debate the subject. Haddad said recently that the policy of raising the minimum wage “a little above inflation” would help boost low-income consumption. ($1 = 5.1300 reais) More

WASHINGTON (Reuters) – U.S. job growth accelerated sharply in January while the unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a stubbornly tight labor market, and a potential headache for Federal Reserve officials as they fight inflation.The Labor Department’s closely watched employment report on Friday also showed job creation in the past year was much stronger than previously estimated, suggesting the economy was nowhere near a recession. Though wage inflation cooled further in January, average hourly earnings increased faster in 2022 than previously estimated.  The strength in hiring, which occurred despite layoffs in the technology sector as well as in sectors like housing and finance that are sensitive to interest rates, poured cold water on market expectations that the U.S. central bank was close to pausing its monetary policy tightening cycle.Economists said the head-scratching report and other data on Friday showing a sharp rebound in services industry activity last month suggested the Fed could lift its target interest rate above the recently projected 5.1% peak and keep it there for some time.”The labor market is still running hot, too hot for the Fed’s liking,” said Daniel Vernazza, chief international economist at UniCredit Bank in London. “Anyone that thought the Fed might stop hiking as soon as its March meeting is likely to be disappointed on this evidence.”The survey of establishments showed nonfarm payrolls surged by 517,000 jobs last month, the most in six months. Economists in a Reuters poll had expected a gain of 185,000. Data for December was revised higher to show 260,000 jobs added instead of the previously reported 223,000. Employment growth last month was well above the monthly average of 401,000 in 2022.With January’s report, the Labor Department’s Bureau of Labor Statistics (BLS) published its annual payrolls “benchmark” revision and updated the formulas it uses to smooth the data for regular seasonal fluctuations in the establishment survey.The economy added 568,000 more jobs in the 12 months through March 2022 than previously reported. Revisions to payrolls data from April through December also showed more jobs created than previously estimated. The economy added 4.8 million jobs in 2022 instead of the 4.5 million previously reported.The revisions dispelled claims by researchers at the Philadelphia Fed who published a paper in December suggesting employment growth in the second quarter of 2022 was overstated by about a million jobs. The BLS revised its industry classification system, which resulted in about 10% of employment reclassified into different industries. Last month’s broad increase in employment was led by the leisure and hospitality sector, which added 128,000 jobs, with 99,000 of them in restaurants and bars. Leisure and hospitality employment remains 495,000 jobs below its pre-pandemic level. Professional and business services employment rose by 82,000, with temporary help jobs, a harbinger for future hiring, rebounding by 25,900 after declining for several months. Government payrolls jumped 74,000, boosted by the return of striking university workers in California. (Graphic-Jobs by industry https://www.reuters.com/graphics/USA-FED/INDUSTRY/qmypmdoolvr/chart.png)Construction payrolls increased by 25,000 jobs, which were mostly among specialty trade contractors. Manufacturing employment rose by 19,000 jobs.Stocks on Wall Street were trading mostly lower. The dollar gained versus a basket of currencies. U.S. Treasury prices fell.WAGE GROWTH SLOWS Average hourly earnings increased 0.3% last month after gaining 0.4% in December. That lowered the year-on-year increase in wages to 4.4%, the smallest rise since August 2021, from 4.8% in December. But wage growth was revised up for 2022, suggesting only a moderate pace of cooling in wage inflation than previously thought. The average workweek increased to 34.7 hours from 34.4 hours in December.”While it is natural to be skeptical of the degree of strength in payroll growth and the increase in total hours worked given the perceived slowing of growth, we have been pointing out that almost all the labor market indicators going into this report showed an improvement in labor market conditions,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.(Average hourly earnings growth https://www.reuters.com/graphics/USA-FED/JOBS/dwpkrxdzdvm/index.html)President Joe Biden said the employment report was a sign that his economic plan was working. “Jobs are going up, inflation is going down,” the Democratic president wrote on Twitter.The Fed on Wednesday raised its policy rate by 25 basis points to the 4.50%-4.75% range, and promised “ongoing increases” in borrowing costs. Government data this week showed there were 11 million job openings at the end of December, with 1.9 openings for every unemployed person.The BLS also incorporated new population estimates in the household survey, from which the unemployment rate is derived. As such, the unemployment rate of 3.4%, the lowest since May 1969, is not comparable to December’s 3.5% rate, though it was not impacted by the new population controls.(U.S. jobless rate plummets to lowest since 1969 https://www.reuters.com/graphics/USA-JOBLESS/lgvdknozwpo/index.html)Household employment jumped 894,000, but accounting for the new population estimates, the increase was only 84,000. About 886,000 people entered the labor force, though the number declined by 5,000 after adjusting for the population controls. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to 62.4% in January from 62.3% in December. It was unchanged after taking the new population estimates into account.The employment report hinted at a rebound in manufacturing production last month. There are also signs that retail sales got off to a strong start in 2023. The economy continued to show resilience despite 450 basis points of rate hikes since last March.”The Fed would be well-served to consider this as a success and think that slowing down the pace of hikes, would allow the job market to bend, but maybe not break,” said Rick Rieder, chief investment officer of global fixed income at BlackRock (NYSE:BLK) in New York. “Today presents good evidence of a job market not breaking and evidence of how the economy can adapt and adjust to remain vibrant in the face of major headwinds.” More