Economy

WASHINGTON (Reuters) -Finance leaders of the Group of Seven (G7) advanced economies said on Wednesday they will closely monitor “recent volatility” in markets, and reaffirmed their commitment that excessive exchange-rate moves were undesirable.”Recognizing that many currencies have moved significantly this year with increased volatility, we reaffirm our exchange rate commitments as elaborated in May 2017,” the G7 finance ministers and central bank governors said in a statement released by the U.S. Treasury Department.Under the commitment agreed on May 2017, the G7 agreed excess volatility and disorderly currency moves have negative impacts on their economies and financial stability.The G7 finance leaders met on Wednesday on the sidelines of the G20 and International Monetary Fund (IMF) meetings held in Washington this week.Japan has been pushing hard to include a warning on recent currency moves in the G7 statement, as it struggles to address the yen’s slide to 24-year lows against the dollar. Tokyo intervened in the currency market last month to prop up the yen, arguing that recent “rapid, one-sided” moves were speculative.In the statement, the G7 also said the group’s central banks are “strongly committed” to achieving price stability and closely monitoring the impact of price pressures on inflation expectations.The G7 will “continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner, ensuring that inflation expectations remain well anchored, while being mindful to limit the impact on economic activity and cross-country spillovers,” it said.Policymakers gathering from across the world for this week’s meetings face the challenge of curbing soaring inflation with interest rate hikes, without triggering a global recession.The International Monetary Fund on Tuesday cut its global growth forecast for 2023 amid colliding pressures from high energy and food prices and the war in Ukraine, warning that conditions could worsen significantly next year. The U.S. Federal Reserve’s aggressive interest rate hikes have also driven up the dollar against many other currencies, forcing some emerging nations to hike rates despite weak growth to avoid their currencies from falling too much.In the statement, the G7 finance leaders said they will continue to encourage oil producing countries to increase production to address tight supplies, and engage OPEC+ countries on the issue “despite their recent disappointing decision.”OPEC+, the oil producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) plus allies including Russia, agreed steep oil production cuts earlier this month, curbing supply in an already tight market and drawing harsh criticism from U.S. President Joe Biden. More

NEW YORK (Reuters) – Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures. “Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis,” Bowman said in the text of a speech to be delivered before a gathering in New York City. The policy maker said Fed rate rises this year, which have been very large relative to the pace of past rate rise campaigns, had her full support. What happens with inflation will determine what is next for the Fed, Bowman said. “If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table,” she said. But if inflation starts to cool, “I believe a slower pace of rate increases would be appropriate,” Bowman said. She also noted she does not see any rate cuts ahead for now. “To bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time,” Bowman said. The central banker said it was “not yet clear” how far the Fed will need to increase the cost of short-term credit and how long it will need to maintain a restrictive policy stance. Bowman spoke following the release earlier in the day of meeting minutes from the central bank’s late September policy meeting. Then, policy makers raised their overnight target rate by 0.75 percentage point, lifting the federal funds target rate to between 3% and 3.25%. They also penciled in more increases as they contend with the strongest levels of inflation seen in decades. Fed forecasts from the September gathering saw officials pencil in a 4.6% federal funds rate by next year. Fed officials have all been on board with the Fed’s inflation fight, and the meeting minutes said many officials “emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”Fed officials are pressing forward with aggressive increases even as worries are mounting that their actions are driving up financial market stresses and are boosting the risk that something goes awry. Bowman also said in her remarks that while the Fed has had success in the past giving guidance about the outlook for monetary policy, the current period is uncertain enough to limit the power of that tool. “Under current circumstances, however, the best we can do on the public communications front is, first, to continue to stress our unwavering resolve to do what is needed to restore price stability,” Bowman said. More

Federal Reserve officials signalled they are more concerned about doing too little to rein in soaring US inflation than doing too much and doubled down on plans to tighten monetary policy so it constrains the economy, according to an account of their latest meeting.Minutes from the September meeting — at which the Fed implemented its third-consecutive 0.75 percentage point rate rise — underscored the high bar for the central bank to back off in its historically aggressive campaign to bring prices under control.According to the account, central bankers remain committed to “purposefully” tightening monetary policy in the face of “broad-based and unacceptably high inflation”. “Many participants emphasised that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the account said.The record of the meeting, released on Wednesday, comes just a day before a hotly anticipated inflation report, one of the last critical data points ahead of the Fed’s next rate decision in November and the midterm elections a few days later.Intense and persistent inflation has dogged the US central bank and the Biden administration and ignited concerns that a sharp recession and significant job losses will be required to tackle price pressures. Fed officials are debating whether a fourth 0.75 percentage point rate rise is necessary next month, which would lift the federal funds rate to a target range of 3.75 per cent to 4 per cent.In remarks delivered later on Wednesday, Michelle Bowman, a Fed governor, indicated her support for additional large rate rises in the absence of evidence that price pressures are easing.“If we do not see signs that inflation is moving down, my view continues to be that sizeable increases in the target range for the federal funds rate should remain on the table,” she said at an event hosted by Money Marketeers of New York University. “However, if inflation starts to decline, I believe a slower pace of rate increases would be appropriate.”According to the Fed minutes, some officials warned that the longer inflation stays elevated, the higher the risk that expectations of future price pressures get out of control, leading to a damaging feedback loop. Several emphasised the need to maintain a restrictive stance “for as long as necessary”.“They really want to emphasise the ‘higher for longer’ message and these minutes were really in line with that,” said Blerina Uruci, chief US economist at T Rowe Price. “The right thing to do right now is to focus on inflation and inflation expectations.”However, the minutes of the gathering, which took place before the IMF and others warned of an increasingly bleak outlook for the global economy, showed policymakers were concerned about the “highly uncertain” international outlook. Several participants stressed the need to “calibrate” the pace of further policy tightening with the aim of reducing the risk of “significant adverse effects on the economic outlook”.Most participants noted that the impact of their policy actions has not shown up in the data, highlighting that a “sizeable portion of economic activity had yet to display much response”. According to projections released in September, most of the Fed’s bank presidents and members of the board of governors project rates to rise to 4.4 per cent by the end of the year and eventually peak at 4.6 per cent in 2023.A significant minority of officials endorsed a slightly less aggressive approach, however, suggesting many are open to the Fed stepping down to half-point increments as early as next month. The Fed has come under international pressure to slow the pace of rate rises given the significant impact of its tightening campaign on the global economy and the ability of countries with weaker public finances to repay their debts. The IMF this week warned that the “darkest hour” for the global economy lies ahead, both in terms of growth and financial stability. But it nonetheless urged central banks to “stay the course”, given its view that the risk of doing too little to tackle inflation outweighs the costs of not being bold enough.

Acknowledging “elevated global economic and financial uncertainty”, vice-chair Lael Brainard this week said the Fed should move forward with rate rises “deliberately and in a data-dependent manner”.Signs of global financial stress have begun to crop up since the September meeting, exacerbated in part by extreme volatility in UK markets as the Bank of England has struggled to contain the fallout from the government’s tax-cutting package announced late last month.Despite multiple emergency interventions from the BoE, the UK’s government bond market has continued to seize up.However, Fed officials maintain that US financial markets are still functioning properly, signalling the central bank remains focused on tackling high domestic inflation. Another strong jobs report in September — which showed the creation of 263,000 positions and the unemployment rate dropping back to its pre-coronavirus pandemic low of 3.5 per cent — has also given officials cover to plough ahead with aggressive rate rises. Policymakers as of the last meeting characterised the labour market as “very tight”.Christopher Waller, a Fed governor, last week said the central bank does not yet face a “trade-off” between its employment goals and its inflation goals, meaning its “monetary policy can and must be used aggressively to bring down inflation”. More

Joe Biden has warned that the US faces a “decisive decade” in its rivalry with China, as he unveiled a national security strategy that singled out Beijing as having the intent and capability to reshape the world order.In the first such document of his presidency, Biden on Wednesday wrote that his administration was “clear-eyed about the scope and seriousness” of the challenge posed to the international order from China and Russia. “China harbours the intention and, increasingly, the capacity to reshape the international order in favour of one that tilts the global playing field to its benefit,” Biden wrote in an introduction to the 48-page document. The national security strategy said the US faced two strategic challenges: a post-cold war competition between major powers and transnational challenges that range from climate change to global health issues.Thanks to readers who took our poll yesterday. Eighty-one per cent of respondents said the G7 should speed up the delivery of air defence systems for Ukraine. Now, here is the rest of today’s news — Emily Five more stories in the news1. Yen falls into intervention zone with new 24-year low The yen has moved past the ¥145.90 level that prompted Japanese authorities to intervene last month to strengthen the currency for the first time since 1998. In afternoon trading on Wednesday in London, the currency fell to ¥146.95 as the US dollar surged. The yen has lost more than 20 per cent of its value against the dollar this year.2. Bank of England ramps up bond buying The central bank battled a renewed sell-off in UK government bonds yesterday after its vow to end its emergency gilt-buying programme unsettled markets already unnerved by the fiscal plans of prime minister Liz Truss. The BoE bought £4.4bn of gilts from investors, its biggest intervention since it entered the market last month.Related read: The Bank of England has said “lessons must be learned” from the pensions crisis that triggered an unprecedented intervention in the UK gilt markets, and stressed the need for action to mitigate similar risks in other parts of the financial sector.3. Challenges arise securing air defence systems for Ukraine Nato allies are struggling to secure sufficient air defence systems to meet Ukraine’s demands for additional support, western officials have admitted, as Kyiv pleas for greater protection from Russian missile attacks. Western powers are working to locate systems that could be moved, two senior officials said, in the face of production shortages and stretched inventories.4. IMF urges governments to rein in spending Rising interest rates and high inflation have increased the importance of countries building resilience into their public finances so they can deal with a more “shock-prone” world, the IMF said on Wednesday in its annual Fiscal Monitor publication.5. Fed fearful of doing ‘too little’ to stamp out soaring US inflation In an account of September’s Federal Reserve’s latest meeting, officials signalled they are more concerned about doing too little to rein in soaring US inflation than doing too much and doubled down on plans to tighten monetary policy so it constrains the economy. The day aheadTaiwan ends mandatory quarantine for arrivals Those who arrive in Taiwan from today will be asked to undergo a seven-day period of self-initiated prevention measures rather than mandatory quarantine.Iraq presidential election by the parliament Iraqi members of arliament will meet today for their fourth attempt this year to elect a new president. (Al Jazeera) Fijian PM’s son in court in Australia Ratu Meli Bainimarama, son of Fiji’s prime minister, is due in court today in Australia to face domestic violence charges. His father, Frank Bainimarama, faces an election later this year (BBC) US CPI report Yesterday’s producer price index report will be followed today by a widely anticipated consumer price index reading for September, with economists polled by Reuters expecting a rise of 8.1 per cent.What else we’re readingIran’s teenage girls on the front line of protests Nika Shakarami is one of half a dozen teenage girls and young women who have died as protests have swept Iran since mid-September following the death in custody of 22-year-old Mahsa Amini. While more men have died in the crackdown, the dead girls have become martyrs, symbols of the struggle for equal rights.

Pictures of Iranian teenager Nika Shakarami, who died last month in mysterious circumstances, are held aloft at a protest in Düsseldorf, Germany © Ying Tang/NurPhoto/Getty Images

‘Fortress Beijing’ eliminates threats ahead of congress With just days until the Chinese Communist party’s most important political meeting in a decade, President Xi Jinping’s security lieutenants are intensifying a months-long crackdown. Under the Ministry of Public Security’s “100-day operation”, which started in June, more than 1.4mn people have been arrested across the country.Disease and war are shaping our economy It was not familiar economic forces that caused recent upheavals but Covid-19 and the war in Ukraine. This reminds us that the most destructive forces are indifferent nature and wicked humanity. As the latest IMF report outlined downside risks, Martin Wolf asks: what can and should be done?Fumio Kishida prepares Japan’s defences The prime minister is by nature a dovish diplomat. But surrounded by increasingly hostile regimes in China, Russia and North Korea, Kishida has little choice but to reshape his nation’s defences, as he outlined in an interview with the FT.How can the Bank of England repair the gilt market? British government bond yields have been trading at their highest levels since the global financial crisis. While the Bank of England has provided some stability by buying gilts. BoE officials have signalled privately that it could extend its emergency bond-buying programme but governor Andrew Bailey warned pension funds that they have “three days left” before the support ends. Is the BoE’s intervention enough? Here are four possible next steps.Wine FT’s Jancis Robinson recently went to a tasting of 120 wines from some of South Africa’s most admired producers. The one that stood out to her comes in a 25cl can retailing for £5. Now she’s making the case for canned wine. Yes, really.

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WASHINGTON (Reuters) – European Central Bank policymakers are closing in on a deal to change rules governing trillions of euros worth of loans to banks in a move that will shave tens of billions of euros off in potential banking profits, sources close to the discussion said. Euro zone banks sit on 2.1 trillion euros ($2.04 trillion) of cash handed out by the ECB at ultra-low, sometimes even negative interest rates, in the hopes that doing so would help kick-start the economy. But after a string of unexpectedly quick and big rate hikes banks can now simply park this cash back at the ECB, earning a risk-free profit, irking policymakers who see it as gaming the system.Policymakers reviewed five options at a seminar earlier this month to change the rules of these Targeted Longer-Term Refinancing Operations (TLTRO), all of which were deemed somewhat problematic because they raised a legal or political hurdle, or went counter to other policy goals, three sources told Reuters on condition of anonymity.The five options were then narrowed to three, and staff are working on refining them. “We are very close and a decision is going to come soon,” one of the sources, who asked not to be named, said on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington. “The ultimate design is going to hurt banks, and that is very much our intention.”All sources said that a decision could come at the Oct. 27 policy meeting because there’s little benefit in waiting. The impact of the move would be worth around 30 billion to 40 billion euros a year, one of the sources said, while a second source said the impact could be much higher if rates rise as markets now expect.An ECB spokesman declined to comment. French central bank chief Francois Villeroy de Galhau, who has long advocated changing the terms of the loans, earlier this week said the ECB should avoid “unintended incentives” to delay the repayment of these funds.The problem is that the ECB’s 0.75% deposit rate will rise further, probably close to 2% by the end of this year, and possibly higher in 2023, leaving the central bank with a huge potential interest expense.THREE FINALISTSOut of the three remaining options, the simplest would be to unilaterally change the terms of TLTROs, so cash parked back at the ECB would not be remunerated at the deposit rate. The benefit is that all banks are affected the same way and the ECB would not be playing favorites. But this option is likely to raise a legal hurdle, with banks possibly filing lawsuits.Another option would be that cash from TLTROs would be treated on similar terms as minimum reserves kept by commercial banks at the ECB. Such reserves are now remunerated at 0.5%, below the ECB’s deposit rate. A third option would be to create a sort of tiering that would allow banks to enjoy more favorable up to a certain threshold, after which a lower rate would apply.Policymakers argue that it’s politically unacceptable that banks earn such a windfall while the economy is in a downturn and ordinary people suffer. They also said that this sort of accommodation is inconsistent with interest rate policy, which is being tightened.But there is also a wider political issue at play. Paying interest on these excess reserves deplete central banking profits, limiting their ability to pay cash into national budgets and depriving the state of vital income. That risks putting political pressure on central banks around the euro zone. In extreme cases, central banks could even deplete their own capital, possibly forcing governments to recapitalize lenders. ($1 = 1.0318 euros) More

Most states allow workers to be paid less than the usual minimum wage if they get tips. Experts say the system is often abused at employees’ expense.In most states, employees who receive tips can be paid a subminimum wage as long as tips bring their earnings to the equivalent of the minimum wage in a given pay period. Many experts say the system is often abused at employees’ expense.Do you work for tips in the hospitality industry, make base pay that is below the minimum wage and feel that you’ve illegally lost income recently? If so, The New York Times would like to hear about your experiences.We will not publish any part of your submission without contacting you first. We may use your contact information to follow up with you.We’d like to know about problems you’ve had collecting your pay as a tipped worker. More

Andrew Bailey took the gamble of his career on a sunny Tuesday afternoon in Washington, when speaking to bankers at the Institute of International Finance. Amid all the turmoil following chancellor Kwasi Kwarteng’s “mini” Budget, the BoE governor decided to use his appearance at the financial industry representative body to play a game of chicken with the markets. Bailey ruled out extending the central bank’s emergency programme to buy UK government bonds, which was launched when a sharp spike in gilt yields after Kwarteng’s fiscal statement threatened insolvency for multiple pension schemes.He had a tough message for the pensions industry, telling it to sort out its problems ahead of the programme’s scheduled expiry on Friday. “You’ve got three days left, now. You’ve got to get this done,” said Bailey. Before this well-rehearsed soundbite, Bailey explained why he was taking such a hardline stance.The world was not like the early stages of the Covid-19 pandemic, when the BoE printed money in great quantities, bought assets at almost any price, cut interest rates and put no time limit on the intervention, he insisted. “We’ve got two things going in opposite directions,” he said of the current situation, citing the dual pressures on the BoE to both tighten monetary policy to curb high inflation as well take steps to restore order in the government bond market.“We were going to start [quantitative] tightening and we were raising interest rates, at the same time as we are having to offer to buy gilts,” said Bailey. These contradictory pressures justified the time limit on the BoE financial stability operation, he suggested.

BoE insiders are in no doubt the central bank and the governor are caught in a very difficult situation, saying it was created by the government’s £43bn of unfunded tax cuts contained in the mini Budget, which spooked the markets.They hope the Friday deadline for conclusion of the central bank’s gilt-buying operation will galvanise minds at pension funds and offer everyone a way out, but there are three main risks the BoE is facing. The first risk comes from mixed messages. The Financial Times reported on Wednesday that BoE representatives had informed some banks that it was prepared to extend the bond-buying facility beyond October 14 if market conditions demanded it, citing people briefed on the discussions. The BoE subsequently issued a statement saying its “temporary and targeted purchases of gilts will end on October 14”, adding this had been made clear to banks “at senior levels”.One industry person involved in the discussions between BoE representatives and the banks said later: “While [the BoE said] that banks had been told at a senior level that the programme would stop on Friday . . . we were also being told that they would do whatever it takes to stop this from becoming a systemic crisis and would consider extending it. Both of those statements are probably true.”Former BoE officials said it was reasonable for banks to think the central bank’s bond-buying programme could be extended.Sir Charlie Bean, former BoE deputy governor, said “if after the end of the week, financial stability risks [are still there], the bank will have to step in again”.Since Bailey cannot guarantee the BoE bond-buying operation will end on Friday and knows that in a stressed situation he will not have any choice but to retain the facility, it was quite a gamble to send such a tough message to pension funds and their liability-driven investment providers. It might backfire. The second risk for Bailey and the BoE is the prospect of tensions with the government following a short period when Kwarteng has acknowledged the virtues of economic orthodoxy and said how much he values the independent central bank. Chris Philp, chief secretary to the Treasury, said on Wednesday he had “complete confidence in [BoE officials’] ability to manage systemic financial stability”, but other ministers were less generous.

Jacob Rees-Mogg, business secretary, blamed the BoE for market turbulence, suggesting it had been caused by the central bank’s failure to raise interest rates as quickly as the US Federal Reserve.The problems were “much more to do with interest rates than it is to do with a minor part of fiscal policy”, he added. BoE insiders reject this view and see themselves as stuck dealing with a mess not of their own making.They agree with the IMF that the government’s loose fiscal policy has been working “at cross purposes” with their battle to bring down inflation. According to Bean, Kwarteng’s unfunded tax cuts mean the BoE cannot be seen to be subsidising government borrowing costs or “doing anything that would be interpreted as helping government out of a hole”.Lowering borrowing costs for governments that have unsustainable fiscal policies has traditionally been the route towards hyperinflation.If these two risks were not difficult enough, a third is a simmering difficulty within the BoE itself, involving its two roles to maintain financial stability and to set monetary policy.Bailey highlighted how the two areas of policymaking were pulling in different directions on Tuesday.Others have a different interpretation, with Huw Pill, BoE chief economist, suggesting on Wednesday the two policies were complementing each other.“Restoring market functioning,” he said, using the bond-buying intervention, “helps reduce any risks from contagion to credit conditions for UK households and businesses [and] such actions preserve the effective transmission of monetary policy”. His reassuring words apply only if the BoE actions to lower gilt yields are temporary, however.If they were permanent, as Bailey explained, monetary policy would not be able to function properly to set a sufficiently high interest rate to control inflation.Taking these three risks together, many things could go wrong for Bailey in the next few days as he deals with the possibility of the markets calling his bluff.

If the BoE has to resume buying government bonds after Friday to restore calm, his credibility will be severely damaged. The one piece of good news for the governor, however, is that this is exactly what happened to Lord Mervyn King in 2007.The then BoE governor wrote a letter to the House of Commons Treasury committee saying that any bailout of Northern Rock would commit the sin of encouraging moral hazard, only to eat his words a few days later when a run on the bank started. Despite that disaster, King remained governor until his term expired in 2013. Additional reporting by Owen Walker in London More

Latin America’s commodity exporters have shone this year while almost everywhere else has been in darkness. Emerging market stocks in the benchmark MSCI index are down 30 per cent in the year to date; Latin American stocks have climbed 2.5 per cent. Petrobras, the Brazilian oil company, has notched up a more than 13 per cent return on the local exchange; Brazilian industrials are up nearly 18 per cent.Across emerging markets, Russia’s attack on Ukraine has devastated many companies, especially those closest to the war. MSCI’s EM eastern Europe index collapsed after the invasion and has stayed down, off more than 85 per cent so far this year. Those further away have suffered less.But it is soaring commodity prices, for food, fuel and raw materials, that have lifted Latin America’s markets and currencies. In a world dominated by the rising dollar, the Brazilian real has posted rare gains against the greenback this year, up more than 7 per cent. Despite some recent weakness, the real should hold up. Thanks to a healthy current account surplus and an unusual decelerating inflation rate this year, Brazil’s currency should trade closer to R$4.50 to the dollar rather than today’s R$5.30 thinks Robin Brooks, chief economist at the Institute of International Finance. The region’s commodity-exporting currencies should be performing far better against the dollar. In fact, the real’s gains this year — and the Mexican peso’s more modest 2 per cent rise — can be explained as much by interest rate movements as exports. Brazil’s central bank began raising rates a year ahead of the US.As is so often the case in Latin America, political risk has intervened. Export growth is impressive. But Brazil’s knife-edge election drama, constitutional ructions in Chile and unrest elsewhere have diminished the appetite for risk among global investors. For LatAm currencies, there are more factors at play than commodity prices. More