Economy

DUBLIN (Reuters) – Ireland will deliver what ministers have called two budgets in one on Tuesday, making the usual spending increases and tax cuts while also helping firms and consumers pay soaring energy bills in what they hope will be a one-off intervention.As one of the few European Union countries set to deliver a budget surplus this year – in Ireland’s case due to surging corporate tax receipts – ministers will be able to spend more next year while keeping the public finances in the black.The government already announced in July it would boost the 2023 budget package to 6.7 billion euros ($6.5 billion) to increase recurring spending and the amount of money people can earn tax-free to help offset some of the effects of inflation hitting a near 40-year-high of 10%.It also promised a one-off package including grants for companies and cash for households to pay energy bills. That will come in at around 3 billion euros, according to two sources briefed on the negotiations which are nearing a conclusion.With most of the one-off payments to be made within weeks, the 2021 budget surplus will be lower than the 0.9% of GDP predicted by the finance ministry, while the provisional 2.2% forecast for 2023 does not include budgetary measures.In May, the European Commission forecast that Denmark would be the only country in the EU to deliver a surplus this year with Sweden, Ireland and Luxembourg joining them in 2023.Ireland would still be taking in less money that it spends without the corporate tax haul mostly generated from its large multinational sector. Finance Minister Paschal Donohoe is expected to announce he will stash some of the excess receipts into the state’s currently empty ‘rainy day’ reserve fund.The rest will help fund permanent hikes to social welfare rates, cuts in childcare costs and a public sector pay deal, with additional child benefit payments and allowances aimed at protecting people against fuel poverty among the one-off measures.($1 = 1.0350 euros) More

WASHINGTON (Reuters) – U.S. Federal Reserve officials on Monday sloughed off rising volatility in global markets, from slumping U.S. stocks to currency turbulence abroad, and said their priority remained controlling domestic inflation.”There are interactions there,” Cleveland Fed President Loretta Mester said, noting that financial market volatility can affect investor decisions and the value of the dollar does impact the U.S. economy.”But in terms of our goals, we are going to set our policy, taking into account the environment we are in, in order to get back to price stability here in the U.S,” Mester said after a hawkish speech at the Massachusetts Institute of Technology in which she argued that it could be more costly to do too little to rein in inflation than to do too much. Asked at a Washington Post event whether he felt U.S. investors had taken an overly optimistic view of Fed policy until a recent sharp sell-off begin, Atlanta Fed president Raphael Bostic said that was beside the point.”I don’t know whether they’re too optimistic or not optimistic enough … The more important thing is that we need to get inflation under control,” Bostic said. “Until that happens we’re going to see I think a lot of volatility in the marketplace in all directions.”Tax cuts proposed by the government of new British Prime Minister Liz Truss, with their potential to further stoke inflation, raised the prospect that the country’s fiscal policy will conflict with efforts by the Bank of England to tame price increases with higher interest rates. [L1N30X0A4]The mixed signals have sent the pound into a tailspin, adding another dose of volatility to world financial markets already coping with Federal Reserve interest rate increases moving faster and higher than anticipated, with many other countries racing to follow suit.”The reaction to the proposed plan is a real concern,” showing increased uncertainty about the U.K.’s economic prospects, Bostic said. “The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the U.S. economy is going to perform.”The U.S. central bank last week approved a third consecutive 75-basis point rate hike, lifting its policy rate a total of three percentage points this year in what has been one of its fastest efforts ever to raise borrowing costs and slow the economy. In recent weeks, Fed officials have been adamant that they will push rates as far as needed to cool inflation – even at the cost of rising unemployment and a possible recession.Some sectors of the economy have felt the hit already, with mortgages on home loans doubling to more than 6%, and home sales dropping.Mester at MIT was asked repeatedly about the housing market, and even whether the Fed had perhaps already gone far enough, but she stuck to her guns. This is “going to be painful,” she said, and unemployment will rise, but to bring down inflation, “we are just going to have to move rates up and rates are going to be held higher for longer than we thought previously.” She said she would want to see several months of month-to-month inflation declines before being convinced that inflation had peaked.In separate remarks to the Greater Boston Chamber of Commerce, Boston Fed president Susan Collins echoed the Fed’s consensus that the fight to cool the current bout of inflation was paramount. “At the moment, inflation remains too high,” Collins said in her first policy remarks since becoming head of the bank. While she said she felt the pace of price increases may indeed be at or near its peak, “returning inflation to target will require further tightening” of credit conditions, which the Fed influences through increases to its target federal funds rate. The Fed maintains a 2% inflation target, as measured by the personal consumptions expenditures price index. As of July that index was increasing at a more than 6% annual rate. Data for August will be released on Friday.In recent weeks equity markets have reflected a broader repricing against the possibility of U.S. interest rates returning to levels not seen in a decade and remaining there.The S&P 500 is down 12% just in the month that Fed Chair Jerome Powell delivered a stern message at a central bank symposium in Wyoming about the economic “pain” required to curb the fastest price increases since the 1980s.Fed officials have often been accused of coddling financial markets, but have given little indication the current sell-off will cause them to reconsider their policy plans as long as prices and wages continue soaring, and the job market remains strong. “The U.S. economy functions best when there’s confidence about … its trajectory over the short and medium term,” Bostic said. “High inflation undermines that.” More

Joe Biden’s plan to forgive thousands of dollars of student loan debt for millions of Americans will cost more than $400bn over three decades, the non-partisan Congressional Budget Office has estimated.The price tag was revealed by the CBO on Monday in a letter to Republican lawmakers who had requested an assessment of the plan’s budgetary impact. The US president in August announced his executive action to cancel the student debt.Progressive Democrats cheered the student loan forgiveness scheme as a way to provide relief for millions of Americans saddled with student debt. It would cancel up to $10,000 in debt for those earning $125,000 or less.However, it was heavily criticised by Republicans and some moderate Democrats for potentially stoking inflation at a time when prices were already high and adding to the country’s fiscal burden in a way that was not finely targeted towards the lowest-income households.The Biden administration had been coy about releasing its own assessment of the budgetary impact along with the plan.The CBO acknowledged its own projections were “highly uncertain”, warning that in this case, “the most uncertain components are the projections of how much borrowers would repay if the executive action cancelling debt had not been undertaken and how much they will repay under that executive action”.White House press secretary Karine Jean-Pierre defended the policy, telling reporters it was “an important step forward in giving people an opportunity to save some money and put money down on a house, to start their family”.

Chuck Schumer and Elizabeth Warren, the top proponents of the policy in the Democrat-controlled Senate, said that “in contrast to President [Donald] Trump and Republicans who gave giant corporations $2tn in tax breaks, President Biden delivered transformative middle-class relief by cancelling student debt for working people who need it most”. But Republicans pounced on the CBO estimate as the latest indication of the administration’s propensity to spend. Many are citing the debt relief plan on the campaign trail ahead of the midterm elections in November.“President Biden isn’t forgiving student loans — he’s charging hardworking Americans $400bn,” Mariannette Miller-Meeks, a Republican member of the House from Iowa, wrote on Twitter. More

The Bank of Korea said in a statement respondents to the survey gave a median answer of 4.2% when asked about their expectations for consumer inflation for the coming 12-month period, down from 4.3% in August, when the rate fell from 4.7% in July. The finding comes as South Korean policymakers have said inflation in Asia’s fourth-largest economy would probably reach its peak by October, although the rate of expected inflation was still more than twice the central bank’s target of 2%.The same survey found consumer confidence improved for a second month in September as the Consumer Sentiment Index (CSI) rose to 91.4 from 88.0 in August and 86.0 in July, which was the lowest since September 2020.However, the survey was conducted between Sept. 13-20, before the outcome of the U.S. Federal Reserve’s Sept. 20-21 policy meeting rattled the global markets and would not include any change in outlook since then. More

The Kremlin has sought to calm anxiety in Russian society about President Vladimir Putin’s decision to mobilise the army’s reserves by denying reports it has decided to close the border or introduce martial law. Panic over Putin’s mobilisation order — which has affected a much broader part of the male population than the president said was eligible for the draft — has continued to fuel protests and prompted people to flee across the few remaining open borders. Kremlin spokesperson Dmitry Peskov said on Monday that “no decisions have been taken” on martial law or border closures, according to state newswire RIA Novosti. Images of crowded airports and long queues of cars at Russia’s land borders have undermined the Kremlin’s portrayal of the call-up as a widely accepted measure. The FSB, Russia’s main security service, said it sent an armoured personnel carrier to the border with Georgia, where the longest line to leave Russia has formed, to stop Russian reservists from leaving the country without going through passport control, according to news outlet RBC. Lawyers and activists have reported border guards in some regions are barring men from leaving on the basis that they are eligible for mobilisation. Peskov admitted some regions were calling up people who did not meet Russia’s requirements for draft eligibility, but insisted that “instances of deviation from the required criteria are being fixed”. Military briefing: Putin’s “partial” mobilisation of 300,000 men for his war in Ukraine faces training and logistical obstacles, Europe editor Ben Hall reports. Opinion: Chief foreign affairs commentator Gideon Rachman argues Putin’s nuclear threats against Ukraine cannot be ignored.Thanks for reading FirstFT Asia. Here is the rest of today’s news — AmandaFive more stories in the news1. Elon Musk offers Iranians uncensored internet access Musk’s Starlink has activated its satellite broadband service in Iran amid deadly protests. The activation follows relaxed sanctions from the US state department that had prevented internet services and communication networks from operating in Iran.

A SpaceX rocket carrying Starlink internet satellites lifts off from Cape Canaveral in Florida. Starlink is the first in a new generation of satellite networks operating in low-Earth orbit © AP

2. Apple shifts iPhone production away from China Apple has begun producing its iPhone 14 model in southern India. The company is working to diversify supply chains out of China as tensions grow between Washington and Beijing. China’s harsh pandemic measures have also disrupted business. 3. UK tax cuts increase global recession risks, says Fed official A top official at the US central bank warned that the UK’s new fiscal plan has increased economic uncertainty and raised the odds of a global recession. The warning comes as the pound sits at a record low against the dollar as investors responded to UK chancellor Kwasi Kwarteng’s £45bn tax-cutting package. 4. Investors rush to snap up shares in Porsche The German sports car maker is set to deliver one of Europe’s largest IPOs on Wednesday. Listing shares in Porsche will help owner Volkswagen raise money to invest in electric vehicles and develop software as it tries to catch up with Tesla. 5. End of Hong Kong’s quarantine fuels hope of looser China rules Hong Kong ended its Covid-19 quarantine policy on Friday, raising hopes that Chinese authorities will ease the mainland’s own restrictions. The cost of a 2.5-year quarantine has been steep on Hong Kong’s gross domestic product and population, with more than 120,000 residents leaving this year.The day aheadFuneral for former Japanese PM Shinzo Abe World leaders gather in Tokyo to attend the controversial state funeral of Abe. The former prime minister was assassinated at a campaign rally in July. US economy Conference Board publishes its consumer confidence index today, which is expected to show an improved outlook on the US economy. The Federal Housing Finance Agency also releases figures on US housing prices and sales. Go deeper: The housing data comes as US mortgage rates are rapidly rising. Earlier this month, average US mortgage rates topped 6 per cent for the first time since the 2008 financial crisis. Keep up with the important business, economic and political stories in the coming days with the FT’s Week Ahead. Click to subscribe here. And don’t miss our FT News Briefing audio show — a short daily rundown of the top global stories.What else we’re readingChinese business schools embrace state agenda China is reforming how it will educate the next generation of business leaders. Mandatory classes now include material on Xi Jinping’s policy mantras and admissions have shifted to favour students with backgrounds in technology and manufacturing. Go deeper: The FT just released its special report on Asia-Pacific’s business schools. Compare the region’s MBA programmes and read more about the business school landscape.

Changing course: Tsinghua University School of Economics and Management is among the many business schools in China that are adapting their curriculum © FT

Far-right Meloni taps into Italy’s wish for radical change After two decades of economic stagnation, Giorgia Meloni’s victory reflects Italians’ desire to head in a new direction. Set to be the country’s first female prime minister, the far-right firebrand pledges to boost the economy and continue to work with Brussels. Chinese metals giant will sell assets and restructure Maike Metals, which handles a quarter of China’s refined copper imports, will sell assets and consider extensive restructuring, chair He Jinbi tells the FT. The group’s announcement shows how China’s economic slowdown is translating into a liquidity crisis at highly leveraged companies in the private sector. The seven economic wonders of a worried world In periods of economic gloom, it is worth highlighting the few countries that defy the prevailing pessimism. Ruchir Sharma outlines seven that stand out in a world tipping towards recession.Meet SoftBank’s financial guru No ordinary finance head, Yoshimitsu Goto sits at the centre of SoftBank’s gruelling battle against the global tech rout that has cost the conglomerate $23bn. One of the few who can say “no” to founder Masayoshi Son, Goto is an exception to SoftBank’s executive exodus in the past 18 months.Fashion Young entrepreneurs are capitalising on TikTok and Instagram’s marketing potential to build successful businesses in real life. Their personal, playful and almost grassroots launches contrast sharply against mainstream pop-ups and help lure in long queues of teens.

Many shoppers are prepared to wait for hours to buy fashion they can’t find on the high street. © Harry Mitchell More

(Reuters) – The Federal Reserve takes into account global factors like the strength of the dollar as it sets interest rates, though it ultimately makes policy decisions based on domestic goals, Cleveland Fed President Loretta Mester said on Monday.”We’ve seen what’s going on in financial markets. … The mechanism will be through the financial markets, and whether they are functioning or not,” Mester said on a day of heightened financial market volatility that included a steep drop in the value of the pound. “We are going to set monetary policy that’s appropriate for the U.S. economy, but we don’t set it in a vacuum thinking that we are an independent island and we are not connected to the rest of the world.” More

Regulators from New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont all filed administrative actions against the company, saying its accounts would qualify as securities and should be registered as such. “Nexo violated the law and investors’ trust by falsely claiming it is a licensed and registered platform,” New York Attorney General Letitia James said, adding she had sued the company and was seeking “disgorgement of any revenues derived from Nexo’s unlawful conduct”.In February, BlockFi had agreed to pay $100 million in a landmark settlement with the U.S. SEC and state authorities that said its interest-bearing product should have been registered as a security. Since then, digital asset platforms have been seeking more clarity on the rules governing such products, saying current regulations remain unclear.”Since the SEC guidance on earn products in February 2022, Nexo has voluntarily ceased the onboarding of new U.S. clients for our Earn Interest Product as well as stopped the product for new balances for existing clients,” the company said.Nexo’s interest accounts promise an annual interest rate as high as 36%, according to California’s Department of Financial Protection and Innovation.The company, however, said the 36% interest was only applicable for one asset, and it does not advertise the high rate. For the majority of assets on its platform, rates offered are in single-digit percentages, Nexo said.The regulatory clampdown comes amid a crypto winter that has seen prices plummet this year as a risk-off sentiment and fears of a looming recession crushed risky assets, forcing some companies into bankruptcy. More

The UK government’s new fiscal plan has increased economic uncertainty and raised the odds of a global recession, a top official at the US central bank warned after sterling touched a record low. Speaking while the pound whipsawed as traders digested UK chancellor Kwasi Kwarteng’s £45bn tax-cutting package, Raphael Bostic, president of the Atlanta branch of the Federal Reserve, said the plan “has really increased uncertainty and really caused people to question what the trajectory of the economy is going to be”. Asked whether the plan and resulting volatility would increase the chances that the world economy tips into recession, Bostic said: “it doesn’t help”. “A basic tenet of economics is more uncertainty leads to less engagement by consumers and businesses,” he said. “The key question will be, what does this mean for ultimately weakening the European economy, which is an important consideration for how the US economy is going to perform.”Bostic’s comments came on the heels of a warning from Susan Collins, president of the Fed’s Boston branch, who said an external shock could tip the US economy into a recession.Speaking at an event on Monday, Collins, whose tenure began in July, highlighted the challenges facing the Fed as it confronts price pressures that have proven much harder to root out than anticipated while spreading to a broad range of sectors.“A significant economic or geopolitical event could push our economy into a recession as policy tightens further,” said Collins, who is a voting member on the Federal Open Market Committee this year and the first black woman to lead one of the bank’s branches. She added: “Moreover, calibrating policy in these circumstances will be complicated by the fact that some effects of monetary policy work with a lag.”Collins and Bostic are among the first top Fed officials to make public remarks since the central bank last week implemented its third consecutive 0.75 percentage point rate rise and signalled further large increases to come.Most officials see the federal funds rate rising to 4.4 per cent by year-end before peaking at 4.6 per cent in 2023. It hovers between 3 per cent and 3.25 per cent.Also on Monday, Loretta Mester, president of the Cleveland Fed, spoke of the global ramifications of the Fed’s aggressive campaign to tighten monetary policy, which has fuelled a significant appreciation of the dollar against currencies globally. “We’re going to set monetary policy that is appropriate for the US economy, but we don’t set it in a vacuum thinking that we’re an independent island and we’re not connected to the rest of the world,” she said at an event hosted by the Massachusetts Institute of Technology. With inflation running at multi-decade highs, Mester said “this is not the time” to worry about the risks of overdoing it in terms of tightening monetary policy and she outlined the very high bar for the Fed to back off its plans to slow the economy.“Wishful thinking cannot be a substitute for compelling evidence. So before I conclude that inflation has peaked, I will need to see several months of declines in the month-over-month readings,” she said.Collins, meanwhile, said it is “quite likely that inflation is near peaking and perhaps may have peaked already”.However, she noted there were some limitations to the Fed’s tools, particularly with regard to relieving supply-related bottlenecks and labour shortages that have helped push inflation to its highest level in about four decades. Like other officials, Collins thinks the job losses accompanying this tightening cycle could be less severe than in the past.Because employers have struggled to find workers — resulting in one of the tightest labour markets in decades — most officials see the unemployment rate rising only as high as 4.4 per cent in the coming years from 3.7 per cent.“There’s a really good chance that if we have job losses, it’s going to be smaller than what we’ve seen in other situations, and that’s what I’m banking on,” Bostic said in an interview with CBS on Sunday. “We’re going to do all that we can at the Federal Reserve to avoid deep, deep pain, and I think there are some scenarios where that’s likely to happen,” he said. More