Economy

BRUSSELS/DUESSELDORF (Reuters) – The European Union’s executive outlined plans on Wednesday for raising more than 140 billion euros ($140 billion) to cope with an energy crisis that has increased the prospect of winter fuel rationing, corporate insolvencies and economic recession.European gas prices have rocketed this year as Russia has reduced fuel exports to retaliate for Western sanctions over its invasion of Ukraine, leaving households struggling to pay energy bills and utilities grappling with a liquidity crunch.European governments have responded with measures ranging from capping prices on consumer electricity and gas bills to offering credit and guarantees to prevent power providers from collapsing under the weight of collateral demands.”EU Member States have already invested billions of euros to assist vulnerable households. But we know this will not be enough,” European Commission President Ursula von der Leyen members of the European Parliament.She unveiled plans to cap revenues from those electricity generators that have gained from surging power prices but do not rely on costly gas. She also outlined plans to force fossil fuel firms to share windfall profits from energy sales.”In these times it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers,” von der Leyen said.She said the plan should raise more than 140 billion euros for the EU’s 27 members to support households and businesses.But her announcement did not include an earlier EU idea to cap Russian gas prices. That idea has divided member states, after Russia warned it could cut of all fuel supplies. Von der Leyen said the Commission was still discussing the idea.REFILLING RESERVESEurope’s benchmark gas price rose to about 208 euros per megawatt hour (MWh) on the comments, well below an August record above 343 euros but more than 200% up on a year ago.Full details of the European Commissions proposals are due to be published at about 1230 GMT. A draft of the proposals, seen by Reuters, did not include broader gas price caps.Europe has been racing to refill its storage facilities and has already met target to have them 80% full by November. But Russia’s moves to cut supplies, including via the major Nord Stream 1 pipeline to Germany, makes the winter outlook uncertain. Moscow blames sanctions for hindering pipeline maintenance. European politicians say that is a pretext.”Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty,” Rystad analyst Zongqiang Luo said. Germany’s local utilities industry group VKU warned about possible insolvencies, after several utilities in the EU and Britain have already collapsed as they have often been unable to pass on the full impact of gas price rises to consumers because of national price cap policies.”We want to avoid insolvencies. I must warn that if individual companies are allowed to go bust, then it could become more difficult to finance the activities of all,” VKU Managing Director Ingbert Liebing told Reuters, adding the group was in talks with the German government.French grid operator RTE said there was no risk of a total winter blackout but did not rule out some power cuts at peak times, saying reducing demand was essential.’LAST RESORT’It said lowering national electricity consumption by 1% to 5% in most scenarios and up to 15% in an extreme scenario of gas shortage and very cold weather could help avert a power crunch.”As a last resort, organised, temporary and rotating load shedding outages can be activated to avoid a widespread incident,” RTE said.European regulators are examining other relief measures.”We also know that energy companies are facing severe problems with liquidity in electricity futures markets, risking the functioning of our energy system,” von der Leyen said.”We will work with market regulators to ease these problems by amending the rules on collateral – and by taking measures to limit intra-day price volatility.”Utilities often sell power in advance but must offer collateral to clearers in case of default before they supply the power. As gas prices have soared, so have collateral demands.German utility Uniper, which has already secured 13 billion euros of credit lines from the state, most of which it has already drawn, said on Wednesday it was looking for alternative routes to keep it afloat, including possibly handing a bigger stake for the government. Under an existing bailout plan, the state will take 30%.”Nationalisation is the only solution left, Uniper’s capital resources are totally under water. Mathematically speaking, there is nothing else that could be done,” a source close to the matter told Reuters.Finland’s Fortum, Uniper’s largest stakeholder, also said talks with the German government continued. The economy ministry declined to comment on the talks. More

LONDON (Reuters) – There is trouble ahead for Britain’s new finance minister Kwasi Kwarteng: a marked shift in how British assets are behaving in markets points to growing unease about the economy’s vulnerabilities.Investors around the world have typically capitalised on weakness in the pound in the past to snap up British equities and government bonds.But that has not been the case recently as the FTSE 100 share index and gilts have moved in step with sterling, unlike after the 2016 Brexit vote when the pound’s drop lured buyers, for example.GRAPHIC-UK assets have moved in sync with the pound recently… : https://fingfx.thomsonreuters.com/gfx/polling/movanebyxpa/Pasted%20image%201663143613600.pngGRAPHIC-…but they typically move inversely, like after Brexit vote: https://fingfx.thomsonreuters.com/gfx/polling/jnvwemkbwvw/Pasted%20image%201663143911264.pngThe new pattern became stark in August, the first time since 1983 that sterling fell more than 4% against the dollar and the 10-year gilt rose by as much as 50 basis points.By contrast, the inverse relationship between the euro and stocks and German government bonds has remained largely intact.While every major currency has slid against the rising dollar in recent months, the pound has declined more than most.The synchronicity across British assets suggests investors are shunning them, reflecting concerns about the economy.Britain’s heavy reliance on energy imports is likely to mean inflation – which in July hit a 40-year high of 10.1% and only eased slightly in August – will last for longer than elsewhere. For the first time on record, British fuel imports accounted for more than 20% of the value of all goods imports in July.New Prime Minister Liz Truss’s hugely expensive plan to subsidise energy bills in combination with big tax cuts to boost economic growth at a time of rising prices – and her stated desire to rip up the economic orthodoxy – are reminiscent of policies in the early 1970s that contributed to spiralling inflation.Kwarteng, appointed as chancellor of the exchequer last week, has defended the new government’s plans, saying Britain has more room to borrow than other countries that have a higher share of public debt to economic output. Kick-starting growth is the best way to get stronger tax revenues which will restore the public finances over the medium term, he says.But investors are again focusing on Britain’s core economic vulnerability: its reliance on funds from abroad to fund its balance of payments shortfall.The January-March current account deficit hit a record 8.3% of economic output although statisticians said changes to post-Brexit data collection could have skewed the figures.”The fiscal and external risks are now, in our view, a first-order concern,” Benjamin Nabarro, economist from U.S. bank Citi, said.Former Bank of England governor Mark Carney famously said Britain relied on the “kindness of strangers” to finance its current account gap, most of which stems from the trade deficit.When Carney made that comment in early 2016, foreign direct investment accounted for about half of the net financial inflows from abroad.Now, those FDI flows have turned steeply negative in net terms, leaving sales of flightier equities and bonds as Britain’s main means of financing its current account gap over the past year.GRAPHIC-Funding of UK current account deficit: https://fingfx.thomsonreuters.com/gfx/polling/egpbkrbqbvq/Pasted%20image%201663144170918.pngNabarro at Citi said the changes in the markets will not have escaped the BoE’s Monetary Policy Committee which will see declining investor confidence in British assets as an unwelcome complication in its fight against inflation and could leave interest rates higher for longer.”We suspect at least some on the committee have observed the simultaneous sell-off in sterling and gilts with no small degree of concern,” Nabarro said. “In our view, these risks should increasingly be at the centre of the UK policy discussion.”Investors await the government’s costings of its new energy bill package which Dutch bank Rabobank reckons could mean 100 billion pounds more borrowing. Others say it could be more.”That is a lot to ask,” said Stefan Koopman, senior macro strategist at Rabobank. “There is risk of a funding strike, which to some extent has already shown up in the form of a weaker currency.”Jim Leaviss, chief investment officer of public fixed income at M&G Investments, said he was underweight on gilts.”There is a concern about debt sustainability versus other countries… There is a huge wave of gilt issuance coming through and that will be an overhang on the market,” he told an M&G conference on Tuesday. A test of the appetite for gilts is likely to come next week when Britain’s Debt Management Office is expected to offer a chunk of 30-year bonds via a syndicated sale.Looking further ahead, the pound may need to fall further to attract investors.Dean Turner, an economist at UBS Wealth Management said the potentially unlimited liability of support for gas bills was weighing on investors. “Until we get some clarity on that, I just can’t see the situation turning around,” he said.Kwarteng is expected to deliver a fiscal statement to parliament next week which could include those funding details.Not everyone is avoiding British assets. Morgan Stanley (NYSE:MS) on Friday said long-dated gilts pose a buying opportunity relative to German bunds as a lot of Britain’s worrying fiscal news is already priced in.But many investors remain concerned.”It is hard to avoid the conclusion that a UK sovereign risk premium has been going into the pound – presumably on doubts about at what price investors would be prepared to fund future UK borrowing plans,” said ING rates strategist Antoine Bouvet. More

(Reuters) – The White House released new details on Wednesday on how it plans to invest more than $2 billion in the U.S. biotechnology sector as it hosts a meeting of government leaders to discuss the emerging industry.President Joe Biden on Monday signed an executive order that launched a national biotechnology and bio-manufacturing initiative, and on Wednesday the White House will hold a summit with top government officials and department heads to discuss plans on how to administer the order and allocate the money.The executive order allows the federal government to direct funding for the use of microbes and other biologically derived resources to make new foods, fertilizers and seeds, as well as making mining operations more efficient, administration officials said. It also will help fund a quest for medical breakthroughs, such as a vaccine to prevent cancer, or a blood test that could detect cancer in an annual physical.The spending plan released by the White House includes $1 billion from the Department of Defense to fund bio-industrial domestic manufacturing infrastructure over five years to boost the industry and make it accessible to U.S. innovators. Other spending includes a $250 million grant program administered by the Department of Agriculture to support sustainable American fertilizer production. A further $40 million will be used to expand the role of bio-manufacturing for active pharmaceutical ingredients, antibiotics and key materials needed to produce medications and respond to pandemics.The federal government is already a source of funds to biotechnology research and development through the National Institute of Health, the DoA and other agencies. Overall U.S. funding for R&D has dropped as a percentage of gross domestic product since a peak in the 1950s, a trend Biden has pledged to reverse. More

July’s increase represented a sharp jump from June’s 7.8% rise in prices which was a sharp slowdown from May.A Reuters poll published last month showed the surge in British house prices is expected to end next year as the cost-of-living crisis and rising interest rates put the brakes on the market.(This story refiles to add dropped word ‘high’ in the headline) More

Macau, a special administrative region of China, is the only place in the country where citizens can legally gamble in casinos. The government is expected to review the proposals and negotiate with the bidders on detailed terms and conditions, before announcing six winners by the end of November or early December, analysts said.Sands China (OTC:SCHYY), Wynn Macau (OTC:WYNMF), Galaxy Entertainment, MGM China (OTC:MCHVY), SJM Holdings (OTC:SJMHF), Melco Resorts and GMM Limited — submitted bids for the tender, the government statement said.GMM is linked to Malaysian tourism and gambling conglomerate Genting Group, which currently does not have a license in Macau.DS Kim, an analyst at JP Morgan in Hong Kong, said the current environment made it challenging for new entrants.”Time will tell,” he said, as it was hard for new entrants to make proper returns during the concession period, which has been shortened to 10 years from 20.The bidding committee will conduct the bid opening process on Sept. 16, the government said. Macau for the first time imposed a formal table cap and minimum income requirements for the new operators, set to begin their contracts at the start of 2023. The move is part of a broader overhaul of legislation for Macau’s gambling industry and gives authorities much tighter oversight and control over the casino operators, which raked in $36 billion in 2019, prior to COVID-19.The government kicked off the highly anticipated bidding process in July, when it said global gaming operators could submit bids for new licenses from July 29 until Sept. 14. [L4N2Z91XY]The bidding process took place amid Macau’s worst outbreak of COVID-19, which led to a 12-day closure of casinos in July. While casinos in the Chinese special administrative region have re-opened, there is little business, as restrictions are only being lifted slowly. More

The UK’s rate of inflation eased back into single digits in August on the back of lower petrol prices, providing some relief to households as they go into winter.The headline consumer price index was 9.9 per cent higher than a year earlier during the month, down from a 40-year high of 10.1 per cent in July, the first decline in the inflation rate for almost a year. The UK’s inflation rate was still the highest in the G7 in August and economists said a continued rise in underlying inflationary pressure would maintain pressure on the Bank of England to raise interest rates. The figures were better than expectations of a small rise to 10.2 per cent, and economists now expect the inflation rate to hover at the low double-digit level during the autumn, rather than rising to more than 15 per cent.The better outlook for inflation is a result of Prime Minister Liz Truss’s plan to spend up to £150bn to protect consumers from huge energy price rises in October, capping the typical annual household bill at £2,500 rather than let it rise to £3,549.In August, the main reason for the dip in the headline inflation rate was a drop in petrol and diesel prices. A litre of petrol fell from an average price of £1.90 in July to £1.75 during the month, reducing the inflation rate in that category from 43.7 per cent to 32.1 per cent. But in other categories, the inflation rate was still rising. The Office for National Statistics said food inflation was up from an annual rate of 12.8 per cent in July to 13.4 per cent and that services prices were 5.9 per cent higher in August than a year earlier, up from an inflation rate of 5.7 per cent in July. Core inflation — excluding the more volatile food, alcoholic drinks, energy and fuel prices — edged higher from 6.2 per cent in July to 6.3 per cent in August. It is this increase in pressure on prices in goods and services, excluding prices that are most influenced by volatile oil and energy prices, that will worry the Bank of England, on top of the increase in consumer spending power that the government’s energy support and prospective tax cuts will bring. Paul Dales, chief UK economist at the consultancy Capital Economics, said: “Overall and core UK CPI inflation haven’t peaked yet . . . As such, the Bank of England will have to continue turning the screws.”Economists expect a 0.5 percentage point increase when the bank’s Monetary Policy Committee meets next week, with its official interest rate expected to rise from 1.75 per cent now to at least 3 per cent by the end of the year.

Kitty Ussher, chief economist at the Institute of Directors, a lobby group, said: “The fact that the falling headline rate is due to changes in the price of petrol and diesel . . . means today’s news is unlikely to alter expectations of a rise in interest rates when the Bank of England meets next week.”With petrol prices falling back but food inflation rising, the Resolution Foundation think-tank said the figures showed cost of living pressures on poorer families were still rising. Jack Leslie, a senior economist at the foundation, said: “High inflation is set to be with us for some time, particularly for low-income who continue to be hit hardest by high prices.”Other figures released by the ONS showed the effects of falling global oil prices helping industry, with the first monthly fall in producer costs and output prices for almost two years. Input prices were still 20.5 per cent higher in August than a year earlier. More

Even as the country as a whole has recovered all of the jobs it lost during the pandemic, the city is still missing 176,000 — the slowest recovery of any major metropolitan area.The darkest days of the pandemic are far behind New York City. Masks are coming off, Times Square is packed with tourists and Midtown Manhattan lunch spots have growing lines of workers in business suits. Walking around the city, it often feels like 2019 again.But the bustling surface obscures a lingering wound from the pandemic. While the country as a whole has recently regained all of the jobs it lost early in the health crisis, New York City is still missing 176,000, representing the slowest recovery of any major metropolitan area, according to the latest employment data.New York relies more than other cities on international tourists, business travelers and commuters, whose halting return has weighed on the workers who cater to them — from bartenders and baggage handlers, to office cleaners and theater ushers. A majority of the lost private sector jobs have been concentrated in the hospitality and retail industries, traditional pipelines into the work force for younger adults, immigrants and residents without a college degree.By contrast, overall employment in industries that allow for remote work, such as the technology sector, is back at prepandemic levels.The lopsided recovery threatens to deepen inequality in a city where apartment rents are soaring, while the number of residents receiving temporary government assistance has jumped by almost a third since February 2020. As New York emerges from the pandemic, city leaders face the risk of an economic rebound that leaves thousands of blue-collar workers behind.“The real damage here is that many of the industries with the most accessible jobs are the ones that are still struggling to fully recover,” said Jonathan Bowles, the executive director of the Center for an Urban Future, a public policy think tank.New York City was hit particularly hard by the first wave of the virus, prompting business closures and employer vaccine mandates that were among the longest and strictest in the country. Part of the reason for New York’s lagging recovery is that it lost one million jobs in the first two months of the pandemic, the most of any city. More recently, New York City has regained jobs at a rapid clip. The technology sector actually added jobs in the first 18 months of the pandemic, a period when almost every other industry shrank.But job growth slowed this summer in sectors like hotels and restaurants compared with a year ago, while businesses in technology, health care and finance increased employment at a faster pace over the same period, according to an analysis by James Parrott, an economist at the Center for New York City Affairs at the New School.After being laid off from her restaurant job early in the pandemic, Desiree Obando, 35, chose not to return, enrolling instead in community college.Andrew Seng for The New York TimesIn July, the city’s unemployment rate was 6.1 percent, compared with 3.5 percent in the country overall that month.At the height of the pandemic, Ronald Nibbs, 47, was laid off as a cleaner at an office building in Midtown Manhattan, where he had worked for seven years. Mr. Nibbs, his girlfriend and his two children struggled on unemployment benefits and food stamps.He secured temporary positions, but the work was spotty with few people back in offices. He did not want to switch careers, hoping to win his old position back. He began to drink heavily to deal with the anxiety of unemployment.In May, his building finally called him back to work. “When I got that phone call, I wanted to cry,” Mr. Nibbs said.There are 1,250 fewer office cleaners in the city now than there were before the pandemic, according to Local 32BJ of the Service Employees International Union.Last month, New York officials cut their jobs growth forecast for 2022 to 4.3 percent, from 4.9 percent, saying the state was not expected to reach prepandemic levels of employment until 2026. Officials cited the persistence of remote work and the migration of city residents away from the state as a long-term risk to employment levels.The number of tourists visiting New York City this year is expected to rebound to 85 percent of the level in 2019, a year in which a record 66.6 million travelers arrived, according to forecasts from NYC & Company, the city’s official tourism agency.However, according to the agency, visitors to the city are spending less money overall because those who have historically stayed longer — business and international travelers — have not returned at the same rates. This has hurt department stores that depend on high-spending foreign visitors, as well as hotels that rely on business travelers to book conferences and banquets.Ilialy Santos, 47, returned to her job as a room attendant this month at the Paramount Hotel in Times Square, which is reopening for the first time since March 2020. The hotel had been a candidate to be converted into affordable housing, but the plan was opposed by a local union, the New York Hotel and Gaming Trades Council, in order to save jobs.Ms. Santos said she could not find any employment for two years, falling behind every month on her bills. The hotel union provided a $1,000 payment to her landlord to help cover her rent.“I’m excited to be going back to work, getting back to my normal life and becoming more stable,” Ms. Santos said.Despite the city’s elevated unemployment rate, many employers say they are still struggling to find workers, especially in roles that cannot be done remotely. The size of the work force has also dropped, declining by about 300,000 people since February 2020.The number of tourists visiting New York City in 2022 is expected to rebound to 85 percent of the level in 2019, a year in which a record 66.6 million travelers came to the city.Christopher Lee for The New York TimesSome blue-collar employees who lost their jobs early in the pandemic are now holding out for positions that would allow them to work from home.Jade Campbell, 34, has been out of work since March 2020, when the pandemic temporarily shuttered the Old Navy store where she had worked as a sales associate. When the store called her back in the fall, she was in the middle of a difficult pregnancy, with a first-grade son who was struggling to focus during online classes. She decided to stay home, applying for different types of government assistance.Ms. Campbell now lives on her own in Queens without child care support; her children are 1 and 8 years old. She has refused to get vaccinated against Covid-19, a prerequisite in New York City for many in-person jobs. Still, she said she felt optimistic about applying for remote customer service roles after she reached out to Goodwill NYNJ, a nonprofit, for help with her résumé.“I got two kids I know I have to support,” she said. “I can’t really depend on the government to help me out.”At Petri Plumbing & Heating in Bay Ridge, Brooklyn, several workers quit over the city’s policy that employees of private businesses be fully vaccinated. The restriction was the most stringent in the country when it was announced in December 2021 at the end of Mayor Bill de Blasio’s term.After Mayor Eric Adams signaled earlier this year that his administration would not enforce the mandate, Michael Petri, the company’s owner, offered to rehire three former workers. One returned, another had found another job and the third had moved to another state, he said.Thanks to a $50 hourly wage and monthly bonuses, current job openings at Petri Plumbing have attracted a flood of applicants. In a shift from before the pandemic, Mr. Petri said he now has to wade through more applicants with no plumbing experience.The strongest candidates often have too many driving infractions to be put on the company’s insurance policy, he said. But recently, Mr. Petri was so desperate to hire a mechanic with too many infractions that he recruited a young worker just to drive him.“This is without a doubt one of the more difficult times we have faced,” said Mr. Petri, whose family started the company in 1906.The disruptions have set the city’s youngest workers back the most. The unemployment rate for workers ages 16 to 24 is 20.7 percent.After graduating from high school in 2020, Simone Ward enrolled in community college but dropped out after a few months, feeling disengaged from online classes.Ms. Ward, 20, signed up for a cooking program with Queens Community House, a nonprofit organization, which allowed her to get a part-time job preparing steak sandwiches at Citi Field during baseball games. But the scheduling was inconsistent, and the job required a 90-minute commute on three subway lines from her home in Brooklyn’s Canarsie neighborhood.She applied for data entry jobs that would allow her to work remotely, but never heard back. She remembered interviewing for a job at an Olive Garden restaurant and recognizing in the moment that she was flailing, her social skills diminished by the isolation of lockdown.“The pandemic feels like it set my life back five steps,” she said. New York officials have cited the persistence of remote work and the migration of workers to other states as long-term risks to employment levels.Hiroko Masuike/The New York TimesFor Desiree Obando, 35, losing her job at a restaurant in Manhattan’s West Village early in the pandemic nudged her to leave the hospitality industry after 12 years. When the restaurant group she used to work for asked her to come back a few months later, she had already enrolled at LaGuardia Community College, returning to school after dropping out twice before, with the goal of becoming a high school counselor.She is now working a part-time job at an education nonprofit that pays $20 an hour, less than her hospitality job. But the work is close to her home in East Harlem, giving her the flexibility to pick up her daughter whenever the school has virus exposures.Ms. Obando is hopeful that she will eventually get an income boost after she completes her master’s degree.“There’s nothing like the pandemic to put things in perspective,” Ms. Obando said. “I made the right choice for me and my family. More

Good morning. Sometimes markets move because they learn something new. Other times, they move because they are forced to see what was always right in front of them. I think yesterday was the latter kind of day. Disagree? Email me: [email protected] unpleasant encounter with realityThe market had expected — “hoped” may be a better word — that the benign CPI inflation reading for July would be followed by a still more benign one for August. As we all know now, this did not happen. At all. The result is that a chart of month-over-month change in core CPI now shows no appreciable downtrend over the past year. Inflation is certainly not rising. But it sure doesn’t look like it’s falling, either:The market responded yesterday by resetting its expectations for Federal Reserve policy and slashing risk asset prices. The “terminal,” or estimated peak Fed policy rate, expected to arrive early next year, rose 28 basis points, to 4.31 per cent. As of Monday, the futures market had been pricing in no chance of a 100 basis point rate increase when the central bank meets next week. By Tuesday evening it reckoned the chances at one in three. The short end of the yield curve leapt, deepening the inversion of 2- and 10-year interest rates. Stocks got throttled. The Nasdaq lost more than 5 per cent. Every sector was down big. An overreaction? In a sense, yes: there was nothing in the August report that should have fundamentally changed the balance of risks facing the market. Before the report, there were sound reasons to think inflation will abate before long. They remain sound. But the market had been too optimistic about what the path to lower inflation would look like, and had blithely discounted stern statements of intent from the Fed. Tuesday’s rout looks less like the absorption of new information than a loss of naivety. Whatever happens to inflation in the next year or two, a lot of volatility in the price indices is a certainty. Repeating what Unhedged has written before, there is no such thing as high and stable inflation. Even if inflation declines from here, the decline will not be smooth. Here is a chart of core CPI in the last big inflationary episode, at the dawn of the 1980s. It was characterised by nauseating month-to-month swings:This time around, the August numbers won’t be the last surprise. At the same time, though, we know core CPI is something of a lagging indicator. It is clear, as Unhedged wrote yesterday, that housing inflation has all but abated. Indeed housing deflation is threatening. But it will be next year, in all likelihood, before this shift shows up in the CPI numbers. For August, shelter inflation was up .07 per cent from July, a new high for this cycle. And shelter has a 33 per cent weighting in the index.Disinflationary flags are waving outside of housing, too. “We can see disinflation everywhere except in the official CPI statistics,” Paul Ashworth of Capital Economics wrote to clients on Tuesday. When I asked for specifics, he noted that “travel services prices — airfares — are coming down. The dollar is soaring, shipping rates are collapsing. The normalisation of supplier delivery indices suggests shortages are easing, retailers are complaining about being stuck with too much inventory. Used vehicle auction prices are dropping back.”The problem — both before Tuesday’s bad numbers, and after them — is wages, which are increasing at about 6 per cent or more (depending on your measure) against the backdrop of a persistently tight labour market. The fact that services inflation (excluding shelter services) remained elevated in August is a nasty reminder of this fact. As long as wages are running hot the possibility of a wage-price spiral cannot be ruled out, and the Fed cannot back off.Readers may want to go back and reread Fed chair Jay Powell’s recent speech in Jackson Hole. It suddenly looks prescient. A few snippets capture the tone:Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labour market conditions . . . estimates of longer-run neutral are not a place to stop or pause . . . The historical record cautions strongly against prematurely loosening policy . . . Our monetary policy deliberations and decisions build on what we have learned about inflation dynamics both from the high and volatile inflation of the 1970s and 1980s . . . longer-term inflation expectations appear to remain well anchored . . . But that is not grounds for complacency, with inflation having run well above our goal for some time . . . The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched . . . we must keep at it until the job is doneOne CPI report, benign or malign, was never going to sway the Fed. Whether they keep plugging at 75 or push to 100, the central bank knows it has a long way to go. Until wages and the prices that track wages are way down, they are not going to pivot. Why would they?One good readIn case you missed it yesterday, the FT’s “debt monsters” compendium of hyper-leveraged corporates facing scepticism from bond markets is a rich menu of binary bets — companies that will either be broken by a downturn or catapult out of it. More