Economy

The EU and Latin America’s second-biggest economy in 2018 reached an agreement in principle on updating their joint trade deal, but the coronavirus pandemic and a complex approval process have hampered final ratification in Europe.Speaking to Mexican lawmakers, Ebrard said that concluding the process would depend on the EU, and that European officials had informed Mexico this would likely occur in 2022.”We’re expecting that this year they approve the update of the agreement that we already have with them,” he said. More

Typical household energy bills in Britain will rise above £3,500 in October and could exceed £6,000 by April. But why are they suddenly going up by so much and what can be done to mitigate the impact on households and the wider economy?Why are bills soaring?The simple answer is the price of gas had already shot up over the past year but it started to climb at an even faster rate in recent weeks.Over the past decade the price of gas has traded between about 20 pence and 75 pence a therm in the UK wholesale market. By January 2022, after Russia had started to squeeze supplies to Europe last year and as demand rebounded from the pandemic, gas rose to around 200 pence a therm. It went up again after the invasion of Ukraine in late February.But since June, when Russia slashed supplies to Europe by restricting flows on the Nord Stream 1 pipeline, prices have more than doubled to 555p a therm.

The Nord Stream 1 gas pipeline at Lubmin, Germany. Russia slashed supplies to Europe by restricting flows through the pipeline © Hannibal Hanschke/Reuters

At these price levels a 10 per cent rise in the price — as happened over the last week — is like adding the entirety of a normal year’s wholesale gas cost on to your bill again. That is why forecasts for the price cap have started to jump by such large amounts. Another factor is the recent move by regulator Ofgem to pass on rises in wholesale gas and electricity prices to consumers faster. Previously, the price cap changed twice a year in April and October. Now it will change every three months with the next rise due in January in the depths of winter. A month ago Ofgem criticised Investec, the investment bank, for suggesting the cap would be above £4,000 by next spring. But the wholesale market price rises since means the consensus forecast is that an annual bill for an average household will exceed £6,000 per annum by April. Before the crisis, a typical household bill was around £1,200.

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How long will this last? One of the most alarming aspects in recent weeks is how much forward contracts in the wholesale markets for gas delivery months or years in advance have started to climb.Traders are now expecting extremely high gas prices to persist through 2023 and possibly into 2024. They anticipate there is little prospect of Russia, which before the crisis made up 40 per cent of supplies to Europe, returning to its one-time role as a reliable supplier to the market.The UK does not have large gas storage facilities like other European countries, which have been filling them over the spring and summer for the winter ahead. Plans to reopen Rough, the UK’s largest storage facility mothballed in 2017, will come too late for this year.Assuming Russian supplies remain restricted and storage is drained over the winter, supplies across Europe will start from a lower base. While Britain is not directly reliant on Russian gas, shortages in the rest of Europe will still have an impact on UK prices as competition for supplies from elsewhere increases. Norway supplies about 40 per cent of the UK’s gas and the rest of Europe with about 25 per cent of total demand. There will also be competition with Asia for seaborne cargoes of liquefied natural gas. In a restricted Russian supply scenario, the most likely way for prices to fall eventually would be if demand drops sufficiently but that would imply a deep recession.What can the next prime minister do? Proposals that once might have appeared bold — like cutting green levies or removing VAT from energy bills — increasingly look like window dressing.Before the crisis, wholesale gas and electricity costs comprised less than half of bills. The rest was made up of taxes, levies and the cost of maintaining pipelines and networks. By April, wholesale costs will probably make up more than 80 per cent.This leaves next prime minister, whether Liz Truss or Rishi Sunak, with some difficult decisions. The immediate need is to shield consumers from bills that could exceed £500 a month by April without government intervention. But doing that for all 28mn UK households would be eye-wateringly expensive.

Liz Truss, favourite to be the next prime minister, opposes measures such as additional windfall taxes and wants to ‘maximise’ North Sea oil and gas production © Rui Vieira/AP

One proposal from Scottish Power under consideration is to cap the typical bill at around £2,000 per annum for two years at a cost of £100bn, which would be funded by government-backed borrowing to either be repaid through bills over 10 to 15 years or absorbed into general taxation. If gas prices keep rising, that estimate would be too low.Encouraging energy conservation measures would also help given that the price cap is the unit price of energy. That means lower consumption could bring the annual bill in below the estimates based on a typical household’s usage. So far the government has refused to push energy saving measures, unlike other European countries.Should the government be bolder? Some have suggested more radical solutions, arguing that the UK needs to move on to a “war footing” given the scale of the crisis.Dale Vince, founder of energy retailer Ecotricity, has proposed mitigating high prices and cut them at source by capping the price producers in the UK North Sea receive. He argued it would “solve half of the crisis at a stroke” as about 50 per cent of the UK’s gas supplies are domestic.The industry would fiercely resist such a move but, in theory, if the price cap was imposed at a high enough level it would still leave producers comfortably profitable. Moreover, Truss, who is the favourite to be the next prime minister, has said she opposes measures such as additional windfall taxes and wants to “maximise” North Sea oil and gas production, even though output peaked two decades ago.Removing the de facto ban on onshore shale drilling has also been floated, but enjoys little public support, including in Tory-leaning rural areas. Another possibility exploring with Norway a return to long-term oil-linked gas contracts. Oil currently trades near $100 a barrel, while gas prices in the UK are close to $360 a barrel of oil equivalent and above $500 a barrel in mainland Europe. Others have argued the UK needs to accelerate plans for the “degasification” of the UK economy and contend that net zero targets are no longer only about the environment but the country’s economic resilience. But that would require huge investment in domestic supply chains, building out wind, solar farms and nuclear power, as well as an overhaul of the UK’s housing stock, as the vast majority of homes are heated with gas. Such a transformation would take many years. More

NEW YORK (Reuters) – The 10.7% rally in the S&P 500 from its June lows is stumbling as it runs into what has historically been the toughest month for the U.S. stock market, sparking nerves among some fund managers of a broad sell-off in September.The S&P has been in a bear market since plummeting early this year as investors priced in the expectation of aggressive Federal Reserve interest rate hikes, but the index has rallied strongly since June, regaining half its losses for the year.That rebound has been fueled by a combination of strong earnings from bellwether companies and signs that inflation might have peaked, potentially allowing the Fed to slow rate hikes.But as investors and traders return from summer holidays, some are nervous about a bumpier ride in September, due to seasonal concerns and nervousness about the Fed’s pace of hikes and their economic impact. The S&P 500 fell nearly 3.4% Friday after Fed Chair Jerome Powell reiterated the central bank’s commitment to taming inflation despite a possible recession.”These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said in a closely watched speech in Jackson Hole, Wyoming. September typically is a down month for the stock market because fund managers tend to sell underperforming positions as the end of the third quarter approaches, according to the Stock Trader’s Almanac.”We’ve had a breathtaking run and I wouldn’t be shocked if the market takes a hit here,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Management Solutions. The S&P 500 could fall as much as 10% in September as investors price in the likelihood that the Fed will not start to cut rates as early as some had hoped, Janasiewicz said. September has been the worst month for the S&P 500 since 1945, with the index advancing only 44% of the time, the least of any month, according to CFRA data. The S&P 500 has posted an average loss of 0.6% in September, the worst for any month. The index is down 14.8% year to date and has been in a bear market, hitting its lowest level in June since December 2020 after the Fed announced its largest rate hike since 1994.Chief among the reasons for the gloomy outlook is a belief that the Fed will continue hiking rates and keep them above neutral longer than markets had anticipated as recently as a week ago, weighing on consumer demand and the housing market. Nearly half of market participants now expect the Fed funds rate to end the year above 3.7% by the end of the year, up from 40% a week ago, according to the CME FedWatch tool. [/FEDWATCH] The fed funds rate is currently between 2.25 and 2.5%.The Sept. 20-21 FOMC meeting will also likely drive volatility during the month, prompting the S&P 500 to fall near its June lows, said Sam Stovall, chief investment strategist at CFRA. Ahead of that will be critical economic data, such as a reading on consumer prices that will give investors more insight into whether inflation has peaked. The strong rally since June, however, suggests the index will continue to rebound through December, Stovall said. “While we might end up retesting the June low, history says that we will not set a new low,” he said. While fund managers as a whole remain bearish, the ratio of bulls to bears has improved since July, reducing the likelihood of outsized gains in the months ahead, according to Bank of America (NYSE:BAC) survey released Aug. 16. The bank’s clients were net sellers of U.S. equities last week for the first time in eight weeks, suggesting that investors are growing more defensive, the bank said.At the same time, the use of leverage by hedge funds – a proxy for their willingness to take risk – has stabilized since June and is near the lowest level since March 2020, according to Goldman Sachs (NYSE:GS). Investors may rotate into technology and other growth stocks that can take market share despite an economic slowdown, said Tiffany Wade, senior portfolio manager at Columbia Threadneedle Investments, who is overweight mega-cap stocks like Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT). “We expect the pullback will start with some of the riskier names that have run up a lot since June,” she said. More

JACKSON, Wyo. — Jerome H. Powell, the chair of the Federal Reserve, delivered a sobering message on Friday, saying the Fed must continue to raise interest rates — and keep them elevated for a while — to bring the fastest inflation in decades back under control.The central bank’s campaign is likely to come at a cost to workers and overall growth, he acknowledged; but he argued that not acting would allow price increases to become a more permanent feature of the economy and prove even more painful down the road.Stock prices plunged in the wake of Mr. Powell’s comments, as investors digested his stern commitment to raising rates and choking back inflation even if doing so damages growth and causes unemployment to rise. The S&P 500 fell 3.4 percent, its worst daily showing since mid-June, and investors in bonds began to bet that the central bank will raise rates by more than they had been expecting.Mr. Powell’s full-throated commitment to defeating inflation began to put to rest an idea that had been percolating among investors: that the central bank might lift rates slightly more this year but then begin to lower them again next year. Instead, the Fed chair echoed many of his colleagues in arguing that rates will need to go higher, and will need to stay in economy-restricting territory for a while, until inflation is consistently coming down.“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Mr. Powell said in a speech on Friday. “While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”He then added: “These are the unfortunate costs of reducing inflation.”Mr. Powell was speaking at the Federal Reserve Bank of Kansas City’s annual conference near Jackson, Wyo., in a speech that is typically his most closely watched appearance of the year. That prominent platform gave him an opportunity to clearly signal the Fed’s commitment to wrestle inflation lower to markets and the public, which he did in his terse and to-the-point eight-minute speech.“The process won’t be painless, and I think he’s being more upfront about that,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “The likelihood of recession is rising, because that’s the solution to the inflation problem — that’s what they’re telling you.”While central bankers have spent much of the past year saying they hope to set the economy down gently — and not tip it into recession — Mr. Powell’s remarks made it clear that a bumpy landing would be a price worth paying to return price stability to the United States.The Fed has lifted interest rates from near zero in March to a range of 2.25 to 2.5 percent, and investors have been waiting for any hint at how fast and far the Fed will raise rates in coming months. Higher interest rates make it more expensive to borrow money to build a house or expand a business, slowing economic activity and cooling down the job market. That can eventually help reduce demand enough that supply catches up and price increases slow down.Mr. Powell did not say what pace lies ahead, suggesting that Fed officials will watch incoming data as they decide whether to make a third straight “unusually” large three-quarter-point rate increase at their Sept. 20-21 meeting. He reiterated that the Fed was likely to slow its increases “at some point,” but he also said central bankers had more work to do when it came to constraining the economy and bringing inflation back under control.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

US stocks tumbled after Federal Reserve chair Jay Powell emphasised his resolve to hoist interest rates to curb inflation in a hawkish address on Friday at the annual Jackson Hole central banking summit.Wall Street’s S&P 500 index fell 3.4 per cent, while the Nasdaq Composite, which is dominated by technology shares that are more sensitive to interest rate expectations, slid 3.9 per cent. It was the biggest one-day decline for both indices since mid-June.Europe’s regional Stoxx 600 share index lost 1.7 per cent.Friday’s fall in US equities was broad, with 99 per cent of the companies on the S&P 500 down on the day. Every big sector was in the red, with tech and cyclical consumer stocks such as Amazon leading the way lower.Speaking in Jackson Hole, Wyoming, Powell said the Fed “must keep at it until the job is done”, underscoring the US central bank’s determination to tame rapid price growth.The Fed is fighting the most vigorous surge of consumer price increases in about four decades, with annual inflation clocking in at 8.5 per cent in July. But policymakers are also trying to avoid tipping the world’s largest economy into a recession with their programme of aggressive rate rises.“[Powell] is pushing against the idea of raising rates and cutting them soon,” said Stewart Robertson, chief economist at Aviva Investors. “I think this is the first sign of Powell saying ‘we will have a nasty period and we need to have it’.”Market pricing on Friday indicated investors were expecting the Fed to raise interest rates to 3.8 per cent by February 2023, up from expectations of 3.3 per cent at the start of this month. The current target range of the benchmark federal funds rate is 2.25 per cent to 2.50 per cent. “The implications for the equity market is that previous expectations of a Fed pivot seem premature and hence the short-term direction could be a reversal of the summer rally. Ultimately, these higher interest rates and further economic slowdown will weigh on corporate profits later this year,” said Janet Mui, head of market analysis at wealth manager Brewin Dolphin.US government bond markets took Powell’s speech in stride, according to Robertson. The yield on the two-year Treasury note, which closely tracks interest rate expectations, rose 0.01 percentage points to 3.38 per cent. The yield on the 10-year note, which is more sensitive to economic growth expectations, was flat at 3.03 per cent. Predictions of tighter policy and higher borrowing costs have already started to weigh on investor sentiment in corporate debt markets.The difference in yield between high-yield US corporate bonds and ultra-low-risk government debt has widened in recent weeks, rising from 4.2 percentage points on August 11 to 4.6 percentage points at the close of trade on Thursday, according to an Ice Data Services index. Junk bond funds recorded $4.8bn in outflows in the week to Wednesday, marking the biggest redemption in nine weeks, according to EPFR data collated by Bank of America.Elsewhere, the European Central Bank is widely expected to raise rates by a half percentage point for the second consecutive time at its next policy meeting on September 8. Some policymakers are pushing for the ECB to consider a more aggressive move to raise rates by 0.75 percentage points because of fears about soaring energy prices that have already driven eurozone inflation to a record level, according to a Reuters report.The ECB declined to comment. But no decision has been taken on whether such a move will be discussed at next month’s meeting, and this may hinge on whether inflation continues to outstrip expectations when the latest figures are released on Wednesday.The ECB raised borrowing costs by 0.5 percentage points to zero last month.The yield on Italy’s 10-year bond jumped 0.19 percentage points to 3.72 per cent, reflecting a steep drop in price as investors weighed the possible effect of higher borrowing costs on Europe’s weaker economies. Germany’s equivalent yield added 0.08 percentage points to 1.40 per cent, while the policy-sensitive two-year Bund yield added 0.11 percentage points.Additional reporting by Martin Arnold in Frankfurt More

Some grocery shops have restricted customers to single packs of items in short supply, while queues outside petrol stations have blocked traffic in parts of the capital. President Kais Saied and his government have not commented on the shortages except by announcing an intention to target commodities speculators and hoarders. However, Saied on Friday sacked the head of Tunisia’s petroleum distribution company. The government sells many imported goods at a highly subsidised rate and a global commodities squeeze has pushed up international prices. The government has received two tranches of international help this summer, from the World Bank and European Bank for Reconstruction and Development, to fund grain purchases, but is also seeking an IMF bailout to finance the budget and pay debt. “There’s no oil or sugar or butter and there is a big shortage of biscuits and snacks,” said Azzouz, a shopkeeper in the working class Ettadamon district of Tunis. Khadija, a woman shopping in the same area, said she could not find any subsidised cooking oil and could not afford other brands.”The situation gets more difficult day by day and we don’t know what we’re going to do,” she said. Even early on Friday morning queues were building at a petrol station in the La Marsa district of Tunis, including with cars lining the highway along a lane devoted to oncoming traffic. Silwan al-Samiri, an official in the UGTT labour union’s petrol workers’ department, told IFM radio on Thursday that the government needed to reach a solution to pay for imports. President Saied has given little indication of his preferred economic policy since seizing most powers in July 2021 in moves his foes call a coup, apart from public statements criticising corruption and speculators. More

A look at manufacturing activity in China is also due, while the euro is threatening to push decisively below the key $1-mark.Here’s a look at the week ahead in markets from Dhara Ranasinghe, Tommy Wilkes and Vincent Flasseur in London, Lewis Krauskopf in New York, Kevin Buckland in Tokyo and Sumanta Sen in Mumbai. 1/ JOBS CHECK-INMonthly U.S. jobs data on Sept. 2 will test the argument that the world’s biggest economy is in solid health, and indicate whether the Federal Reserve can engineer a “soft landing” even as it hikes interest rates to fight inflation that has been running at four-decade highs. Those arguing against the prospect of a recession, despite two straight quarters of shrinking U.S. gross domestic product, have been able to point to the strong labour market, at least so far. In July, nonfarm payrolls increased by 528,000 jobs, the largest gain since February. Early estimates for August are projecting an increase of 290,000, according to Reuters data. Graphic: U.S. unemployment rates – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/zjvqkbbybvx/chart.png     2/ INFLATION SHOCK    Inflation in the euro area remains uncomfortably high, the flash August consumer price index on Wednesday is likely to show. That will only pile pressure on the European Central Bank to hike rates again in September even as recession risks mount.    Instead of peaking soon, as hoped just a few weeks ago, inflation could soon hit double digits. It was at an annual rate of 8.9% in July – well above the ECB’s 2% target.     The source of fresh inflation angst is clear: soaring gas prices, which lurched higher again as Russia signalled another squeeze on European gas supplies.     Gas prices are up 45% in August, and 300% this year. Where they go from here remains the key to when euro zone inflation will finally peak. As one economist put it, we’re all becoming gas watchers now.  Graphic: Mounting price pressure – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/byprjywnape/chart.png 3/ FACTORY FUNK        China’s moribund economy may continue the lead from the U.S. and Europe in reporting manufacturing gloom in the coming week.    Official PMI data for this month is due on Wednesday, after a surprise contraction in July as COVID-19 flare-ups fuelled by the Omicron variant of the virus forced further clampdowns under China’s draconian zero-COVID policies. The Caixin private survey follows the next day, and is also at risk of dipping into contraction territory.    Consumer and business confidence continue to be hit by the ongoing property crisis. And now a searing heat wave is also hampering production.    China’s authorities are trying to salvage growth this year, with the central bank cutting additional lending rates on Monday after slashing others the week before. On Thursday, the government announced it would take steps to strengthen the labour market, providing the stock market with a bit of cheer. Graphic: Chinese business activity – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/mopanggqnva/chart.png 4/BACK BELOW PARITY Once again in recent days, one euro became worth less than a U.S. dollar. The currency’s tumble to new 20-year lows near $0.99 is emblematic of the scale of the challenges facing the bloc, not least an energy crisis hitting the euro zone harder than elsewhere.Another dramatic jump in natural gas prices ahead of peak winter demand in a region still dependent on Russian supplies is fanning inflation fears, as well as expectations the ECB will hike rates faster even as the economy slides towards recession. Euro/dollar is increasingly correlated with gas prices, and investors and analysts predict further weakness as Russia continues curtailing its exports. On a trade-weighted basis, the euro is falling fast too, and recently reached its lowest level since February 2020, when the start of the COVID-19 pandemic rattled world markets. Graphic: To parity and beyond – https://graphics.reuters.com/GLOBAL-FOREX/EURO/dwvkrwbmgpm/chart.png 5/STOCKS’ CRUELEST MONTHThe U.S. stock market’s rebound has lost some steam, just as it is entering what has been on average its most treacherous month.Since 1950, the benchmark S&P 500 has fallen an average of 0.5% in September, the worst monthly performance for the index and one of only two months to register an average decline, according to the Stock Trader’s Almanac, which notes that fund managers tend to sell underperforming positions as the end of the third quarter nears.This September, a number of factors could set investors on edge. Following the Jackson Hole central banking symposium in Wyoming, the Fed will hold its next policy meeting on Sept. 20-21. Ahead of that comes the latest reading on consumer prices that will indicate if inflation has peaked and is likely to cause volatility no matter where it lands. Graphic: S&P 500 performance, by month – https://graphics.reuters.com/USA-STOCKS/MONTH/xmvjomwwepr/chart.png More

JACKSON HOLE, Wyo. (Reuters) -Americans are headed for a painful period of slow economic growth and possibly rising joblessness as the Federal Reserve raises interest rates to fight high inflation, U.S. central bank chief Jerome Powell warned on Friday in his bluntest language yet about what is in store for the world’s biggest economy.In a speech kicking off the Jackson Hole central banking conference in Wyoming, Powell said the Fed will raise rates as high as needed to restrict growth, and would keep them there “for some time” to bring down inflation that is running at more than three times the Fed’s 2% goal. “Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”As that pain increases, Powell said, people should not expect the Fed to dial back its monetary policy quickly until the inflation problem is fixed. “I thought the message was strong and right,” Cleveland Fed President Loretta Mester said in an interview with Bloomberg TV after the speech. “I think we’re going to have to move (short-term interest rates) up … above 4% and probably need to hold them there next year.”Indeed, Powell’s remarks summed up the momentous challenge facing not just Fed policymakers but also most of the other dozens of central bankers from abroad at Jackson Hole who are frantically trying to contain the worst outbreak of inflation in four decades or more.Some investors anticipate the Fed will flinch if unemployment rises too fast, with some even penciling in interest rate cuts next year.To the contrary, Powell and other policymakers are signaling that even a recession would not budge them if inflation is not convincingly heading back to the Fed’s target. Powell gave no indication on Friday of how high rates might rise before the Fed is finished, only that they will go as high as needed.”The historical record cautions strongly against prematurely loosening policy,” Powell said. “We must keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay.”Underscoring the same “raise-and-hold” message on interest rates, Atlanta Fed President Raphael Bostic told Bloomberg TV that once the central bank’s policy rate is 100 to 125 basis points higher than the current 2.25%-2.50% range, “we should stay there for a long time.”After Powell’s remarks, interest rate futures traders beefed up bets on a third straight 75-basis-point rate hike at the Fed’s Sept. 20-21 policy meeting and priced in expectations the policy rate will get to the 3.75%-4.00% range by next March. Powell’s frank acknowledgment of coming pain to households “took investors by surprise and hammers home how serious they are about raising rates to fight inflation,” said Ryan Detrick, chief market strategist at Carson Group. “The hope of a dovish pivot was squashed, at least for now.”But rate futures trading continued to reflect expectations for such a pivot later next year, with the Fed seen cutting its policy rate by about 40 basis points by the end of 2023 and further in 2024. The Fed will get another chance to reset those expectations in September, when its 19 policymakers release a fresh set of economic forecasts, including for their own rate hikes.INCOMING DATAPowell did not hint at whether the Fed would stick with a 75-basis-point hike or downshift to a half-percentage-point move at its policy meeting next month, except to say the decision would depend on the “totality” of the data by that time.Recent data have shown some small decline in inflation, with the Fed’s closely watched personal consumption expenditures price index falling in July to 6.3% on an annual basis, from 6.8% in June. Inflation expectations based on the University of Michigan’s measures also have eased.But “a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” Powell said, referring to the central bank’s policy-setting Federal Open Market Committee.Other statistics have shown what Powell said was “strong underlying momentum,” with the job market “clearly out of balance” given job openings are far in excess of the number of unemployed.The decision of how much to increase rates “will depend on the totality of the incoming data and the evolving outlook,” Powell said, with further jobs and inflation reports to come.The Fed has become increasingly open that its policies may lead to a rise in the U.S. unemployment rate, currently at 3.5%, a level that has not been stronger in more than 50 years.To quell inflation, though, Fed policymakers have said they need to curb demand for goods and services by raising borrowing costs and making it more costly to finance homes, cars and business investment. As the process bites, as it is beginning to do, particularly in the housing market, companies may adjust their hiring plans or even resort to layoffs.Philadelphia Fed President Patrick Harker, speaking to Bloomberg TV, said the Fed wants to avoid squashing the job market and sought to reassure Americans facing a possible double-whammy of rising unemployment and still-high inflation.”If there is a recession, it would be shallow,” Harker said.MORE GROUNDED APPROACHPowell delivered his speech to a roomful of international policymakers and economists gathered at a mountain lodge to discuss how the COVID-19 pandemic put new constraints on the world economy, and the implications of that for central banks.Inflation is now their chief concern, and Powell’s remarks at the symposium, hosted by the Kansas City Fed, set a tone likely to register on global markets. It also dovetailed with the message being preached by other major central banks: higher interest rates are meant to slow economies and the commitment to raise them won’t waiver until inflation falls.Indeed, some European Central Bank policymakers want to discuss a 75-basis-point interest rate hike at a policy meeting next month even if doing so increases the risk of a recession, sources with direct knowledge of the process told Reuters.”Central banks must act decisively to bring inflation back to target and anchor inflation expectations,” Gita Gopinath, the International Monetary Fund’s first deputy managing director, told conference attendees on Friday.In prior appearances at the Jackson Hole conference, Powell’s remarks have involved high-level discussions of Fed strategy and analysis.He acknowledged that in his opening remarks. But with the Fed trying to keep markets and the general public apprised of what is coming in the future, he said the intensity of the moment required a more grounded approach. “Today, my remarks will be shorter, my focus narrower, and my message more direct,” Powell said. More