Economy

OTTAWA (Reuters) -The Bank of Canada is revamping its fourth deputy governor role in an effort to bring “fresh and diverse perspectives” to its governing council, seeking out an external candidate to help set monetary policy on a part-time basis.The new deputy governor will join the Bank of Canada’s six-person governing council, which is responsible for setting interest rates.The central bank on Thursday launched the process to find a replacement for Deputy Governor Timothy Lane, whose Sept. 16 retirement was announced in June. The Bank of Canada did not give a timeframe for finding a new hire. The new deputy governor will be hired on a two-year contract, with an option for a third, and will work 50-70% of full-time hours, the bank said. Lane, by contrast, worked full-time for the central bank in the role for more than 12 years.The change comes as the central bank is facing rising public criticism after it misjudged inflation and was seen as having acted too slowly to respond to fast-rising prices, forcing it to then hike interest rates sharply to catch up. “In a context of increasingly complex and interconnected Canadian and global economies and financial systems, it’s vital that we as an organization constantly adapt and evolve,” Governor Tiff Macklem said in a statement.”This change provides an opportunity … to bring fresh and diverse perspectives into the Bank’s consensus-based policy decision-making framework.” The bank said it conducted a review prior to posting the role to assess the current balance of responsibilities and “the need to continually encourage and ensure a diversity of perspectives, thought and experience when formulating policy.”The new deputy governor will focus on the central bank’s monetary policy and financial stability mandates. More

WASHINGTON (Reuters) – U.S. President Joe Biden’s move to waive college loan payments for millions of Americans drew criticism from some of his fellow Democrats, especially members of Congress facing the toughest re-election contests on Nov. 8.The White House may have thought the plan would provide a nice election-year gift to those grappling with monthly loan payments while also boosting the prospects for Democrats in November, when Republicans are favored to win back control of the U.S. House of Representatives. Senate control also is at stake.Many Democrats embraced the $10,000 loan forgiveness plan, including some in close races, such as Senator Raphael Warnock of Georgia. Yet Biden has managed to anger some of his party’s most embattled lawmakers.”We should focus on making higher education and technical schools more affordable in the first place and expose students to trades and apprenticeships that help them get good-paying jobs… without a mountain of debt,” Representative Sharice Davids, the lone Democrat in Kansas’ congressional delegation and one of the most endangered of this election season, said in a statement to Reuters. That was one in an unusual series of rebukes to a president from lawmakers in his own party, complaining that Biden’s program is both poorly targeted and plays into Republican accusations of being a “big-spending” party.The White House has dodged questions about the cost, citing unknowns like how many borrowers would take advantage of the program.Some non-governmental groups, however, have placed the total price tag at $300 billion to $600 billion.”We should be focusing on passing my legislation to expand Pell Grants for lower income students, target loan forgiveness to those in need, and actually make college more affordable for working families,” said Democratic Senator Catherine Cortez Masto, a first-term senator from Nevada, one of a handful of battleground states that will decide the Senate’s fate for the next two years.’BAND-AID’ SOLUTION”I’m happy for the folks who will get relief from this policy,” said Representative Elissa Slotkin, of Michigan. “But this is a one-time Band-Aid that doesn’t get to the root of the problem.”Instead, Slotkin said, the administration should pursue reforms such as including a cap on interest rates on student loans.Those on the left wing of the Democratic party applauded Biden’s move while calling for even more robust initiatives, such as free higher education.Congressional Progressive Caucus Chair Pramila Jayapal had urged Biden to cancel $50,000 in student loan debt per borrower, though she said his move was a step in the right direction.In recent weeks, Democrats have been energized by a series of legislative wins, including a bill addressing climate change and lowering some prescription drug costs for senior citizens, allowing them to claim progress in the war against inflation.The non-governmental Committee for a Responsible Federal Budget, which describes itself as non-partisan, said that its initial review suggested Biden’s student loan plan was likely to increase inflation.The plan, which will have to withstand a likely court challenge, gave Republicans a new opening as they argued it would stoke inflation while helping many wealthy borrowers.”Thanks to Tim Ryan and Joe Biden, Ohio workers are paying off the loans of Harvard Law students. If this seems unfair and illegal, it’s because it is,” Republican U.S. Senate candidate J.D. Vance said on Twitter (NYSE:TWTR).But Ryan, a Democrat who is running against Vance, was similarly critical. “Instead of forgiving student loans for six-figure earners, we should be working to level the playing field for all Americans, including an across-the-board tax cut for working- and middle-class families,” Ryan said.Larry Sabato, the director of the University of Virginia’s Center for Politics, saw a silver lining for the Democratic party, however.In an interview, he said Biden’s move could motivate young Democrats to show up at the polls in November, adding to the energy created by the U.S. Supreme Court’s June decision to eliminate a nationwide right to abortion.”The abortion decision is 10 times more important than student loans, but student loans may augment the level of enthusiasm among young people,” he said. More

Federal labor regulators have accused Starbucks of illegally discriminating against unionized employees by denying them wage and benefit increases that the company put in place for nonunion employees.In a complaint on Wednesday, a regional office of the National Labor Relations Board accused the company of breaking the law when its chief executive, Howard Schultz, “promised increased wages and benefits at U.S. stores if its employees rejected the union as their bargaining representative,” and when it withheld raises and benefits from unionized workers.The labor board is seeking, among other things, that affected employees be made whole for the denial of benefits and wage increases. It is also asking that Mr. Schultz read a notice to all employees informing them that some had been unlawfully denied benefits and pay increases and explaining their rights under federal labor law. Alternatively, a board official could read this material to employees in Mr. Schultz’s presence.The labor board’s case is scheduled for a hearing on Oct. 25 before an administrative law judge, unless Starbucks settles with the agency beforehand. Starbucks could appeal any ruling by an administrative judge to the full board.In a statement, Starbucks said that it was required under federal law to negotiate changes in wages and benefits with the union and that it was therefore not allowed to make such changes unilaterally, as it can in nonunion stores. “Wage and benefits are ‘mandatory’ subjects of the collective bargaining process,” the statement said.Workers United, the union representing the company’s newly organized workers, said the complaint affirmed its contention that Starbucks was discouraging union activity.“He claims to run a ‘different kind of company,’ yet in reality, Howard Schultz is simply a billionaire bully who is doing everything he can to crush workers’ rights,” Maggie Carter, a worker who helped unionize her store in Knoxville, Tenn., said in a statement.More than 225 out of roughly 9,000 corporate-owned Starbucks locations in the United States have voted to unionize since last fall.Mr. Schultz began indicating that the company would roll out new benefits, but only for nonunion workers, shortly after he began his third tour as the company’s chief executive in April.The next month, the company announced a series of new benefits — including additional career development opportunities, better tipping options and more sick time — but only for stores that hadn’t unionized or weren’t in the process of unionizing. The benefits were to begin in the coming months.The company unveiled wage increases as well, some of which had already been announced and which the company said would apply to all workers. But other increases were new and would apply only to nonunion workers.For example, according to Reggie Borges, a Starbucks spokesman, all employees stood to benefit from a companywide $15-an-hour minimum wage, but nonunion workers hired by May 2 would get a 3 percent raise if that proved higher than $15.The wage policy appears to have sown confusion, with some employees briefly receiving a pay increase that was then withdrawn. Colin Cochran, a worker at a store near Buffalo that initially voted to unionize and then voted against the union in a rerun election decided this month, provided pay stubs showing that his $16.28 hourly wage had increased to $16.77 the first week of August, when Starbucks began the pay increases nationwide. But Mr. Cochran’s pay stub for the second week of August showed his hourly pay dropping back to $16.28. (The union is challenging the election loss at this store.)Mr. Borges said that the reversion to the previous wage had resulted from an inadvertent error and that unionized stores would get wage increases in September.Workers involved in union campaigns at other Starbucks locations said the denial of pay and benefit increases to unionized stores had slowed their organizing efforts.Kylah Clay, a Starbucks worker in Boston who helped organize several stores in the area, said inquiries from employees at other stores who were interested in unionizing had dropped off substantially not long after the company’s pay and benefits announcement in May. But they picked up recently after the pay and many benefit changes took effect, she said. More

Liz Truss is considering plans to trigger “Article 16” proceedings against the EU over the Northern Ireland protocol within days of entering Downing Street if she succeeds Boris Johnson as prime minister next month, according to several government insiders.The UK and Brussels are locked in a fractious legal stand-off over implementing the deal covering post-Brexit trading arrangements in Northern Ireland, which has soured EU-UK relations since it came into force in January 2021.Officials close to Truss have consulted legal and trade experts over the plans in recent weeks. Allies said triggering Article 16 would provide a stop-gap while the legislation to unilaterally rewrite the Northern Ireland protocol passes through the Commons, which is not expected until the end of this year at the earliest.The British government tabled legislation in June to rip up the deal, prompting the European Commission to relaunch legal proceedings against the UK for failing to properly implement Irish Sea border checks. Triggering Article 16 would effectively exhaust legal options before the UK government followed through on its threat to unilaterally junk the protocol.The UK has until September 15 to respond to the EU legal action — only 10 days after the Tory leader enters Downing Street. But insiders with knowledge of Truss’s plans said if she became prime minister she could trigger Article 16 before that deadline in order to protect UK business. Truss’ campaign said her preference was for “a negotiated solution” but acknowledged “there are serious problems with the Northern Ireland protocol which need fixing”. Allies of Truss insist she was not “pushing” to trigger Article 16 but that it remained an option on the table if she became prime minister. One official close to the foreign secretary said: “Some government officials have raised concerns about issues coming down the track and have presented many options to ministers to deal with them.” The planned move risks ratcheting up tensions with Brussels early in a Truss premiership, but campaign insiders argued that the action would be essential to preserve the trading status quo in Northern Ireland.Under the terms of the protocol all goods going from Great Britain to Northern Ireland must follow EU rules, creating a trade border in the Irish Sea that the UK government has declared “unworkable”.The EU has warned that if the UK rips up the protocol it risks sparking a trade war with Europe and potentially even suspending the entire Trade and Cooperation Agreement that was negotiated between the two sides.

Until relations broke down in June, both had agreed to a “standstill arrangement” that required lighter-touch implementation of the deal. However, Truss allies said the EU legal action had effectively ended that agreement by reverting to a demand for full implementation. The UK said in July 2021 that the conditions had already been met to justify using Article 16, which can be triggered if either side believes the protocol has led to “serious economic, societal or environmental difficulties”.Once triggered, the two sides enter into “immediate consultation” in the joint committee that governs the deal, but either side can take “proportionate rebalancing measures” if agreement cannot be reached.Truss’s plans come after HM Revenue & Customs notified British steel producers this week that they will have to pay a 25 per cent tariff to sell certain construction products into Northern Ireland because of the protocol. Steel industry representatives described the situation as “farcical”, while a UK government spokesman said the tariffs were an example of how the protocol is “needlessly damaging” trade within the UK and “why it needs to be urgently fixed”.The tariffs move was cited by a Truss ally as to why she intends to act. “We can’t go on like this and something needs to break the deadlock.”The European Commission said the UK had not provided the data it needed to resolve the tariffs issue, which was triggered as a result of changes to overall import quotas for the EU in July.It declined to comment on the potential triggering of Article 16.Earlier this month the UK government started a separate legal proceeding against Brussels after the commission blocked the UK’s associate membership of the EU’s €95.5bn Horizon Europe science programme. Participation in Horizon was negotiated in 2020 as part of the EU-UK trade deal but has been withheld because of the UK’s failure fully to honour the deal over Northern Ireland, EU officials have confirmed. More

JACKSON, Wyo. (Reuters) -U.S. Federal Reserve officials on Thursday were noncommittal about the size of the interest rate increase they will approve at their Sept. 20-21 meeting, but continued hammering the point they will drive rates up and keep them there until inflation has been squeezed from the economy.Those higher rates could lead to a rise in unemployment and are already starting to crimp household and business spending, Kansas City Federal Reserve president Esther George said on CNBC, but the central bank will not flinch from tighter policy.George said it remained “too soon to say” whether a half-point or three-quarter-point rate increase would be most appropriate at the September meeting. However, she said, “our charge is pretty clear, to bring inflation back to our target” by raising interest rates high enough to fix what she called a “fundamental imbalance” between the demand for goods and services and the economy’s ability to produce or import them.In an interview with Bloomberg, she said the target federal funds rate may ultimately need to exceed 4% to get the desired impact, and may need to remain high for some time.”I think we will have to hold — it could be over 4%. I don’t think that’s out of the question…You won’t know that, I think, until you begin to watch the data signs.”Philadelphia Fed President Patrick Harker had a similar message in comments to CNBC, though he appeared to see policy rates topping out a bit lower than George.”I’d like to see us get to, say, above 3.4% – that was the last median in the SEP (Summary of Economic Projections) – and then maybe sit for a while,” Harker said. “I am not in the camp…of taking rates up and then way down.” As for next month’s decision, he said, he’ll need to see what the next inflation report shows. “Whether it’s 50 or 75 I can’t say right now,” Harker said, adding that in the context of a historical record where quarter-point rate hikes have been the norm, even a half-point hike is a “substantial” move.The Fed has raised rates at each of its meetings beginning in March, with the federal funds rate currently set in a range between 2.25% and 2.5%. The last two increases were in three-quarter point increments, and Fed officials must now decide whether to sustain that pace or reduce it.The interviews with George were broadcast ahead of the kickoff Thursday night of the Kansas City Fed’s annual research symposium here, held as a live event for the first time since 2019.Fed chair Jerome Powell addresses the conference on Friday in remarks expected to summarize where he feels the Fed stands in its fight to control the worst outbreak of inflation in 40 years.He will have longer-term expectations to manage about how high the Fed thinks rates may need to rise, how long they will need to stay there, and how the Fed might react if the economy weakens more than expected.But there is also shorter-term focus on what the Fed will do when it meets in just under four weeks. In an interview with the Wall Street Journal, Atlanta Fed president Raphael Bostic said “at this point, I’d toss a coin” to decide between a half-point versus a three-quarter-point rate increase.The Fed gets two more key inflation reports and more jobs data before the September meeting, including the last reading of the personal consumption expenditures price index on Friday, and the August jobs report in a little over a week. An update on second-quarter gross domestic product showed the economy contracted less than initially thought from April through June.If the numbers remain strong “then it may make a case for…another 75 basis point move,” Bostic said. He added he would be “resolute” in keeping rates high and “resist the temptation” to cut them until inflation was “well on its way” to the Fed’s 2% target.St. Louis Fed President James Bullard in an interview with CNBC said interest rates are not yet high enough to push down on inflation and repeated his preference for “frontloading” rate hikes to lift them to 3.75%-4% by year. More

WASHINGTON (Reuters) – Wall Street’s main regulator on Thursday voted to adopt a measure requiring that U.S.-listed companies disclose how the pay of their top executives squares with overall company performance.The U.S. Securities and Exchange Commission said the rule will require that firms provide in their proxy statements and other disclosures a table outlining executive compensation and financial performance measures over the five most recently completed fiscal years.In addition, U.S.-listed companies will have to provide a clear description of the relationship between each financial performance measure and CEO pay versus other named executives, the SEC said in its release. The measure will make it easier for shareholders to assess a publicly traded company’s decision-making with respect to executive compensation policies–a long-recognized value to investors, SEC Chair Gary Gensler said in a statement. “The final rule provides for new, more flexible disclosures that allow companies to describe the performance measures it deems most important when determining what it pays executives,” Gensler said.Companies will be required to report total shareholder return, the total shareholder return of companies in the firm’s peer group, net income, and a financial performance measure chosen by the company, the SEC said.Smaller reporting companies will be subject to scaled disclosure requirements, the SEC added. Those companies are defined as having a public float of less than $250 million, or less than $100 million in annual revenues and a public float of less than $700 million. The measure comes amid a push by President Joe Biden’s administration to force listed companies to review working conditions, pay equity, hiring and retention policies.It follows complaints by investor and employee advocates who have long wanted more details on how listed companies incentivize their labor forces across all levels, including top executives.Advocates argue that the best-paid CEOs do not necessarily run the best-performing companies. Industry groups have said the approach by the SEC could ultimately confuse investors.The rule will become effective 30 days following publication of the release in the Federal Register; it is not yet known when it will be published there. More

The British government should move on to a “war footing” to tackle the energy crisis as the regulator Ofgem prepares to announce a sharp jump in energy bills from October, according to a former senior adviser.The cap on typical household energy bills is expected to roughly triple from levels a year ago to £3,600, according to industry and government estimates — with further rises potentially above £5,000 looming early next year.Adam Bell, the former head of energy strategy at the business department, said the new prime minister, who is due to take over on September 5, must act quickly to replace gas in the energy mix of the UK economy as concern grows about the impact of rising prices on households and business this winter.“War footing is very much the necessary response to this situation — this is like the oil crises of the 1970s but the difference is we know how to get out of this now,” Bell said. “The question is whether the government is willing to drive forward with the rapid degasification of the economy that is clearly required.”Bell’s comments were echoed by Lord David Howell, energy secretary under Margaret Thatcher in the 1980s, who told the BBC that the government needed to “worry a lot” and move on to something “similar to a war footing” through the winter.The government is examining a possible bailout plan for households, proposed by Scottish Power, that would cap bills around the current level of £2,000. That level of intervention would cost about £100bn over the next two years, which would exceed the scale of the coronavirus furlough scheme that protected millions of jobs during the pandemic.James Cooper at consultants Baringa warned that without government help, the soaring energy costs would have a bigger effect on the average family than the 2008 financial crisis. “We’re now moving into territory where a majority of households are placed into debt or a very fragile financial position,” he said.The sharp jump in energy bills is driven by the spiralling international price of wholesale gas, largely because of Russia’s decision to cut supplies to western Europe in response to sanctions imposed after the invasion of Ukraine.UK gas prices have almost quadrupled since the middle of June and now trade at roughly ten times the average level of the last decade.Dale Vince at Ecotricity, a renewables generator and energy retailer, said that the government needed to intervene to protect the public as well as small business, which are not covered by the price cap. Many companies face at least a fourfold rise in energy bills from October. He called on ministers to consider a proposal to put a price cap on gas producers in the UK portion of the North Sea, similar to restrictions on energy retailers that limit their profit margins around 2 per cent. “This is as exceptional as the pandemic and needs a similar response,” Vince said. “Almost 50 per cent of the UK’s gas comes from the North Sea so we could solve half of the crisis at a stroke.”

The UK oil and gas industry has pushed back hard against windfall taxes and in May won large carve outs for investments when then chancellor Rishi Sunak raised taxes on the industry.Harbour Energy, the largest oil and gas producer in the UK North Sea, on Thursday reported a ten-fold increase in pre-tax profits to $1.5bn in the first half of the year.Sunak announced a package of measures earlier this year involving £400 payments to every household in Britain and more generous help of up to £1,200 for more vulnerable families.Yet the new prime minister — either Sunak or foreign secretary Liz Truss — will come under immediate pressure to extend that relief.Sir Keir Starmer, leader of the opposition Labour party, said ahead of the Ofgem announcement that the government was “absent at this time of national crisis”. More

European Central Bank rate-setters expressed mounting concern that the weak euro would feed higher inflation when they decided last month to raise interest rates for the first time in more than a decade, minutes published on Thursday from their meeting revealed.Concerns about soaring inflation, which some feared might not be tamed even if the energy supply crisis intensified, appeared to outweigh worries about a weakening growth outlook during the deliberations of the ECB governing council in July. Policymakers at the meeting raised the ECB’s deposit rate by a greater than expected half-percentage point to zero and signalled more increases to come. “Members widely noted that the depreciation of the euro constituted an important change in the external environment and implied greater inflationary pressures for the euro area, in particular through higher costs of energy imports invoiced in US dollars,” said the ECB.Some policymakers argued it should stick to its earlier plan for a 25 basis point rate rise in July, rather than the 50 basis point rise it ultimately decided on. But most of them agreed their decision to launch a new bond-buying programme to tackle unjustified divergence in borrowing costs between eurozone member states — dubbed the transmission protection instrument — enabled them to take a bolder approach.Rate-setters identified a growing number of upside risks to inflation, which hit a record for the eurozone of 8.9 per cent in July. As well as the weaker euro, these included “a durable worsening of the production capacity of the euro area economy, persistently high energy and food prices, inflation expectations rising above [the 2 per cent] target and higher than anticipated wage rises”.“It was argued that even a recession would not necessarily diminish upside risks, especially if it was related to a gas cut-off or another supply shock implying a further increase in inflation,” the ECB said. However, other council members argued low growth would “itself take care of low inflation”.Since last month’s meeting, economists have raised their forecasts for eurozone inflation over the next two years, reflecting a rise in European wholesale gas and electricity prices to record levels in response to fears of a potential shortfall caused by Russia making further cuts to supplies.This has prompted investors to bet the ECB will raise rates by a further half percentage point at next month’s meeting in an effort to cool price growth, even though many economists fear the eurozone could fall into recession this winter. The hawkish mood is likely to be reflected in this week’s meeting of central bankers at Jackson Hole, Wyoming. US Federal Reserve chair Jay Powell is on Friday expected to underscore the central bank’s commitment to do what is needed to combat inflation, even if it determines it may soon be appropriate to start implementing smaller rate rises than the third consecutive increase of 0.75 percentage points that some Fed rate-setters have called for next month.Aggressive rate rises in the US are one of the factors behind the fall in the euro against the dollar, along with the worsening outlook for the eurozone economy and the traditional role of the dollar as a haven during downturns. The euro was trading at $0.9966 against the dollar on Thursday, only slightly above the 20-year low it hit last week.“It was argued that, if the present risks of recession in the US economy were to materialise, the euro would be expected to appreciate,” the ECB said in its account of last month’s meeting. “However, a countervailing — and probably dominant — effect could result from worsening global risk sentiment, which typically implied a strengthening of the US dollar.”

Policymakers said the eurozone economy had “demonstrated considerable strength and resilience in the face of multiple crises”. This was underlined on Thursday when Germany revised its estimate of second-quarter gross domestic product up from its initial estimate of stagnation to growth of 0.1 per cent. Separate survey data also showed sentiment continued to fall for German businesses and French manufacturers, but by less than expected.Are we heading towards a global recession? Our economics editor Chris Giles and US economics editor Colby Smith discussed this and how different countries are likely to react in our latest IG Live. Watch it here. More