Economy

BOGOTA (Reuters) – An expected slowing of Colombia’s economic growth and more gradual rise in inflation suggest a lesser need for interest rate hikes as rates get closer to peaking, central bank board member Roberto Steiner said on Thursday.The bank’s board has raised the benchmark interest rate by 725 basis points since September, taking it to 9%, the highest since February 2009. Policymakers accelerated rate rises in June and July with 150 basis point increases, the steepest in 24 years.Inflation in the Andean country was 10.21% in the 12 months to July, the highest since 2000.While the Colombian economy expanded a more-than-expected 12.6% in the second quarter and is set to grow 6.9% this year, analysts and policymakers agree there are signs of slowing expansion.The bank’s technical team has predicted the economy will grow 1.1% in 2023.”The deceleration of economic activity is evident and will continue to be so next year, the lesser rhythm of growth in some prices, including the price of food, suggests that the need for an aggressive pull-back of monetary stimulus has lessened,” Steiner said on the sidelines of a banking conference in Cartagena.”So I think we’re closing in on the limit of what the macroeconomic situation says should be the monetary policy stance,” he said.His comments are aligned with analysts polled in a central bank survey, who said the board would take rates to 10% before the year ends. “The interest rate today is less than the rate of inflation, but it is a rate that is significantly higher than expectations for inflation on a reasonable timeline,” Steiner added.The board will next vote on the rate on Sept. 30. More

(Reuters) -The Federal Reserve needs to keep raising borrowing costs to bring high inflation under control, a string of U.S. central bank officials said on Thursday, even as they debated how fast and how high to lift them.St. Louis Fed President James Bullard, who was among the central bank’s earliest advocates last year of a more muscular response to fast-building price pressures, said that given the strength of the economy he is currently leaning toward supporting a third straight 75-basis-point interest rate hike in September.”I don’t really see why you want to drag out interest rate increases into next year,” Bullard told the Wall Street Journal, saying he would like to get the Fed’s benchmark overnight interest rate to a target range of 3.75% to 4.00% by the end of this year. The Fed’s policy rate is currently 2.25%-2.50%.Earlier on Thursday, San Francisco Fed President Mary Daly said hiking rates by 50 or 75 basis points at the Fed’s next policy meeting on Sept. 20-21 would be a “reasonable” way to get short-term borrowing costs to “a little bit above” 3% by the end of this year, and on their way to a little bit higher in 2023. The exact pace would depend on employment data, which has shown brisk growth in recent months, and inflation, Daly told CNN International. Inflation, by the Fed’s preferred measure, is running at more than three times the central bank’s 2% target.With the global economic slowdown acting as a headwind on U.S. growth, she said “we have to take that into consideration as we ensure that we don’t overdo policy.”Fresh data on Thursday showing a dip in the number of Americans filing for unemployment benefits last week added to evidence that, save for the fast-cooling housing market, the economy is holding up despite the steepest round of Fed rate hikes since the 1980s.’DEFINITELY PREMATURE’Investors may get a better read on the Fed’s likely actions in coming months next Friday, Aug. 26, when Fed Chair Jerome Powell gives a highly anticipated speech on the economic outlook at the annual global central bankers’ conference in Jackson Hole, Wyoming. Powell last month held the door open to another “unusually large” rate hike at the Fed’s next meeting, but also said “it likely will become appropriate to slow the pace of increases” to give policymakers time to take stock of how higher borrowing costs are affecting the economy.Fed officials’ remarks Thursday suggest an emerging split https://graphics.reuters.com/USA-ECONOMY/FED/lgpdwawwzvo in the central bank between those who want to push rates higher quickly, and those who are more cautious because of potential damage to the job market and the risk of a rise in the U.S. unemployment rate, now at 3.5%. But both Bullard and Daly said they felt that once rates get to a certain level, the Fed will not quickly reverse course. Bullard said market expectations of rate cuts were “definitely premature.” Daly said she supported a “raise-and-hold” strategy. “The worst thing you can have as a business or a consumer is to have rates go up and then come rapidly down… it just causes a lot of caution and uncertainty,” Daly said. “I do think we want to not have this idea that we’ll have this large hump-shaped rate path where we’ll ratchet up really rapidly this year and then cut aggressively next year – that’s not what’s on my mind.”Trading in futures contracts tied to the Fed’s policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later.Speaking at a separate event, Kansas City Fed President Esther George said she and her colleagues would continue to debate the question of how fast to raise rates, but that they would not stop tightening policy until they are “completely convinced” that inflation is coming down.The recent easing of U.S. financial conditions, including a surge in stock prices, may have been based on an overly optimistic sense that inflation was peaking and the pace of interest rate increases was likely to slow, she said.Minneapolis Fed President Neel Kashkari, the most hawkish of Fed policymakers, said the central bank needs to “urgently” bring down inflation. “The question right now is, can we bring inflation down without triggering a recession?” he said at an event in Wayzata, Minnesota. “And my answer to that question is, I don’t know.” More

(Reuters) – Federal Reserve Chair Jerome Powell will address the annual global central banking conference in Jackson Hole, Wyoming, on Aug. 26, a highly anticipated speech that could signal how high U.S. borrowing costs may go and how long they will need to stay there to bring down soaring inflation.Powell, in what will be his fifth year speaking at the event, will talk about the economic outlook at 10 a.m EDT (1400 GMT), the U.S. central bank said on Thursday. More

The Fed in July raised rates by three-quarters of a percentage point to a range of 2.25% to 2.5%, following a similar-sized hike at the June meeting, in an effort to cool price pressures that hit a 40-year high.Bullard, one of the most hawkish policy makers at the US central bank, told the Wall Street Journal in an interview published Thursday that he backed another 75 basis-point increase in September, arguing “we should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation.”Both Bullard and George are voters this year on the rate-setting Federal Open Market Committee, though George has sounded more dovish than Bullard in recent months after many years of being viewed as a hawk. George backed the July hike but dissented in June in favor of a smaller half-point increase, citing concern the larger move could stoke policy uncertainty. Her remarks Thursday continued to tilt dovish.“I think the case for continuing to raise rates remains strong. The question of how fast that has to happen is something my colleagues and I will continue to debate, but I think the direction is pretty clear,” she said in Independence, Missouri, on Thursday. “We have done a lot, and I think we have to be very mindful that our policy decisions often operate on a lag. We have to watch carefully how that’s coming through.”Policy makers saw the federal funds rate reaching a range of 3.25% to 3.5% this year, according to the median estimate of their June projections. The forecasts will be updated in September when the Fed next meets.Earlier on Thursday, San Francisco Fed President Mary Daly told CNN International that she was open to raising rates by 50 or 75 basis points next month and that officials would be in no hurry to reverse course next year. That pushes back against investor bets that the Fed will cut rates before the end of 2023.The officials spoke a day after the release of minutes from the July Fed policy meeting, which showed officials judged it would eventually be appropriate to slow the pace of interest-rate increases, with some advocating the Fed keep them at elevated levels for some time after increases concluded.©2022 Bloomberg L.P. More

In comments to a Kansas City economic group, George said the pace and ultimate level of future rate hikes remained a matter of debate. “To know where that stopping point is … we are going to have to be completely convinced that (inflation) number is coming down,” she said.George did not state a preference for whether the Fed should approve a third straight 75 basis point rate increase when policymakers meet next month, or a smaller half point increase – the two core options under consideration.But she made clear that the drop in inflation registered in July, while good news, was not evidence the underlying problem was fixed. Much of the decline was related to energy costs, she noted, while prices for a broad set of other services and goods continued to increase.”That is hardly comforting,” she said. And recent “abysmal” productivity numbers, which imply that workers are producing less for each dollar they are paid, could make controlling inflation that much harder, she added. More

Electricity and gas companies on Thursday urged the UK government to “immediately” top up a £400 rebate on all households’ energy bills this winter, warning that soaring prices would be “unaffordable for far too many”.Energy UK, a trade body for the electricity and gas industry, wrote to chancellor Nadhim Zahawi, warning that the non-repayable rebate was the “most straightforward, practical way to immediately provide broad support to customers ahead of Christmas”. This is despite the fact that some consumer campaigners have criticised the scheme, as the saving will go to all households, whether or not they can afford higher bills. The group added that officials should “urgently” start work on a government-backed loan scheme in time to limit energy bills next year, when the price cap — which dictates bills for 24mn households — is forecast to increase drastically again.The influential group’s intervention echoes similar warnings from individual suppliers that it was already “too late” to design new schemes to tame spiralling energy bills this autumn. Forecasts suggest the energy price cap will rise to roughly £3,600 from October 1 for a typical household, up from £1,971 at present. According to the Energy Support and Advice Group, which helps people struggling with bills, that would see households pay about 15p per kilowatt hour for gas from October 1, up from just over 7p at present. Electricity, meanwhile, would jump to nearly 54p/kWh from 28p under the current cap.Energy regulator Ofgem will announce the new level of the cap on August 26.Energy UK’s letter comes as concerns mount over the cost of living crisis. The Labour party this week accused the government of being “asleep at the wheel” as it set out proposals to freeze the price cap at its current level for six months.Liz Truss, Conservative party leadership frontrunner, has said she would temporarily scrap some green levies that are added to electricity bills but has yet to detail further measures beyond holding an emergency Budget in September if she becomes prime minister. Her rival Rishi Sunak has indicated that as premier he would use existing mechanisms to increase support for households.In the medium term, Energy UK is backing an idea first proposed by ScottishPower chief executive Keith Anderson that would see suppliers use government-backed loans to keep customers’ bills down in 2023 before recouping those costs in the next 10 to 15 years. However, some smaller suppliers said such a scheme could cost them millions of pounds in interest payments.The price cap is forecast to rise sharply again next year, with the consultancy Auxilione this week suggesting it could hit £4,650 in January and £5,456 in April. Fears over energy prices were exemplified by the resignation of an Ofgem director. Christine Farnish on Wednesday claimed the regulator had given “too much benefit to companies at the expense of consumers” when it approved changes this month to the way the price cap is calculated, adding hundreds of pounds to households’ bills.

The row over the methodological changes, which allow suppliers to recover the full costs of buying energy for their customers at this winter’s very high prices, was the latest controversy to embroil Ofgem. It has been fiercely criticised by MPs and consumer groups for compounding the energy crisis.Ofgem on Thursday risked courting further controversy when it said it would not change the way the costs of rescuing customers of failed energy suppliers were recovered from household electricity bills. Those fixed costs are at present included in “standing charges” — which also cover grid connections costs — but had been branded regressive by some campaigners, who wanted the regulator to investigate linking the charges to usage. More

Britain is facing multiple economic shocks, from soaring energy prices to the hollowing out of the labor market by Brexit. But these issues seem disconnected from the fight to replace Boris Johnson.LONDON — The last time Britain suffered double-digit inflation, in 1982, Margaret Thatcher was prime minister, the nation was about to go to war with Argentina over the Falkland Islands, nurses and miners went on strike, and Prince William was born to Prince Charles and his wife, Princess Diana.This week, Britain is again in upheaval, with an inflation rate of 10.1 percent in July, a looming recession and a Conservative Party in the throes of a rancorous campaign to choose a new leader. If, as expected, Liz Truss is elected next month, she would take power during a period of economic stress comparable to what Thatcher confronted. And yet the multiple shocks Britain faces — from soaring energy prices because of the war in Ukraine, supply-chain disruptions after the coronavirus pandemic, and the hollowing out of the British labor market by Brexit — seem strangely disconnected from the contest to replace Prime Minister Boris Johnson.The untethered nature of the campaign is all the more striking because Britain is faring worse economically than its major European neighbors, not to mention the United States. Stagflation, another bleak relic of Thatcher’s early years, seems likely to haunt whoever succeeds Mr. Johnson.Ms. Truss, the foreign secretary, has stuck to an agenda focused on cutting taxes, which could aggravate rather than help solve those problems. Her goal is to appeal to the affluent, older Conservative Party members who choose the leader — a strategy that has helped her amass a so-far-unassailable lead over her opponent, Rishi Sunak, the former chancellor of the Exchequer. In polls of party members, Ms. Truss has an advantage over Mr. Sunak of between 22 and 38 percentage points.Liz Truss, the foreign secretary and a Conservative candidate for prime minister, campaigning last week in Cheltenham.Neil Hall/EPA, via Shutterstock“The whole campaign has been conducted in this bubble of unreality,” said Tim Bale, a professor of politics at Queen Mary, University of London. He blamed the problem in part on the news media, which he said had failed to pin down the candidates on how they would confront inflation.“There’s also a degree of fatalism about the crisis,” Mr. Bale added. “It’s put down to external events, and — by some — to the Bank of England’s tardy response.”The blinkered nature of the debate, analysts say, also reflects the peculiarities of the British political system. Only rank-and-file members of the Conservative Party can vote for the next leader, a constituency estimated at around 160,000 people. Older, whiter, and wealthier than most Britons, these voters are far less vulnerable to the ravages of a cost-of-living crisis than the broader population. To this rarefied slice of the electorate, Ms. Truss’ promise of tax cuts is more alluring than stark warnings that Britain needs to batten down the hatches before an approaching storm.Mr. Johnson, for his part, is on vacation in Greece, having skipped the chance to hold a crisis meeting with his would-be successors, as George W. Bush famously did during the presidential campaign in 2008, when he summoned Barack Obama and John McCain to the White House to discuss an emergency plan to confront the financial crisis.Pedestrians walked past shuttered retail stores on Oxford Street in central London on Tuesday.Andy Rain/EPA, via Shutterstock“It is pathetic that we have a government in which the leader is on a paid holiday, while the candidates to succeed him are just talking about pure nonsense,” said Jonathan Portes, a professor of economics and public policy at Kings College London. “The only person who seems to be thinking seriously about this is Gordon Brown.”Mr. Brown, a former Labour prime minister who led Britain’s response to the 2008 crisis, wrote recently that Mr. Johnson and the two candidates should agree on an emergency budget to cushion the blow of looming fuel price increases. Otherwise, he said, they would risk consigning “millions of vulnerable and blameless children and pensioners to a winter of dire poverty.”The inflation data, Mr. Portes said, showed that Britain was suffering from the “worst of both worlds.” It has been hit by the soaring fuel prices that have afflicted other European countries. The European Union said on Thursday that inflation in the 19 countries that use the euro rose to a record 8.9 percent in July. But it was lower in France, where the government has capped fuel prices.Britain also has the acute post-Covid labor market shortages that have plagued the United States, putting pressure on wages. In Britain’s case, those shortages have been aggravated by Brexit, which has reduced the influx of migrant workers from elsewhere in Europe.Ms. Truss has pledged aid to people who will be hard hit by the next planned increase in household fuel bills, in October, though she has refused to be drawn out on what such a package would look like. She has also raised the prospect of reviewing the anti-inflation mandate of the Bank of England, Britain’s central bank. It has come under fire in recent days for failing to act quickly enough to stem spiraling prices.Rishi Sunak, the other candidate to lead the Conservative Party, spoke during a campaign event last week in Cheltenham.Toby Melville/ReutersThe bank recently hiked interest rates sharply, and it is expected to double them again in the next six months. Yet the bank predicts that inflation will keep rising until it peaks at 13.2 percent in October, while it forecasts that a tighter money supply will plunge the economy into a recession that it says will last through 2023.Mr. Sunak also holds out the promise of lower taxes, though he argues that the government must tame inflation before it passes tax cuts. He has accused his opponent of fairy-tale economics. Ms. Truss counters that swift tax cuts will stimulate commercial activity and offer the surest path out of the economic wilderness.Economists, however, warn that cutting taxes would further strain Britain’s public services, most notably the National Health Service, which is already frayed after the pandemic.“It is hard to square the promises that both Ms. Truss and Mr. Sunak are making to cut taxes over the medium term with the absence of any specific measures to cut public spending and a presumed desire to manage the nation’s finances responsibly,” said Carl Emmerson, the deputy director of the Institute for Fiscal Studies, a research organization that just published a report on the government’s deteriorating finances.On Wednesday, as the new inflation numbers were announced, Ms. Truss was in Belfast, vowing to pass legislation on trade in Northern Ireland that is likely to ignite a new round of post-Brexit tensions with the European Union.Other than its effect on Northern Ireland, the role of Brexit in Britain’s woes is also largely absent from the campaign. Both candidates are appealing to the Brexiteer wing of the Conservative Party, especially Ms. Truss, who opposed the 2016 referendum to leave the European Union, but now displays the fervor of a convert.Prime Minister Boris Johnson, left, attempted to talk to a worker who spoke no English, as he helped to pack broccoli during a visit to a farm in southwest England in June. Brexit has caused a hollowing out of the British labor market.Justin Tallis/Agence France-Presse, via Pool/Afp Via Getty ImagesIn truth, there is lively debate among economists about how much Britain’s inflation can be blamed on Brexit. Mr. Portes said it was not a key driver but has “increased pressure on the margins” by worsening labor shortages, depressing the value of the pound, and raising the costs of imports, owing to customs paperwork.Adam Posen, an American economist who once served as an external member of the Bank of England’s Monetary Policy Committee, estimated in May that 80 percent of Britain’s inflation could be blamed on Brexit, mainly because of the loss of European migrant labor. This week, he stood by his aggressive claim.“Events have sadly played out about how I and others forecast,” Mr. Posen said. More

Norway has increased interest rates for a second time this year to 1.75 per cent and plans a further rise next month to counter what the central bank described as “persistent global price pressures”.The central bank raised borrowing costs 0.5 percentage points on Thursday, following a similar move in June. It plans another increase next month to counter inflation, which is now at 6.8 per cent — more than three times higher than the central bank’s target of 2 per cent. “A markedly higher policy rate is needed to ease the pressures in the Norwegian economy and to bring inflation down towards the target,” said Ida Wolden Bache, governor of Norges Bank.The accelerated pace of rate rises would reduce the risk of inflation becoming entrenched at a high level, the Monetary Policy and Financial Stability Committee said in a statement on Thursday.Central banks around the world have raised rates aggressively in response to inflation, which is at multi-decade highs in several economies following a surge in global food and energy costs. Norges Bank cautioned that there was a possibility of a sharper slowdown in global growth, noting that a rise in interest rates and high inflation could cool down the housing market and household consumption. The more aggressive messaging from the central bank led analysts to change their forecasts for interest rates. “We now expect the bank to make it a hat trick of 50 basis-point hikes at the next meeting in September,” said Jack Allen-Reynolds of Capital Economics. “With price pressures looking strong, further rate increases are likely to follow.” Economists at the US bank Goldman Sachs raised their forecast for how quickly Norges Bank would increase rates in the future on Thursday, predicting it would lift its policy rate by a quarter percentage point at every meeting until it reaches 3 per cent in March 2023. Unlike other economies in North America and Europe, however, Norway’s rate rises are unlikely to trigger a recession.The country is receiving record income from oil and gas as other European countries turn to western Europe’s leading petroleum producer to fill the gap created by the loss of Russian supplies. Norway’s economy also benefits from inflows from the world’s largest sovereign wealth fund worth $1.2tn.Investors have scaled back their expectations of how far the European Central Bank will raise rates, betting it will pause its policy tightening as the eurozone faces recession this winter following squeezed supplies of Russian gas.However, ECB executive board member Isabel Schnabel indicated a likely 0.5 percentage point rise in September after a similar-sized move last month.“Even if we entered a recession, it’s quite unlikely that inflationary pressures will abate by themselves,” Schnabel told Reuters in an interview published on Thursday. “In July, we decided on a 50 basis-point hike in light of the inflation outlook. At the moment I do not think this outlook has changed fundamentally,” she said.

The US Federal Reserve has been even more aggressive, raising rates by 0.75 percentage points for the second consecutive month in July. Minutes from the rate-setting meeting, published on Wednesday, signalled that policymakers were keen to press ahead with a tightening of monetary policy.Rising US rates are also having an impact on developing nations as many commodities are priced in dollars within global markets.On Wednesday, Ghana’s central bank raised interest rates by 300 basis points to 22 per cent — the largest increase since 2002 — as it sought to tame rising inflation and the depreciation of the country’s currency. More