Economy

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida on Monday instructed his ministers to draw up additional steps to cushion the economic blow from rising living costs in a package due to be compiled next month.As part of the measures, Kishida said he has ordered the government to hold off on raising the price of imported wheat it sells to retailers in October – a move that would essentially subsidise households to cope with surging commodity prices.In a meeting on steps to combat rising living costs, Kishida also said he has instructed the trade ministry to come up with additional plans to curb rises in fuel and electricity bills.Chief cabinet secretary Hirokazu Matsuno said the government will aim to compile the package of measures early next month, and tap roughly 4.7 trillion yen ($35 billion) remaining in state reserves to cover the cost. The government did not release the estimated size of total spending for the package.Coping with rising commodity costs has been among top priorities for Kishida’s administration, as Japan’s heavy reliance on imports for energy and food makes its economy vulnerable to rising global raw material prices. The Ukraine war has intensified the commodity cost pressures globally.Wheat is among products that saw prices surge as a result of the war in Ukraine. In Japan, the government is in charge of importing wheat from overseas, and sets at each April and October of the year the sales price it charges to retailers.The price the government charged retailers for imported wheat jumped 17.3% in April from October due to rising global commodity prices, leading to hikes for a wide range of daily staples including bread and pasta.If rising global costs are fully reflected, the price the government charges retailers could rise a further 20% in October, Kishida said, adding he has instructed the agriculture minister to ensure prices are maintained at current levels beyond October.($1 = 133.2900 yen) More

WASHINGTON (Reuters) – The Federal Reserve’s hawkish message on inflation registered quickly in U.S. housing markets this summer as mortgage rates shot up and home sales slowed.But that was the one prominent and anticipated adjustment across an economy that has met the U.S. central bank’s most aggressive shift of monetary policy in a generation with a relative shrug. Stock prices on major indices have surged more than 15% since June; companies added about half a million jobs in July; the premium that investors demand to hold the lowest-rated corporate debt, a proxy for risk sentiment generally, has been declining and “junk bond” issuance is growing after falling in July.For a central bank whose influence on the economy runs through financial markets, it was evidence of potential struggles still to come.”The Fed really is fighting a sentiment battle right now … trying to prepare markets to the idea that they have more wood to chop” in curbing an outbreak of inflation not seen in 40 years, said Andrew Patterson, senior international economist at Vanguard. “The market reaction is a bit premature.” The Fed since March has delivered the stiffest set of interest rate increases in decades. Its policy rate had been set near zero since March of 2020 to battle the economic impact of the pandemic, but a surge in prices that began last year caused the central bank to reverse course in an effort to hold inflation to its 2% annual target.The first hike – a 25-basis-point move – matched the standard increment in recent years, but that was scaled up to half a percentage point in May, and then to 75-basis-point increases in June and July. With a range now set between 2.25% and 2.50%, the federal funds rate already matches the peak reached in the last hiking cycle that ended in mid-2019, getting to that point in seven months this time versus 38 months then. Graphic: Financial conditions ease https://graphics.reuters.com/USA-FED/ECONOMY/zjpqkbnkgpx/chart.png ‘DOESN’T CHANGE MY ANALYSIS’All in all, it’s the most furious tightening pace since the early 1980s. Yet for over a month now a Chicago Fed index of 105 measures of credit, risk and leverage has been declining, the opposite of what would be expected in a world primed for central bank rate hike surprises and stricter borrowing conditions. Markets tied to the Fed’s policy rate now see it peaking at between 3.50% and 3.75%, with cuts beginning by next July because of a possible recession or a collapse in inflation.Either premise is risky, with both economic data and Fed officials’ language pointing to a more protracted struggle against inflation and an openness to allow at least a modest recession along the way.If investors see a downturn, even a shallow one, as likely to trigger rate cuts, Fed officials aren’t making that promise.”Whether we are technically in a recession or not doesn’t change my analysis,” Minneapolis Fed President Neel Kashkari said last week. “I’m focused on the inflation data” and the need to keep raising rates until it is squelched, said Kashkari, who issued a blunt “I-got-it-wrong-on-inflation” essay in May.Recent weeks have delivered the first positive surprises on inflation after more than a year in which Fed officials saw prices soar with a persistence that caught them flat-footed. Yet even with those first signals that inflation may have peaked, consumer prices still rose 8.5% on a year-on-year basis in July. Another inflation measure targeted by the Fed remains disconcertingly above the central bank’s 2% goal.Other developments show the bulk of the Fed’s work may still lie ahead, something officials have been trying to hammer home.’HUGE DISTANCE TO CLOSE’The easing of financial conditions is itself a concern. If companies, banks and households don’t respond as expected to the higher rates the Fed has already flagged, they may continue borrowing, lending and spending at levels that keep inflation elevated – and require the Fed to use even harsher medicine.”It’s financial conditions, including interest rates, that affect spending and the degree of slack in the economy,” said John Roberts, formerly one of the Fed’s top macroeconomic analysts. “So to the extent that financial conditions are easier given the funds rate, then the funds rate would need to do more.” The gain of 528,000 jobs in July, meanwhile, coupled with strong wage increases and lagging productivity, shows companies are still racing to meet demand, even as the Fed says it intends to tamp down on demand to fight inflation. The ratio of job vacancies to unemployed workers remains historically lopsided at close to two to one, although it has fallen some in recent months.There is disagreement about how far unemployment may need to rise to control inflation. Policymakers have laid out technical and qualitative arguments for why they may be able to beat inflation this time by only curbing “excess” demand for workers without a big rise in joblessness, and the drops in spending, demand, and price pressures that go along with it. Graphic: U.S. job vacancies to unemployed ratio https://graphics.reuters.com/USA-ECONOMY/JOLTS/lbvgnarwbpq/chart.png But Fed officials largely agree the current 3.5% unemployment rate is beyond the level consistent with full employment and will likely rise.An unaddressed issue is how much unemployment Fed policymakers would tolerate to quash each additional increment of inflation, and whether there’s a red line for joblessness they would not cross.That may be next year’s battle.Fed officials often note the economy is slow to adjust to changes in monetary policy, which, quoting American economist Milton Friedman, they say operates with “long and variable lags.” “There’s probably some … significant additional tightening in the pipeline,” based on the rate hikes currently anticipated, Fed Chair Jerome Powell said last month.Whether that will be enough to lower inflation is unclear, but by some reckonings there is a long road ahead.David Beckworth, an economist and senior research fellow at George Mason University’s Mercatus Center, estimates the Fed has to wring out about $1 trillion in excess spending. If it wants to do that without a sharp recession, that means keeping the pressure on credit markets into 2024, a longer horizon than many in U.S. markets expect.”It’s a huge distance to close,” Beckworth said. “We had one month of a slight turn downward in the inflation number … If you want to get down to 2% in a stable way that does not generate mass unemployment, it has got to be a long process.” Graphic: Frequency of unemployment rates https://graphics.reuters.com/USA-FED/JOBS/gdpzymnnavw/chart.png More

Here are some facts about why shipping on the Rhine river is important for the economy:WHY IS RHINE RIVER SHIPPING IMPORTANT?Flowing from the Swiss Alps to the North Sea via German industrial heartlands, the Rhine is a major route for products ranging from grains to chemicals and coal.It is an important link between industrial producers and global export terminals in North Sea ports such as Rotterdam and Amsterdam, while canals and other rivers link the Rhine to the Danube, making it possible to ship to the Black Sea as well.WHAT HAPPENS WHEN WATER LEVELS ARE LOW?When water levels fall, cargo vessels have to sail with reduced load to prevent them running aground.Some shippers have said in recent days they were loading about a quarter of the regular amount of freight onto ships.This means more ships are needed to move consignments that would normally fit into a single vessel, adding to freight costs. Shipping companies can usually pass on extra costs to cargo owners, who in turn pass on higher costs to customers.WHAT IS THE CRITICAL WATER LEVEL?There is no specific water level at which shipping stops, and authorities do not close the river. It is up to vessel owners to decide whether they can operate safely.The reference waterline level at the chokepoint of Kaub near Koblenz was at 32 centimetres on Monday, down from 42 centimetres on Friday and from 51 centimetres a week ago. Vessels need about 1.5 metres of Kaub reference waterline to sail fully loaded.WHAT IS THE IMPACT ON GERMANY’S ECONOMY?Shipping bottlenecks are another drag on the German economy, which is already grappling with high inflation, supply chain disruptions and soaring gas prices after Russia’s invasion of Ukraine in February.Economists estimate the disruption to Rhine shipping could knock as much as half a percentage point off overall economic growth this year in Europe’s largest economy.The low Rhine water levels are expected to increase costs for chemicals companies such as BASF and could lead to production cuts.Coal power plants – now back in fashion as an alternative to Russian gas supplies – also face supply shortages with boats unable to take on enough coal. Utility Uniper has warned of output cuts at two of its plants that make up 4% of Germany’s coal-generated electricity capacity.WHAT IS BEING DONE TO ALLEVIATE THE SITUATION?Companies are shipping more goods by truck or train to make up for the shortfall on the Rhine.Germany plans to give the transportation of materials and equipment essential for energy production priority on the country’s rail networks should low water levels on the Rhine fall further, a draft decree showed on Sunday.Shipbuilders have also been working on vessel designs that can cope with lower water levels. More

Investing.com — China’s central bank unexpectedly cuts a key rate as growth slows across the economy. Saudi Aramco (TADAWUL:2222) beats its own record for the world’s biggest-ever corporate profit. Germany prepares a new levy on gas bills as the U.K. moves closer to a bigger windfall tax on energy companies, and oil prices fall as Iran suggests a deal on reviving the 2015 nuclear pact is near. The U.S. releases the Empire State Manufacturing index and the NAHB monthly survey on the housing market. Here’s what you need to know in financial markets on Monday, 15th August.1. China cuts rates as economy slowsThe People’s Bank of China cut its one-year prime loan rate by 10 basis points in an effort to revive an economy that can’t shake off the effects of Beijing’s Zero Covid policy and the slow-motion train-wreck of its real estate sector.The PBoC’s action came on the same day as a suite of economic data pointed to a worrying slowdown in the economy, with retail sales, industrial production and investment in fixed assets all falling short of expectations. The decline in house prices accelerated to -0.9% on the year, while youth unemployment hit 19.9%.Chinese asset markets took the surprise rate cut as a bearish signal, benchmark stock indices falling along with the Chinese yuan. Base metals prices also fell in response, as did the stock prices of the world’s biggest mining groups.2. Saudi Aramco posts another record-breaking profitSaudi Aramco (TADAWUL:2222) broke its own record for the world’s biggest quarterly profit, reporting a 90% leap in earnings from a year earlier to $48.4 billion in the three months through June, thanks to soaring prices for crude oil.The company kept its dividend payout unchanged at a total of $18.75 billion. Over 90% of this will go to the Saudi government, which is using it both to boost growth at home – the IMF sees growth of over 10% this year – and invest abroad. The kingdom’s pension fund has thrown money at everything from Nintendo to U.K. soccer club Newcastle United in the last year.Aramco warned that it is running short of spare production capacity as global demand recovers after the pandemic – a state of affairs that is likely to be little affected by China’s slowdown in the near term.3. Stocks set to open lower as China weighs on mood; NAHB survey dueU.S. stock markets are set to open lower, as the prospect of slowing growth in China darkens the outlook for the world economy.By 06:15 ET (10:15 GMT), Dow Jones futures were down 171 points, or 0.5%, while S&P 500 futures were down by a similar amount and Nasdaq 100 futures were down by a slightly smaller 0.4%.The New York Federal Reserve’s Empire State Manufacturing index will provide the latest snapshot of activity in the U.S. economy at 08:30 ET, but arguably the more important data will come at 10:00 ET, with the National Association of Home Builders releasing its latest monthly survey.The earnings calendar is largely void, ahead of the week’s big retail sector releases on Tuesday and Wednesday.4. Germany to impose natural gas levy; U.K. parties eye bigger windfall tax on energy cosGermany’s natural gas companies said they will impose a levy of 2.419 euro cents a kilowatt-hour on customers’ bills from October, aiming to curb demand and shore up the finances of a sector that has been devastated by the cutting of Russian gas supplies.The levy was in the lower half of the 1c-5c range outlined by the German government. The development comes in the same week that Europe’s largest economy braces for another blow, with low water levels in the river Rhine expected to stop barges carrying coal and fuel oil to power stations any further south than Frankfurt.Elsewhere in Europe, the U.K. opposition called for a bigger windfall tax on energy company profits to stop any further rise in household bills in October. The ruling Conservative Party, its attention fixated on its ongoing leadership contest, is still struggling to articulate how it will protect bill-payers from a looming rise in regulated prices that the Bank of England expects to tip the U.K. into recession.5. Oil falls as Iran suggests oil deal may be nearCrude oil prices fell sharply after the weak data in China were compounded by positive noises from Iran, signaling that it’s ready to compromise to revive the UN-backed plan on lifting sanctions.The Islamic Republic will respond to the European Union’s “final” text by midnight on Monday, Foreign Minister Hossein Amir-Abdollahian said, albeit he called on the U.S. to show more “flexibility” to restore the 2015 nuclear pact.By 06:30 ET, U.S. crude futures were down 4.3% at $88.09 a barrel, while Brent crude was down 4.3% at $93.64 a barrel. More

NEW DELHI (Reuters) – India will aim to become a developed nation within 25 years, Prime Minister Narendra Modi said in a national day address on Monday, with policies to support domestic production in power, defence and digital technology.Speaking from the 17th century Red Fort in Delhi as India celebrates its 75th year of independence from British colonial rule, Modi exhorted youth to “aim big” and give their best years for the cause of the country.”We must turn India into a developed country in the next 25 years, in our lifetime,” said the 71-year-old Modi, wearing a turban in the colours of the Indian flag, in his 75-minute-speech in Hindi.”It’s a big resolution, and we should work towards it with all our might.”The World Bank currently categorises India as a lower-middle income economy – meant for countries with a gross national income per capita of between $1,086 and $4,255. High income countries, like the United States, have a per capita income of $13,205 or more.India is the world’s sixth-largest economy and is expected to grow at over 7% in the current fiscal year ending in March 2023 – the fastest among major economies.Many experts say India’s economy could expand to become the world’s third-largest by 2050 after the United States and China, although per capita income, currently around $2,100, may remain low compared to many countries. With about 1.4 billion people, India is expected to surpass China as the world’s most populous country next year.Countries like the United States already see India as a future challenger to China’s dominating influence in Asia and beyond. U.S. President Joe Biden on Sunday congratulated India for its national day and said the United States and India were “indispensable partners” that would continue to work together to address global challenges in the years ahead.India’s neighbour Pakistan, which was part of British India and became independent at the same time, celebrated its independence day on Sunday. More

Conventional employment opportunities abound, but online platforms still have appeal — for flexibility or additional income.American workers are experiencing, by many measures, one of the best job markets ever. The unemployment rate has matched a 53-year low. Job listings per available worker are at historic highs. Wages, while not quite keeping up with inflation, are rising at their fastest pace in decades.So why would people keep doing gig work, a notoriously difficult and insecure way to make a living?Online platforms like Uber and Lyft say the number of people providing services on their networks is rebounding steadily after a sharp decline early in the pandemic, while businesses like hotels and restaurants are breaking work into hour-by-hour increments available on demand.Picking up shifts offers something that traditional permanent employment still generally doesn’t: the ability to work when and as much as you want, demand permitting, which is often essential to balance life obligations like school or child care.And lately, inflation has provided an extra incentive. As the cost of rent and food soars, gig work can supplement primary jobs that don’t provide enough to live on or are otherwise unsatisfying.Lexi Gervis, an executive at a financial management app called Steady, said that users’ data showed that more people were involved in gig work — and that the average gig income per worker grew — from the start of the pandemic through this summer.“We were seeing this move towards multiple income streams, because that work was picked up as a stopgap and then continued,” Dr. Gervis said.Take Denae Bettis, a 23-year-old Steady user living in Severn, Md. After dropping out of college, she got a job at UPS, and after a few years rose to become a safety supervisor, usually starting at 4 a.m. During the pandemic, she took on more responsibilities.“The job got really stressful, and I felt like I had no way out,” Ms. Bettis said. So in June 2020, she started a side gig through Instacart, shopping for people holed up at home. The next month, she quit her job, making it easier for her to pursue her passion: working as a personal makeup artist, which often requires taking early-morning appointments.Surviving on income from gigs — which for Ms. Bettis now include DoorDash as well as Instacart — isn’t easy. But Ms. Bettis thinks she can save enough money to open her own storefront.“We just went through a period where millions died, so are you going to spend your time at your job if it doesn’t fulfill you?” Ms. Bettis said, summing up gig work’s appeal. “Everybody loves stability, but if the flexibility isn’t there, I don’t think a lot of people are going to go back.”The State of Jobs in the United StatesEmployment gains in July, which far surpassed expectations, show that the labor market is not slowing despite efforts by the Federal Reserve to cool the economy.July Jobs Report: U.S. employers added 528,000 jobs in the seventh month of the year. The unemployment rate was 3.5 percent, down from 3.6 percent in June.Care Worker Shortages: A lack of child care and elder care options is forcing some women to limit their hours or has sidelined them altogether, hurting their career prospects.Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.Labor advocates have long been concerned about businesses that depend on independent contractors, since those workers aren’t entitled to the rights and benefits that come with employee status, like employer contributions to payroll taxes and unemployment insurance. But while the model has gained traction, it has been difficult to pin down how fast the ranks of gig workers are growing.The most accurate measure is Internal Revenue Service data on 1099 tax forms — the freelancers’ counterpart to the W-2 forms filed for employees — but that is available only to select researchers and released with a lag of several years. At last count, in 2018, a team of economists found that about 1.2 percent of workers with any earnings had at least some income from online platform work. (A Pew survey from 2021 found that the share of all adults with gig income in a 12-month period was about 9 percent.)The closest government metric that is more timely comes from the Bureau of Labor Statistics, which asks people whether they count themselves as self-employed. That number rose significantly as a share of the labor force from early 2020 to early this year. But it generally captures people for whom self-employment is the main source of income — which, for most gig workers, it isn’t. More likely, the bump represents an increase in the number of people working as home improvement contractors and owner-operator truck drivers — two longtime means of self-employment that surged during the pandemic — and some white-collar freelancers.Less comprehensive but more specific data comes from third-party platforms like Steady, which allows nearly six million workers to track their often-variable sources of income and posts incentives from gig platforms to try working for them. From February 2020 to June 2022, Steady recorded a 31 percent increase in the share of workers on the app with 1099 income. More of those were women than men, with particular growth among single mothers. Freelance income per gig worker increased 13 percent.Ms. Bettis hopes that doing deliveries will allow her to save enough money to open her own storefront.Rosem Morton for The New York TimesAt the same time, the lines between gig work and traditional employment are blurring.Staffing agencies have long supplied temporary workers for industries like warehousing and light manufacturing, where they would have to show up at a certain time on certain days until the business no longer needed the extra labor. Now, some agencies also offer one-off, no-commitment shifts in workplaces that rarely used temp labor before, like restaurants, hotels and retailers.Under this approach, while offering the flexibility of gig work, the staffing agencies usually serve as the employer and administer benefits. Workers are paid as W-2 employees, not independent contractors, which means that they’re still protected by federal labor laws and elements of the social safety net, including workers’ compensation in the event of an injury.Snagajob, an hourly work platform, says that those shifts tripled from 2020 to 2021, and that they will probably quintuple in 2022 — mostly as side income because people’s regular jobs weren’t sufficient.“I think if they were getting the ultimate flexibility and all the compensation they wanted from their full-time employer, there’s probably less of a need for shifts,” said Snagajob’s chief executive, Mathieu Stevenson. “But the reality is, at the overwhelming majority of businesses, you can’t offer as much flexibility. So this is a way to say, ‘If you do want to add an extra $150 because you need it, whether because you want to do something special with your family or you need to pay the light bill, this is an avenue.’”More so than online gig jobs, it can also be a springboard to other opportunities.It worked for Silvia Valladares, 24, who started picking up Snagajob shifts a few years ago to support herself as a college student studying fine arts in Richmond, Va., the company’s initial market. Dishwashing and catering at different places allowed her to fit work in between her classes. But while working at an event venue called Dover Hall, she took a shine to hospitality, and decided to make that her career.“I got to know the regular staff and the management, and they got to know me,” Ms. Valladares said. “Eventually I asked if I could just work here, and they just put me on the regular staff.” Now, as bed-and-breakfast director, she’s the one posting gigs on Snagajob — which lately have been filling quickly.Worker advocates say allowing many competing employers to post last-minute shifts through an intermediary is probably a better model than a world of platforms that change rates at will and lack many of the legal obligations that employers must meet. But they say it still leaves workers on the margins of the labor market. Research on labor outsourcing has generally shown that temp workers are compensated less generously than co-workers who are hired directly.“You can look at it and say, ‘This is great, people need jobs, these companies can do the matching, it’s a win-win,’” said Daniel Schneider, a professor of public policy at Harvard’s Kennedy School of Government who has studied low-wage work. “The broader context is that it’s really not. It’s just a way for companies to shift costs and avoid economic responsibility.”And while gig work has retained and even enhanced its appeal through the pandemic and recovery, it is not clear what will happen if the economy tips into recession and the number of conventional jobs starts to shrink.Gig companies say it will bolster their labor supply, as the hardship caused by rising prices has. Uber said on its second-quarter earnings call that for 70 percent of its new drivers, the cost of living influenced their decision to join. “There’s no question that this operating environment is stronger for us,” said Dara Khosrowshahi, the chief executive.But in an economic downturn, an increase in worker availability for online platforms could coincide with a fall in demand. If customers reduce delivery orders and take fewer cab rides, it would be harder for those who depend on the apps to make a living.That worries Willy Solis, a driver for the Target-owned delivery service Shipt in the Dallas area who has been an organizer for better conditions.“When people are desperate for work, that’s usually what they want to do, is find something that’s easily obtainable,” he said. But what is good for the gig-work companies may not be good for the workers, he added. “Whenever they do hiring sprees,” he said, “we see an influx in gig work and a decrease in the amount of work that’s available to us.” More

The writer is chair of Rockefeller InternationalToday, India marks its 75th birthday, no richer relative to the rest of the world than it was at independence, but very much on the upswing. India started out as the world’s sixth-largest economy, fell to 12th by 1990, and has since staged a comeback — to sixth place. Its average income was 18 per cent of the world average at independence, but that figure fell until the early 1990s, before climbing back up — to about 18 per cent.This distressingly V-shaped development path is a legacy of India’s original choices. In other Asian nations, the state often granted people economic freedoms first, political freedoms later, as the country grew richer. In India, the state granted a poor nation political freedom first but in a socialist economy that has never fully embraced economic freedom.India’s comeback started in the 1990s as, recognising its early failures, it began to ease socialist controls — partially — and to allow the private sector more room to breathe. The nation has moved up gradually in the Heritage Foundation’s economic freedom rankings, but still falls in the bottom 30 per cent. As late as 1990, India and China were rough equals, in terms of total gross domestic product and average income. Both pushed economic reform. But China pushed harder, encouraging mass migration to more efficient jobs in cities, and mass firings at inefficient state factories. India since 1990 has seen GDP grow tenfold to $3.2tn and average income per capita rise more than fivefold to $2200. But China grew much faster on both measures, and today it is five times bigger and richer. The era of miracle growth — 7 per cent or more — is now gone. Rising debt, declining trade, falling productivity and the decline in working-age population growth are slowing economies everywhere, including in China. As growth peaked in the mid-2000s, more than 50 economies were expanding faster than 7 per cent a year; in the 2010s that number fell to fewer than 10, mostly small ones. Today, a more plausible target for lower-income economies is 5 per cent.That’s do-able for India. One of its main strengths is a strong entrepreneurial culture, which is reflected in one of Asia’s oldest stock markets. It has generated 12 per cent annual returns in dollar terms since 1990, more than twice the global average, drawing in more and more investors from all over the world.

Over the past decade, nearly 800 emerging market stocks rose by 500 per cent to a market value of more than $1bn. Of those, more than 150 are in India, the second-highest figure after China. Moreover, this group accounts for nearly 40 per cent of India’s $1bn-plus stocks, representing the highest concentration of big success stories in emerging markets. Fortunes have followed this trend. The number of Indian billionaires rose last decade from 55 to 140 — now third highest after the US and China. While this fuels concern over inequality, dig deeper and it reflects competitive dynamism rather than stagnation at the top.Strikingly, more than two out of three Indian billionaires are new to the list in the 2010s. Of the 55 on there at the start of the decade, more than a third fell off. And many of the new billionaires rose in productive industries such as technology and manufacturing, which were previously a weakness for India. But, quietly, manufacturing has been expanding and now amounts to 17 per cent of GDP — no match for China but progress all the same.Alas, India’s private sector vitality is matched by its public sector incompetence. State-owned companies accounted for 25 per cent of the Indian stock market a decade ago, but that has fallen to 7 per cent, and not due to state-led privatisation. Government mismanagement was destroying value and taxpayer wealth. In other ways, however, the government has made progress. In 1985, then prime minister Rajiv Gandhi observed that of every 100 rupees spent on the poor, only 15 rupees made it to those in need. The rest was lost to corruption and bureaucracy. Now, the government is digitally transferring benefits to recipients directly, via apps that have expanded rapidly to cover much of the population. The more efficient welfare state reflects a digitising economy. Revenues from various digital services have a growth rate of faster than 30 per cent, above the emerging world average and nearly triple the developed world average — a welcome boost in a time of slowing global growth. To grow faster than 5 per cent, India would have to adopt more radical reform. Only 20 per cent of women are formally employed and doubling that to 40 per cent — merely average for a lower-middle income country such as India — would be transformational. So would encouraging internal migration to better jobs, as China did, given that nine out of 10 rural Indians still live in the district where they were born. But India is as diverse and democratic as China is homogeneous and autocratic: imposing disruptive reform is not on the cards.

More likely, 5 per cent growth is now the base case. Even at that pace India will be a breakout star in a slowing world: on track to surpass the UK, Germany and Japan to become the third-largest economy by 2032. At that point India may not yet be a middle-income country, but it will be moving in the right direction, rising gradually in the world. More

The writer is president of Yardeni Research and author of Fed Watching for Fun & ProfitMost Fed watchers seem to spend more time criticising the US Federal Reserve than watching it. It’s easy to do. Anyone can play the game and attacking the Fed is like shooting at sitting ducks: officials at the central bank can’t respond directly given their public role.Recently, Fed chair Jay Powell has been skewered by his critics for claiming that the federal funds rate was now at “neutral” at his July 27 press conference just after the policy-setting Federal Open Market Committee had voted unanimously to raise its benchmark federal funds rate range by 0.75 percentage points to 2.25 to 2.50 per cent.His suggestion that the Fed is on the borderline of restrictive territory and therefore closer to being done tightening was well received by both bond and stock investors, but not by the Fed’s critics.Former Federal Reserve Bank of New York president William Dudley said on Wednesday that, given the level of uncertainty, “I’d be a bit more sceptical” in saying policymakers had reached neutral. Two days later, former treasury secretary Lawrence Summers was more critical. He accused Powell of engaging in “wishful thinking” similar to the Fed’s delusion last year that inflation would be transitory. He accused Powell of saying things “that, to be blunt, were analytically indefensible”. He added, “There is no conceivable way that a 2.5 per cent interest rate, in an economy inflating like this, is anywhere near neutral.”In fact, there is a conceivable way that Powell might be right after all. The Fed’s critics are ignoring that the central bank has been more hawkish in words and deeds than the European Central Bank and the Bank of Japan. Both of their official interest rates are still at or near zero. As a result, the value of the dollar has soared by 10 per cent this year. In my opinion, that is equivalent to at least a 50-basis-point rise in the federal funds rate. Furthermore, the Fed has just started its quantitative tightening programme to unwind its massive asset purchases to support markets and the economy in recent years.During June through August, the Fed will reduce its balance sheet by running off maturing securities, which will drop its holdings of Treasury securities by $30bn a month and its holdings of government agency debt and mortgage-backed securities by $17.5bn a month. So that’s a decline of $142.5bn over those first three months of QT.Starting in September, the runoff will be set at $60bn for Treasury holdings and $35bn for agency debt and MBS. That’s $95bn a month, or $1.14tn through August 2023. There’s no amount set or termination date specified for QT.

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In my opinion, QT is equivalent to at least a 0.50 percentage point increase in the federal funds rate too. Furthermore, in the December 2021 minutes of the FOMC, released on January 5 of this year, investors learned that “some participants” on the committee favoured getting out of the mortgage financing business entirely. That would happen by swapping the Fed’s MBS for Treasuries in addition to letting them run off as they matured under QT. This would have further increased the supply of MBS for the market to absorb adding upward pressure on mortgage rates relative to Treasuries. No wonder that the 30-year mortgage rate jumped from 3.30 per cent at the start of this year to a high of 6.00 per cent on July 15, and 5.46 per cent currently.I conclude that the peak in the federal funds rate during the current monetary tightening cycle will be lower than otherwise because the combination of QT and the strong dollar are equivalent to at least a 1 percentage point increase in the federal funds rate.In addition, the extraordinary jump in both short-term and long-term interest rates in the fixed income markets has already accomplished much of the tightening for the Fed. In my opinion, the markets have already discounted a peak federal funds rate of 3 to 3.25 per cent — which is where it soon will be assuming that the Fed raises the rate by 0.75 percentage points again at the end of September as widely expected.By the way, on October 1 2020, Dudley, when he was at the Fed, justified a second round of quantitative easing amounting to $500bn of securities purchases saying that it was equivalent to a 0.50 to 0.75 percentage point cut in the federal funds rate.The Fed undoubtedly has some estimates from its in-house models on the equivalent rate rises represented by the strong dollar and QT. If so, they should share that information with the public. More