Economy

Daly’s remarks comes as U.S. consumer prices remained unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for weary Americans who have watched inflation climb over the past two years.In an interview with the Financial Times, Daly did not rule out a third consecutive 0.75% point interest rate rise at the central bank’s next policy meeting in September, however, she said that a half-percentage point rate rise was her “baseline”. (https://on.ft.com/3SEkQ7E)”There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” the newspaper quoted Daly as saying during the interview conducted on Wednesday. She also maintained that interest rates should rise to just under 3.5 per cent by the end of the year, according to the report. The fed funds rate, the rate that banks charge each other to borrow or lend excess reserves overnight, is currently in the 2.25%-2.5% range.Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policymakers left no doubt they will continue to tighten monetary policy until price pressures are fully broken.The Fed is “far, far away from declaring victory” on inflation, Minneapolis Federal Reserve Bank President Neel Kashkari said at the Aspen Ideas Conference, despite the “welcome” news in the CPI report.Kashkari, the Fed’s most hawkish member, said he hasn’t “seen anything that changes” the need to raise the Fed’s policy rate to 3.9% by year-end and to 4.4% by the end of 2023. More

The legislation, which passed the Senate over the weekend with no Republican support, increases the IRS budget by about $80 billion over 10 years.Democrats say beefing up IRS enforcement will increase tax collection and help pay for the $430 billion bill, which tackles climate change and lowers prescription drug costs for seniors, among other provisions.Republicans have criticized the additional funding for IRS tax enforcement, saying the agency will not just focus on wealthier taxpayers but also go after middle-class families.Yellen told IRS Commissioner Charles Rettig in a letter released by the Treasury Department that any new IRS personnel “shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”The IRS is a bureau of the Treasury Department.Yellen said, “contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”The House of Representatives is expected to vote on the bill on Friday. President Joe Biden has said he would sign it into law. More

Good morning. Motorists in the US will be cheering the news today that the average price of a gallon of gasoline has dropped to $3.99, tumbling from a record high of more than $5 in mid-June, according to AAA. Cheaper US petrol has helped to rein in high inflation. Data on the Consumer Price Index showed that inflation rose 8.5 per cent in July from a year earlier, a slower uptick than had been expected, and a lot lower than the June rise of 9.1 per cent. Signs that the world’s biggest economy could be past the peak of super-hot inflation offered some comfort to the Federal Reserve, which has been on a campaign to cool price surges by raising interest rates. But Mary Daly, president of the San Francisco branch of the Fed, said it was not enough for a victory lap. Inflation is still way above the bank’s 2 per cent target rate, and “core” prices — which strip out volatile items such as energy and food — rose in July at an unchanged pace of 5.9 per cent year on year. Daly told the Financial Times that another rate rise in September was still on the table. The prospect of lay-offs is also giving policymakers a headache. From Netflix to Walmart, businesses have warned of job cuts even as, a little confusingly, unemployment has dropped to a record low. Why are so many jobs under threat? Thanks for checking in with FirstFT Americas today, see you tomorrow — GeorginaFive more stories in the news1. Donald Trump pleads the Fifth in New York state probe The former US president refused to answer questions at a deposition in a New York state probe into his businesses yesterday, invoking his constitutional right against self-incrimination amid deepening legal woes.2. Fox predicts record political ad spending in US midterms Fox Corporation chief Lachlan Murdoch has predicted that the November midterm election cycle will be the most lucrative in US history, outstripping the $12bn of spending in the 2020 Trump election year. 3. US charges Iranian national with plot to murder John Bolton Federal prosecutors said they believed 45-year-old Shahram Poursafi, a member of Iran’s elite Revolutionary Guards who also goes by the name Mehdi Rezayi, had plotted to assassinate Donald Trump’s former adviser. 4. Credit Suisse steps up legal claim against SoftBank The Swiss lender has intensified its legal fight against the Japanese tech investor as it seeks to recoup hundreds of millions of dollars on behalf of its wealthiest clients that it had lent through the defunct Greensill Capital.SoftBank gain: The Japanese group is expected to post a gain of more than $34bn by turning over a chunk of its holdings in Chinese ecommerce group Alibaba.5. Disney adds 14.4mn streaming subscribers Walt Disney defied concerns about an industry slowdown by adding subscribers to its Disney Plus service in the latest quarter, pushing its total number of paying customers to 221mn. But the media group reduced its long-term guidance due to its loss of rights to stream Indian Premier League cricket matches.The day aheadUS jobless claims New applications for unemployment aid are estimated to have tallied 263,000 in the week that ended August 6. Producer price index figures PPI, which tracks the prices that businesses receive for their goods, is forecast to have risen 0.2 per cent in July from the previous month, according to analysts polled by Refinitiv. The annual increase in July is expected to have decreased slightly from June. Mexico interest rate decision Mexico’s central bank is expected to raise its benchmark interest rate 0.75 percentage points to 8.5 per cent at its monetary policy meeting this afternoon.Corporate earnings Companies due to report earnings include Brookfield Asset Management, theme park company Six Flags and Canada Goose. Earlier, Siemens reported its first quarterly loss in nearly 12 years, after it was forced into a multibillion-euro write down on its spun-off energy business and wound down its 170-year-old operation in Russia. Electric carmaker Rivian and media group Endeavor are reporting after the bell.Golf’s PGA tour playoffs begin A US judge has denied a request from three professional golfers to play in the first event of the playoffs in Memphis, Tennessee, after they defected this summer to the LIV Golf circuit, a start-up league backed by Saudi Arabia’s sovereign wealth fund.Russian crude restored to southern Druzhba pipeline Hungarian energy company MOL has paid oil transit fees to Ukraine on behalf of a Kremlin-controlled company in order to restart flows of crude. The Energy Information Administration and Opec also publish their monthly oil market reports.The Climate Graphic: Explained is a must-read guide to the climate emergency, produced by our specialist data visualisation and environmental reporting teams. Sign up to the weekly newsletter here.What else we’re readingWhatever happened to Mandela’s dream for South Africa? In the latest Rachman Review podcast, Gideon talks to the South African writer and political activist, Songezo Zibi, about the need to build a coalition for change to help restore some of the high hopes that accompanied the end of apartheid.Social media’s big bet: shopping revolution will be livestreamed Internet platforms including TikTok, YouTube and Amazon are declaring live ecommerce as the future of retail. But early experiments in the UK and US suggest there is still a long way to go to overcome low viewing numbers, poor sales, clunky tech and logistical challenges.In praise of boredom The last time Jemima Kelly was truly bored was a year ago, during a seemingly never-ending church service in France. But after the ordeal was over, she noticed that her feelings of pleasures had intensified. Boredom, it turns out, could help our ultra-connected lives.Germany’s economy stutters The country’s prospects have become “fragile”, according to its finance minister, with growth forecasts downgraded and life becoming “much more expensive for lots of people”. Here’s how the eurozone’s powerhouse became a weak link.What next for Brittney Griner — and for women’s sport? Griner is currently the most famous basketball player in the world, not for her two Olympic gold medals or her five professional championships across the EuroLeague and the WNBA, but because she’s become a political pawn.Remembering a truly modern iconFollowing the news of the death of Issey Miyake in Tokyo on August 5 2022 at the age of 84, take a tour around the fashion designer’s inimitable creations through the eyes of his fans, who praised the clothing’s inclusivity and “malleability”. More

How much could your household finances be squeezed in the next few years? The answer could well come down to the size of your mortgage.If you’ve borrowed a lot of money to buy your dream home, rising interest rates have the potential to curb the spending power of the middle classes much more than rising energy bills have done so far. I have a friend who has been paying an extra £500 a month on her mortgage since she rolled off a fixed-rate deal. She needs to move house in a year, for school-related reasons, so didn’t want to lock into another fix. When the Bank of England increased the base rate by half a percentage point last week — the biggest rise in 27 years — she sent me a WhatsApp message saying “Arrrrrrghhhh”. Most UK borrowers have locked into a fixed rate, but about 1.3mn will expire this year and 1.81mn next year, according to trade body UK Finance. Bank of England data shows more than £10bn was overpaid on mortgages in the first six months of this year — a trend evidenced in FT Money’s bonus survey in February, where 13 per cent of respondents said this was your intention. Soaring property prices, bigger mortgages and lengthier repayment terms mean that even a small change to interest rates will increase the lifetime costs of your home loan. Here are some points to consider well in advance of when your current fix comes to an end.Get your paperwork in orderAnyone with a fixed mortgage needs to plan for what to do when it expires. Find the date, ring it in your diary and be ready to start looking for a new deal at least six months beforehand.“The amount of mortgage applications lenders are getting are still at very high levels, and we’ve seen two or three pause taking on new business while they get back up to speed,” says Andrew Montlake, managing director at mortgage broker Coreco.He has heard stories of customers waiting three to four weeks to get a mortgage review appointment, by which time interest rates have risen. If you’re sticking with the same lender, remortgaging deals — known as retention products — can’t usually be secured until you have less than four months remaining. But if you’re switching to a new lender, it’s often possible to “lock in” a rate six months ahead of your current deal expiring. Expect to pay about £500 for an independent mortgage broker to help you find the best deal for your circumstances. Careful preparation should mean you avoid the misery of reverting to your lender’s standard variable rate (SVR). The average SVR is already 5.17 per cent, according to Moneyfacts, the price comparison site. This figure has increased for eight consecutive months and is likely to swell further, adding up to a huge payment shock for those who roll off a fix. How long to fix for?You won’t thank me for saying that the best time to fix your mortgage was six months to a year ago. Five-year fixes are still the most popular product, but the average rate offered on these deals breached 4 per cent in August, according to Moneyfacts — a level last seen in 2014. The average two-year fix is a shade under this at 3.95 per cent. The more equity you have in your home, the better the rate you will be able to secure. However, deals with the lowest rates tend to have the highest fees (typically £1,000 or more). Add the fees to your loan, and you’ll be paying interest on top. Mortgage brokers report early signs that more borrowers are prepared to gamble on a two-year fix, betting that central banks will be forced to cut rates in a recession. High-profile US investors Cathie Wood and Ray Dalio have both said they expect to see rate cuts in 2023-24. However, non-billionaires are likely to value the certainty of a fixed rate on their biggest monthly outgoing. Be prepared to make a quick decision Whether you’re buying a home or remortgaging, speed is of the essence. The average mortgage product has an average shelf life of just 17 days, according to Moneyfacts — an all-time low.

If a lender’s rate moves to the top of a best buy table, they will often withdraw it swiftly to avoid the operational challenge of a deluge of applications. “I could give a client one rate at 9am, then have to call back at noon and say that deal is being withdrawn at 5pm today,” says Coreco’s Montlake. “Some clients think it’s a sales technique but that is the reality of the market.” Should you pay to nix your current fix?With rates ticking up, you may be tempted to pay a penalty to quit your existing deal and lock into a new one. As a rule of thumb, early repayment charges on a five-year fix are 5 per cent of the outstanding balance in the first year, falling on a sliding scale to 1 per cent by the final year. If you break a fix on a £500,000 mortgage with two years left to run, that could cost you £10,000, plus product fees for the new mortgage — and your monthly repayments would instantly be higher. Is it worth it? A free mortgage calculator from budgeting app Nous.co attempts to answer this question based on market predictions about where interest rates could be by the time your fix ends and what the likely costs or savings could be. I’d also use a mortgage overpayment calculator to see what impact using that cash to make a one-off repayment could have, assuming your mortgage deal allows this, and whether this could tip you into a lower LTV. Sprive, a new app, allows people to vary their overpayments in accordance with their monthly spending. What about buy-to-let mortgages? Landlords are more likely to have interest-only mortgages. Though most are locked into fixed-rate deals, this means they will be exposed to much bigger cost swings than repayment borrowers when rates expire. Lenders apply a range of affordability calculations to buy-to-let loans. The main one is the interest coverage ratio — the monthly rent expressed as a percentage of your monthly interest payment — typically 125 to 145 per cent. However, lenders use a “stress rate” to calculate these ratios and this is much higher than the actual interest paid on the loan. David Hollingworth, associate director at broker L&C Mortgages, notes that several lenders have increased their stress rates this month, and expects others to follow. “The upshot will be landlords need to charge higher rents to borrow the same amount,” he says.For example, Metro Bank has just upped one of its stress rates from 4 to 5.5 per cent, and demands interest cover of 140 per cent. On a £200,000 interest only mortgage, he calculates this would mean landlords require an extra £350 of monthly rental income to satisfy the lender’s requirements.As we’ve been hearing on the Money Clinic podcast this week, renters are already finding these higher costs are being passed on to them, with London letting agents reporting rent rises of 40 per cent on the renewal of tenancies.

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However much rising mortgage rates make you want to scream, just be grateful that you own your home. Claer Barrett is the FT’s consumer editor: [email protected]; Twitter @Claerb; Instagram @Claerb More

America’s largest newspaper publisher has a problem: it cannot find enough people to toss editions on to readers’ doorsteps.Gannett, which publishes more than 250 titles from the Abilene Reporter-News to USA Today, is short of about 1,000 drivers to drop off papers in the small hours of the morning. About 12 per cent of its delivery routes are now unstaffed.Yet at the same time, Gannett has told employees that “painful” cuts to staffing are coming as it tries to control costs in its declining print operations.The disconnect between job shortages and lay-offs, even in a single company, illustrates the mixed messages emanating from the US labour market. A historic burst of hiring is colliding with questions about whether some employers have hired too fast.As industries from trucking to fast food complain of labour shortages, businesses as diverse as Coinbase, Goldman Sachs, Microsoft, Netflix, Robinhood, Shopify, Tesla, Twitter and Walmart have warned of job cuts in recent weeks.The backdrop is an economy that added an unexpectedly high 528,000 jobs in July, bringing unemployment down to a historically low 3.5 per cent even after two quarters of declining gross domestic product.“We’re all scratching our heads a little bit,” admits Martine Ferland, chief executive of Mercer, which advises companies on workforce and benefits issues.“I’ve been in this industry for 25 years and I’ve never seen anything like it,” echoed Joanie Bily, chief workforce analyst at EmployBridge, which places workers in manufacturing, logistics and call centre jobs. “Even if we’re in a technical recession, this is a really different type of recession because the labour market still remains strong,” she said.For Andrew Challenger, head of sales for Challenger, Gray & Christmas, the anecdotal evidence of widespread job cuts is not supported by his staffing company’s research. Lay-offs were above 2021 levels in June and July, but the number it tallied in the seven months between January and July was the lowest for a comparable period since it began tracking such cuts in 1993.The US government’s job openings and labour turnover data only runs up to June but tells a similar story of lay-offs still running at historically low levels in most industries.

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“We’ve been in a very severe labour shortage at a time when companies have been completely focused on hiring and have had their eye off lay-offs altogether. That being said, there are some reasons to believe we might be at an inflection point,” Challenger said.The recent cuts his firm has tracked have been concentrated in a few sectors such as the automotive, construction and financial technology industries.Areas of finance that are sensitive to rising interest rates, such as mortgage lenders, have also been affected, Bily at EmployBridge noted: “Two years ago those jobs were in such high demand and wages were going through the roof for loan processors and closers. That has come to a screeching halt.”On Wall Street, too, the mood has shifted from bumper bonuses in 2021 to fears of lay-offs in 2022 amid a sharp decline in investment banking fees. Many firms have realised that they have a surplus of bankers, after unprecedented levels of dealmaking led them to cull fewer low-ranked performers than usual.Analysts attribute the suddenly curtailed hiring plans of tech companies such as Etsy, Meta, Pinterest and Spotify to something else: overdue cost controls in a once free-spending sector whose funding and valuations has fallen sharply this year.One change which has caught several industries off guard is a slowdown in the pace of employees leaving for better offers elsewhere.The so-called quits rate remains well above pre-coronavirus pandemic levels in most sectors, but Mercer’s Ferland said that attrition has stabilised in recent months, making it harder for employers to gauge how many people they will need to recruit to replace the leavers.Rob Sharps, chief executive of T Rowe Price, cited this factor at the fund manager’s latest earnings announcement. A fall in voluntary attrition “means headcounts can go up meaningfully”, he observed in explaining why it had become more careful about recruitment.Such caution led to the number of job openings falling by 5.4 per cent between May and June, although at 10.7mn, the number of available positions remains well above early 2020 levels.“For the last year and a half it’s just been blinders on, trying to hire as many people as you could get in the door. Nobody could keep up with the demand they had, but I think that’s starting to level off,” said Challenger. Now, he said, clients are starting to think more strategically about who they need in their workforce after a “wildly unpredictable” period.

In the meantime, he added, history suggests that the continued resilience of hiring may be little guide to the outlook for the US economy. “We know that employers always hire pedal-to-the-metal two or three months into a recession . . . It’s a lagging indicator.”At Gannett, which advertises the chance to earn up to $600 a week by delivering newspapers, the shortages have started to ease up a little since June. But it sees several reasons why they will remain a problem.“Many of these delivery people [also] work 9am-5pm jobs,” noted Wayne Pelland, its senior vice-president of publishing operations. As other businesses raise wages and offer more flexibility to fill entry-level positions, people are turning away from low-paid, part-time jobs that require early starts and expensive petrol bills.As competition from employers offering better pay and career opportunities continues to drain the pool of people interested in part-time delivery jobs, Pelland said, “we are confronting a perfect storm”.Additional reporting by Caitlin Gilbert, Joshua Franklin and Lydia Tomkiw More

A top Federal Reserve official has warned it is far too early for the US central bank to “declare victory” in its fight against elevated inflation after new data showed a reprieve in consumer price pressures.In an interview with the Financial Times, Mary Daly, president of the San Francisco branch of the Fed, did not rule out a third consecutive 0.75 percentage point rate rise at the central bank’s next policy meeting in September, although she signalled her initial support for the Fed to slow the pace of its interest rate increases.Her comments come amid intense debate about how quickly the Fed will tighten monetary policy in the second half of 2022, after raising rates at the fastest pace since the early 1980s in the first half of this year. The federal funds rate, which hovered near zero in March, is now fixed between 2.25 per cent to 2.50 per cent.“There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” Daly said on Wednesday, after the latest consumer price index report showed no increase between June and July and a slower annual inflation rate of 8.5 per cent.Still, “core” prices — which strip out volatile items such as energy and food — climbed higher, led by an uptick in services inflation that Daly said showed little sign of moderating.“This is why we don’t want to declare victory on inflation coming down,” she said. “We’re not near done yet.”Daly on Wednesday maintained that rates should rise to just under 3.5 per cent by the end of the year, a level that constrains business and consumer activity. But she cautioned against moving too aggressively to damp demand.“There is a lot of uncertainty, so leaping ahead with great confidence that [a 0.75 percentage point rate rise] is what we need and being prescriptive would not be optimal policy.” She spelt out why a half-percentage point rate rise in September is her “baseline”.Daly pointed out that the Fed has already tightened monetary policy significantly and the full effects of those actions have not yet trickled through the economy. Other global central banks are also rapidly raising interest rates in a “synchronised” way to an extent that has dramatically tightened global financial conditions, she added, while growth prospects across advanced and emerging economies have soured.“We have a lot of work to do. I just don’t want to do it so reactively that we find ourselves spoiling the labour market,” Daly said. She pushed back on rising investor expectations that the Fed will abruptly turn to cutting rates next year. “If we tip the economy over and [people] lose jobs, then we haven’t really made them better off.”

So far the labour market has registered strong momentum, with the US adding 528,000 jobs in July. That pushed the unemployment rate down to its pre-coronavirus pandemic low of 3.5 per cent.Job vacancies have begun to drop from recent highs and jobless claims have risen from very low levels, but Daly affirmed she does not expect the unemployment rate to rise too far beyond 4 per cent as the Fed tackles soaring prices. Some economists have warned that the jobless rate may need to rise in excess of 5 per cent if the central bank is to be successful in taming inflation.When the Fed gathers in September, officials will have another month’s jobs figures and inflation data. Daly said she would be watching those reports closely in order to validate whether it is appropriate to shift down to a slower pace of policy tightening.“What we need is not a good report on inflation. It’s encouraging, but it’s not evidence of the goal we really want,” she said. Instead, Daly is looking for the data in the aggregate to affirm the Fed is “on a path to bring inflation down substantially and achieve our price stability target”.This story has been amended since first publication to correct the number of US jobs added in July to 528,000. More

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The directives establish a “regulatory mechanism that guarantees efficient and balanced rates in the costs of transporting goods through the railways,” according to the government’s official gazette. The country’s inflation was at 8.15% in the year through July, up from 7.99% in June, with closely watched core inflation at 0.62% in the month of July.The measure follows several measures by the government meant to tame inflation, including a 430 billion peso subsidy on gas, 73 billion pesos for domestic energy aid and a 69 billion peso “food security” program. More