Economy

“As we assess the future digital financial system, it is prudent to consider how to preserve ready public access to safe central bank money, perhaps through the digital analogue of the Federal Reserve’s issuance of physical currency,” Brainard said in testimony released in advance of her appearance on the issue before the U.S. House of Representatives Financial Services Committee on Thursday.”We recognize there are risks of not acting, just as there are risks of acting,” she said.Fed policymakers remain divided on the need for a central bank digital currency (CBDC) and have just finished a three-month public consultation period soliciting feedback on the idea. The Fed has also indicated it would not launch one without clear support from the White House and lawmakers.That puts it behind its other major global central bank peers, including the ECB, Bank of Japan and Bank of England, on the process of possible adoption. China is currently piloting its own CBDC and in total nine countries have launched one and another 87 countries are exploring the option, according to the Atlantic Council. The risks of loosely-regulated cryptocurrencies and stablecoins, which exploded in value during the COVID-19 pandemic, have come into sharp focus with the crypto market slumping sharply this month after the downfall of major “stablecoin” terraUSD. Leading cryptocurrency Bitcoin has dropped more than 50% since November.”These events underscore the need for clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system,” Brainard said. Unlike cryptocurrencies, which are typically run by private actors, a CBDC would be issued and backed by the central bank. If the U.S. goes ahead with creating one, Brainard said, it ought to be designed so that commercial banks, given their centrality to the financial system, are not disintermediated, by for instance limiting the amount an individual could hold or transfer. Brainard also argued a U.S. CBDC could safeguard the dollar’s global importance. Other Fed policymakers, including Fed Governor Christopher Waller, are more skeptical and point out that many dollar transactions are already digital, and have also raised privacy concerns. More

Rishi Sunak will on Thursday announce an emergency multibillion-pound package of support for British households facing spiralling domestic energy bills this autumn, partly funded by a windfall tax on energy companies.Those briefed on the UK chancellor’s thinking said the government support could be worth more than £10bn and will be primarily focused on the poorest households and pensioners, although the “squeezed middle” will also receive help.Sunak agreed the final package with Boris Johnson, who is desperate to prove the government is ready to “move on” from the “partygate” scandal that has dogged his premiership. Although many Tory MPs will be delighted that Sunak is acting to alleviate the cost of living crisis, some on the right are furious that he is planning a windfall tax raising several billion pounds to help pay for it.North Sea oil and gas company executives said they were resigned to a windfall tax on profits, a move Sunak had previously rejected arguing it would hit investment.They also believe a separate windfall levy on electricity generators, which is under consideration in the Treasury, would be too complicated to design in time for Sunak to announce it on Thursday.But they believe a windfall tax on electricity profits could potentially still be on the table for the autumn, when households will feel the full force of higher energy bills as they turn their heating back on.Executives at energy generators on Wednesday blamed their counterparts in the oil and gas sector of lobbying ministers to expand the windfall tax to include them. Several energy executives told the Financial Times that it was “only right” that other beneficiaries of high gas and power prices were also hit.A number of cabinet ministers, including business secretary Kwasi Kwarteng, have criticised a levy on profits on the energy sector. “Rishi has made no attempt to win over critics of the policy,” said one cabinet source.However, Sunak may sugar the pill by ringfencing certain investments, such as funds poured into low carbon energy projects, so they are not subject to a windfall tax.Ofgem, the energy regulator, said this week it expected the energy price cap that regulates average household bills would rise by over £800 from £1,971 in April to about £2,800 in October. Domestic energy prices will have risen by £1,500 in a year.Sunak was heavily criticised for failing to do more to help the poor in his Spring Statement, which focused most help on those who are in work. His “economic update” on Thursday is expected to address those criticisms. Kwarteng has proposed that a total of 8mn households in receipt of means-tested working age benefits and pension credits could receive an extra £500 through the warm home discount scheme.

That would cost some £4bn, but the Resolution Foundation think-tank argued that Sunak should make payments averaging £1,000 for 15mn households on the state pension or means-tested working age benefits.“The chancellor will need to announce a significant package of £10bn to £15bn to make a major dent in the increases in destitution and debt that lie ahead of us this winter,” said Torsten Bell, Resolution Foundation director.If Sunak offers help through the warm home discount, the payment will go directly to energy suppliers, alleviating fears that the companies could go to the wall this winter with customers unable to pay their bills.Meanwhile Sunak could offer help to all households by turning his February plan to offer a one-off universal loan worth £200 — deducted from energy bills in October and repayable at £40 a year over five years — into a grant.The chancellor has also been under pressure from Tory MPs to offer a universal tax cut — perhaps an income tax reduction or the scrapping of VAT on domestic fuel — to prove he is not addicted to putting up taxes.Sunak will have to balance those demands against his concern that deficit-funded tax cuts could fuel inflation, which the Bank of England expects to top 10 per cent in the autumn. More

The Federal Reserve may move to a “restrictive” policy stance that would better fight inflation through more aggressive interest rate increases, according to minutes of the most recent FOMC meeting held in early May. Most US monetary policymakers agreed on the need to keep increasing the Fed’s main interest rate — currently set at a range of between 0.75 per cent and 1 per cent — by 50 basis points “at the next couple of meetings”. This would match the Fed’s goal of “expeditiously” getting interest rates back up to a neutral setting, where it is neither boosting nor stunting the economy. But officials worry that this could undermine the strong recovery in the jobs market. Participants “noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook” — pointing to the possibility that the Fed may have to target an even higher level of interest rates, either by increasing the pace of its rate rises, lengthening its tightening cycle, or doing both. Fed officials, including chair Jay Powell, are trying to engineer what they have described as a “soft” or “softish” landing to bring down inflation without triggering a recession, which they acknowledged was a difficult balancing act. “Several participants commented on the challenges that monetary policy faced in restoring price stability while also maintaining strong labour market conditions,” the minutes said.Thanks for reading FirstFT Asia. Here’s the rest of the day’s news. — SophiaThe Behind the Money podcast is back! In our first episode, host Michela Tindera is wondering: is a crypto vibe shift under way? FT reporter Ethan Wu explains how the effects of Bitcoin’s price drop and the collapse of a popular stablecoin have rippled into other areas of the crypto universe and why it matters — even for people who aren’t crypto investors. Five more stories in the news1. China could struggle to grow its economy in second quarter Premier Li Keqiang has urged officials to help companies resume production after Covid-19 lockdowns. His comments yesterday came out of concern that the country will have difficulty reaching its annual growth target of 5.5 per cent while battling Omicron outbreaks.2. Beijing clamps down on elite students after lockdown protests Students at two top universities, Tsinghua and Peking, have been prevented from leaving their campuses for weeks as the schools enforce harsh Covid-19 restrictions. The measures have sparked discontent and protests, as university officials urged some students to leave campus altogether.3. Nineteen children killed in Texas school shooting US president Joe Biden made an emotional plea for the country to “stand up to the gun lobby” after a gunman killed at least 19 children and two adults in the deadliest school shooting in America for a decade. Law enforcement officers shot dead 18-year-old Salvador Ramos, who was suspected of carrying out the mass shooting at the Robb Elementary School in Uvalde, Texas.

The archbishop of San Antonio comforts families after the shooting at an elementary school in the city of Uvalde, Texas © AP

4. North Korea fires suspected ballistic missile North Korea launched a suspected intercontinental ballistic missile and two other projectiles yesterday, according to the South Korean government, a day after Joe Biden concluded his first tour of the region as US president.5. Pakistan seeks to renegotiate IMF loan as food prices surge Pakistani officials are in talks with the IMF to resume lending under a 2019 $6bn loan programme which has been in limbo since a dispute earlier this year with the previous government. The country, which relies on imported staples such as wheat, is already seeing its people go hungry as costs soar.The day aheadResults Several companies report their fiscal year results today, including Alibaba, Ted Baker and Intermediate Capital Group, plus first-quarter results from Baidu, Dell, and Macy’s.US economy The US releases its first-quarter GDP figures and consumer spending data today.Australia Sorry Day commemorates the forced removal of Aboriginal children from their parentsWhat else we’re readingHow hubris and Covid transformed Sri Lanka Until recently, Sri Lankans enjoyed some of the highest living standards in South Asia. But now the country has opened talks with the IMF over a $4bn bailout, and observers are waiting to see how China, one of the main creditors, will react.

© FT montage; AFP/Getty Images/Dreamstime

Pfizer warns of ‘constant waves’ of Covid-19 Growing apathy about Covid-19 and politicisation of the pandemic response will cost lives as the world is hit by new waves of the virus in coming months, Pfizer’s chief executive has warned. “What worries me is the complacency,” Albert Bourla told the FT.Is the ‘subscription economy’ going to feel the Netflix effect? The rash of businesses offering subscriptions took off in about 2011, led by TV and music streaming services and quickly followed by beauty products, clothes, organic coffee, craft beer, pet food and more. The “subscription economy” is heading into its first serious downturn, Helen Thomas writes.Andreessen Horowitz bets on crypto ‘golden era’ with new $4.5bn fund Despite the market crash, the venture capital group has made its biggest bet yet on the future of blockchain technology. It plans to allocate about $1.5bn to seed investments while the remaining $3bn would be earmarked for venture investments.Sombre mood descends on Davos Russia’s invasion of Ukraine, surging inflation, Chinese lockdowns and growing uncertainty about globalisation have conspired to chill the business mood at the World Economic Forum meeting in Davos. “There are three R words right now: It’s Russia, it’s recession and it’s [interest] rates,” said Citigroup chief Jane Fraser.CinemaThe Cannes Film Festival celebrates its 75th year with Volodymyr Zelensky, Tom Cruise and Sharon Stone all putting in appearances. The FT brings you the highlights.

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WASHINGTON (Reuters) – The U.S. budget deficit will shrink dramatically to $1.036 trillion for fiscal 2022 from $2.775 trillion last year as a strong recovery prompts a surge in revenues and lower outlays, but slowing growth will start to reverse the trend, the Congressional Budget Office said on Wednesday. Releasing new economic and baseline budget forecasts, the CBO said its now expects the fiscal 2022 deficit to be $118 billion lower than an estimate made last July. The government’s fiscal year starts Oct. 1 and runs through Sept. 30.The non-partisan fiscal referee agency forecast U.S. real GDP growth at a solid 3.1% for calendar 2022, driven by strong consumer spending, down from a sharp 5.5% rebound in 2021.But CBO said that U.S. economic momentum would slow as the Federal Reserve hikes interest rates to control inflation, and forecast 2.2% growth for 2023 and 1.5% for 2024.The CBO forecasts that inflation would remain elevated during 2022, in line with the strongest pace in 40 years, with the consumer price index increasing at 6.1% and the personal consumption expenditures index increasing at 4.0%, due to continued supply constraints in the face of high demand and a tight labor market.Slowing economic growth also means that reductions in the deficit will reverse, CBO said.While it projected that the fiscal 2023 deficit will shrink slightly to $984 billion, deficits will rise in subsequent years, averaging about $1.6 trillion annually between 2023 and 2032.The deficit for the fiscal 2022-2031 decade has increased by about $2.4 trillion since the July forecast, to about $14.5 trillion, largely due to legislative changes that boost spending, including the $1.2 trillion Infrastructure Investment and Jobs Act, and fiscal 2022 appropriations.The CBO’s deficit projections do not include the supplemental $40 billion aid package for Ukraine, which was passed last week after the agency locked its budget and economic assumptions for the latest forecasts. It will be included in a subsequent budget review. The increases in future deficits are also driven by forecasts of higher interest expenses on the federal debt, which rise to $1.2 trillion, or 3.3% of GDP by 2032 from $399 billion, or 1.6% of GDP, in fiscal 2022, according to the CBO projections.CBO Director Philip Swagel told reporters that the projections are a sign that the “flow burden” from interest payments “is rising pretty steadily and meaningfully over the 10 year budget window.”The agency predicts that U.S. public debt will increase from 98% of GDP this year with an average interest rate of 1.9% to 110% of GDP by 2032 with an average rate of 3.1%. More

As president of the Federal Reserve Bank of New York, he favored flooding the financial system with cash to restore confidence among investors.E. Gerald Corrigan, who as the aggressive president of the New York Federal Reserve Bank helped cushion Wall Street’s crash in the late 1980s, died on May 17 in a memory-care center in Dedham, Mass. He was 80.The cause was complications of Alzheimer’s disease, his daughter Elizabeth Corrigan said.As president of the Federal Reserve Bank in Minneapolis from 1980 to 1984 and then of the New York Fed from 1985 to 1993, Mr. Corrigan used his prerogatives as a regulator to help resolve national and global financial crises, and to remedy some of the causes of episodic market instability.“He played a crucial role providing the psychological reassurance for a few critical days after the stock market crash,” Paul A. Volcker, the former Federal Reserve Board chairman, said when Mr. Corrigan retired from the Fed in 1993, referring to his actions after the Dow Jones industrial average dropped more than 22 percent in a single day in October 1987.In that upheaval, Mr. Corrigan urged the Fed chairman, Alan Greenspan, to reassure the markets that the Federal Reserve would pump whatever money was necessary into the financial system to reduce volatility. He also played vital roles in other crises: He helped the Fed to address the collapse of the investment bank Drexel Burnham Lambert in 1989 and of Salomon Brothers in 1991, and to deal with rising inflation, emerging market debt and the need to regulate worldwide credit risk.After Mr. Corrigan retired from the Fed, he joined Goldman Sachs, where he became managing director in 1996 and later chairman of the firm’s international advisers, co-chairman of its business standards committee and the first nonexecutive chairman of its commercial bank, now known as Goldman Sachs Bank. He retired from Goldman in 2016.Edward Gerald Corrigan, known as Jerry, was born on June 13, 1941, in Waterbury, Conn. His father, Edward, was a restaurant manager. His mother, Mary (Hardy) Corrigan, was a librarian.He earned a Bachelor of Social Science degree in economics from Fairfield University in Connecticut in 1963. At Fordham University in New York, he received a master’s degree in economics in 1965 and a doctorate in the same subject in 1971. (Years later, he donated $5 million to each university to establish professorships.)After teaching for a year at Fordham, he joined the Federal Reserve Bank of New York as a researcher in 1968 while still working on his doctorate. When Mr. Volcker, the New York Fed’s president, became chairman of the Federal Reserve Board in 1979, he recruited Mr. Corrigan as a special assistant.During his tenure at the Fed, Mr. Corrigan was named chairman of the Basel Committee on Banking Supervision by the governors of the world’s central banks, a position he held from 1991 to 1993. He also served as vice chairman of the Federal Open Market Committee from 1984 to 1993. In 1992 he was named a co-chairman of the Russian-American Bankers Forum, which helped the former Soviet Union develop a market-driven banking and financial system.In addition to his daughter Elizabeth, Mr. Corrigan is survived by another daughter, Karen Corrigan Tate, from his marriage to Linda Barlow, which ended in divorce; his wife, Cathy Minehan, who was president of the Federal Reserve Bank of Boston from 1994 to 2007; his stepchildren, Melissa Minehan Walters and Brian Minehan; a sister, Patricia Carlascio; and five grandchildren.Mr. Corrigan’s romance with Ms. Minehan raised questions of a possible conflict of interest when she was at the Fed and he was at Goldman Sachs in the mid-1990s, but he said at the time that they had consulted lawyers to prevent leaks of sensitive information that might benefit his company.During his stewardship, the Fed was criticized for failing to curb abuses by the scandal-scarred Bank of Credit and Commerce International. But Mr. Corrigan said when he retired that “if it wasn’t for the Fed, there is a pretty good chance that B.C.C.I. would still be in business.”In his remarks in 1993, Mr. Volcker said Mr. Corrigan had “a good conceptual understanding of the financial world, but most importantly he knows how to get things done.”“That’s a rare quality in the bureaucratic world in which he has grown up,” Mr. Volcker added.When the market crashed in 1987, for example, Fed officials planned to deliver a turgid technical response.“I said that’s the last damn thing we need,” Mr. Corrigan was quoted as saying in Sebastian Mallaby’s “The Man Who Knew: The Life and Times of Alan Greenspan” (2016). “What we need is a statement that has about 10 words in it.”Mr. Greenspan took Mr. Corrigan’s advice, saying (in 30 words) that the Fed would make available whatever money was needed while Mr. Corrigan importuned major banks to continue lending to undergird the markets.When Mr. Corrigan retired from the Fed, he said he would take a job in private industry where “I’ll try to limit myself to working six days a week, instead of seven.” The aftermath of the market crash in 1987, he said, had been his most memorable moment.“In terms of my pulse rate,” he said, “that one takes the prize.”Mr. Corrigan at a meeting of a European Union committee in Brussels in 2010 to discuss the Greek economy. George Gobet/AFP — Getty Images More

DAVOS, Switzerland (Reuters) – Years of under-investment in mining of metals essential to energy transition, supply shocks and high energy prices will continue to drive commodity prices higher, Eurasian Resources Group (ERG) Chief Executive Benedikt Sobotka said on Wednesday.Combined with COVID-related logistical issues and demand for transparency on sustainability these factors have brought together “all the ingredients for a perfect storm in commodity markets,” he told the Reuters Global Markets Forum in Davos.Sobotka said that a commodity super cycle has now begun and will carry on for the next 30 years, predicting a 20% rise in copper prices by the end of 2022.Luxembourg-based, privately-held ERG is a global supplier of copper and cobalt. It also supplies alumina and iron ore and is the only producer of high-grade aluminium in Kazakhstan.Sobotka believes a fossil fuel resurgence is temporary, and the transition to a lower carbon economy “cannot be stopped,” which will require a projected $50 trillion in the next three decades.”Anything between $200-$300 billion in investment per year will be required for the mining industry to satisfy demand for the energy transition,” he said, with much of this invested into the mining of copper, nickel, cobalt and other metals.In an environment of high prices and supply chain pressures, Sobotka expects companies and countries to stockpile strategic raw materials, including oil, copper, cobalt and other metals.”If you get small supply disruptions, you are going to see big swings in prices,” Sobotka said, adding that he expected to see an impact in the second half of 2022.Major end-users such as the automotive industry are already trying to strike long-term off-take agreements to buy metals such as lithium and cobalt at current market prices, he said.”It tells you how difficult it is to get your hands on material long term – and particularly material that is clean from an ESG (environmental, social and governance) point of view,” he added.(This interview was conducted in the Reuters Global Markets Forum. Join GMF on Refinitiv Messenger: )(The story refiles to fix spelling of name in first and third paragraph.) More

Malpass told an event hosted by the U.S. Chamber of Commerce that Germany’s economy, the world’s fourth largest, has already slowed substantially due to higher energy prices, and said reduced production of fertilizer could worsen conditions elsewhere”As we look at the global GDP … it’s hard right now to see how we avoid a recession,” Malpass said. He gave no specific forecast.He said the economies of Ukraine and Russia were both expected to see a significant contraction, while Europe, China and the United States were seeing slower growth.Developing countries were being hit even harder given shortfalls of fertilizer and food stocks and energy supplies, he said.”The idea of energy prices doubling is enough to trigger a recession by itself,” he said.In China, he said the relatively sharp slowdown in growth was based on the COVID-19 pandemic, inflation and the pre-existing real estate crisis the country had been facing.The World Bank last month had already cut its global growth forecast for 2022 by nearly a full percentage point, to 3.2% from 4.1%, due to the impacts from Russia’s invasion of Ukraine.Malpass gave no details on when a global recession could begin. More

DAVOS, Switzerland (Reuters) – The World Bank’s investment arm has continued disbursing funds to some private firms in Ukraine despite the war there and is looking to finance efforts to re-orient the country toward “greening” its economy, the head of the unit said on Wednesday.”In spite of the war, we have continued disbursing to some companies,” Makhtar Diop, managing director of the International Finance Corp, said on the sidelines of the World Economic Forum in Davos. “And so our commitment has been sustained.”Diop, who last year became the first African to run the World Bank’s private-sector unit, also told Reuters in an interview that the IFC was keen to arrange capital for companies that can help pivot Ukraine’s financial sector from its “energy intensive” focus. IFC is working with “a lot” of small-to-midsize businesses and “three or four” banks to push that effort ahead, he said.Last week, the World Bank said it would make $30 billion available to help stem a food security crisis threatened by Russia’s war in Ukraine, which has cut off most grain exports from the two countries. The IFC is looking to augment that with private-sector financing but is still working to set up the platform for doing so, Diop said.Diop also said IFC was looking to develop a regional approach for financing that would make capital available not just to clients in Ukraine but in its neighbors that have also been affected by Russia’s Feb. 24 invasion, particularly by the flow of refugees over Ukraine’s borders. His team is preparing a proposal for board approval.”In spite of the real risk … we are ready to take that risk and deal with it because the situation is so dire in Ukraine,” Diop said. More