Economy

“I don’t immediately see that as a reason to change,” the inflation target, Yellen told reporters Thursday in Bonn, Germany, referring to the potential for deglobalization to boost the trend rate of price increases. “The challenge is to meet the inflation targets that have been established.”US consumer prices have surged by more than an 8% annual rate the past two months, and some economists have questioned whether the Fed will be able to bring gains down to the 2% target for years. That’s in turn spurred speculation the Fed may need to boost its target.Yellen is in Bonn attending meetings of finance ministers and central bank governors from Group of Seven advanced economies. She said at Thursday’s gathering, a key message among the group was that it will “stand by” Ukraine, with a fresh commitment of support coming.©2022 Bloomberg L.P. More

(Reuters) – Russia’s central bank said on Thursday banks would be allowed to sell citizens foreign currency without any restrictions from May 20, with the exception of U.S. dollars and euros.Restrictions on dollars and euros, which allow citizens to buy only those dollars and euros that arrived in banks after April 9, will remain in place until Sept. 9, the central bank said. More

Stability in Northern Ireland is at risk. Unionists, the community who want the six counties to remain part of the UK, are wounded. A visitor need not travel far to spot graffiti attacking the “Irish Sea border” and the “protocol” — the part of the UK’s withdrawal agreement with the EU that governs the region’s post-Brexit trade with Great Britain.The protocol was an ineluctable result of the “hard” Brexit Boris Johnson negotiated, something prominent unionists once supported. Checks and regulations on goods entering Northern Ireland were needed to avoid a destabilising land border with the south of the island. Set aside, for now, who is to blame: the fact of unionist discontent matters for maintaining the peace. Even moderate unionists have anxieties about their shared home becoming less British if UK businesses stop serving it fully. But the needs of unionism should be differentiated from those of its political leaders.At this month’s elections, the largest unionist party ran an incendiary campaign. The Democratic Unionist party pledged — irresponsibly — that it would refuse to enter government unless the protocol were dropped. Since forming an executive requires buy-in from the lead unionist party and the lead party of “nationalism”, as those who would prefer Northern Ireland be part of Ireland are known, this means no government. Johnson’s stated slogan for this week, at least, is “We don’t want to nix it, we want to fix it” — an implicit rebuke to the DUP’s demand on the protocol and to its hard Brexiter allies in the Conservative party in London who view Northern Ireland as a place in which to show off their commitment to maximum “sovereignty”. The protocol contains processes for negotiating its own implementation. The UK should stick with them, and focus narrowly on the border. Some of London’s bugbears, like state aid rules, need to be put to one side.There is a landing zone for a deal to make the sea border less visible. For example, the EU last autumn offered “easements” to cut paperwork and checks — a start. Brussels will need to show more flexibility, but there are solutions to many of the other issues that annoy unionists. This will take time — some potential solutions rely on new data-sharing systems, for example. Taking time will also require trust.So it is regrettable that the UK government has threatened (again) to override parts of the agreement it does not like. Doing so could provoke a trade war — one Johnson cannot win and which would further destabilise the island of Ireland. It would be far better for the UK to draw closer to the EU. It is a shame that alignment between the UK and EU on food and agriculture appears out of bounds: that would mean fewer checks were needed.The kind of careful, trust-building approach needed would be a change from Johnson’s normal bluffing. It should be paired, too, with some uncharacteristic truth-telling. The prime minister needs to make clear to the DUP that they have lost. A forced retreat would be humiliating. But the party should be made to understand it has nothing to gain from its continued veto on a government.As some wilier unionists have quietly noted, the protocol could become a selling point for membership of the UK: it gives Northern Ireland privileged access to both British and EU markets. But the DUP’s presentation of it as a disaster contributes to the sense that Northern Ireland is ungovernable and cannot last. So too does its refusal to support a government. Everyone in the region needs a working executive. But no one needs it more than unionists. Nothing will build support for the end of a British-run Northern Ireland faster than yet another spell without leadership. More

Kansas City Fed President Esther George said Thursday that higher interest rates are needed now to bring down inflation.
She added in a CNBC interview that the efforts to bring down inflation will result in tighter financial conditions, of which the stock market is a part.
George expressed confidence that the Fed, which targets 2% inflation, can bring prices down through rate hikes and reducing the $9 trillion in asset holdings on its balance sheet.

Kansas City Federal Reserve President Esther George said Thursday that higher interest rates are needed now to bring down inflation and that policymakers are not focused on the impact that is having on the stock market.
In a CNBC interview, the central bank official noted that the Fed is looking to tighten financial conditions, of which equity markets are a component, in an effort to tamp down price increases running at their fastest pace in more than 40 years.

“I think what we’re looking for is the transmission of our policy through market’s understanding, and that tightening should be expected,” George told CNBC’s Steve Liesman during a “Squawk Box” interview. “So it’s not aimed at the equity markets in particular, but I think it is one of the avenues through which tighter financial conditions will emerge.”
The S&P 500 is teetering on the brink of a bear market, or a 20% plunge from its high. Investors have grown nervous over both rising prices and the impact that a big jump in interest rates could have on corporate earnings and consumer behavior.
Earlier this month, the Fed approved a 50 basis point rate hike and has indicated similar-sized increases are likely at its next few meetings. A basis point is equal to 0.01%.
George said “we need higher interest rates,” but added that she’s comfortable with the pace the Fed is moving at now and doesn’t see the need for bigger jumps, such as a 75 basis point increase that some have suggested.
“Moving deliberately, making sure we stay on course to get some of those rate increases into the economy and then watch how that’s unfolding is going to be really the focus of my attention,” she said. “I think we’re good at 50 basis points right now, and I’d have to see something very different to say we need to go further than that.”

Despite her concern on inflation, George said other parts of the economy are performing well. However, she said she has heard form business contacts and others in her region that consumers are beginning to change behavior due to higher prices.
She also said she’s confident the Fed, which targets 2% inflation, can bring prices down through rate hikes and reducing the $9 trillion in asset holdings on its balance sheet.
“I think we’ll succeed in bringing down inflation, because we have the tools to do the heavy lifting on that as it relates to demand, and we do see financial conditions beginning to tighten,” she said. “So I think that’s something we’ll have to watch carefully. It’s hard to know how much will be needed to make that happen given all the moving parts that we see in today’s economy.”
The rate-setting Federal Open Market Committee next meets June 14-15. Markets are pricing in a near-100% chance the FOMC will increase its benchmark borrowing rate by 50 basis points, though there is a slight chance priced in for a bigger move, according to CME Group data. The rate is currently targeted at 0.75%-1%.

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JOHANNESBURG (Reuters) – South Africa’s central bank increased its main lending rate by 50 basis points to 4.75% in a decision announced on Thursday.The decision was in line with a Reuters poll published last week. More

Sir Bufton Tufton, the archetypal British Conservative MP, is deeply unhappy. He did not spend decades advocating free market economics to see such a dire situation visited on the country’s economy. Growth is anaemic, inflation rampant, the tax burden at its highest in six decades and every corner of the public realm has an insatiable appetite for money.Were he a real politician, Sir Bufton would be part of the loud chorus of Tories now calling on chancellor Rishi Sunak to slash taxes. Faced with a spiralling cost of living, the party’s natural instinct would be to reduce the state’s demands — perhaps by bringing forward the 1p income tax cut due in 2024.But there is a far more pressing issue for Tories to grapple with: the plight of the poorest. Those who are unemployed or unable to work find themselves at the sharp end of this crisis, with no imminent hope of a rise in income. It is now widely accepted in the Treasury that not enough help was provided in March’s Spring Statement.Take the 5p cut to fuel duty. Its £2.4bn cost has delivered no political dividend. In a surprise to almost no one, prices at the pumps stayed high. Kwasi Kwarteng, business secretary, sighs that the duty cut “does not appear to have been passed through to forecourt prices in any visible or meaningful way”.The Treasury’s default mindset is to do as little as possible until almost too late. So more still has to be done to address the cost of living and help those out of work. Handily, one of the few parts of the British state that functions well is universal credit. Despite cost overruns and all manner of technical glitches, the UK has the most digitalised, advanced benefits system in Europe.For much of the past decade, however, UC has been underfunded. Its budget was slashed by £3.2bn in 2015 — leading Iain Duncan Smith, then work and pensions secretary, to quit and accuse the government of “balancing the books on the backs of the poor and vulnerable”. But in 2018, its work allowances rose, allowing those on benefits to earn more money from part-time work. And the social security system came into its own during the pandemic, when the lockdown-induced economic crisis saw more than one million extra people on benefits. The government duly introduced a temporary uplift of £20-a-week for claimants at a cost of around £6bn. According to the government, the extra spend cut child poverty by 400,000.The uplift ended in October; the Treasury was eager to ensure extra spending did not become permanent. Half a dozen former work and pensions secretaries pleaded against — to no avail. With inflation soaring, Tory calls to reinstate the £20 a week are growing. Sir Bernard Jenkin, an MP on the right of the party, says it “should immediately be restored”.This 13 per cent rise in UC spending would be well above the current nine per cent inflation rate. With fears rife about stimulating more inflation, one compromise endorsed by the Centre for Social Justice, a centre right think-tank, could be an emergency reassessment of universal credit to reflect inflation across the last quarter. As the cost of living crisis unfolds, ministers should consider a quarterly welfare assessment. If the energy price cap is to be updated on this schedule, why not UC?The Labour party supports more welfare spending. But for Tories such as Sir Bufton, the case is just as strong. UC ensures it is always better to be in work (for those who can). The system minimises waste: the Tories should be much louder and prouder of it.Plus the funds are there to make a rise permanent. Sunak has a healthy windfall from higher-than-forecast tax receipts. Spending £3bn-4bn on UC is proportionate — especially when the Treasury had no qualms about writing off £5bn in Covid payment fraud. Politically, Sunak has to act. Economically, a UC rise is plausible. But, crucially, boosting benefits is morally the right thing to do. [email protected] More

WASHINGTON (Reuters) – The Federal Reserve is not targeting equity markets in its battle against inflation but that is “one of the avenues” where the impact of tighter monetary policy will be felt, Kansas City Fed president Esther George said Thursday in comments to CNBC.”What we are looking for is the transmission of our policy through markets understanding that tightening should be expected,” George said a day after weak profits from major retailers contributed to a sell-off of stocks. “It is not aimed at the equity markets in particular but it is one of the avenues through which tighter financial conditions would emerge.” More

BANGKOK (Reuters) – Thailand has no need to raise interest rates following the Federal Reserve’s hikes in U.S. rates as domestic factors and the economic recovery will be the main issues determining policy, the central bank chief said on Thursday.The country’s external position remains strong with low foreign debt and high international reserves, Bank of Thailand Governor Sethaput Suthiwartnarueput told reporters on the sideline of a business seminar.Capital movements had not been a problem yet, he said.However, the BOT will closely monitor baht volatility which has been driven by external factors, including the Fed’s rate trend, as it may impact smaller businesses, Sethaput said.He declined to say whether the BOT had intervened over the baht that has been trading at its weakest level in almost five years against the dollar.The BOT has left its benchmark rate at a record low of 0.50% since May 2020. It will next review policy on June 8 and most analysts expect no imminent change.At the seminar, Finance Minister Arkhom Termpittayapaisith said fiscal and monetary policies were still working in step to support the economy.Sethaput said the BOT would ensure no disruptions to the economic recovery, which has been slow and uneven, with the vital tourism sector still lagging.The task ahead for the BOT “is to do whatever it takes to make the recovery uninterrupted and take off as smoothly as possible,” he said.Despite higher prices, there was no risk of stagflation since the economy is still growing, likely by more than 2% this year, helped by exports and tourism, Sethaput said.He sees the number of foreign tourists topping a previous forecast of 5-6 million this year, versus nearly 40 million in 2019.Last month, Sethaput told Reuters tourism might not return to pre-pandemic levels until 2026 and the BOT would focus on supporting growth, even as surging global prices force its peers to increase interest rates. The BOT is also due to review its 2022 growth forecast, currently at 3.2%, at the rate meeting. Sethaput said the state planning agency’s growth outlook of 2.5-3.5% this year was close to the BOT’s estimate. More