Economy

The Senate voted to confirm one of President Biden’s nominees to the Federal Reserve’s Board of Governors, making Lael Brainard the central bank’s vice chair.Ms. Brainard, a Fed governor since 2014 who was originally nominated to the institution by President Barack Obama, was a key architect of the central bank’s response in 2020 as state and local lockdowns tied to the pandemic roiled markets and sent unemployment rocketing higher. She has been a close adviser to Jerome H. Powell, the Fed chair.Ms. Brainard received some bipartisan support, and passed the Senate in a 52-to-43 vote.The White House has also nominated Mr. Powell to another four-year term as chair. Mr. Powell, who was first appointed to the Fed by Mr. Obama, became chair in 2018 during the Trump administration. Mr. Biden has also nominated the economists Philip N. Jefferson and Lisa D. Cook to fill two open governor positions.Votes on those three nominees are expected soon.If all are confirmed, the four officials will make up a majority of the Fed’s seven-person Board of Governors in Washington, giving Mr. Biden a chance to leave his mark on the institution. Fed governors hold a constant vote on monetary policy, which they set alongside the central bank’s 12 regional reserve bank presidents, who vote on a rotating basis.But even as it gains new faces, the Fed is likely to stick to the course it has already begun to chart as it battles stubbornly rapid inflation. The central bank raised interest rates at its meeting in March and is expected to make an even bigger rate increase at its meeting next Tuesday and Wednesday. Policymakers have also signaled that they will soon begin to shrink their balance sheet of bond holdings in a bid to push up longer-term interest rates and further slow the economy.By making money more expensive to borrow, the Fed can slow down spending, which could allow inflation to moderate over time as supply catches up with demand. During their hearings, the nominees made it clear that they were committed to bringing down high inflation. Ms. Brainard and Mr. Powell regularly address that goal in public remarks.The central bank is hoping that it can calm the economy without pushing the unemployment rate higher and sending it into a recession.“I don’t think you’ll hear anyone at the Fed say that that’s going to be straightforward or easy,” Mr. Powell said at an event on Thursday. “It’s going to be very challenging. We’re going to do our very best to accomplish that.”The Senate has yet to start the process for voting on Mr. Biden’s fifth and most recent pick for the Fed Board: The White House this month nominated Michael S. Barr as the Fed’s vice chair for supervision. The White House’s initial nominee, Sarah Bloom Raskin, failed to secure enough support and was withdrawn from consideration for the job.Mr. Barr must appear before and then pass the Senate Banking Committee before advancing to a confirmation vote in the full Senate. More

NEW YORK (Reuters) – U.S. investors have apparently been losing their appetite to “buy the dip” during Wall Street’s recent slide, further eroding support for a market pummeled by worries over everything from tightening monetary policy to the war in Ukraine.Options trading data tracked by Vanda (NASDAQ:VNDA) Research showed that purchases of calls – typically employed to express a bullish view of stock prices – have fallen close to year-to-date lows for the tech-heavy Invesco QQQ ETF, which tracks the tech-heavy Nasdaq Composite Index.”There are initial signs that retail might be getting a bit tired of losing their money,” said Lucas Mantle, a data science analyst at Vanda Research. “It’s been a messy couple of weeks.”Retail investors emerged as a powerful force as the S&P more than doubled from its March 2020 lows following the COVID-19 pandemic. They helped fuel rallies in so-called meme stocks like GameStop Corp (NYSE:GME) and AMC Entertainment (NYSE:AMC) Holdings while also betting on shares of massive growth names such as Tesla (NASDAQ:TSLA) and Nvidia (NASDAQ:NVDA) Corp.Buying the dip had become “a generally foolproof strategy” during that time, said Steve Sosnick, chief strategist at brokerage Interactive Brokers (NASDAQ:IBKR). Broader market selloffs were mitigated as investors raced to buy beaten up stocks.A sustained reluctance to capitalize on stock declines now could make this an even more bruising year for equities. The S&P 500, which fell 2.8% on Tuesday, is down 12.4% year-to-date.Data from Interactive Brokers pointed to further signs investors may be more hesitant to jump in during stock weakness, with margin lending at the brokerage steadily declining this year since peaking at the end of 2021, Sosnick said.”All seemingly foolproof strategies run their course,” he said, adding that “many who were conditioned to reflexively buy dips learned the hard way that not every dip was indeed a buying opportunity.”As market volatility has increased this year and the buzz around so-called meme stocks has eased, users at TradeZero have been less active, said Dan Pipitone, chief executive officer of the online brokerage.”We went from a hyper-trading environment to now, more of a buy-and hold approach, while also taking on some intra-day trades … on single names that may be less impacted by outside forces and things that are unpredictable like the war in Ukraine or the supply chain,” he said. More

The share of Colombians living in poverty fell to 39.3% in 2021, compared with 42.5% in 2020, the government’s DANE statistics agency said. In 2019 the figure stood at 35.7%.”Although we have seen significant recoveries between 2020 and 2021, they have not been enough for people’s real per capita income to be higher in real terms than in 2019,” DANE director Juan Daniel Oviedo said in a virtual press conference.Extreme poverty in 2021 retreated to 12.2%, from 15.1% the previous year, the agency added. The change in poverty rates came in tandem with economic recovery: Latin America’s fourth-largest economy expanded by 10.6% last year. Some 19.6 million people in Colombia, out of a population of 50 million, were in poverty at the end of 2021, while 6.1 million lived in extreme poverty, DANE said.Last year, 1.4 million people left poverty, while 1.3 million left extreme poverty, the agency added. Poverty in Colombia’s urban areas, home to the majority of the population, closed last year at around 37.8%, while extreme poverty was 10.3%.The DANE agency defines poverty as those surviving on some $3 per day, while those in extreme poverty live on $1.36 a day or less. More

WASHINGTON (Reuters) – If China wants its yuan to become a globally used currency, Beijing would need to have open capital markets and full currency convertibility, the International Monetary Fund’s No. 2 official said on Tuesday.IMF First Deputy Managing Director Gita Gopinath, speaking about the global lender’s new institutional view on capital flow measures at a Peterson Institute for International Economics event, said history has shown that reserve currencies widely used in global trade transactions, such as the dollar and the British pound, do not have capital restrictions, as China does. “If a country is aspiring to be a global currency, then in that case, you would need to have, you know, basically fully and freely mobile capital, full capital account liberalization, full convertibility of exchange rate, which is not the case right now in China,” Gopinath said in response to a question on China’s capital restrictions.The IMF on March 30 updated its institutional guidance on capital controls to allow for the use of pre-emptive measures to reduce the risks of abrupt capital outflows causing financial crises or deep recessions.Under the new guidance, countries would no longer have to wait until capital flow surges materialize and can impose such measures to counter a gradual buildup of foreign currency debt that is not backed by foreign currency reserves or hedges.Gopinath said some countries with fixed exchange rates might have more reason to employ capital flow measures pre-emptively because they would have fewer tools to counteract sudden capital outflows.But she cautioned against using the capital flow measures to achieve certain policy goals that are better handled with domestic tools, such as controlling a run-up in housing prices.While housing price jumps are sometimes blamed on an influx of money from foreign buyers, housing bubbles are often due to other factors, such as interest rates that are too low, or a lack of adequate housing supply, she said.The IMF would be “skeptical” about using capital inflow controls to deter property investment by foreign buyers, she said, adding that such inflows would have to be so distortive as to pose a clear macroeconomic stability risk.”So we would think of this as, you really need to deal with this using your domestic intervention tools, because that’s often the reason why you have unaffordable housing prices, and of course, also increasing supply of housing and so on,” Gopinath said.The capital flow measures should also not be used by countries to counteract unsustainable fiscal policies, or to influence a country’s exchange rate for competitive advantage.”It’s not about you influencing your exchange rate to keep it weak for competitiveness purposes,” Gopinath said. More

Wars are also big economic shocks. The Vietnam war destabilised US public finances. The Korean war of 1950-53 and the Yom Kippur war of 1973 triggered huge increases in prices of vital commodities. This time, too, a war directly involving a huge energy exporter, Russia, and, with Ukraine, an important exporter of many other commodities, notably cereals, is raising inflation and causing sharp reductions in the real incomes of consumers. More important, the war has added to already pervasive stresses on economies, international relations and global governance. The walkout by western ministers and central bankers from last week’s G20 meeting, as the Russian delegation spoke, was a sobering reminder of our divided world.Even before Russia’s invasion of Ukraine, the world had not recovered from the economic costs of Covid, let alone its wider social and political effects. Supply disruptions were pervasive and inflation had soared to unexpectedly high levels. Monetary policy was set to tighten sharply. The risk of recession, worsened by defaults and financial disruption, was high. To this had to be added growing tensions between China and the west and their divergent policies on Covid. This war follows pestilence and threatens famine. Together these are three of Ezekiel’s four “disastrous” judgments of the Lord. Alas, the fourth, death, follows from the other three.The war is in sum a multiplier of disruption in an already disrupted world. Economically, it works via five main channels: higher commodity prices; disruption of trade; financial instability; the humanitarian impact, above all millions of refugees; and the policy response, notably sanctions. All these things also raise uncertainty.In its latest assessment of the world economy, the IMF has duly lowered prospects for economic growth and raised its expectations of inflation for a second time in succession. After the excitement of the unexpectedly rapid recovery from the Covid-induced recessions of 2020, disappointment has set in. Forecasts for global economic growth this year have been reduced by 1.3 percentage points since October 2021. For high-income countries, the forecast has been lowered by 1.2 percentage points and for emerging and developing countries by 1.3 percentage points. Estimates of potential output are also generally below pre-pandemic expectations.Inflation forecasts have also been raised sharply. It is now forecast to reach 5.7 per cent in high-income economies and 8.7 per cent in emerging and developing countries. Nor is this just the result of higher commodity prices or other supply shortages. As Jason Furman of Harvard’s Kennedy School insists, this inflation is “demand-driven and persistent”. As in the 1970s, strong demand could sustain a wage-price spiral, as workers seek to maintain real incomes. The Fund argues, against this, that oil is far less important than it used to be, labour markets have changed, and central banks are independent. All this is true. But the interplay between policy mistakes and supply shocks may still create stagflationary havoc.It is not hard to imagine far worse outcomes than those suggested by the Fund in its baseline forecast, since this assumes that the war remains restricted to Ukraine, sanctions on Russia do not tighten further, a more lethal form of Covid does not arrive, the tightening of monetary policy is modest and there are no big financial crises. Any (indeed many) of these hopes could go awry.A huge issue for human welfare, if not the world economy, is the probability of financial distress in emerging and developing countries, especially those also hit by higher commodity prices. As the Global Financial Stability Report points out, a quarter of issuers of hard currency debt already have liabilities trading at distressed levels. The west must now help crisis-hit emerging and developing countries far better than they have done in the fight against Covid.The one upside of recent disasters is that absolute dictatorship is being discredited. The concentration of power in the hands of one fallible human being is high risk, at best, and catastrophic, at worst. The Putin regime is a ghastly reminder of what can happen within such a dispensation. But Xi Jinping’s attempt to eliminate a highly infectious and not particularly dangerous pathogen from his country is another sign of what unchecked power may bring. Democracy has not covered itself in glory, but its leaders can at least be removed.Yet, alas, we share the planet with these regimes and especially with that of China. Unlike Russia, China is a superpower, not just a declining power with bottomless resentment and thousands of nuclear warheads. At the very least, the west will need to co-operate with China over the management of developing country debt.More fundamentally, we do need peace, prosperity and protection of the planet. These cannot be achieved without some degree of co-operation. The Bretton Woods institutions are themselves a monument to the attempt to achieve this. Twenty-five years ago, many hoped we were on the road toward what humanity needed. Now alas, we are again on a downhill path to a world of division, disruption and danger.If no further shocks arrive, the present disruptions should be overcome. But we have been reminded that huge shocks are possible and are also almost always negative. Russia must be resisted. But if we cannot sustain minimal levels of co-operation, the world we will end up sharing is unlikely to be a world we want to live [email protected] Martin Wolf with myFT and on Twitter More

The lockdowns stemming from China’s zero-Covid strategy have worsened General Electric’s supply chain challenges, prompting the US industrial conglomerate to caution on Tuesday that its full-year results would come in at the low end of its previous expectations.Shares in GE fell 10 per cent to $80.71 in morning trading in New York after chief executive Larry Culp detailed a series of “macro headwinds” putting pressure on revenues, as the 130-year-old group prepares to split into three smaller companies.GE blamed “significant supply chain constraints” for lower output in its commercial aircraft engines business and for weaker revenue growth in its healthcare division, where shutdowns in some regions of China were also affecting demand.In addition, the company took $230mn in pre-tax charges for the three months to March 31 to reflect the impact of Russia’s invasion of Ukraine.The charges largely related to its aviation and power businesses, it said, and reflected impairments of receivables, inventories and other assets as well as investments in Russia, where it has suspended operations that accounted for less than 2 per cent of group sales.GE said revenues of $17bn for the first quarter were largely unchanged from a year ago, with an 11 per cent improvement in its order book and a recovery in service revenues masking a divergence in the performance of its largest businesses.Aviation orders, which had been hard hit by pandemic disruptions to the travel industry, rebounded 31 per cent to $7.2bn, but renewable energy orders were down 21 per cent at $2.8bn. The renewables business suffered a fall in orders for onshore equipment, which GE said reflected “inflation-driven customer delays” and a broader decline in the US market.The group now expects to report adjusted earnings per share at the low end of the $2.80-$3.50-per-share range it gave in January, pointing to the war in Ukraine and the duration and magnitude of the pandemic’s impact on China as the biggest challenges over the past three months.For the first quarter, GE reported a net loss per share of 74 cents, slightly above the 75 cent loss it reported a year earlier. Adjusted earnings per share were 24 cents, up 11 cents and above Wall Street’s estimates. More

LONDON (Reuters) – The Bank of England looks set to take its first steps next week towards selling some of the 875 billion pounds ($1.11 trillion) of government bonds it amassed between 2009 and 2021, leading markets into uncharted territory.Investors believe the BoE, seeking to prevent the recent jump in inflation from becoming a long-term problem, will raise its main interest rate on May 5 to 1%, the level at which it has said it will be “considering beginning” outright bond sales.The big question for markets is when these sales will start. Analysts’ estimates range from June to well into 2023.The BoE said in February it would stop reinvesting proceeds of maturing gilts, echoing moves by the U.S. Federal Reserve in 2017 and 2018.But active sales raise more complex questions about timing, scale and the impact on Britain’s economy as it faces the challenging combination of the highest inflation in 30 years and faltering growth.The reduction in gilt holdings has the potential to push up borrowing costs across the economy, reducing inflation but also slowing growth, in a reverse of the quantitative easing done by most Western central banks since the 2008 financial crisis.No other big central bank has commenced a similar process of active sales.”We are venturing into new and uncertain territory,” said Sanjay Raja, chief UK economist at Deutsche Bank (ETR:DBKGn).Raja expects gilt sales to begin in August or September and to run at about 3.3 billion pounds a month through 2022 and 2023.Combined with 72 billion pounds of gilts maturing this year and next, that would add 15-25 basis points to long-dated bond yields – a small rise in borrowing costs given the 90 basis-point rise in 10-year gilt yields so far this year.Overall, the wider impact on growth and inflation from the sales was likely to be very small to begin with, Raja said.The BoE has said it wants its gilt sales to be predictable and avoid market disruption, and that interest rates will remain the main tool for controlling inflation.Its main aim is simply to reduce the size of the gilt holdings – which have reached a scale that could limit its room for manoeuvre during future downturns – and it thinks the broader economic impact will be limited.However, with consumer price inflation at 7% in March and heading higher, an early start to gilt sales would help the BoE show it is serious about bringing price rises under control, Bank of America (NYSE:BAC) bond strategist Mark Capleton said.”The softly, softly approach of the Bank, where quarter-point steps appear to be the modus operandi, appears rather timid,” he said.Bank of America expects the BoE to start gilt sales in June, initially selling 5 billion pounds of gilts a month, rising to 9 billion from November.NatWest Markets strategist Imogen Bachra said the BoE instead might prefer to take stock of the impact of its interest rate rises and slowing growth before announcing in November a programme for 2023 of about 50 billion pounds of gilt sales.”It doesn’t feel like they are in any rush to get this process started. They are much more focused on rate hikes for now,” she said.The BoE has raised rates three times since December, more than any other major central bank. Financial markets price in rates hitting 2.25% by the end of 2022. Most economists expect fewer hikes. Graphic: Bank of England gilt holdings – https://graphics.reuters.com/BRITAIN-BOE/klvykldlzvg/chart.png BIG HOLDERThe BoE is the biggest holder of British government bonds, owning 847 billion pounds of conventional gilts, equivalent to 45% of the total in issue, after 28 billion pounds of its bonds matured in March.The average maturity is much longer than bonds and mortgage-backed securities held by the Fed or the European Central Bank.Simply waiting for gilts to mature, it would take until 2030 for the BoE’s holdings to return to their pre-pandemic level – and 2071 for the last of the gilts to roll off the BoE’s books.”We can’t have a constant ratchet upwards of central bank balance sheets and they never come down,” Bailey said on Friday.But the BoE would not sell gilts into unstable markets, he said. Selling into a volatile market would make the impact of the sales on borrowing costs and the wider economy both greater and harder to predict, the BoE believes.Economists at ING say wider bid-ask spreads for gilts and increased volatility priced into swap options will cause the BoE to wait nine to 12 months before beginning sales.BoE policymaker Catherine Mann – who has been keen to raise interest rates – has said the recent increase in volatility was a factor for her regarding the pace of quantitative tightening.Economists do not expect much clarity next week on the BoE’s longer-term plans. It says it does not expect to fully undo the explosion of its balance sheet, due to a long-term increase in the amount of cash that banks deposit with it since the 2008 financial crisis.Deutsche Bank said the BoE’s gilts might fall by 300 billion pounds by the end of 2025. NatWest said it would take until the end of 2026 to reverse the 440 billion pounds of gilts purchased over the pandemic. In the near term, the BoE must decide how to sell the gilts in a way that gets the best return on them.A mirror-image of the BoE’s three weekly operations to buy the cheapest gilts it was offered within fixed maturity ranges, would not deliver this, Bank of America’s Capleton said.Selling more liquid, shorter-dated gilts was likely to be easiest, but the BoE might prefer to keep the maturity structure of its holdings and not focus on selling gilts due to mature soon, strategists said.The most efficient method would be for the BoE to delegate sales to Britain’s Debt Management Office (DMO), Capleton said. But in practice the BoE probably wants direct control of which gilts it sells and when, while trying to avoid a clash with the DMO’s 131.5 billion pounds of sales this year.”QE was a kind of supply-demand tango between the DMO and the Bank of England,” Capleton said. “But it’s questionable whether a supply-supply tango would work, or if they would be stepping on each other’s toes.” ($1 = 0.7857 pounds) More

UK government borrowing more than halved in the 2021-22 financial year ending in March as the economy bounced back from the pandemic, giving the chancellor more scope to address the cost of living crisis. The Office for National Statistics’ initial estimate of public sector net borrowing for 2021-22 was £151.8bn, down more than 50 per cent from the £317.6bn in 2020-21 when the coronavirus crisis was at its worst. This provisional data was worse than the £127.8bn that the government’s fiscal watchdog, the Office for Budget Responsibility, predicted in its March forecast for the financial year. But with tax receipts strong, economists said the final official figure was likely to improve significantly as further spending data came in from government departments. Representing approximately 6.4 per cent of national income, the level of government borrowing was lower than the total of the five years following the 2007-08 global financial crisis, indicating a much more rapid economic recovery from the virus. Economists said the figures were better than expected and that the ONS would soon revise down the estimates for borrowing in 2021-22. Michal Stelmach, senior economist at KPMG UK, said the £24bn difference between the OBR’s forecast and the ONS figures stemmed from an assumption made by the fiscal watchdog that many government departments would not have spent their full budgets in 2021-22.“The key difference stems from [the OBR’s] judgments, which are yet to appear in the published data, in particular in relation to greater departmental underspends, lower investment by local authorities, and an expected downward revision to the cost of the Covid-19 loan guarantee schemes,” Stelmach said.Samuel Tombs, UK economist at Pantheon Macroeconomics, noted that “early estimates of borrowing recently have been revised down significantly, as more data have been collated”. He said that tax revenues were higher than the OBR had predicted for the full financial year and government spending numbers were often revised down significantly. The healthy situation for the public finances gave Rishi Sunak, the chancellor, scope to alleviate the pain from the cost of living crisis, according to James Smith, research director of the Resolution Foundation think-tank. A “revenue rich” recovery, Smith said, implied that “the chancellor can have little reason not to provide much-needed policy support to families as they deal with the higher inflation and energy bills that are now hitting their finances”.Sunak, however, gave no hint that he was considering any imminent further action to help households. In a statement after the figures were published, the chancellor highlighted the support he said he had already offered. “We must manage public finances sustainably to avoid saddling future generations with further debt,” he added. Tax revenues were strong in March and across the whole of 2021-22. Central government revenues totalled £830bn in the financial year, some £6.5bn more than the OBR forecast at the time of the Spring Statement. In response to the data, the OBR said the strength in revenues was “broad based with all the major taxes recovering strongly” and the improvement had continued even as the wider economic recovery took a hit from higher energy prices. High inflation tends to raise government revenues both because spending is higher in the short term as prices rise and many thresholds in the tax system are fixed in cash terms. The fiscal watchdog said strong revenues was “thanks to strong growth in the cash size of the economy”.

But it did sound a note of caution on the public spending side of the government budget. The initial figures showed central government spending was £33.8bn higher than it had expected, reflecting big overshoots in purchases in goods and services as well as net investment. Some of that was likely to be revised down, the OBR said, but it noted that the forecast miss was large enough for it to wonder whether there had indeed been a surge of government spending at the end of the financial year. Net public investment was also £18.5bn higher than the OBR expected with £7bn likely to be automatically revised away once the ONS takes account of government policy changes on student loans and lower estimates of likely losses on Covid loan guarantees. But, the watchdog indicated that some of the additional spending was likely to be real and this suggested, “supply bottlenecks may not have impinged on capital outlays at the end of the year by as much as [we] expected”. More