Economy

Fed Chairman Jerome Powell on Thursday said the central bank is committed to raising rates “expeditiously” to bring down inflation.
That could mean an interest rate hike of 50 basis points in May as prices rise at their fastest pace in more than 40 years.
“It’s absolutely essential to restore price stability,” he added.

Federal Reserve Chairman Jerome Powell affirmed the central bank’s determination to bring down inflation and said Thursday that aggressive rate hikes are possible as soon as next month.
“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell said while part of an International Monetary Fund panel moderated by CNBC’s Sara Eisen. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. … I would say 50 basis points will be on the table for the May meeting.”

Powell’s statements essentially meet market expectations that the Fed will depart from its usual 25 basis point hikes and move more quickly to tame inflation that is running at its fastest pace in more than 40 years. A basis point equals 0.01 percentage point.
However, as Powell spoke, market pricing for rate increases got somewhat more aggressive.
Expectations for a 50 basis point move in May rose to 97.6%, according to the CME Group’s FedWatch Tool. Traders also priced in an additional hike equivalent through year’s end that would take the fed funds rate, which sets the overnight borrowing level for banks but also is tied to many consumer debt instruments, to 2.75%.
Stocks also fell, sending the Dow industrials down more than 400 points and the Nasdaq, with its rate-sensitive tech stocks, lower by more than 2%. Treasury yields pushed higher, with the benchmark 10-year note most recently at 2.9%.

Stock picks and investing trends from CNBC Pro:

At its March meeting, the Fed approved a 25 basis point move, but officials in recent days have said they see a need to move more quickly with consumer inflation running at an annual pace of 8.5%.

“Our goal is to use our tools to get demand and supply back in synch, so that inflation moves down and does so without a slowdown that amounts to a recession,” Powell said. “I don’t think you’ll hear anyone at the Fed say that that’s going to be straightforward or easy. It’s going to be very challenging. We’re going to do our best to accomplish that.”

“It’s absolutely essential to restore price stability,” he added. “Economies don’t work without price stability.”
The Fed had resisted raising rates through 2021 even though inflation was running well above the central bank’s 2% longer-run target. Under a policy framework adopted in late 2020, the Fed said it would be content with letting inflation running hotter than normal in the interest of achieving full employment that was inclusive across income, racial and gender demographics.
Until several months ago, Powell and Fed officials had insisted that inflation was “transitory” and would dissipate as Covid pandemic-related factors such as clogged supply chains and outsized demand for goods over services abated. However, Powell said those expectations “disappointed” and the Fed has had to change course.
“It may be that the actual [inflation] peak was in March, but we don’t know that, so we’re not going to count on it,” he said. “We’re really going to be raising rates and getting expeditiously to levels that are more neutral and then that are actually tight … if that turns out to be appropriate once we get there.”
These will be Powell’s last remarks before the May 3-4 meeting of the Federal Open Market Committee, which sets interest rates. He is the latest Fed official to say rapid action is needed to take down inflation.
Along with the rate hikes, the Fed is expected soon to start reducing the amount of bonds it is holding. The central bank’s balance sheet now stands at close to $9 trillion, primarily consisting of Treasurys and mortgage-backed securities.
Discussions at the March meeting indicated the Fed eventually will allow $95 billion of proceeds from maturing bonds to roll off each month.
Powell noted that the other than pernicious inflation, the U.S. economy is “very strong” otherwise. He characterized the labor market as “extremely tight, historically so.”
Earlier in the day, he referenced former Fed Chairman Paul Volcker, who battled inflation in the late 1970s and early ’80s with a series of rate hikes that ultimately led to a recession. Volcker “knew that in order to tame inflation and heal the economy, he had to stay the course,” Powell said.
The Volcker Fed ultimately took the benchmark rate to nearly 20%; it currently sits in a range between 0.25% and 0.50%.

WATCH LIVEWATCH IN THE APP More

WARSAW (Reuters) -Poland failed to reach agreement with air traffic controllers on Friday in a dispute over pay and conditions, a trade union spokeswoman said, moving airlines closer to what European authorities have said could be mass flight cancellations.The disruption, affecting not only flights to and from Poland but also those passing through the country’s airspace, could start on May 1, the day after the end of the notice period for air traffic controllers who chose to quit rather than accept new working regulations they say threaten safety.Talks will resume on Sunday afternoon, the spokeswoman said.European air safety body Eurocontrol said Poland’s Civil Aviation Authority will drastically cut the number of flights in Polish airspace if no agreement is reached.”As of 1 May, the Polish CAA will implement a flight cancellation programme to significantly reduce the number of flights into/out of Polish airspace,” Eurocontrol said in an emailed statement.”It is anticipated that there will be enough controllers for the approach to Warsaw airports to operate … with a total capacity of around 170 flights. The two Warsaw airports were expected to handle on average 510 flights each day in May.”According to the Polish air traffic controllers’ union, 180 out of 206 controllers working in Warsaw chose to resign rather than accept the new working conditions. Forty-four of the 180 have already left, and the notice period for the remaining 136 ends on April 30.The union says proposals including a cut in air traffic controllers’ pay and an increase from eight to 12 in the maximum number of hours they can work in a shift are unacceptable.”We are fighting for safety and for the return of a culture of work safety and this means an environment of trust, which is built, not bought,” it said in a statement on Thursday.Deputy Infrastructure Minister Marcin Horala has previously said the air traffic controllers’ pay demands are not realistic given the effects of the COVID-19 pandemic, which has reduced the fees the Polish Air Navigation Services Agency (PANSA) gets from airlines. More

LONDON (Reuters) -Soybean oil prices soared to a record high on Friday as Indonesia’s decision to effectively ban exports of palm oil heightened concerns about already depleted global supplies of alternative vegetable oils. The loss of shipments from Ukraine, the world’s top supplier of sunflower oil, and drought in the world’s top soybean oil exporter Argentina had already sparked a sharp rise in global vegetable oil prices.The tightening vegetable oil supplies come as easing COVID-19 restrictions have sparked a surge in demand for food and biofuels. While oilseed crushers have announced plans to expand processing capacity, most of the new facilities will not be online for at least a year, industry sources said.Soybean oil prices on the Chicago Board of Trade rose to a peak of 83.21 cents per lb on Friday, up 4.5% on the day and a record high, before pulling back to 81.42 — still a record for the most actively traded futures contract. Prices have now risen by almost 50% so far this year.Indonesia, the world’s top producer and exporter of palm oil, blocked exports from April 28 to tackle rising domestic prices. The move looks set to fuel already surging food inflation elsewhere. “This is bad news for vegetable oil consumers in many countries which currently strongly depend on palm oil in view of shortages in sunflower oil, rapeseed oil and soy oil,” Siegfried Falk, an analyst at Hamburg-based Oil World, said.Food inflation has become a major concern around the globe following Russia’s invasion of Ukraine, a major exporter of wheat, corn, barley, sunflower oil and rapeseed oil.The United Nations food agency reported earlier this month that food prices had jumped nearly 13% in March to a new record high.Argentina, the world’s top supplier of processed soy ahead of Brazil and the United States, briefly halted new overseas sales of soybean oil and meal in mid-March before hiking the export tax rate in a bid to tamp down domestic food inflation.The U.S. Agriculture Department has predicted that U.S. soy crushers will process a record 60.282 million tonnes of soybeans this year, up 3.5% from a year ago.National Oilseed Processors Association Chief Executive Officer Tom Hammer said it will be hard to boost that capacity further until new plants come online. Another 10 to 12 new soy processors will be operating in the United States by 2025, with the first one expected to begin operations in 2023.”Ultimately there is going to be a lot more capacity (but) we have got a ways to go,” Hammer said.Palm oil is the world’s most widely used vegetable oil and is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate. More

MEXICO CITY (Reuters) -Mexico’s Banorte said on Friday that “non-disclosure agreements” had been signed as a preliminary step toward a possible bid for Citigroup (NYSE:C)’s Citibanamex subsidiary even as the Mexican lender targets organic growth with the planned launch of a digital bank.Shares in Banorte were up more than 7%, hitting a two-week high after the company also delivered better-than-expected earnings and executives said the lender is seeking approval from regulators to launch a digital bank.Chief Executive Marcos Ramirez Miguel said Banorte is fighting “for an even playing field” versus startups.Banorte will present a proposal to its board and shareholders if it views terms regarding Citibanamex as “convenient,” Miguel said. Analysts have said they expect several banks could be interested in making an offer.Banorte Chief Operations Officer Rafael Arana declined to say whether Citi’s “data room,” in which it would define sale terms, had already opened. More

NEW YORK (Reuters) -Bank of Japan Governor Haruhiko Kuroda said on Friday the central bank should “persistently” continue with its current aggressive monetary easing, despite an expected temporary rise in inflation driven by surging commodity costs.Japan’s inflation is expected to rise in the short run, but such a rise consists primarily of cost-push inflation and therefore lacks sustainability, Kuroda said.”The output gap in Japan is negative, and there is still a long way to go to achieve the 2% target in a stable manner,” Kuroda said in a speech delivered at Columbia University, referring to the BOJ’s 2% inflation target.”The Bank’s role in the current context is perfectly clear: to persistently continue with the current monetary easing centered on yield curve control,” he said.While Japan’s consumer inflation may accelerate to around 2% from April due to one-off factors, the upward price pressure has not been as widespread as in the United States due to weak growth in services prices, Kuroda said.If the increase in commodity prices heightens inflation expectations and triggers an unwelcome spike in wages, central banks need to tighten monetary policy, as is the case in the United States, Kuroda said.”However, in Japan, it is unlikely that the current rise in commodity prices due to supply factors will immediately lead to a sustained rise in wages and prices,” he said.Citing Japan’s negative output gap, Kuroda said there is no concern over an overheating of the economy.”Given the developments in Japan’s economy, it is necessary and appropriate for the Bank to continue with monetary easing and thereby firmly support the economy,” he said. The BOJ has pledged to maintain ultra-loose policy even as other central banks have started to tighten monetary settings, arguing that Japan’s sticky deflationary mindset will prevent prices from rising much soon.Japan has seen consumer inflation accelerate only moderately after being mired in two decades of grinding deflation. Core annual consumer prices rose just 0.6% in February – well below the BOJ’s 2% target.But core consumer inflation is expected to accelerate to around 2% from April due to rising fuel costs and the dissipating impact of past cellphone fee cuts.The BOJ is likely to raise its inflation forecast for this fiscal year to near 2% at next week’s policy meeting as global commodity inflation drives up energy and food costs, sources have told Reuters.Still, inflation expectations in Japan appear to still be reasonably anchored, Kuroda said. While there has been some indication of short-term inflation expectations edging up, medium-to-long-term inflation expectations do not show any significant upward momentum.The BOJ chief also said he did not think it was likely that a wage-price spiral dynamic would develop in Japan as some argue it has in the United States. More

As the Russian delegation prepared to speak at Wednesday’s G20 meeting, finance ministers and central bank governors from the US, EU, UK and Canada got up and walked out. They did not stay to listen to what Russian finance minister Anton Siluanov, who joined virtually, or his deputy Timur Maksimov, who was in the room, nor Elvira Nabiullina, the head of Russia’s central bank, had to say about the global economy.Christine Lagarde tweeted a photo of these unlikely protesters in the cavernous atrium of the IMF’s HQ2 building. “We stand with #Ukraine and against Russia’s war of aggression,” the president of the European Central Bank said.Vitriolic language from normally mild-mannered finance officials such as US Treasury secretary Janet Yellen, who condemned Russia’s “illegal, unprovoked war against Ukraine”, highlights how the invasion dominated this week’s spring meetings of the IMF and World Bank in Washington.Kristalina Georgieva, IMF managing director, said on multiple occasions that the invasion was a “massive setback” for the global economy, as the fund slashed forecasts for 2022 from the 4.4 per cent estimated as recently as January to 3.6 per cent.The effect of the war in Ukraine in raising food and energy prices would create a “human catastrophe” in many poorer countries, said David Malpass, head of the World Bank, while the IMF’s fiscal and financial stability departments warned of debt distress among poorer countries as they face a perfect storm of increasing inflation, lower growth and higher US interest rates.Ukraine is set to lose 35 per cent of output this year and appealed for more help with its budgetary crisis. It will need $5bn a month for the next three months just to keep the country running.Georgieva urged richer countries to step up and provide the funding required. “Piling more debt on top of the ones they already carry in this environment of sharply reduced revenues and significantly increased expenditures [is] just not wise,” she said.Even though Russia accounts for only 2.7 per cent of the global economy, it became clear this week that its re-emergence as a pariah nation would undermine global co-operation. The G20, which has few formal rules and acts as a valuable talking shop among the world’s largest economies, was completely stymied by Russia’s continued participation and the walkout by western nations.It was unable to publish a communique of its discussion, leaving Indonesia — which chairs the group this year — in the invidious position of trying to talk up the achievements of its presidency at a time of acrimony and walkouts.This culminated in the most surreal moment during the post-meeting news conferences when Sri Mulyani Indrawati, Indonesia’s finance minister, admitted that discussions had been held “under challenging circumstances”, only to be contradicted by Febrio Kacaribu, head of the country’s fiscal policy agency, who said “the spirit of collaboration and multilateralism was really showing during the meeting”.Few believe the G20 now lives up to its billing as “the premier forum for international economic co-operation”.The G7 would like to kick Russia out of these discussions and issued a statement saying the US, Japan, Germany, France, UK, Italy and Canada “regret[ted] participation by Russia in international fora, including G20, IMF and World Bank meetings this week”.Russia’s refusal to lie low also meant the IMF’s governing body, the International Monetary and Financial Committee, was unable to agree a communique.IMF managing director Kristalina Georgieva said Russia’s invasion had increased, rather than diminished, the need for international co-operation in economic matters © Jose Luis Magana/APThe IMF managing director had little progress to demonstrate from the week’s discussions and negotiations. In Georgieva’s closing news conference, she talked of “very concrete takeaways of our meeting”, highlighting an agreement to establish a Resilience and Sustainability Trust at the IMF to help poor countries finance longer-term challenges, such as the transition to clean energy. The only problem with this was that the agreement to establish this financing mechanism was actually struck last October.Instead of trumpeting the OECD’s 2021 global tax agreement in its statement to the IMF, the international organisation barely mentioned it because deadlines are already slipping.The international community’s “common framework” to tackle debt distress by bringing together all public and private sector creditors barely functions because, as Georgieva said, “there are no clear, established processes and timelines”.However, Georgieva spoke for many in saying that although the IMF could not publish statements that require consensus agreement, Russia’s invasion had increased, rather than diminished, the need for international co-operation in economic matters. “The overwhelming majority of the membership sees this crisis as proof that we have to co-operate, compare notes on policies [and] find ways in which we can act in solidarity,” she said. The future of economic policymaking may lie in regional groupings for co-operation rather than global fora.Pierre-Olivier Gourinchas, IMF chief economist, highlighted the consequence of such a move, saying in an interview with the Financial Times: “If we become a world of many different blocs, we will have to undo a lot of the integrated economies that we’ve built and supply chains that we’ve built . . . and build something else that is more narrow [and] smaller in scope.”“There will be adjustment costs [and] there will be efficiency losses and that could lead to an increase in unit costs because things are not done as efficiently as before,” he added.“If we are in a world in which we have different blocs, then I don’t exactly know how the [IMF] can function. Does it become an institution that works for one bloc but not the others? How does it work across different parts of the world? It is certainly not something that would be desirable on many, many fronts.” More

The UK plans to ban the procurement of health goods linked to slavery and human trafficking, following pressure from a cross-party campaign over the purchase of personal protective equipment from Chinese companies suspected of using forced labour. As part of an amendment to the Health and Care Bill, tabled on Thursday, NHS England will be barred from purchasing “goods or services that are tainted by human trafficking and slavery” with the aim of “eradicating” forced labour from supply chains.The amendment, on which MPs are due to vote on Monday, will particularly affect contracts with manufacturers in China that human rights organisations have criticised for using forced labour from the Muslim Uyghur minority in Xinjiang province. The health department bought billions of pounds of medical supplies for the NHS from companies with China-linked supply chains during the coronavirus pandemic, as part of £33bn of contracts awarded during 2020 and 2021, according to Tussell, a contracts research agency. Sajid Javid, health secretary, said the ban marked a “turning point” in the government’s efforts to end the use of forced labour in supply chains, adding that as the biggest public procurer in the country the NHS was “well placed to spearhead this work”.A similar amendment, sponsored by the former Conservative Home Office minister Lord David Blencathra, passed in the House of Lords in March, receiving plaudits from across the political divide. The government announcement heads off a possible rebellion from backbench Conservative MPs over the issue. Iain Duncan Smith, a former Tory leader who was leading the revolt, welcomed the ban and called on other government departments to “follow suit”. “The health department had massive purchases from China during the lockdown, including masks proven to have been made by slave labour. Thankfully, that jolted them into action.”MPs voted last year to declare the Chinese treatment of Uyghurs genocide, but the government has come under fire for not officially doing so. Layla Moran, Liberal Democrat foreign affairs spokesperson, said the ban on healthcare supplies linked to forced labour was “long overdue”. “It should not have taken a pandemic to shine a light on the hugely concerning links between supply chains involving forced labour — including those in Xinjiang — and PPE and other items used in our healthcare sector,” she said. Moran called on the government to go further by “following the lead” of the US Senate, which in December last year passed a bill banning all imports from China’s Xinjiang region unless they could be proven not to involve forced labour. Luke de Pulford, co-founder of anti-slavery charity Arise, said it was “hard to overstate the importance of this change”, adding that the ban “could knock out huge swaths of our supply chain which depends on China where both forced labour and involuntary labour transfer schemes are well documented”. Rahima Mahmut, UK director of the World Uyghur Congress, thanked the health secretary for the legislation and praised the UK government for “standing up to China”. “For too long the UK has pretended that it’s possible to increase trade with China while denouncing their human rights atrocities. I hope this is the beginning of the end for China’s trade impunity,” she added. More

Sterling fell to its weakest level since late 2020 after a sharp drop in British retail sales and a slowdown in business activity highlighted the extent of the cost of living crisis and surging inflation.The volume of retail sales fell 1.4 per cent in March, the Office for National Statistics said, worse than the 0.3 per cent drop forecast in a Reuters poll and the second consecutive monthly decline.This month’s flash purchasing managers’ index, compiled by S&P Global, also suggested that rises in energy and food prices were rapidly cooling activity in the economy. The index fell from 60.9 in March to 57.6 — the lowest reading since January and below economists’ expectations. Friday’s retail and PMI figures prompted many economists to forecast that the Bank of England would raise interest rates less aggressively, triggering a 1 per cent drop in the pound against the US dollar to $1.289.Thomas Pugh, economist at the consultancy RSM, said the retail data was the first official sign of the toll of high inflation on consumer spending and the economy. He warned of “worse to come” over the next few months, with the cost of living crisis likely to deteriorate in April, due to a jump in energy bills and taxes.Annual inflation already hit a 30-year high when it surged to 7 per cent in March.For sterling, “this is like a dam breaking”, Kit Juckes, an analyst at Société Générale, said of the retail figures, adding that the 1.5 percentage points of interest rate rises anticipated by the market for this year now looked unrealistic. With the pound having dropped below $1.30, the next likely target is $1.25, he said.“Despite repeated upside inflation surprises, we think the Bank of England is likely to tread more carefully on rate rises than markets expect,” said James Smith, economist at ING. “It’s getting increasingly difficult to see how UK consumer spending avoids a downturn over the coming months.”ONS data showed that online sales were hit particularly hard due to lower levels of discretionary spending. This slipped 7.9 per cent in March compared with the previous month, the largest monthly fall since January 2001. The drop followed a substantial contraction in February.Fuel sales also fell substantially, by 3.8 per cent, with evidence suggesting some people reduced non-essential journeys following record high petrol prices.Separate data released on Friday by the research company GfK showed that, in April, UK consumer confidence plunged to a near all-time low since records began in 1974, reflecting the impact of the cost of living crisis.The data “surely quashes any remaining chance that the Monetary Policy Committee might raise the bank rate by [half a percentage point] next month, though a [quarter-point] hike still looks likely”, added Samuel Tombs, economist at Pantheon Macroeconomics. The PMI figures will also intensify the dilemma at the Bank of England, whose governor, Andrew Bailey, said on Thursday it was walking a fine line between moderating inflation and turning the slowdown into a recession. Increases in the cost of components bought by manufacturing companies reached an all-time high in the PMI survey’s 30 year history. Some 84 per cent of manufacturing companies surveyed reported increased costs compared with three months ago, with 66 per cent of service sector firms also signalling a rise in operating expenses.

But the biggest problem noted by the survey was a drop off in the momentum of new business with companies reporting slower consumer demand with customer incomes squeezed. “Orders received by manufacturers have almost stalled, driven by an increasing loss of exports, and growth of demand for services has slumped to among the weakest since the lockdowns of early 2021,” added Chris Williamson, chief business economist at S&P Global.The ONS data showed that shoppers only marginally reduced the value of what they spent on the high street, down 0.2 per cent, but with surging inflation, the volume of goods they were able to buy shrank significantly.Jackie Mulligan, founder of ShopAppy, a website for local producers, said that “for countless small independent retailers, March was merciless. The small businesses that line the country’s high streets need our support more than ever.” More