Economy

Federal Reserve board member Christopher Waller said Wednesday that he expects interest rates to rise considerably over the next several months.
In a CNBC interview, Waller said current data on inflation and the general strength of the economy justify half-percentage-point increases ahead.
The Fed normally increases in 25-basis-point increments.

Getting inflation under control will require raising interest rates at a faster pace than normal even though the pace of price increases probably has peaked, Federal Reserve board member Christopher Waller said Wednesday.
That means the central bank likely will hike short-term rates by half a percentage point, or 50 basis points, at its meeting in May, and possibly follow it up with similar moves in the next several months, Waller told CNBC. The Fed normally increases in 25-basis-point increments. A basis point equals 0.01%.

“I think the data has come in exactly to support that step of policy action if the committee chooses to do so, and gives us the basis for doing it,” he said during a live “Closing Bell” interview with CNBC’s Sara Eisen. “I prefer a front-loading approach, so a 50-basis-point hike in May would be consistent with that, and possibly more in June and July.”
Markets already have almost fully priced that level of increase at next month’s Federal Open Market Committee meeting, as well as the following session in June, according to CME Group data that tracks moves in the fed funds futures market. Pricing for July also is tilting that way, with a 56.5% probability of another 50-basis-point hike.
That means that should the Fed choose to move aggressively, it won’t come as a surprise.
Waller said he thinks the central bank can pull off the tighter policy now because the economy is strong enough to support higher rates. The Fed is looking to raise rates to stave off inflation running at its highest levels in more than 40 years.
“I think we’re going to deal with inflation. We’ve laid out our plans,” he said. “We’re in a position where the economy’s strong, so this is a good time to do aggressive actions because the economy can take it.”

Nevertheless, there is some disagreement over how aggressive FOMC members want to be in the inflation battle.
In March, those favoring a quarter-percentage-point hike held just a tiny majority over those who wanted to double that. Officials through their public statements have offered differing views about how far the Fed should go, with Waller part of a group that wants rates to go past “neutral,” or the point where they are considered neither restrictive nor stimulative. The neutral funds rate now is considered to be around 2.5%.
On the other side of the debate, policymakers including Fed board member Lael Brainard and Chicago Fed President Charles Evans have said in recent days that they would rather get the rate to neutral and then assess what future actions may be needed.
“I think we want to get above neutral certainly by the latter half of the year, and we need to get closer to neutral as soon as possible,” Waller said.
St. Louis Fed President James Bullard told the Financial Times that it’s “fantasy” to think rates can go to neutral and still bring down inflation.
For his part, Waller said he is confident inflation will start coming down, even though the Fed’s powers are limited to control the lagging supply chains associated with the current round of higher prices.
“All we can do is kind of push down demand for these products and take some pressure off the prices that people have to pay for these products,” Waller said. “We can’t produce more wheat, we can’t produce more semiconductors, but we can affect the demand for these products in a way that puts downward pressure and takes some pressure off of inflation.”
Earlier in the day, Treasury Secretary Janet Yellen, a former Fed chair, said of the agency’s board members, “It’s their job to bring inflation down.”
“They have a dual mandate. They will try to maintain strong labor markets while bringing inflation down,” Yellen said during an appearance before the Atlantic Council. “And it has been done in the past. It’s not an impossible combination, but it will require skill and also good luck.”

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Christopher J. Waller, one of the Federal Reserve’s governors in Washington, said on Wednesday that recent economic data suggests that the central bank should raise interest rates by more than usual in May, and potentially in June and July as well.“The data has come in exactly to support that type of policy action, if the committee decides to do so,” Mr. Waller said during a CNBC interview on Wednesday, adding that the data may justify “possibly more in June and July.”Fed officials have coalesced around the need to “expeditiously” return policy to a neutral setting, one in which borrowing costs are neither stoking economic growth nor slowing it so much that unemployment rises, as inflation remains stubbornly rapid. Mr. Waller and other officials have made a case for making big rate increases to speed up the process, following the Fed’s decision to increase rates by a quarter of a percentage point in March.Jerome H. Powell, the Fed chair, has signaled that a large rate increase is up for debate, and minutes from the central bank’s last meeting showed that “many” officials would have favored a large increase in March if it hadn’t been for uncertainty created by Russia’s invasion of Ukraine.Mr. Waller suggested that even though inflation might be touching a peak — data this week showed it rising at the fastest pace since 1981, as the war in Ukraine drove gas prices higher and exacerbated already-rapid price increases — it remained “very high,” and the Fed was going to need to keep working to reduce it.It is probably the case that “this is pretty much the peak — it’s going to start coming down,” Mr. Waller said, adding that he had forecast price increases slowing throughout the second part of the year as part of the economic projections he submitted at the Fed’s March meeting. “We’re already seeing some oil prices retreating back.”But Mr. Waller said it was critical to lift rates up to, and even above, neutral to bring down inflation.“Right now, our main concern is getting these prices down, and we can do that without causing a recession,” he said.Markets have heavily penciled in big rate increases in May and June, and investors had marked up the odds of a big move in July over recent weeks. More

(Reuters) -A federal-state dispute over U.S. immigration policy heated up on Wednesday, as the White House lambasted Texas’ governor over state inspections that have snarled truck traffic from Mexico, while Texas chartered a bus to carry migrants from the border to Washington.White House press secretary Jen Psaki slammed the enhanced truck inspections ordered by Governor Greg Abbott last week, saying they are disrupting trade and leading to higher prices.The border slowdown comes as U.S. President Joe Biden’s administration is battling rising inflation and challenges to the movement of goods stemming from the COVID-19 pandemic.”Governor Abbott’s unnecessary and redundant inspections of trucks transiting ports of entry between Texas and Mexico are causing significant disruptions to the food and automobile supply chains, delaying manufacturing, impacting jobs, and raising prices for families in Texas and across the country,” Psaki said in a statement on Wednesday morning.Abbott and Samuel Alejandro Garcia Sepulveda, governor of the Mexican state of Nuevo Leon, announced on Wednesday that they had reached an agreement for increased security on the Mexican side of the border to combat illegal immigration.Abbott said the agreement would allow Texas to cease the stepped-up inspections for vehicles coming from Nuevo Leon, but that they would continue at other border crossings unless similar agreements are reached, adding that he expected to meet with more Mexican officials this week.”There are very real and very deadly consequences for Biden’s refusal to secure the border,” Abbott said.Earlier on Wednesday, a bus chartered by the Texas government arrived in Washington, dropping off Colombian, Cuban, Venezuelan and Nicaraguan migrants who had been encountered at the border and released in Texas by federal border officials, Abbott’s office said.Republicans across the country have made opposition to the Democratic president’s immigration policies a major focus in the run-up to Nov. 8 midterm elections where they hope to gain control of Congress and key state governorships.Abbott, a Republican seeking a third term in office, ordered the state’s Department of Public Safety last week to conduct “enhanced safety inspections” of vehicles as they cross from Mexico into Texas in order to uncover smuggling of people and contraband. The inspections were part of a broader effort to deter illegal immigration that included the busing of migrants to Washington and aimed to counter Biden’s “open borders” policies, Abbott said.By midday, the migrants arriving in Washington had dispersed from a dropoff point near the U.S. Capitol, with one local organization saying some Venezuelans had boarded another bus to Florida.An Abbott spokesperson earlier in the week declined to say whether the enhanced inspections had uncovered any smuggling attempts, although Texas authorities took more than 500 vehicles out of service for safety violations such as defective brakes, tires and lighting.A record number of migrants were caught at the U.S.-Mexico border during Biden’s first year in office, fueling Republican attacks and straining government resources.The Biden administration is preparing for even more arrivals in the coming months after U.S. health officials announced they would terminate a pandemic-era order that allowed asylum seekers and other migrants caught at the border to be rapidly expelled to Mexico to limit the spread of COVID-19.Mexican truck drivers blockaded bridges at the U.S. border earlier in the week to protest Abbott’s stepped-up inspections, which some drivers said caused waits that spanned more than half a day.On Wednesday, an international bridge connecting Reynosa, Mexico, with Pharr, Texas, remained blocked by Mexican truckers while other crossings reopened but still experienced long lines due to the inspections by Texas authorities, truckers and Mexican officials told Reuters. More

In Britain, several pieces of dispiriting economic news arrived this week: Prices are rising at their fastest pace in 30 years, wages adjusted for inflation fell the most in nearly eight years and the economy hardly grew in February.It is mounting evidence of what is turning out to be a challenging year for many, with the tightest squeeze on household budgets forecast since records began in 1956.Even before Russia invaded Ukraine, Britain’s economic growth had slowed. But that war has weakened Britain’s economic outlook, as is the case in many countries. Rising energy costs are passing through to household bills. Manufacturers, farmers and supermarkets have warned about the rising cost of essential inputs into their supply chain from goods produced in Russia and Ukraine — including metals, wheat, fertilizer and sunflower oil. The pain is wide-reaching: Even fish and chips, a traditionally cheap British staple, has jumped in price.The Consumer Prices Index rose 7 percent in March from a year earlier, up from 6.2 percent the previous month, the Office for National Statistics said Wednesday. That exceeded economists’ predictions. Inflation was driven by record prices for gasoline and diesel, as well as by large increases at restaurants and hotels, for food and drinks, and clothing and furniture.This broad-based increase in prices for products that are usually seen as less volatile “will be viewed with particular discomfort by the Bank of England,” Sandra Horsfield, an economist at Investec, wrote in a note. The central bank has raised interest rates three times since December to their prepandemic level in an effort to arrest price increases, even as policymakers have cut the outlook for economic growth.The statistics agency also said on Wednesday that wholesale prices were rising at their fastest pace since September 2008. Output prices of manufacturers rose nearly 12 percent in March from a year earlier, while their input prices rose 19 percent, a record high.On Tuesday, data showed Britain’s unemployment rate fell to 3.8 percent, back to its prepandemic low, while there are a record number of job vacancies. Signs of a tight labor market are fueling expectations that workers will be in a position to demand larger salaries. Wages, excluding bonuses, in December to February rose 4 percent from a year earlier, but at the moment the gains are being eaten away by inflation. Once adjusted for price increases, pay fell 1 percent, the most since mid-2014.The British economy has recovered from its pandemic slump, but growth is waning. After the Omicron wave subsided in February, bookings for accommodation and travel services increased, offering the main contributor to economic growth that month. The economy grew just 0.1 percent, as manufacturing of cars, electrical products and chemicals all declined, the statistics agency said on Monday. More

Inflation is a monetary phenomenon, but it is also much bigger than that. Price rises in the US, UK and EU are breaking decades-old records, and burning into wage packets. High inflation is a grim policy problem at the best of times, and these are not those. In the US this week, consumer price inflation was revealed to have hit 8.5 per cent. “Core” inflation, which excludes the most volatile items, rose by less than expected, but was still up 6.6 per cent on the year. Factory gate prices are up 11.2 per cent on last year.Part of this is a pandemic story. In the US, in particular, demand is outstripping supply as life resumes after Covid restrictions. Habits have changed, so there is greater demand for goods than before the pandemic and less for services. Meanwhile, the pandemic — particularly in China — still weighs on supply. Partly, inflation is also a war story. Food and energy prices have both soared as a result of Russia’s invasion of Ukraine.Market expectations are that US inflation may be near its peak: there were hints of deceleration in the price rises, and more rapid rate rises are now expected as the Fed disengages its support from the economy and moves policy into neutral. President Joe Biden is attempting to reduce fuel prices through a huge release of oil from the US strategic reserve.Closer to the front line of the Ukraine conflict, life is more complex. Eurozone inflation stood at 7.5 per cent in March. In the UK, consumer price inflation hit 7 per cent this week as surging energy prices rippled through the economy. But central banks in Britain and the EU are more likely to find themselves pressing down on demand that is already dropping away.The scale of the conundrum they face will depend, in particular, on the measures taken to help Ukraine — notably, on further sanctions. German economists have warned that a full energy embargo on Russia would knock German growth this year and cause recession next. In their model, inflation stays above 5 per cent throughout. We are in a time of terrible choices.That makes it worth returning to first principles. Avoiding a defeat of Ukraine must be a critical objective, and one that the continent should be willing to pay great costs to achieve. Part of that price may come in the form of higher inflation and slower growth. And the most needy who are being hurt by the rising cost of living should be provided with rapid and effective support. These issues are related. Further recent surges in energy costs, in particular, are a consequence of the war, and those on modest incomes should not be asked to bear them unaided. Voters may be willing to bear some pain, but politicians cannot afford to risk fuelling new gilets jaunes-type movements that want to sue for peace at all costs. The cost of living crisis is a factor in the French electorate’s taste for the far-right Marine Le Pen. This will have ramifications for monetary policy. Shielding people from the price rises could fuel demand that might require higher rate raises than otherwise. There will be a fiscal cost, too. But finance ministries get help from inflation with tax revenues and debt levels: they will have to share it. The economic battle for Ukraine may mean looser fiscal and tighter monetary policy.Governments must maintain popular support for supporting Ukraine by sheltering households from the worst of the economic pain. The war is being fought in the Ukraine, but politicians must tend to the home front as well. More

Good evening,Today’s data showing UK CPI at its highest rate in 30 years and US producer prices rising at record levels are the latest reminder that inflationary pressures around the world show little sign of abating.The higher than expected jump in UK inflation to 7 per cent in March, up from 6.2 per cent the previous month, was driven by surging fuel prices that leapt 9.9 per cent, resulting in an annual rate of increase of 30.7 per cent. The pain felt by consumers was highlighted by an academic study yesterday that showed Britons were now more worried by the cost of living than catching Covid-19.British companies are also feeling the strain. Tesco, the country’s biggest supermarket group, said this morning that its earnings would suffer as it tried to remain competitive in the face of soaring costs and squeezed household budgets. US producer prices rose a more than expected 11.2 per cent in March — the quickest pace since the year-on-year rate was first calculated in 2010 — as the war in Ukraine begins to affect the world’s largest economy, piling pressure on American businesses.The US PPI reading comes hot on the heels of yesterday’s announcement that CPI had hit 8.5 per cent, the fastest rate of increase since 1981, and — as in the UK — adds more pressure on the country’s central bank to take action against rising prices. Although the monthly rise of 1.2 per cent was the fastest since September 2005, there was some better news in that “core” CPI (stripping out volatile items such as food energy) was up just 0.3 per cent, the slowest increase since September.US Federal Reserve official James Bullard told the Financial Times it was a “fantasy” to think the bank could bring down inflation without raising interest rates to the point where they could constrain the economy, as he called for an increase to put the brakes on growth.US president Joe Biden’s latest ploy to ease the squeeze on consumers involves temporarily relaxing restrictions on the amount of ethanol in petrol, which could save motorists 10 cents a gallon, albeit at the risk of causing smog.Concerns are also intensifying elsewhere. New Zealand today raised interest rates by the biggest amount in 22 years. In mainland Europe, Otmar Issing, one of the founding fathers of the euro, criticised the “misguided” response of the European Central Bank, which he said had “lived in a fantasy” and suffered from a “misdiagnosis” of the reasons for the rise in inflation and now risked the prospect of stagflation.The ECB announces its latest policy moves tomorrow.Browse our inflation tracker to compare the latest figures worldwide.Disrupted Times is taking a short Easter break — we’ll be back on Wednesday April 20Latest newsBritish travellers warned to prepare for extensive Easter delaysJersey freezes $7bn worth of assets linked to Roman Abramovich Biden to announce $800mn in new military aid to UkraineFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe Shanghai lockdown has hit production in Kunshan, one of the world’s largest electronics manufacturing hubs, exacerbating strains on global supply chains. Asia editor Robin Harding says the economic consequences for the rest of the world of locking down China’s largest onshore financial hub and biggest city are huge. The US has ordered non-essential consulate staff to leave.An EU ban on Russian energy would ignite a “sharp recession” in Germany and send output down 2.2 per cent next year with the loss of 400,000 jobs, according to the country’s top economists. Kyiv however is urging Brussels to go ahead with an embargo. German investors are also becoming more pessimistic about their country’s future.Russia said it would it sue if sanctions forced it to default on its bonds but academics and lawyers have dismissed the threat as “payments theatre”. Robert Armstrong in his (award-winning) Unhedged newsletter says sanctions are hurting the country badly. Moscow forecasts economic output will fall 10 per cent this year, according to a former finance minister.Latest for the UK and EuropeUK unemployment fell back to its pre-pandemic level of 3.8 per cent at the start of this year, according to official data, but the employment rate remained flat at 75.5 per cent. Vacancies remain high and the inactivity rate has risen as people left the workforce for family reasons, retirement or sickness.The UK is to become the first country in the world to pay pharma companies a fixed fee for antibiotics to tackle the growing problem of antimicrobial resistance, which kills more than 1mn people a year. The “subscription” model aims to incentivise companies to develop new drugs and stop overprescribing.Ukraine finance minister Sergii Marchenko appealed in an FT interview for immediate financial support for his country, with the gap between spending and revenues expected to hit $7bn a month in April and May. Global latestThe International Energy Agency cut its global oil demand forecast from 99.7mn barrels a day this year to 99.4mn, but it said the market would avoid a “sharp” deficit as emergency reserves and slower demand from China offset lower production from Russia.The war will cut growth in goods trade this year by a third from 4.7 per cent to 3 per cent, according to new World Trade Organization forecasts. It also cut economic growth forecasts from 4.1 per cent to 2.8 per cent, with 3.2 per cent estimated for 2023. WTO chief Ngozi Okonjo-Iweala wrote in the FT that policymakers should fix structural weaknesses in a co-ordinated response to global supply chain problems.Sri Lanka’s economic and currency crisis intensified as the country’s finance ministry suspended payments on its government bonds. It has turned to the IMF to formulate a recovery plan and receive financial assistance. The Lex column warned that a bailout could create a blueprint for similar situations elsewhere. The turmoil is a blow to the Rajapaksa family, which has dominated the country’s politics for years.Need to know: businessStockpiles of some of the world’s most important industrial metals have dropped to critically low levels because of surging power prices and the war in Ukraine. Aluminium, copper, nickel and zinc inventories have plunged by as much as 70 per cent over the past year.BlackRock, the world’s largest money manager, announced better than expected profits of $1.46bn in the first quarter, as inflows from investors held up despite the turmoil in financial markets. However, JPMorgan’s profits have fallen 42 per cent to $8.28bn as dealmaking slowed and the bank set aside $1bn in loan-loss reserves. Here’s what to watch as US earnings season gets under way.Fund managers have been caught out by the rare event of global stocks and bonds falling at the same time in the first quarter. The two key markets underpin global finance and the synchronised decline makes investors attempts to balance risks that much more difficult. Almost three-quarters of large institutional investors were pessimistic about global economic growth, according to a Bank of America survey, the biggest proportion since 1995.Finish telecom giant Nokia has followed rival Ericsson and quit Russia. The two companies, along with Chinese groups Huawei and ZTE, are the dominant players in the Russian radio network equipment market. The former deputy chief of Aeroflot wrote in the FT that the Russian business community should stand up against President Vladimir Putin.As we highlighted in Monday’s Disrupted Times, airlines are having a tough time meeting surging customer demand while losing waves of staff to Covid-19. British Airways is reeling from the impact of the virus on top of IT problems and the cancellation of 1,200 flights so far this year. EasyJet has been one of the worst hit but still hopes to report a narrowing of losses for the six months to the end of March.The outlook is rosier for US carriers. American Airlines, the largest in the US, revised up its revenue outlook for the first quarter, while Delta told the FT it had “never sold more tickets” than in the past five weeks. US airlines are lobbying to make sure the end of mandatory mask wearing on board proceeds as planned next Monday.The coronavirus crisis has brought home the extent to which global pharmaceutical supplies depend on Asia, even for the most basic ingredients. Our colleagues at Nikkei Asia conclude their series on China’s role in the global health supply chain and how it might affect the next pandemic. The World of WorkFlexible working helped many workers with disabilities prosper during the pandemic, but how can we make these improvements permanent? Isabel Berwick talks to a campaigner and an FT staff member about disability inclusion in the latest Working It podcast.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Air quality is becoming an ever more important factor for homebuyers seeking a new property, writes health and science reporter Oliver Barnes. Cleaner air is now on a par with closeness to family and friends and access to public transport as a motivation for moving house. More

The producer price index, which measures prices paid by wholesalers, rose 1.4% in March and 11.2% from a year ago, both records for data going back to 2010.
Prices for final demand goods led with a 2.3% monthly rise, while services prices gained 0.9%.
Wednesday’s release comes the day after the BLS reported the consumer price index for March surged 8.5% over the past year.

The prices that goods and services producers receive rose in March at the fastest pace since records have been kept, the Bureau of Labor Statistics reported Wednesday.
The producer price index, which measures the prices paid by wholesalers, increased 11.2% from a year ago, the most in a data series going back to November 2010. On a monthly basis, the gauge climbed 1.4%, above the 1.1% Dow Jones estimate and also a record.

Stripping out food, energy and trade services, so-called core PPI rose 0.9% on a monthly basis, nearly double the 0.5% estimate and the biggest monthly gain since January 2021. Core PPI increased 7% on a year-over-year basis.
PPI is considered a forward-looking inflation measure as it tracks prices in the pipeline for goods and services that eventually reach consumers.
Wednesday’s release comes the day after the BLS reported that the consumer price index for March surged 8.5% over the past year, above expectations and the highest reading since December 1981.
On the producer side, prices for final demand goods led with a 2.3% monthly rise, while services prices gained 0.9%, up sharply from the 0.3% February increase. Goods inflation has outstripped services during the Covid pandemic, but March’s numbers indicate that services are now catching up as consumer demand shifts.
Energy prices were the biggest gainer for the month, rising 5.7%, while food costs increased 2.4%.

Swelling inflation has prompted the Federal Reserve to begin tightening monetary policy.
In March, the Fed increased its benchmark short-term borrowing rate by 0.25 percentage point as the first step in what is expected to be a series of hikes through the year. Markets are pricing in an almost certainty that the central bank will double that move at its May meeting, and will keep going until the fed funds rate hits about 2.5% by the end of the year.
Markets initially showed no reaction to the PPI news, with stock market futures hovering around flat and Treasury yields also little changed.

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Ukraine’s finance minister recently sent out an SOS to the west asking for emergency funding. The Institute of International Finance has had a stab at estimating just how bad the situation is.Its economists stress that there is obviously “an extraordinary level of uncertainty”, with the brutal war still ongoing, but reckon that Ukraine’s gross domestic product will shrink by at least 35 per cent this year, even assuming that the active fighting mostly stays in the country’s east. Government revenues have obviously been shredded. Ukraine’s finance minister Sergii Marchenko told the FT the budget deficit was $2.7bn in March, and expects the gap to expand to $5bn to $7bn a month in April and May. The IIF thinks it could get worse than that (our emphasis below):As a result of the severe drop in economic activity as well as war-related tax cuts and additional expenditures for the military campaign, we expect government revenue to fall by roughly 50%, resulting in a fiscal gap of $3-10bn per month. Thus, the international community’s commitments of $6bn to date will certainly fall short . . . Even under the most optimistic assumption of a $3bn financing gap per month, currently-committed external funding would only last until the end of April.Get your cheque books out, in other words. More