Economy

Philadelphia Fed President Patrick Harker on Wednesday warned about inflation and the interest rate hikes needed to control rising prices.
The cautionary tone comes the day after two of his colleagues, Governor Lael Brainard and San Francisco Fed President Mary Daly, also expressed concern over inflation.
Harker said he expects “a series of deliberate, methodical hikes as the year continues and the data evolve,” though he wasn’t quite as emphatic about the issue of balance sheet reductions.

NEW YORK, NEW YORK – SEPTEMBER 27: Philadelphia Federal Reserve President Patrick Harker visits “Mornings With Maria” at Fox Business Network Studios on September 27, 2019 in New York City. (Photo by John Lamparski/Getty Images)
John Lamparski | Getty Images Entertainment | Getty Images

Philadelphia Federal Reserve President Patrick Harker joined the chorus of central bankers warning about inflation and the interest rate hikes needed to control rising prices.
In remarks Wednesday, the policymaker said he is worried about an inflation rate running at its highest level in 40 years. He anticipates the Fed will respond by raising rates and reducing the level of bonds it is holding on its balance sheet.

“Inflation is running far too high, and I am acutely concerned about this,” Harker told the Delaware State Chamber of Commerce.
“The bottom line is that generous fiscal policies, supply chain disruptions and accommodative monetary policy have pushed inflation far higher than I — and my colleagues on the [Federal Open Market Committee] — are comfortable with,” he said. “I’m also worried that inflation expectations could become unmoored.”
The cautionary tone comes the day after two of his colleagues, Governor Lael Brainard and San Francisco Fed President Mary Daly, also expressed concern over inflation. Brainard, an influential policy “dove” who generally favors lower rates and less restrictive monetary policy, said reducing inflation is “of paramount importance” and would require “a series of interest rate hikes” and a “rapid” reduction of the balance sheet.
Stocks dropped and bond yields rose following the comments.
Harker’s comments closely resembled Brainard’s view on rate hikes.

He said he expects “a series of deliberate, methodical hikes as the year continues and the data evolve,” though he wasn’t quite as emphatic about the issue of balance sheet reductions.
Harker is a nonvoting FOMC member who nonetheless has input into the committee’s final decisions. On the broader economy, he sees growth as “robust” and anticipates inflation ultimately coming down to the Fed’s 2% goal.
At its March meeting, the FOMC approved its first rate increase in more than three years. Markets expect a succession of increases that ultimately could take short-term borrowing rates to 3% or above.
Wall Street will be watching Wednesday as minutes from that meeting are released at 2 p.m. ET. Following the meeting, Chair Jerome Powell said the summary will reflect discussions on the bond holdings, which have brought the balance sheet to about $9 trillion.

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Globalisation is dead. Larry Fink of BlackRock says so. Then again, Mark Mobius of Mobius Capital Partners says he’s wrong. Which legendary investor’s views blindly to take on trust? Maybe we could take a look ourselves.Pessimism about the survival of post-cold war globalisation looks more justified now than during the multiple previous episodes when its demise was confidently but wrongly predicted. (For the record, these include the bursting of the 1990s tech bubble, the 9/11 attacks, the Sars outbreak of 2003, the avian flu outbreak of 2005, the 2007-08 food crisis, the 2008 financial crisis and the initial impact of Covid.)The war in Ukraine has worsened supply-chain congestion and energy shocks have made freight transport more expensive. More enduringly, governments are allegedly retreating into a defensive national security crouch where they will rely only on foreign policy allies (if indeed anyone) for strategically important trade.Vladimir Putin’s war may indeed be an inflection point. But unless the rich world’s sanctions and embargoes escalate to serious economies like China, there are good reasons to be optimistic. Here are five.First, cross-border goods trade is routinely taken as a proxy for globalisation, and true enough it’s stalled relative to world gross domestic product for more than a decade. But as Scott Lincicome of the Cato Institute points out, most other measures you might pick — international services trade, foreign direct investment, migration, data flows — were doing well before the pandemic and seem to have recovered over the past year. The nature of globalisation has changed: goods trade is less relevant. In the two decades after 1990, there were vast efficiency gains from labour cost arbitrage in manufacturing, with China and other mainly Asian countries exporting their way into middle-income status. Much of that headroom has now been used up, and China has become a consumer market more than an export platform. Multinationals are now in China as much to produce and sell as to source there.Second, the more sophisticated supply chains grow, the more difficult they become without international specialisation. The emblematic product, semiconductors, is a very good example. Sure, you can throw away public money subsidising factories to churn out low-value “legacy” chips for the car industry. That would waste resources and cause trade friction through dumping, as it did with steel and shipbuilding, but hardly destroy globalisation. In reality, the high-value parts of the chain are often geographically concentrated and hard to reproduce. Advanced chip research and the manufacture of lithographic machinery respectively are dominated by the research and development hub Imec in Belgium and the lithography machine manufacturer ASML in the Netherlands. The chief executive of Imec told Trade Secrets recently that it would set up a research arm in the US but its centre of gravity would always be the headquarters in Flanders. You want semiconductor research, you need to call Belgium.Third, high energy prices make cargo more costly, yes. That might encourage onshoring to rich economies — but they also make manufacturing and fertiliser-intensive agriculture more expensive, which will discourage it. The latter effect will often predominate. Despite the popular image of cargo ships being huge carbon emitters, transport is generally a pretty small share of the carbon footprint for traded goods. (That even goes for goods wrongly regarded as emissions villains like cut flowers flown from Africa flown to Amsterdam and apples and lamb shipped from New Zealand to the UK). Some un-onshoring has already started: bicycle manufacturers have put plans to move to Europe on hold because of particularly high energy prices. Sure, the EU is planning a carbon border mechanism to prevent emissions-driven offshoring, but it’s still early days.Fourth, it’s not straightforward to divide the world up into economic spheres and make countries or companies pick one. China trade with the EU has continued rising despite trade tensions, and recovered in 2021 with the US after a couple of bad years. And as a non-China example, there’s often talk of the world splitting into three competing models of managing personal data: authoritarian China, laissez-faire US, right-to-privacy Europe. But in fact a country like Japan has managed perfectly well to keep a foot in both the US and EU camps, signing up to American-style free flow of data while also having its data protection regime recognised by Brussels.Finally, call this blind faith, but the last rites for globalisation have been read several times, and on each occasion it’s bounced up from its sickbed looking quite sprightly. Companies have been resourceful, technology supportive, and even actively destructive governments haven’t crashed it.The cumulation of US-China tension, Covid, the supply chain crunch and now the Ukraine war is certainly giving globalisation its biggest test since the cold war. But the odds are pretty good that international integration of markets will survive this time too. More

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Treasury Secretary Janet Yellen testifies Wednesday before the House Financial Services Committee on the state of international finance.

In remarks prepared for the hearing, Yellen in particular noted the impact that Russia’s attack on Ukraine will have on the global system.
“Russia’s actions, including the atrocities committed against innocent Ukrainians in Bucha, are reprehensible, represent an unacceptable affront to the rules-based global order, and will have enormous economic repercussions for the world,” she said.
Yellen also noted that institutions such as the International Monetary Fund, the World Bank and others are stepping in to provide financial assistance to Ukraine.
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WASHINGTON (Reuters) – The United States and its allies will target Russian banks and officials with a “sweeping package” of sanctions on Wednesday and ban new investment in Russia, the White House said, after Washington and Kyiv accused Moscow of committing war crimes in Ukraine.The new sanctions will impose additional restrictions on financial institutions and state-owned enterprises in Russia and target Russian government officials and their families, White House press secretary Jen Psaki said on Tuesday.”Tomorrow, what we’re going to announce … in coordination with the G7 and EU, (is) an additional sweeping package of sanctions measures that will impose costs on Russia and send it further down the road of economic, financial and technological isolation,” Psaki said, noting that the G7 and EU comprised around 50% of the global economy.The measures will “degrade key instruments of Russian state power, impose acute and immediate economic harm on Russia, and hold accountable the Russian kleptocracy that funds and supports (Russian President Vladimir) Putin’s war,” she said.She declined to comment on reports that the sanctions would target the daughters of Putin.The U.S. Justice Department on Wednesday also planned to announce new enforcement actions to disrupt and prosecute criminal Russian activity. Grim images emerging from the Ukrainian city of Bucha include a mass grave and bodies of people shot at close range, prompting calls for tougher action against Moscow and an international investigation.U.S. Secretary of State Antony Blinken said the killings were part of a deliberate Russian campaign to commit atrocities. Russia, which says it launched a “special military operation” in Ukraine on Feb. 24, denies targeting civilians and said images of the deaths were a “monstrous forgery” staged by the West. Neither provided evidence to support the assertions. A senior French official said the European Union would also likely impose new sanctions on Wednesday. The Wall Street Journal reported that Sberbank may be among the banks targeted.Two European diplomats said the final package of sanctions would be announced in a coordinated fashion on Wednesday. More

LONDON (Reuters) -Russia edged closer to a potential default on its international debt on Wednesday as it paid dollar bondholders in roubles and said it would continue to do so as long as its foreign exchange reserves are blocked by sanctions.The United States on Monday stopped Russia from paying holders of its sovereign debt more than $600 million from reserves held at U.S. banks, saying Moscow had to choose between draining its dollar reserves and default.Russia has not defaulted on its external debt since reneging on payments due after the 1917 Bolshevik Revolution.”This speeds up the timeline around when Russia runs out of space on willingness and ability to pay,” one fund manager holding one of the bonds due for payment on Monday said.The Kremlin said it would continue to pay its dues.”Russia has all necessary resources to service its debts… If this blockade continues and payments aimed for servicing debts are blocked, it (future payment) could be made in roubles,” Kremlin spokesman Dmitry Peskov said. With a total of 15 international bonds with a face value of around $40 billion outstanding, Moscow has managed to make a number of foreign exchange coupon payments on its Eurobonds before the United States stopped such transactions. Russia’s finance ministry said on Wednesday it had to pay roubles to holders of its dollar-denominated Eurobonds maturing in 2022 and 2042 as a foreign bank had refused to process an order to pay $649 million to holders of its sovereign debt.The finance ministry said the foreign bank, which it did not name, rejected Russia’s order to pay coupons on the two bonds and also did not process payment of a Eurobond maturing in 2022.Russia’s ability to fulfil its debt obligations is in focus after sweeping sanctions in response to what Moscow calls “a special military operation” in Ukraine have frozen nearly half of its reserves and limited access to global payment systems.’ARTIFICIAL SITUATION’JP Morgan, which had been processing payments on Russian sovereign bonds as a correspondent bank, was stopped by the U.S. Treasury from doing for the two payments due on Monday, a source familiar with the situation said. JP Morgan declined to comment. Russia may consider allowing foreign holders of its 2022 and 2042 Eurobonds to convert rouble payments into foreign currencies once access to its forex accounts is restored, the finance ministry said.Until then, a rouble equivalent of Eurobond payments aimed at bondholders from so-called unfriendly nations will be kept in special ‘C’ type accounts at Russia’s National Settlement Depository, the ministry added. Russia has a 30-day grace period to make the dollar payment, but if the cash does not show up in bondholders account within that time frame it would constitute a default, global rating agencies have said. Russia dismissed this as being a default situation. “In theory, a default situation could be created but this would be a purely artificial situation,” Peskov said. “There are no grounds for a real default.” Bondholders had been tracking bond payments since sweeping sanctions and counter measures from Moscow which have severed Russia from the global financial system. Russia on Wednesday paid coupons on four OFZ treasury rouble bonds. These were once popular for their high yields among foreign investors, who are now blocked from receiving payments as a result of sanctions and Russian retaliation. More

Brussels is proposing to levy punitive trade tariffs on countries that do not accept the return of citizens who have illegally entered Europe, as the bloc steps up efforts to toughen its migration policy.The move by the European Commission is its latest response to a populist surge driven by anti-immigrant rhetoric. France’s president Emmanuel Macron faces a tough re-election battle against the far-right Marine Le Pen in this month’s elections, while immigration hardliner Viktor Orban won a crushing poll victory in Hungary at the weekend.The EU grants tariff free access to imports from almost 70 developing countries to boost their economies. But in a review of the scheme the Commission has proposed revoking this privilege, known as the General System of Preferences (GSP), from countries that refuse to accept citizens deported by the EU.Brussels claims it had to act because the “brain drain” of migrants to the EU damages their home countries. But some members of the European parliament condemned the proposal which will hit developing countries’ economies by making their exports more expensive.Speaking to the Financial Times on Tuesday, the Commission said: “Orderly international migration can bring important benefits to the countries of origin and destination of migrants and contribute to their sustainable development needs. Increasing coherence between trade, development and migration policies is key to ensure that the benefits of migration accrue mutually to both the origin and destination countries.”Heidi Hautala, the MEP in charge of steering the legislation through the parliament, said that the commission should remove the migration link from the proposal, which has to be agreed by all 27 member states.“It is toxic,” she said. “It detracts from the GSP which is supposed to eliminate poverty and promote sustainable development for 2bn people on this earth.” Trade should not be a weapon in combating migration, she added.The Finnish Green party MEP said parliament’s trade committee would vote on April 25 on amendments that emphasised co-operation in managing migration.Of the 396,000 immigrants told to leave Europe in 2020, just 70,000 returned to their home countries, although the process was hindered by Covid lockdowns. Even in 2019, before the pandemic, only 29 per cent of illegal immigrants told to leave the EU returned home.Mali, Senegal and Guinea were among countries with the lowest return rates and are therefore most likely to lose trade privileges if the European parliament and member states approve the Commission plan. The proposed tariffs include 12 per cent on cotton shirts and 24 per cent on tinned tuna.GSP beneficiaries must agree to abide by certain international treaties on labour rights and human rights or lose the status. Almost 50 of the poorest countries benefit from the Everything But Arms scheme, which exempts all goods except weapons and ammunition.Another 19 low and lower-middle income countries are granted a partial or full removal of customs duties on two-thirds of tariff lines. The EU is removing some goods from Cambodia from GSP because of human rights abuses. More

Equities largely lost ground at the market open on reports that the United States and its allies had prepared new sanctions on Moscow that will target Russian banks and officials and ban new investment in Russia.An EU official said the European Union will also have to introduce measures against imports of Russian oil and even gas at some point as a way to pressure Moscow.The dollar-denominated RTS index fell to 979.34 points before paring losses and adding 2.6% on the day to 1,031.3 points by 1219 GMT.The rouble-based MOEX Russian index gained 0.5% to 2,675.5, still trading far from an all-time high of 4,292.68 reached in October.Downside pressure on shares emanating from negative sentiment around news on Western sanctions could be limited as the government has promised to support Russian companies by buying their stocks with money channelled from the rainy-day National Wealth Fund.The Russian stock market is showing “miraculous resilience” to possible new sanctions and a rapid drop in activity in the domestic manufacturing and services sectors in the absence of foreign investors that are still barred from taking part in trading in Russia, Finam brokerage said in a note.Shares in oil producer Lukoil climbed 2.8%, outperforming the broader market. Its peer Gazprom (MCX:GAZP) Neft added 1.9%.Banks were in the red, with the two major state-owned lenders Sberbank and VTB losing 1.8% and 2.4%, respectively.The Russian rouble firmed, shrugging off a potential default on Russia’s international debt as the country paid dollar bondholders in roubles and said it would continue to do so as long as its foreign exchange reserves are blocked by sanctions.The rouble added nearly 2% on the day to 81.70 to the dollar. It strengthened 2.7% to trade at 89.10 versus the euro, near levels seen before Russia sent tens of thousands of troops into Ukraine on Feb. 24.Weekly inflation data will be in focus later in the day. If inflation shows signs of slowing, it may raise chances of a rate cut by the central bank at its next board meeting in late April. The latter could be positive for OFZ treasury bonds. “At the same time, geopolitical risks and rouble volatility limit the probability of this scenario,” Promsvyazbank said in a note.For Russian equities guide seeFor Russian treasury bonds see More

LONDON (Reuters) – Asset managers Blackrock (NYSE:BLK) Inc. and Ashmore Group Plc. are among the top holders of Sri Lanka’s international bonds that form part of a creditor group as markets prepare for a potential debt restructuring, a source said on Wednesday.The bondholder group, which hasn’t been formally announced yet, holds more than 30% of country’s foreign sovereign bonds, the source familiar with the situation told Reuters.While members so far are mainly real money investors, the group is set to expand and include both hedge funds and secondary market funds in the near future, the source added. BlackRock and Ashmore did not immediately respond to a request for comment. A debt restructuring would be the first for the island nation, facing its worst economic crisis in decades. The country’s foreign exchange reserves stand at $2.3 billion, with a $1 billion dollar bond maturing on July 25. The country holds around $12 billion of outstanding international debt. The country has struggled to pay for critical imports including fuel, food and medicines. Sri Lanka announced last month it would seek help from the International Monetary Fund (IMF) to help it solve its worst financial crisis in years. Rating agency Moody’s (NYSE:MCO) said on Wednesday that the extended period of political uncertainty could delay ongoing discussions to secure other external financing.President Gotabaya Rajapaksa, who is governing the country since 2019 with other family members in top positions, will not resign despite demonstrations and street protests, a government minister said on Wednesday. Rajapaksa revoked a state of emergency late on Tuesday after dozens of lawmakers walked out of the ruling coalition, leaving his government in a minority in parliament.Sri Lanka’s sovereign dollar bonds dropped more than 3 cents in the dollar. The 2027 bond slipped 3.44 cents to trade at deeply distressed levels of less than 40 cents in the dollar, according to Tradeweb data. More