Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe Federal Reserve will cut interest rates on Wednesday. Until last Thursday, guidance from Fed officials had been that there was no need for anything dramatic at the meeting where the US central bank would pivot to rate cutting with a quarter point cut amid growing signs of a soft landing. In the late July meeting, chair Jay Powell said a 0.5 percentage point rate cut in September was “not something we’re thinking about right now”. Financial markets expected a series of cuts and loosened financial conditions. In the Fed’s quiet period on Thursday evening, both the FT and Wall Street Journal carried unsourced news reports saying the Fed was weighing up whether to be more forceful early and start with a 0.5 percentage point rate cut. While I do not know the sourcing of these reports, I do know, having been an FT economics reporter for many years, that both news organisations put strict sourcing requirements on their journalists. Whatever the sourcing, financial markets have interpreted the simultaneous news reports as the equivalent of a “drop”, a briefing from within the Fed. The reports said the Fed was weighing up a decision between a quarter- and a half-point cut. Here is the case for and against. A big cut early allows the Fed to bring interest rates down quickly from between 5.25 and 5.5 per cent to something closer to neutral at a time when the inflation threat is receding and unemployment has risen. Not cutting in July was probably a mistake, so why wait?The economic case against is that the US economy is not falling off a cliff, inflation is still somewhere around 2.5 per cent and financial conditions have already loosened significantly. The Fed can accelerate the pace of cuts easily if required. Neither of these is decisive. But I worry about communications. A large cut demonstrates the Fed was behind the curve in July. It signals a crisis of confidence in the central bank and has a whiff of panic about it, even if stock markets are jubilant (they love the idea that the Fed will underpin values). September 2024 is also a highly sensitive time to cut rates when one candidate for president, Donald Trump, has already said it is “something that they know they shouldn’t be doing” before an election. The Trump campaign loves to invoke conspiracy theories of the deep state and the media ganging up to stop his ability to make America great again. According to the Trump campaign, the media has not reported immigrants eating dogs and cats in Springfield, Ohio, and the presidential debate was rigged by ABC News against Trump. These two baseless conspiracy theories were from the past week alone. There is an appetite for this stuff, however absurd, and I am concerned the Fed will feed it on Wednesday.I’ll repeat. The economics do not matter much, but the communication does. Cheap oilIt’s late summer. Global demand is weakening and oil supply is rising as non-Opec countries increase output. A particularly large rise in US shale oil production has put pressure on Opec states as to whether to maintain cuts in supply or seek to increase their market share and hurt US producers with lower prices. I am, of course, describing 2014, but I could be talking about today, especially with recent rises in US oil production. A decade ago, the nominal oil price fell from above $100 a barrel to an average of about $50 during 2015. Some content could not load. Check your internet connection or browser settings.This year, Opec+ nations said they would begin to unwind output cuts made to keep oil prices high, but have postponed action until later this year because the market responded quickly. Last week, the Brent crude price fell below $70 for the first time since 2021. Futures prices have also dropped sharply, highlighting the similarity with 2014. Central bankers love a scenario. Generally, these tend to model the risk of higher energy prices. There will be a prize for the first central bank that produces a scenario based on 2014 and the possibility that the decline in current and future oil prices continues through next year. Some content could not load. Check your internet connection or browser settings.Decisions, decisionsThe European Central Bank surprised no one with its decision last Thursday to cut rates a second time to 3.5 per cent. In her press conference, ECB president Christine Lagarde warned people to not necessarily expect another cut at the next meeting in October and to discount the September headline rate of inflation, which will drop due to lower energy prices. Domestic inflation was highlighted as a greater concern. “It is not satisfactory. It is resistant. It is persistent,” she said.The path for the rest of the year looks pretty clear. The ECB pauses in October and cuts again in December, with more to come in 2025. What was not said by Lagarde was that underlying ECB staff projections were dovish. Based on conditioning assumptions of lower interest rates in 2025 and 2026 than in June, the ECB still expects core and headline inflation to fall to target with an economy weaker than previously hoped. Lower growth, same inflation and lower interest rates is not a great combination for the Eurozone. Some content could not load. Check your internet connection or browser settings.What I’ve been reading and watchingTiff Macklem, governor of the Bank of Canada, spoke to the FT and opened the door to accelerating the pace of interest rate cuts. The BoC has a much weaker economy than the US and one that is more dependent on high energy prices The Kent A Clark Center at the University of Chicago Booth School of Business regularly surveys top US academics on policy matters. In the past week, they mirrored my past two newsletters on the US election. Large majorities said weakening Fed independence, tariffs and price controls were bad while there was little evidence that price gouging was responsible for inflation. A sister survey, run in conjunction with the FT, projects that the US economy is heading for a soft landingItaly is in a panic about coffee prices. Unlike most other raw commodity prices, these are going through the roofInflation of a different sort. Gary Stevenson claims to have been the best trader in the world. His old colleagues disagree. It’s a great read A chart that mattersThe Bank for International Settlements published its quarterly review on Monday and, indirectly, put its finger on the extreme data dependence in financial markets.Using rolling regressions, the BIS calculates that since 2022, two-year bond markets have become much more sensitive to surprises in US inflation and jobs data. The most recent data (not shown in the chart) suggests markets now only care about non-farm payroll surprises and had an extreme reaction to the weak July data, released in early August. When Powell says the Fed “will be data dependent but not data point dependent”, it should be concerned that financial markets are not listening. Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

Each of the EU’s 27 member states gets a seat at the Commission table. Here are some of the key posts and nominees:BUDGETPiotr Serafin (Poland)Poland’s ambassador to the European Union was head of cabinet of current Prime Minister Donald Tusk when Tusk was president of the European Council in 2014-2019, during which the bloc was shaken by Britain’s vote to leave the EU.He also served as a secretary of state from 2008 to 2014 during Tusk’s first term as Polish prime minister.His main job will be to draw up the EU’s next seven-year budget – a highly complex and politically sensitive task.Serafin will expect to draw from his experience as deputy head of cabinet to EU budget commissioner Janusz Lewandowski, when he worked on the EU’s multi-annual 2014-2020 budget.COHESION POLICYRaffaele Fitto (Italy)The European affairs minister is one of the more moderate members of Prime Minister Giorgia Meloni’s hard-right Brothers of Italy party but his appointment to a senior post has raised questions among EU lawmakers, who could block it.Fitto has been in charge of Italy’s sluggish efforts to spend EU COVID-19 bailout funds and meet the reform targets tied to the money.The 55-year-old has experience as a former EU lawmaker and comes from a family of politicians. Both he and his father were presidents of their native southern Puglia region.Italy had hoped for a heavyweight position despite Meloni’s party voting against von der Leyen when the EU parliament approved her second term as Commission president in July.CLIMATEWopke Hoekstra (Netherlands)Hoekstra has been serving as the EU’s Climate Commissioner since October 2023 and will stay on in that role, with the addition of “clean growth” in his title an indication of the EU’s push to produce its own green products, rather than relying on imports, notably from China.At 48, the father of four brings a varied background, having worked at oil firm Shell (LON:SHEL) and consulting firm McKinsey, along with serving as finance and foreign minister in his home country.    European lawmakers put Hoekstra through a tough approval process when he was appointed as the EU’s climate chief because of his stint at Shell and as he hails from the centre-right European People’s Party political group, which had opposed some EU environment laws.COMPETITIONTeresa Ribera (Spain)    A long-time advocate for ambitious climate action, Teresa Ribera has been Spain’s minister for the ecological transition since 2018 and has sped up the country’s shift to clean energy.    Ribera – who has clashed with Spanish companies over her energy policies – will be tasked with ensuring a level economic playing field in Europe’s single market. Like incumbent antitrust chief Margrethe Vestager, part of her task is likely to include reining in Big Tech.Ribera, 55 and with two daughters, is set to be one of the most powerful women in a male-majority Commission, after most governments ignored von der Leyen’s request to nominate both male and female candidates.DEFENCEAndrius Kubilius (Lithuania)Kubilius, 67, has twice served as prime minister of Lithuania, from 1999 to 2000 and from 2008 to 2012. Both times, he pushed through painful reforms – including spending cuts and tax hikes – to deal with economic crises. He lost the subsequent elections.He reduced retirement pensions twice in the wake of the 2008 financial crisis, which saw Lithuania’s economy shrink by 15%. His domestic ratings tanked and did not recover and he lost the leadership of his party in 2015.He is currently a member of the European Parliament. In the defence post, his task will be to get European governments and arms firms to cooperate to reduce fragmentation in the sector and increase defence production capacity.ECONOMYValdis Dombrovskis (Latvia)The former Latvian prime minister and finance minister will be serving a third term as commissioner, to date focused on financial services and the EU economy.He also took on the trade file, seeking to ease transatlantic trade tensions after the U.S. presidency of Donald Trump.Dombrovskis will retain the economy file and will be in charge of trying to reduce or simplify the EU’s myriad regulations and directives.ENERGYDan Jorgensen (Denmark)    Denmark aimed to install a strong advocate for climate action in the new Commission in the form of its minister for development and global climate policy.    Jorgensen, 49 and a socialist, was behind laws that committed Denmark to reduce emissions by 70% from 1990 levels within 10 years and to phase out North Sea oil and gas extraction by 2050. Denmark has traditionally opposed nuclear power.    Jorgensen has been active in global climate talks and is no stranger to the EU, having served as a member of the European Parliament from 2004 to 2013.FOREIGN POLICYKaja Kallas (Estonia)Kallas, 47, used her position as Estonia’s prime minister to become one of the most vocal critics of neighbouring Russia among European leaders – and one of the staunchest supporters of Ukraine’s bids to join the European Union and NATO.Under her premiership, from 2021 to 2024, the country of 1.4 million people became one of the highest per-capita military donors to Ukraine.In February this year, Russian police placed her on a wanted list for destroying Soviet-era monuments in Estonia. Kallas vowed the move would not stop her supporting Ukraine.However, her popularity at home suffered when Estonian media revealed last year that her husband was involved in a business which continued operations in Russia, even as Kallas publicly criticised all who did so.INTERNAL AFFAIRS/MIGRATIONMagnus Brunner (Austria)As Austria’s finance minister, Brunner’s flagship achievement has been a law to counteract the so-called “cold progression” whereby taxpayers slide into higher income-tax brackets through inflation.    The 52-year-old from the mountainous province of Vorarlberg that borders Switzerland has implemented classic conservative policies though political opponents have accused him of spending too loosely and failing to do enough to counter inflation.INDUSTRIAL STRATEGYStéphane Séjourné (France)France’s foreign minister was a late addition to the line-up after Thierry Breton abruptly quit on Monday.Sejourne, 39, is a loyalist of President Emmanuel Macron, their ties dating back to his spell as adviser when Macron was French economy minister from 2014 to 2016. Sejourne chairs Macron’s party Renaissance and also served as a member of the European Parliament, leading the centrist Renew Europe group.He has only led France’s foreign ministry since January, again loyally sticking to Macron’s policies.TRADE Maros Sefcovic (Slovakia)A former diplomat who was Slovakia’s ambassador to Israel and to the EU, the 58-year-old has been a commissioner since 2009, most recently in charge of relations with other EU institutions.Sefcovic took on the EU-U.K. file, helping improve EU ties with former EU member Britain and to seal the Windsor Framework agreement that eases post-Brexit trading arrangements for Northern Ireland.The Slovak commissioner has also taken charge of EU relations with Switzerland, trying to encourage the Alpine nation to accept a broader agreement governing its economic ties with the European Union.Sefcovic will be commissioner for trade and economic security, a nod to the EU executive’s policy to have stronger controls on the export of technologies that could be put to military use by rivals such as China. More

This sentiment was gathered in the firm’s monthly Business Conditions Index (MSBCI) survey, conducted from September 9-11.The survey polled company management teams across various sectors, including oil and gas services, financials, life insurance, and technology hardware, with most respondents predicting a 25bp cut.According to Morgan Stanley, “The majority of respondents expect a 25bp rate cut at the September FOMC meeting.” This sentiment is said to be shared across multiple industries, including mid-cap financials, telecommunications, chemicals, and property and casualty insurance.Meanwhile, the bank says a smaller number of respondents from sectors like hardline retail and large-cap financials anticipate a 50bps reduction.Since the survey concluded, market expectations for a 50bps cut have risen, with the probability now around 65%, up from approximately 30% earlier.Despite this shift, Morgan Stanley remains aligned with the majority view, stating: “We expect the Federal Reserve to move ahead with its first 25bp cut at the September meeting.”In addition to the rate cut, Morgan Stanley expects the FOMC statement to acknowledge progress in taming inflation and recognize growing risks in the labor market.However, the firm predicts that Fed Chair Jerome Powell will avoid committing to specific future rate cuts, emphasizing the Fed’s data-dependent approach.The upcoming meeting is also likely to include updates to the Fed’s Summary of Economic Projections (SEP), with expected upward revisions to unemployment and downward revisions to core PCE inflation in 2024. The median dot is projected to shift from indicating one to three cuts this year, according to Morgan Stanley. More

Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

For corporate America, this week’s expected interest rate cut carries risks along with rewards.It’s easy to assume that lower interest rates are a panacea. Almost everyone, after all, is affected to some degree by the cost of borrowing. When the Federal Reserve cuts its benchmark rates — as it is expected to do this week for the first time since the pandemic — that makes credit less expensive for consumers and corporations alike.The cheaper debt means companies can spend more to expand, just as consumers might be able to afford bigger homes with lower mortgage rates.But there is a complicated and somewhat unpredictable interplay between interest rates and the business world. Lower rates bolster the economy, but for companies and their investors, lower rates do not always carry unalloyed positive effects.Here’s what to expect for corporate America when the Fed lowers rates:For markets, it’s all about ‘why.’All else equal, lower rates are good for the stock market. When investors gauge the value of a stock, they tend to come up with a higher figure when interest rates fall because of a common valuation principle known as discounting, in which a company’s future cash flows and costs become more attractive under low-rate conditions.Fed officials are expected to cut rates by a quarter or a half a percentage point at this week’s meeting. In practice, according to analysts, the reason rates are being lowered matters more than the precise timing or magnitude.If the economy is faltering, forcing the Fed to lower rates quickly, that can be a headwind to the stock market. A gentle return to a more normal level of rates — at least in the context of the past few decades — is less likely to crimp corporate profits in the way that an economic downturn could.“It’s less about when they cut and how quickly, and more about why they cut,” said Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

“Rapid moves on the currency market are not desirable,” Suzuki said, speaking in a regular post-cabinet meeting news conference.The U.S. dollar fell to a more than one-year low versus the yen on Monday on speculation the Federal Reserve could deliver a 50-basis-point interest rate cut at its policy meeting this week. More

BANGKOK (Reuters) -The Thai government will nominate a ruling party loyalist and critic of the central bank governor for chair of the Bank of Thailand, seeking to assert influence on the institution amid a protracted rift over interest rates, according to two sources.The Pheu Thai Party-led government is backing 66-year-old former deputy premier and finance minister Kittiratt Na Ranong for the post, said the sources, who have direct knowledge of the matter. Kittiratt’s nomination has yet to be reported by media. As finance minister from 2012-2014, Kittiratt wrangled frequently with the then central bank governor over monetary policy. In recent months, he has backed the current government’s demands for a rate cut, as it seeks to revive a stuttering economy that grew just 1.9% last year. Just weeks after the populist Pheu Thai returned to power in September 2023, the BOT raised the benchmark rate for an eighth straight meeting to a decade-high of 2.50%, where it has since remained, despite repeated calls for easing. Kittiratt did not immediately respond to a request for comment, while the BOT said it had nominated two candidates for the job but declined to disclose them. The permanent secretary of the finance ministry declined to comment. The decision on which of the three nominated candidates to appoint will be made in the coming weeks by a seven-member panel, independent of the central bank, and must be approved by the finance minister, cabinet and king.The BOT chair cannot direct the central bank’s interest rates policy but the board they head selects the monetary policy committee, comprising the governor, two deputy governors and four outside experts.The chairman will also have some influence on the selection of the next BOT chief when the incumbent, Sethaput Suthiwartnarueput, completes his term in September 2025.RATES ROWThe BOT has said its policy settings were at neutral levels, and that growth was below potential because of structural issues. Sethaput has maintained that, while a rate cut could give a short-term lift to the economy, it was not an efficient trade-off for the longer-term unintended consequences it could have. The BOT’s refusal to budge on rates has drawn criticism, including from Pheu Thai’s leader Paetongtarn Shinawatra, elected prime minister last month, who described the central bank’s independence as an “obstacle” in May. On Monday, Commerce Minister Pichai Naripthaphan again called on the central bank to cut interest rates to increase liquidity, even as the government struggles to jumpstart growth in Southeast Asia’s second-largest economy.The three nominations for chair are subject to qualification checks from the BOT, which should take two weeks, said selection committee head Sathit Limpongpan.”The committee will meet after the reviews and have another meeting to make a decision before the middle of October,” he told Reuters.Porametee Vimolsiri, the current BOT board chairman who is serving his second term, was appointed in 2018 by former Prime Minister Prayuth Chan-ocha’s government, which also picked Governor Sethaput. More

The euro rallied overnight to $1.1138 and traded around there early in the Asia session, not far from the year’s high against the dollar of $1.1201.The yen made a jaunt to the stronger side of 140 during holiday thinned trade on Monday, and had eased back to 140.96 as dealers returned to their desks in Tokyo.It has fallen the most this year so has the most room to rally on a dovish turn from the U.S. central bank.A sustained break of 140.00 would open the way to a low from last January at 127.215.Fed funds futures rallied on Monday to push the chance of a 50 basis point rate cut to 67%, against 30% a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.”Regardless of which of -25bps or -50bps the (Fed) goes with on Wednesday, we do think that the Fed’s messaging will be ‘dovish,'” said Macquarie strategist in a note to clients.”The USD could weaken against the majors on a very dovish tone, even with a -25bp cut … the largest losses, if any, are still likely to be experienced against the JPY,” they said.”That’s because the contrast between central bank outlooks will remain starkest between the Fed and the BoJ, for the time being.”The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.Sterling – the best performing G10 currency this year with a 3.9% rise on the dollar – has also led the charge against the dollar thanks to signs of resilience in Britain’s economy and stickiness in inflation.It broke above $1.32 on Monday and bought $1.3209 early in the Asia session. The Bank of England is generally expected to leave rates on hold at 5% when it meets on Thursday, though markets have priced in a 36% chance of another cut.The Australian and New Zealand dollars also rallied through Monday and bought $0.6750 and $0.6192 respectively on Tuesday, as traders focused more on the Fed rather than weekend signs of deepening trouble in China’s sluggish economy.Chinese markets are closed for the mid-autumn festival break until Wednesday, though the yuan was firm at 7.1000 in offshore trade as it settles in to a new range.The U.S. dollar index weakened 0.4% overnight to 100.7, not far from its 2024 low made last month at 100.51.U.S. retail sales data and Canadian CPI figures are due later in the session, though all eyes are on the Fed’s meeting on Wednesday. More