Economy

The Modi government has been forced to reassess the current pension system, adopted after a significant fiscal reform in 2004, as some states switched back to the older, fiscally straining system of fully funding a guaranteed pension.The Unified Pension Scheme (UPS) for India’s over two million federal government employees is set to be implemented from April 1, 2025, said Ashwini Vaishnaw, a cabinet minister.He said it will ensure 50% of the base salary drawn during the last 12 months before retirement as a pension for government employees who complete a minimum of 25 years of service. The current National Pension Scheme requires employees to contribute 10% of their base salary and the government 14%. The eventual payout depends on the market returns on that corpus, which is mostly invested in federal debt.Trade unions and opposition parties have been advocating for a guaranteed minimum pension for government employees, and it was a major political issue in the recent general elections.The financial implication of the UPS on the government exchequer is expected to be about 62.5 billion rupees ($745 million) in the fiscal year 2024-25, with the annual cost varying each year depending on the number of retiring employees, the minister said. More

(Reuters) – Federal Reserve holdings of mortgage bonds play a “central” role in how monetary policy affects the economy’s momentum, academics wrote in a paper to be presented at a central bank research conference Saturday. The paper takes stock of how the Fed uses increases and contractions in its holdings of Treasury and mortgage bonds to augment the changes it does with its interest rate target, actions collectively aimed to influence the economy’s momentum. Known as quantitative easing, or QE, Fed purchases of Treasury and mortgage bonds starting in earnest in the spring of 2020 caused central bank holdings to more than double to a peak of around $9 trillion by the summer of 2022. Fed holdings of mortgage bonds went from around $1.4 trillion in March 2022 to a peak of $2.7 trillion. Mortgage purchases are particularly notable given the importance of housing financing factors in the U.S. economy. But economists and central bankers have long struggled to measure the impact of the asset purchases, and some have doubted their value. The paper, which was written by a group of economists for a presentation at the Kansas City Fed’s annual Jackson Hole, Wyoming, research conference, put some numbers of the impact of the Fed’s mortgage buying, and explained how the process works, noting private banks also play a role. “We find that banks and the Fed were each responsible for about a 40-bps reduction in the mortgage spread during 2020/21,” the paper’s authors wrote. “This led to a cumulative increase in mortgage originations of about $3 trillion, and net [mortgage bond] issuance of about $1 trillion, with banks responsible for about half of this increase.” “These effects had a large impact on consumer spending and residential investment,” the paper said. The strong role the Fed holdings of mortgage bonds has on monetary policy potency also works as the Fed pursues what’s called quantitative tightening, or QT. This process has seen the Fed shrink its holdings down to $7.3 trillion – Fed mortgage holdings now total $2.3 trillion — as it allows bonds to mature and not be replaced. QT has moved in tandem with a now ended process of Fed rate hikes and will likely keep running even when the Fed cuts rates, although it’s unclear when QT will end. The Fed’s QT process has proved slower than some had expected because the moribund state of the housing market amid high borrowing costs has slowed mortgage creation, in turn blunting the Fed’s ability to get mortgage bonds off its books. At some point some believe the Fed may even have to turn to active sales of mortgage bonds to accomplish its desire to hold primarily Treasury bonds. More

JACKSON HOLE, Wyoming (Reuters) – The Federal Reserve’s credibility in the eyes of financial markets helped in its battle against inflation over the past two years, but it had to be earned afresh with interest rate hikes that backed up policymakers’ verbal promises to restore price stability, according to new research presented at the Kansas City Fed’s annual research conference in Jackson Hole, Wyoming.A strong perception in financial markets that a central bank is committed to inflation control can make monetary policy more effective, prompting markets to shift financial conditions faster and lowering inflation with a less serious hit to economic growth than would otherwise be the case.While investors came to believe that the U.S. central bank under the leadership of Fed Chair Jerome Powell was serious about defending its 2% inflation target, that belief only formed over time and after the officials began raising the policy interest rate in March of 2022 and accelerated the rate hikes over that summer, the researchers found.”Forecasters and markets were highly uncertain about the monetary policy rule prior to ‘liftoff’ and learned about it from the Fed’s rate hikes,” economists Michael Bauer from the San Francisco Fed, Carolin Pflueger from the University of Chicago, and Adi Sunderam from the Harvard Business School, found in their research. “Substantial rate hikes were apparently necessary for perceptions to shift … The public did not fully understand the Fed’s strategy and policy rule prior to liftoff.”The research serves as a warning of sorts against central bankers putting too much weight on the power of “talk therapy” – or the ability to influence economic outcomes with words and promises alone.EARNING PUBLIC TRUSTThe Fed in recent years has been characterized by a surfeit of speeches and public comments by its officials, whether by the head of the central bank, other members of its presidentially-appointed Board of Governors, or its 12 regional bank presidents, under the notion that more transparency is good for public accountability and makes policy more effective.Fed officials in the recent inflation battle often noted that public belief in their commitment to the inflation target would help on its own to lower the pace of price increases, shorten the time it took for tighter monetary policy to have an impact, and lower inflation with less damage to the job market and other aspects of the “real” economy.The researchers found, however, that while the Fed under Powell eventually earned the benefit of public trust, it also wasn’t a given. The research used survey data to quantify how professional forecasters perceived the Fed would respond to higher inflation, and found that even as prices began rising in 2021 the expected Fed response to inflation was near zero.While that could have been attributed to a number of factors, including a belief that inflation would ease on its own, the researchers concluded it was actually because forecasters actually weren’t sure how the central bank would react. After the first rate increase in March of 2022, however, perceptions began to shift, with forecasters eventually expecting the Fed to respond on an almost one-for-one basis to any rise in inflation.The change in perceptions coincided with policymakers shifting from the initial quarter-percentage-point move to the first of four 75-basis-point hikes in June of 2022, and with a stern speech by Powell at that year’s Jackson Hole conference that reaffirmed his intent to defend the inflation target despite the economic pain it might cause.As market perceptions about the Fed’s sensitivity to inflation increased, “interest rates became significantly more sensitive to inflation data surprises,” the research found, adding that “the increase in the perceived inflation response likely aided the transmission of monetary policy to the real economy and improved the Fed’s inflation-unemployment tradeoff.”For future policymakers, the researchers said, the conclusion is clear: actions speak louder than words.”Policy rate actions contribute to, and may even be necessary for, the effectiveness of communication, particularly when uncertainty about the monetary policy framework is high,” they found, suggesting the Fed’s quarterly Summary of Economic Projections could be changed to make the central bank’s “reaction function” more explicit. “A timely policy rate response to inflation matters not only for influencing immediate financial conditions, but also for signaling that policymakers are serious.” More

Tullett Prebon SITICO (China) Ltd and CITIC Central Tanshi said late on Friday that they would strictly adhere to regulatory guidelines for anonymity and confidentiality in quotation and trading to ensure market fairness.Market participants have said that some traders have been selecting their long-term bond trading counterparts by adding a special tag such as “no state banks” during the quotation process, an attempt to avoid revealing what they are buying or selling to state banks.This comes as Chinese authorities have increased scrutiny over brokers and banks’ bond dealings and stepped up warnings about the risk of reckless bond-buying in recent weeks — moves that appear to have halted a long, frenzied bond rally.But the Financial News, backed by the People’s Bank of China, pushed back on Saturday against claims that the central bank was intervening in the market through administrative measures.”As long as institutions trade in accordance with market principles and rule of law, the regulators will not directly intervene,” the newspaper cited an industry source as saying.The tagging practice is hurting liquidity in the bond market, with trading volume of long-dated sovereign bonds dropping sharply since mid-August, traders have said. The surge in China’s long-dated sovereign bonds this year was driven by investors seeking safety from a slowing economy and volatile stock markets. More

The most surprising moment of this year’s Republican National Convention may have come on its first night, when the president of the Teamsters railed in prime time against corporate elites and denounced a “war against labor” by business groups. The gasps from some in the hall were almost audible on television.But in many ways, it was a little-noted speech the week before, by Senator Josh Hawley of Missouri, that was more revealing about the party’s evolving relationship with organized labor.If anything, Mr. Hawley, a rising Republican star who is one of the Senate’s most conservative members, seemed to outflank the Teamsters’ leader. His speech, delivered at the National Conservatism Conference, criticized Republicans who “cheerleaded for corporate tax cuts and low barriers for corporate trade, then watched these same corporations ship American jobs overseas.” Mr. Hawley concluded that, “in the choice between labor and capital,” his party must “start prioritizing the workingman.”Since at least the Nixon era, Republicans have nodded rhetorically at the working class, asserting that their party stands for the cultural values these voters hold dear. And for just as long, Democrats have called that pitch hollow, insisting that Republicans have sought to dupe blue-collar voters into supporting policies that benefit the wealthy. Speaker after speaker at the Democratic National Convention this week went on in this vein.Senator Josh Hawley of Missouri has become a leading voice among Republicans pushing for a new relationship with labor. Eric Lee/The New York TimesWhat’s far less common is for a Republican to agree with that critique. “The recent Republican Party, the 1990s party, privileged the money crowd in just about every possible way,” Mr. Hawley said in his speech.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

The Democratic nominee says she wants to make raising a family more affordable. But she has provided few details on her proposals.The “care economy” — a broad set of policies aimed at helping parents and other caregivers — was the great unfinished work of President Biden’s domestic agenda. Vice President Kamala Harris has made it a central aspect of her campaign to succeed him.Ms. Harris, the Democratic nominee, has spoken frequently on the campaign trail about making it more affordable to raise children. She chose a running mate, Gov. Tim Walz of Minnesota, whose signature policy accomplishments include the creation of a paid family leave program.In the first major economic speech of her campaign, she proposed restoring an expanded child tax credit and called for a new $6,000 benefit for parents of newborns. She also laid out policies that aim to reduce housing costs, such as providing up to $25,000 in down-payment assistance to first-time home buyers.In her speech accepting the Democratic nomination on Thursday, Ms. Harris said she would not let conservatives end programs like Head Start that “provide preschool and child care for our children.”But Ms. Harris has not yet offered specific proposals on child care, paid family leave or early childhood education. That has surprised some progressive policy experts, and brought flashbacks of the Biden administration’s inability to enact more sweeping policies.Mr. Biden also initially made the care economy a central piece of his domestic policy agenda, putting it alongside proposed investments in roads and bridges, domestic manufacturing and green energy. His aides often argued that care was a form of infrastructure — that affordable child care, like highways, was essential to a well-functioning economy.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

BANGKOK (Reuters) -Thailand’s central bank is ready to work with the finance ministry despite having different views on certain issues, its governor said on Saturday.Prime Minister Paetongtarn Shinawatra, sworn in last week, has called central bank independence an “obstacle” to economic growth.Paetongtarn’s predecessor, Srettha Thavisin, was dismissed as prime minister by court order. Srettha, from the same political party as Paetongtarn, had repeatedly called for the central bank to cut interest rates to support growth. “Our independence comes with accountability,” Bank of Thailand Governor Sethaput Suthiwartnarueput told a press conference, adding that the BOT was ready to work with anyone. On Wednesday, the central bank left its key interest rate unchanged for a fifth straight meeting saying the current level was neutral as it waits to see whether Paetongtarn would change Thailand’s economic policies.”We are ready to make adjustments that are appropriate to the situation,” Sethaput said. “If the outlook changes, then we are ready to adjust policy rates.”Paetongtarn has said she would continue but review the government’s flagship digital wallet cash-handout programme worth 500 billion baht ($15 billion).Thailand’s economy grew 2.3% in the April-June quarter from a year earlier, accelerating from the 1.6% growth in the previous three months, but analysts said fiscal policy uncertainty clouded the outlook.Sethaput said the outlook for the economy and inflation remained in line with forecasts. In June the central bank projected economic growth of 2.6% this year after last year’s 1.9% expansion, which lagged regional peers. More

Chinese authorities in recent weeks halted a long, frenzied rally in the world’s second-largest bond market and squelched trading volume with repeated warnings about the risks of reckless buying.Early this month a financial market association under the People’s Bank of China, the central bank, said it would investigate four rural commercial banks over suspected manipulation in the treasuries market.The PBOC-backed Financial News pushed back on Saturday against claims by some market participants that the central bank was intervening in the market through administrative measures.”As long as institutions trade in accordance with market principles and rule of law, the regulators will not directly intervene,” the newspaper cited an industry source as saying.It said claims of market intervention were “muddying the waters”, citing people familiar with the matter.The newspaper warned of the risk of a “stampede” in the bond market due to unilateral consensus behaviour. More