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FirstFT: US interest rate ‘lift off’ moves a step closer

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World updates

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A growing number of Federal Reserve officials expect an interest rate increase next year as the US central bank charges ahead with a reduction of its massive stimulus programme that will probably be announced in November.

Nine officials on the Federal Open Market Committee now expect a US interest rate increase next year, according to projections released yesterday, with the remaining nine pencilling in a later “lift off”. In June, just seven officials were forecasting a rise in 2022.

The new projections suggest at least one more interest rate increase in 2023 compared with the predictions in June, bringing the total to at least three. At least three more rate increases are expected in 2024, according to the projections.

At the onset of the Covid-19 outbreak, the Fed pledged to buy $120bn of Treasuries and agency mortgage-backed securities each month until it had seen “substantial further progress” towards average inflation of 2 per cent and maximum employment.

At a press conference after the decision was made public Jay Powell said: “My own view is that the ‘substantial further progress’ test is all but met.” 

The Fed chair added that the US central bank could “easily move ahead” with an announcement of the taper of its asset purchase programme at its next meeting in November if the economy progresses as the central bank expects. 

“I think that for most of this year the Fed has struck the right balance between acknowledging inflation pressures and keeping policy supportive,” writes my colleague Robert Armstrong in today’s edition of the Unhedged email. Do you agree with him? Email me gordon.smith@ft.com and let me know your views. And here are the five main takeaways from yesterday’s meeting.

Thanks for reading and here’s the rest of today’s news — Gordon.

Five more stories in the news

1. Facebook’s chief technology officer to exit Facebook veteran Mike Schroepfer, a trusted lieutenant of chief executive Mark Zuckerberg, is to leave the social media network as it battles its biggest public relations crisis since the Cambridge Analytica scandal. The exit is the latest in a string of high-profile departures from Facebook in recent months.

2. Biden makes peace offering to Macron Joe Biden yesterday offered an olive branch to French president Emmanuel Macron following France’s exclusion from a new trilateral security pact that deprived Paris of a long-planned submarine deal. In a joint statement the two leaders said the situation would have benefited from “open consultations among allies”.

3. US to ‘stand up’ to alleged gas market manipulation in Europe US energy secretary Jennifer Granholm has vowed to support European countries hit by an energy supply crunch blamed by some officials and traders on Russia, and said the US would “stand up” to suppliers accused of manipulating prices. For the latest industry news sign up to our Energy Source newsletter.

4. Evergrande fallout could be ‘far worse’ than Lehman for China A fund manager famous for predicting the collapse of energy group Enron has warned that the crisis surrounding Chinese developer Evergrande could mark the end of the property-driven growth model in China. Jim Chanos said the situation could be “far worse” for investors in China than a “Lehman-type situation”.

5. Robinhood to test cryptocurrency wallets The controversial retail stock brokerage said yesterday it would begin offering crypto wallets on its platform. The move will allow its customers to directly own and transfer bitcoin and other cryptocurrencies in order to pay for goods and services.

Coronavirus digest

  • The US Food and Drug Administration has approved a third shot of the BioNTech/Pfizer Covid-19 vaccine for vulnerable Americans, including those aged 65 years and up and working in high-risk jobs such as healthcare.

  • Joe Biden announced the US will buy another 500m doses of BioNTech/Pfizer’s vaccine to give away to poorer nations.

  • The Serum Institute of India, the world’s largest vaccine maker, plans to invest just over £50m in Oxford BioMedica, one of AstraZeneca’s manufacturers for Covid-19 vaccines.

  • Covid-19 cases among schoolchildren in England have surged to a record high, raising the spectre of further education disruption.

Chart showing that cases among school-age children in England have surged to a record high, and there are signs that this is feeding through to their parents’ age group

The day ahead

Evergrande debt deadline looms The Chinese property developer today must pay an $83.5m interest payment on one of its offshore dollar bonds. Failure to do so could spark China’s biggest-ever debt restructuring.

Data Investors will scrutinise today’s release by data provider, IHS Markit, of US services and manufacturing sector data.

Earnings Sportswear company Nike releases first-quarter earnings today. Retailer Costco also publishes results.

Interest rate decisions Following the Federal Reserve, today it is the turn of the Bank of England to decide whether to tighten its pandemic era stimulus.

Joe Biden hosts Quad leaders The US president will host the leaders of the “Quad” countries — Australia, India and Japan — in the wake of the recent international row over the new Aukus security pact.

Business Book of the Year The shortlist for the Financial Times and McKinsey Business Book of the Year Award 2021 will be announced today. Here’s a reminder of the longlist.

What else we’re reading and listening to

Biden’s tax plans quiz How much do you know about President Joe Biden’s tax proposals? Today the FT launches a quiz about the proposals making their way through Congress. First question: How has the top marginal federal income tax rate (%) changed over time, and what is it today? To answer click here.

The economic impact of limiting abortion access The US debate over abortion typically focuses on politics, ethics and religion — but rarely economics. This week, more than 150 economists and researchers weighed in on how women will be affected if states such as Mississippi and Texas are allowed to put stringent new restrictions on the procedure.

Xi Jinping weighs future of Evergrande as he targets third term Just a year away from an unprecedented third term in power, Xi Jinping is taking one of the biggest economic gambles of his presidency by letting Evergrande teeter on the edge of bankruptcy. A collapse would impact millions of people across the country but a bailout would set an expensive precedent.

What we can learn from Afghanistan’s nascent crypto economy Reports suggest wealthy Afghans are using crypto to store wealth and move money overseas. The development should make us ponder the slippery topic of trust and “credit” in finance. Even if we live far from Afghanistan, and even if we love or hate bitcoin, writes Gillian Tett.

Inside ESG A special 5-part podcast series goes live today analysing the colossal sums flowing into sustainable investing. Produced in partnership with the Moral Money team, the first part of the series asks, can it be true that ESG investing can address some of the world’s most-pressing problems, including climate change and inequality? You can listen to the second part here. Sign-up to our Moral Money email here.

MBA gender pay gap halves The gender pay gap among MBA graduates has almost halved in the past four years, but men still earn 20 per cent more on average. After their MBA, men earned on average $177,112, compared with $147,412 for women, according to new research.

Film

Ahead of the release of the new James Bond movie No Time to Die, devotee Peter Aspden looks back on a six-decade love affair with the franchise. “At best . . . Bond films skirt around genres with teasing elegance, perfectly balancing the thrilling with the comic, only occasionally allowing genuine emotional intensity to intrude. At worst the jokes fall flat, the action is laboured, the battle between good and evil infantilised.”

Daniel Craig and Jeffrey Wright in ‘No Time to Die’, due for release next week © Danjaq/MGM

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