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Fed’s Brainard says interest rates will remain tight, but watch for risks By Reuters

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© Reuters. FILE PHOTO: Federal Reserve Governor Lyle Brainard testifies before a Senate Banking Committee hearing on her nomination for Federal Reserve Vice Chair, on Capitol Hill in Washington, US, Jan. 13, 2022. REUTERS/Elizabeth Frantz/ File Ph

Written by Howard Schneider and Ann Sapphire

CHICAGO (Reuters) – Federal Reserve Vice Chair Lael Brainard said on Monday that the US Federal Reserve is clear about the need for tight monetary policy to reduce inflation, but that the path and pace of interest rate increases will remain “data-dependent” as the central bank. Monitor the economy and the development of local and global risks.

In notes and prepared responses to questions, Brainard said that the Fed’s rate hikes so far have begun to slow the economy – perhaps even more than expected – and that the full burden of tighter policy will not be felt even for months to come.

In addition, “simultaneous” interest rate increases by central banks abroad while all of them grappling with domestic inflationary outbreaks had an effect “greater than the sum of its parts” that posed potential risks that US officials need to monitor, Brainard said.

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“Monetary policy will obviously be restrictive for some time, until confidence in inflation is reduced…the (Federal Open Market) committee said interest rates will increase further,” Brainard said. But “we will also learn as we go and this assessment will reflect the incoming data but also the risks both locally and globally … the actual policy path will depend on the data.”

She cited policymakers’ expectations about the trajectory of interest rates, which showed as of September that average officials expect the Fed funds rate to rise to about 4.6% next year, as “very useful at a certain point”, but also based on expectations about how the development of Economy.

“Things can change,” she said.

Brainard gave no sense that the Fed was weakening in its determination to quell inflation tripling the central bank’s 2% target, or that the Fed would not proceed with planned rate increases including a potential three-quarter point increase in 1 November. 2 session.

In her appearance at the National Association of Business Economics conference, she reiterated that it would be risky for the Fed to “prematurely” pull back in its rate tightening, and that it would “take some time” for inflation to fall.

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But she spoke at a time when external concerns were growing that the speed of the Fed’s rate hike was putting pressure on the global economy and outpacing the central bank’s ability to monitor the impact that was having.

In a poll of 45 professional forecasters conducted by NABE, just over half said that “the biggest downside risk to the US economic outlook is excessive monetary tightening.”

Fed officials have mostly shrugged off these concerns, acknowledging the risks of over-tightening but also saying they need to raise the federal funds rate to a level they feel will bring inflation under control by tightening the economy.

The Fed raised interest rates quickly this year, using three-quarters of a point increases recently to bring the target fed funds rate between 3% and 3.25%.

In separate remarks at a NABE event, Chicago Fed President Charles Evans said the incoming data should “shake up” the economic outlook for policy makers to keep officials away from the 4.6% rate they set for next year.

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“We’re heading toward the four-and-a-half percent federal funds rate by March,” Evans said, with little time left for the data to change officials’ views.

Like Evans, Brainard offered some dynamics that she believed might help bring down inflation while leaving the US labor market and economy as is.

Brainard, for example, said that in retail and other industries there was “a lot of room for margin re-compression” – in fact lower business profits – to bring down commodity prices, along with further improvements in supply chains and employment.

But she also stressed some evolving risks, including potential stresses in financial markets and what could be a faster-than-expected slowdown in the United States.

“Output has slowed so far this year more than expected” in sectors such as housing that have been directly affected by borrowing costs, Brainard said.

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She said there were also indications that US consumers were spending household balances faster than previously expected, a possible sign of slower consumer spending going forward.

Globally, “uncertainty remains high,” Brainard said, noting that the sharp shift in risk sentiment “can be amplified, particularly given the fragile liquidity in the underlying financial markets.”

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The era of easy money is over but world leaders didn’t get the memo

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The writer is president of Rockefeller International

While global investors increasingly realize that the era of easy money is over, many world leaders have not – and markets are punishing them for free spending in the new age of tight money.

In the 2000s, when interest rates reached historic lows, markets punished very few free spenders—most notably Greece, Turkey, and Argentina—for extreme fiscal or monetary irresponsibility. Now inflation is back, rates are up, debt levels are up around the world, and investors are targeting an expanding list of countries.

Markets have forced a shift in policy, or at least tone, this year in countries ranging from the UK to Brazil, Chile, Colombia, Ghana, Egypt, Pakistan, and even populist Hungary. What these countries have shared is relatively high debt and growing twin deficits—governmental and external—along with unconventional policies that are likely to make these burdens worse. But tight money is here to stay. The target list will grow. Probably no country is immune, not even the United States, which has one of the highest deficit rates in the developed world.

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The new mood is often described as the return of the “bond market vigilantes” as if it were limited to bond investors and “market fundamentalists”. But the little money is sweeping across all asset markets, including stocks and currencies, punishing governments right and left and raising the practical question of whether countries can pay their bills without easy money.

Conservative UK Prime Minister Liz Truss was forced to step down in October after markets responded to unfunded tax cuts by abandoning the pound. Her successor canceled her agenda. Soon after, spending plans by left-wing controversialist Luiz Inácio Lula da Silva, Brazil’s next president, led to a massive sell-off.

When Lula attributed this reaction to “speculators” rather than “serious people”, the markets raised Brazil’s real interest rates, which were already among the highest in the world. Lula’s aides were quick to soften his comments. His fellow socialists, who are on the rise across Latin America, are also targets.

Colombia’s first leftist president, Gustavo Petro, came in promising free higher education, a public job for every unemployed person, and weaning the economy off oil. Skeptical of Petro’s ability to pay for new benefits with lower oil revenues, investors dumped the peso, forcing his finance minister to reassure the market that he “wouldn’t do crazy things.”

Gabriel Boric became president of Chile, promoting a new constitution filled with what many considered “utopian” promises, including free health care, education, and housing. Investors fled and the peso fell 30 percent in just six weeks, sparking opposition to the constitution, driving voters overwhelmingly rejected in the September referendum. Borik had to forcefully shift his ultra-centrist government.

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In the past decade, low interest rates have made borrowing so easy, and defaults on sovereign debt so rare, that many governments have dared to live beyond their means. Now, with higher borrowing costs and default rates, change has been forced upon them, starting with the least developed countries most vulnerable to foreign creditors.

One of them is Egypt, which is ruled by Abdel Fattah El-Sisi. While markets pressured Egypt to devalue its currency and reduce its twin deficits to secure International Monetary Fund assistance, the national authorities held out for months. When they finally relented, the reduction was massive — more than 20 percent. Ghana too Resist IMF aid His terms of fiscal discipline are an insult to this “proud nation”. But as markets hit the Ghanaian cedi, fueling calls for President Nana Akufo-Addo to resign, he relented and sought help from the International Monetary Fund.

From Pakistan to Hungary, markets have forced central banks that thought they could get away with lower real interest rates to return to economic orthodoxy, and to resume raising rates. Hungary has imposed an emergency interest rate hike, and aides to right-wing Prime Minister Viktor Orban, who has built his base by defying Europe, have promised spending cuts and tax hikes to qualify for EU fiscal aid.

Markets will reward discipline. Among those sanctioned by them in 2010, Argentina and Turkey clung to unorthodox politics, still facing steep borrowing costs. Greece followed orthodox reforms and once again became a borrower in good standing in the world.

Only now, discipline has a stricter meaning. Whether it is the United States accumulating trillions in Medicare and Social Security liabilities or Europe shoveling energy subsidies, even great powers are not advised to borrow as if the money is still free. In the new era of tight money, markets can quickly turn against free spenders, no matter how wealthy.

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By Reuters, World Bank says air pollution is hurting Bangladesh’s GDP as well as health

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© Reuters. PHOTOGRAPH: People walk through a polluted industrial area in Dhaka, Bangladesh, August 12, 2020. REUTERS/Mohammed Bunir Hussain

(Reuters) – Air pollution in Bangladesh is depriving the South Asian country of economic growth and causing premature death and disease, the World Bank said on Sunday.

The World Bank said in a report that pollution reduced gross domestic product by 3.9% to 4.4% in 2019 and was the second largest cause of death and disability.

The World Bank estimated that air pollution that year caused 78,145 to 88,229 deaths, with the capital city Dhaka the most polluted in the country.

“Ambient air pollution puts everyone at risk,” from children to the elderly, said Dandan Chen, acting country director for Bangladesh and Bhutan. “Tackling air pollution is critical to the sustainable and green growth and development of the country.”

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She added that the sites in Dhaka, Bangladesh’s largest city, have significant construction work and constant traffic with fine particulate matter equivalent to smoking 1.7 cigarettes a day.

The report stated that the Sylhet region is the least polluted.

A study of 6,475 cities conducted by the World Health Organization in March found that no country met air quality standards in 2021.

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Bank of Japan’s Wakatabe Warns ‘Japan’ Danger Is Not Over By Reuters

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© Reuters. FILE PHOTO: Masazumi Wakatabe, Deputy Governor of the Bank of Japan speaks at a European Financial Forum in Dublin, Ireland, on February 13, 2019. REUTERS/Clauda Kilcoin/File Photo

TOKYO (Reuters) – Bank of Japan Deputy Governor Masazumi Wakatabe said that despite cost-push factors boosting inflation, global central banks should be alert to the risk of “Japanization,” as their economies face low inflation and prolonged stagnation. .

He said various structural factors could influence the neutral rate, or the rate at which monetary policy neither stimulates nor constrains growth, around the world.

This means that the main challenge for central banks will be to effectively lower real interest rates in order to revive their economies, Wakatabe told an academic conference.

“Looking back at history, the regime of moderate inflation is far from over and the potential danger of a prolonged economic stagnation or ‘Japanese’ has not dissipated,” he said.

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“What Japan’s long experience with deflation shows is that deflation fears are very difficult to eradicate,” said Wakatabe, who is known to be a strong advocate of strong monetary easing.

Bank of Japan Governor Haruhiko Kuroda deployed a massive asset-buying program in 2013 to pull Japan out of nearly two decades of deflation, which has been blamed for prolonging the recession because businesses and households hoard cash rather than spend it.

After heavy money printing failed to raise inflation to the 2% target, the Bank of Japan in 2016 shifted to a policy targeting interest rates. It continues to maintain very low rates, even as rising raw material costs push inflation above target.

Wakatabe, whose five-year term as deputy governor ends in March, stressed the need to keep monetary policy very loose to put a sustainable end to deflation.

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